JEWETT CAMERON TRADING CO LTD - Quarter Report: 2007 February (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2007.

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934 FOR THE TRANSITION PERIOD FROM ________ TO ________.

COMMISSION FILE NUMBER  000-19954

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes    [  ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer

Large accelerated filer [  ]                      Accelerated filer [  ]                       Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (defined  Rule 12b-2 of the Exchange Act). Yes  [ ]  No  [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value – 1,584,859 s hares outstanding at February 28, 2007.           

#

Jewett-Cameron Trading Company Ltd.

Index to Form 10-Q

PART 1 – FINANCIAL INFORMATION

Item 1.

Financial Statements

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited – Prepared by Management)

FEBRUARY 28, 2007

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

(Prepared by Management)

- Continued -

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

(Prepared by Management)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)

Supplemental disclosure with respect to cash flows (note 14)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

1.

NATURE OF OPERATIONS

Jewett-Cameron Trading Company Ltd. was incorporated in British Columbia on July 8, 1987 as a holding company for Jewett-Cameron Lumber Corporation (“JCLC”), incorporated September 1953.  Jewett-Cameron Trading Company Ltd. acquired all the shares of JCLC through a stock-for-stock exchange on July 13, 1987, and that time JCLC became a wholly owned subsidiary.  JCLC has the following wholly owned subsidiaries :  MSI-PRO Co. (“MSI), incorporated April 1996, Jewett-Cameron Seed Company, (“JCSC”), incorporated October 2000, and Greenwood Products, Inc. (“Greenwood”), incorporated February 2002.  Jewett-Cameron Trading Company Ltd. and its subsidiaries (the “Company”) have no significant assets in Canada.

The Company, through its subsidiaries, operates out of facilities located in North Plains and Portland, Oregon.   JCLC’s business consists of warehouse distribution and direct sales of  lumber products, building materials and related products to home improvement centers and other retailers located primarily in the Pacific regions of the United States. Greenwood is a processor and distributor of industrial wood and other specialty building products principally to original equipment manufacturers in the United States. MSI is an importer and distributor of pneumatic air tools and industrial clamps in the United States and Canada. JCSC is a processor and distributor of agricultural seeds in the United States.  

2.

SIGNIFICANT ACCOUNTING POLICIES

Generally accepted accounting principles

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America.

Principles of consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, JCLC, MSI, JCSC, and Greenwood, all of which are incorporated under the laws of Oregon, U.S.A.

Significant inter-company balances and transactions have been eliminated upon consolidation.

Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers cash and cash equivalents to be highly liquid investments with original maturities of three months or less.  At February 28, 2007 and August 31, 200 6 , cash and cash equivalents consisted of cash held at a financial institution.  The Company has not experienced any losses in such accounts.  

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Accounts receivable

Trade and other accounts receivable are reported at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable primarily includes trade receivables from customers.   The Company estimates doubtful accounts on an item-by-item basis and includes over aged accounts as part of the allowance for doubtful accounts, which are generally ones that are ninety days or greater overdue.

The Company extends credit to our domestic customers and offers discounts for early payment.  When extension of credit is not advisable, the Company relies on either prepayment or a letter of credit.

Inventory

Inventory, which consists of finished goods, is recorded at the lower of cost, based on the average cost method, and market.  Market is defined as net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a review of inventory components.

Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation.  The Company provides for depreciation over the estimated life of each asset on a straight-line basis over the following periods:

Intangibles

The Company’s intangible assets have a finite life and are recorded at cost.  They consist of two patents and manufacturing rights which the Company purchased for $850,000.  Depreciation is calculated using the straight-line method over the remaining useful lives of 133 months and 144 months, respectively, and are reviewed annually for impairment.

Asset retirement obligations

The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and normal use of the long-lived assets.  The Company also records a corresponding asset which is amortized over the life of the asset.  Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost).  

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Impairment of long-lived assets and long-lived assets to be disposed

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount and the fair value less costs to sell.

Currency and foreign exchange

These financial statements are expressed in U.S. dollars as the Company's operations are based only in the United States.  Any amounts expressed in Canadian dollars are indicated as such.

The Company does not have non-monetary or monetary assets and liabilities that are in a currency other than the U.S. dollar.  Any income statement transactions in a foreign currency are translated at rates that approximate those in effect at the time of translation.  Gains and losses from translation of foreign currency transactions into U.S. dollars are included in current results of operations.

Earnings Per Share

Basic earnings per common share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per common share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares.

The earnings per share data for the periods ended  follows:

Stock-Based Compensation

Effective September 1, 2005, the Company adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), and related interpretations which superseded APB No. 25. SFAS 123(R) requires that all stock-based compensation be recognized as an expense in the financial statements and that

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

such costs be measured at the fair value of the award. This statement was adopted using the modified prospective method, which requires the Company to recognize compensation expense on a prospective basis. Therefore, prior period financial statements have not been restated. Under this method, in addition to reflecting the remaining service period of awards, compensation expense is also recognized to reflect the remaining service period of awards that had been included in pro forma disclosures in prior periods. Compensation expense was recognized using the fair value method described in SFAS 123(R) using the Black-Scholes option-pricing model. The Company recorded $ 15,833 (pre-tax) in the first quarter November 30, 2006 and did not grant options for the second quarter February 28, 2007.   The Company did not grant options for the three and six month periods ended February 28, 2006.  The Company had no outstanding options at August 31, 2006.

The Company has a stock option program under which stock options to purchase securities from the Company can be granted to directors and employees of the Company on terms and conditions acceptable to the regulatory authorities of Canada, notably the Toronto Stock Exchange ("TSX"), the Ontario Securities Commission and the British Columbia Securities Commission.

Under the stock option program, stock options for up to 10% of the number of issued and outstanding common shares may be granted from time to time, provided that stock options in favour of any one individual may not exceed 5% of the issued and outstanding common shares.  No stock option granted under the stock option program is transferable by the optionee other than by will or the laws of descent and distribution, and each stock option is exercisable during the lifetime of the optionee only by such optionee.  Generally, no option can be for a term of more than 10 years from the date of the grant.

The exercise price of all stock options, granted under the stock option program, must be at least equal to the fair market value (subject to regulated discounts) of such common shares on the date of grant.  Options vest at the discretion of the board of directors. Proceeds received by the Company from exercise of stock options are credited to capital stock.

The Company uses the Black-Scholes option pricing model to determine the fair value of stock-based compensation.  The number of options granted, their grant-date weighted average fair value, and the significant assumptions used to determine fair-value during the three and six month periods ended are as follows:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Stock option activity during the six month periods ended February 28, 2007 is as follows:

Comprehensive income

The Company has no items of other comprehensive income in any period presented.  Therefore, net income presented in the consolidated statements of operations equals’ comprehensive income.

Financial instruments

The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments for which it is practicable to estimate such values:

Cash and cash equivalents - the carrying amount approximates fair value because the amounts consist of cash held at financial institutions.

Accounts receivable and note receivable - the carrying amounts approximate fair value due to the short-term nature and historical collectability.

Bank indebtedness - the carry amount approximates fair value due to the short-term nature of the obligation.

Accounts payable and accrued liabilities  - the carrying amount approximates fair value due to the short-term nature of the obligations.

Promissory note - the fair value of the promissory note is determined by discounting the future contractual cash flows under current financing arrangements at discount rates which represent borrowing rates presently available to the Company for loans with similar terms and maturity.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

The estimated fair values of the Company's financial instruments follows:

Income taxes

Income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".  A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards.  Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Shipping and handling costs

The Company incurs certain expenses related to preparing, packaging and shipping its products to its customers, mainly third-party transportation fees. All costs related to these activities are included as a component of cost of goods sold in the consolidated statement of operations. All costs billed to the customer are included as revenue in the consolidated statement of operations.

Revenue recognition

The Company recognizes revenue from the sales of lumber, building supply products, industrial wood and other specialty products and tools, when the products are shipped, title passes, and the ultimate collection is reasonably assured.  Revenue from the Company's seed operations is generated by the provision of seed processing, handling and storage services provided to seed growers, and by the sales of seed products.  Revenue from the provision of these services and products is recognized when the services have been performed and products sold and collection of the amounts is reasonably assured.

Reclassifications

Certain reclassifications have been made to prior period financial statements to conform to the classifications used in the current period .

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Recent Accounting Pronouncements

In July 2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes”.  FIN 48 clarifies the accounting and reporting for uncertainties in income tax law.  FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.  FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently in the process of evaluating the impact of FIN 48 on the financial position and results of operations of the Company.

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”.  SAB No. 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB No. 108 is effective for fiscal years ending on or after November 15, 2006.  SAB 108 did not have a significant impact of the financial position and results of operations of the Company.  

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”.  SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value.  SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year.  The Company is currently in the process of evaluating the impact of SFAS 157 on the financial position and results of operations of the Company.

3.

INVENTORY

A summary of inventory follows:

4.

NOTE RECEIVABLE

The note receivable is due on demand and bears interest at prime plus 1%.  

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

5.

PROPERTY, PLANT AND EQUIPMENT

A summary of property plant and equipment follows:

During the three month period ended February 28, 2006, the Company sold its distribution facility in Ogden, Utah (which included the land and building) to an unrelated party.  The Company received gross proceeds of $660,000 and recognized a gain of $599,825.

In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss will be recognized. Management's estimates of revenues, operating expenses, and operating capital are subject to certain risks and uncertainties which may affect the recoverability of the Company's investments in its assets.  Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur which could adversely affect management's estimate of the net cash flow expected to be generated from its operations.

6.

INTANGIBLE ASSETS

A summary of intangible assets follows:

The Company purchased two patents and manufacturing rights for a steel framed gate system.  

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)                                                                                                                                                                                   

7.

DEFERRED TAXES

Deferred income taxes of $143,300 (August 31, 2006 - $142,900) relate principally to temporary differences between the accounting and tax treatment of income, expenses, reserves and depreciation.

8.

BANK INDEBTEDNESS

The carrying amount of bank indebtedness follows:

The bank indebtedness is secured by an assignment of accounts receivable and inventory.  Interest is calculated at either prime or the LIBOR rate plus 190 basis points.  The weighted average interest rate for the period ended February 28, 2007 was  8.25% ( August 31, 2006 -7.50 %).

9.

LONG TERM LIABILITIES

The carrying amount follows:

The promissory note is secured by the property located in North Plains, Oregon.  The company granted a security interest in the collateral which is the patent.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)

9.

LONG TERM LIABILITIES (cont’d)

The aggregate principal repayments required in each of the next four years, assuming the promissory note is renewed under similar terms and conditions and the note payable is paid per the above, will be as follows:

At June 15, 2010 the promissory note amount of principal at renewal will be approximately $1,890,596.  The promissory note has certain financial covenants.  The Company is in compliance with these covenants.

10.

CAPITAL STOCK

Common stock

Holders of common stock are entitled to one vote for each share held.  There are no restrictions that limit the Company's ability to pay dividends on its common stock.  The Company has not declared any dividends since incorporation.

11.

CONTINGENT LIABILITIES AND COMMITMENTS

a)

During fiscal 2002, the Company entered into a purchase agreement to acquire inventory over a 15 month period with an initial estimated value of $7,000,000 from Greenwood Forest Products Inc.  During the year ended August 31, 2003, the Company completed the final phase of the inventory acquisition.  As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased.  The Company believes it overpaid the obligation by approximately $820,000.  The holder has counterclaimed for approximately $2,400,000. Management is of the opinion that the counterclaim is of no merit and believes that the Company will be successful is its claim.  However, in the event that resolution of the dispute results in a change to the promissory notes, any gain or loss will be recognized in the period that the final determination of the amount is made. However, any potential change is currently not determinable at this time.

b)

Greenwood leases office premises pursuant to an operating lease which expires in January 31, 2008.  For the periods ended February 28, 2007 and 2006, rental expense was $93,942 and $90,798, respectively.

JCLC leases office premises pursuant to an operating lease which expires in January 31, 2010.  For the periods ended February 28, 2007 and 2006, rental expense was $4,375 and $4,375, respectively.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)

11.

CONTINGENT LIABILITIES AND COMMITMENTS (cont’d)

Future minimum annual lease payments are as follows:

c)

The Company has a line of credit of $4,650,000.  At February 28, 2007, the Company had $2,201,734 remaining (note 8).  At August 31, 2006 the Company did not have a balance outstanding.  The line-of-credit has certain financial covenants. The Company is in compliance with these covenants.

12.

SEGEMENTED INFORMATION

The Company has four principal reportable segments. These reportable segments were determined based on the nature of the products offered.  Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes.  The following tables show the operations of the Company's reportable segments.

Following is a summary of segmented information for the six month periods ended February 28:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007

(Unaudited)

12.

SEGEMENTED INFORMATION (cont’d)

The following table lists sales made by the Company to a customer which was in excess of 10% of total sales for the periods.

13.

CONCENTRATIONS

Credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.  The Company places its cash and cash equivalents with a high quality financial institution.  The Company has concentrations of credit risk with respect to accounts receivable as large amounts of its accounts receivable are concentrated geographically in the United States amongst a small number of customers.  At February 28, 2007 and August 31, 2006 no customers accounted for accounts receivable greater than 10% of total accounts receivable.  The Company controls credit risk through credit approvals, credit limits, and monitoring procedures.  The Company performs credit evaluations of its commercial customers but generally does not require collateral to support accounts receivable.

Volume of business

The Company has concentrations in the volume of purchases it conducts with its suppliers.  For the six month period ended February 28, 2007, there were two suppliers that accounted for greater than    10% of total purchases, the aggregate purchases amounted to $7,497,137.  For the six month period ended February 28, 2006 there was one supplier that accounted for purchases greater than 10% of total purchases.  The aggregate purchase amounted to $5,299,996.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28, 2007                                                                                                                                                                               

14.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

These unaudited financial statements are those of the Company and its wholly owned subsidiaries. In the opinion of management, the accompanying Consolidated Financial Statements of Jewett-Cameron Trading Company Ltd., contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state its financial position as of February 28, 2007 and August 31, 2006 and its results of operations and cash flows for the six month periods ended February 28, 2007 and February 28, 2006 in accordance with U.S. GAAP.  Operating results for the six month period ended February 28, 2007 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 200 7 .

The Company’s number of days in receivables was approximately 40 days as of February 28, 2007 and at August 31, 2006 the number of days in receivables was 33.  

The Company’s number of days in inventory was approximately 66 days as of February 28, 2007 and at August 31, 2006 the number of days in inventory was 49 days.  

RESULTS OF OPERATIONS

Three Months Ended February 28, 2007 and February 28, 2006

Our operations are classified into four princip a l industry segments: the sale of lumber, building materials and related products to home improvement centers in the United States; the processing and sale of industrial products to original equipment manufacturers in the United States; the sale of pneumatic air tools and industrial clamps in the United States; and, the processing and sale of agricultural seeds in the United States. Sales of building materials have traditionally consisted of wholesale sales of lumber, building materials and related products in the United States. This has transitioned to include both wood and non-wood items.  Sales in this category are attributable to Jewett-Cameron Lumber Corporation (JCLC), a wholly owned subsidiary of ours and consist primarily of home improvement products (sold thru JCLC) such as building materials, dimension lumber, greenhouses, dog kennels, storage shelters and gate systems. These sales occur year-round; however, they are greater in the spring and summer months. Sales and processing of industrial wood and specialty building products to original equipment manufacturers consist of wholesale sales of products primarily to the transportation and recreational boating industries in the United States. Sales in this category are attributable to Greenwood Products, Inc. (Greenwood), a wholly owned subsidiary of JCLC. A significant portion of Greenwood sales are attributable to the recreational boating and transportation industry and are generally stronger during the spring and summer months. Sales of pneumatic air tools and industrial clamps consist of the distribution of pneumatic air tools and industrial clamps in the United States. Sales in this category are attributable to MSI-Pro (“MSI”), a wholly owned subsidiary of JCLC.   The processing and sale of agricultural seeds consists of the distribution of processed agricultural seeds and grain in the United States. Sales in this category are attributable to Jewett-Cameron Seed Company (“JCSC”), a wholly owned subsidiary of JCLC. Harvest months in the Northwest are June through September, and, consequently, a greater portion of the revenues attributable to JCSC occurs during this time of year. Our primary distribution center is located in North Plains, Oregon.

For the three months ended February 28, 2007, sales decreased $2,569,813 to $16,378,530        compared to revenues of $18,948,343 for the three months ended February 28, 2006. The principal reason for the decline in sales was lower sales at Greenwood due to market pricing and volumes.

Revenues from the sales and processing of industrial wood products at Greenwood were $10,301,590 for the three months ended February 28, 2007; a decrease of 18% compared to revenues of $12,532,086 for the three months ended February 28, 2006. The decline in sales is partially due to lower market prices of structural products. Prices are expected to remain low due to industry wide market conditions and the Company continues to pursue lower cost options. The remainder of the decline in sales was due to lower volumes due to slowing in recreational boating, transportation and laminated veneer lumber (LVL) sectors. Income from operations declined $193,307 due to the reduction in gross profit partially offset by favorable operating expense savings due to the discussion above.  

Sales of lumber, building materials and other at JCLC were $3,881,616 for the three months ended February 28, 2007, and a decrease of 14% compared to sales of $4,524,024 for the three months ended February 28, 2006. Sales are down primarily due to timing in sales for the wood portion of the business.  In spite of the decrease in gross sales, income from operations of lumber, building materials and other increased $326,130.  This occurred as JCLC realized lower cost of sales (as a percent of sales) due to efforts to sell higher margin products.   

Sales of pneumatic tools and industrial clamps at MSI were $214,447 for the three months ended February 28, 2007 compared to $239,831 for the three months ended February 28, 2006, a decrease of 11%.  Income from operations declined $15,938 primarily due to lower sales volume.

Sales of processed seeds and grain at JCSC were $1,980,877 for the three months ended February 28, 2007 compared to $1,652,402 for the three months ended February 28, 2006, an increase of 20%.  The increase of $328,475 was primarily due to additional sales in the brokerage business. Income from operations were flat due to lower gross profit offset by a reduction in operating expense.

Cost of sales accounted for 85% of sales for both the three month period ended February and three month period ended February 28, 2006.   

Operating expenses decreased from $2,302,943 for the three month period ended February 28, 2006 to $1,907,261 for the three month period ended February 28, 2007.  Wages and employee benefits decreased from $1,335,467 to $1,031,959. Selling, general and administrative expenses decreased from $896,557 to $793,860.  Costs were down due to lower wages and incentive compensation and general expense related to reduction in sales at Greenwood.

Income tax expense for the three month period ended February 28, 2007 was $213,000 as compared to $385,000 for the three month period ended February 28, 2006. The Company estimates income tax expense for the quarter based on combined federal and state rates that are currently in effect.  

The net income for the three month period ended February 28, 2007 was $321,348, or $.20 per diluted share, compared to $617,726, or $.39 per diluted share in the prior years’ period.  

The decrease in net income was primarily due to lower income from operations at Greenwood due to lower sales partially offset by increased income from operations at JCLC due to lower cost of sales.  The second quarter February 28, 2006 included a one time gain of $599,825, or $.24 per diluted share, for the sale of JCLC’s Ogden, Utah distribution center.  

Six Months Ended February 28, 2007 and February 28, 2006

For the six month period ended February 28, 2007, sales decreased $5,253,801 to $31,919,499 compared to revenues of $37,173,300 for the six month period ended February 28, 2006.   The principal reason for the decline in sales was lower sales at Greenwood due to market pricing and volumes.

Revenues from the sales and processing of industrial wood products at Greenwood were $21,125,358 for the six month period ended February 28, 2007; a decrease of 19% compared to revenues of $26,031,360 for the six month period ended February 28, 2006. The decline in sales is partially due to lower market prices of structural products. Prices are expected to remain low due to industry wide market conditions and the Company continues to pursue lower cost options. The remainder of the decline in sales was due to lower volumes due to slowing in recreational boating, transportation and laminated veneer lumber (LVL) sectors.  Income from operations declined $822,633 primarily due to the reduction in gross profit partially offset by favorable operating expense savings due to the discussion mentioned above.

Sales of lumber, building materials and other (JCLC) were $6,316,941 for the six month period ended February 28, 2007, a decrease of 16% compared to sales of $7,558,595 for the six month period ended February 28, 2006. Sales are down primarily due to timing in sales for the wood portion of the business.  In spite of the decrease in gross sales, income from operations of lumber, building materials and other increased $682,717.  This occurred because management reversed an inventory reserve of $150,000 in the first quarter November 30, 2006 and realized lower cost of sales (as a percent of sales) due to efforts to sell higher margin products.

Sales of pneumatic tools and industrial clamps (MSI) were $476,326 for the six month period ended February 28, 2007 compared to $455,318 for the six month period ended February 28, 2006, an increase of 5%.  Profitability decreased $57,058 primarily due to competitive pricing pressure resulting in lower-margin sales and higher operating expenses of $36,242.

Sales of processed seeds and grain (JCSC) were $4,000,874 for the six months ended February 28, 2007 compared to $3,128,027 for the six months ended February 28, 2006, an increase of 28%.  The increase of $872,847 was primarily due to additional sales in the brokerage business. Income from operations is up $18,018 due to higher gross profit of $108,982 partially offset by higher wages and benefits of $59,268 and higher selling, general and administrative expense.   

Cost of sales accounted for 84% of sales for the six month period ended February 28, 2007 compared to 85% for the six month period ended February 28, 2006.  The reduction in cost of sales is due primarily to lower cost sales at JCLC and the reversal of $150,000 in the first quarter November 30, 2006.  

Operating expenses decreased from $4,214,102 for the six month period ended February 28, 2006 to $3,823,203 for the three month period ended February 28, 2007.  Costs were down primarily due to lower wages and incentive compensation related to reduction in sales volume at Greenwood.

Income tax expense for the six month period ended February 28, 2007 was $406,444 as compared to $709,000 for the six month period ended February 28, 2006. The Company estimates income tax expense for the year based on combined federal and state rates that are currently in effect.  

The net income for the six month periods ended February 28, 2007 was $609,231, or $.38 per diluted share, compared to $1,168,117, or $.74 per diluted share in the prior years’ period.  The decrease in net income was primarily due to lower income from operations at Greenwood of $822,633 due to lower sales partially offset by $682,717 increased income from operations at JCLC due to lower cost of sales.  The six month period ended February 28, 2006 included a one time gain of $599,825, or $.24 per share, for the sale of  JCLC’s Ogden, Utah distribution center.

LIQUIDITY AND CAPITAL RESOURCES

As of February 28, 2007 the Company had working capital of $11,875,797, which represented an increase of $164,387 as compared to the working capital position of $11,711,410 as of August 31, 2006.  The reasons for the increase in working capital were higher inventory levels due to a new customer added at Greenwood in late 2006, the seasonal buildup in fencing inventory and slightly higher accounts receivable.  The Company’s bank indebtedness increased to $2,448,266 due to Greenwood’s new customer and the Company’s borrowing needs.  Inventory buildup typically occurs from the fall months to the start of the selling season in February.  

Accounts receivable and inventory represented 94% of current assets. Receivables are   turning over as predicted.  Inventory turn declined due to Greenwood increasing inventory for a new customer added in late 2006 and additional inventories at JCLC (timing).

External sources of liquidity include a bank line from the United States National Bank of Oregon.  The total line of credit available at February 28, 2007 was $2 , 201 , 734 of which there was $2,448,266 outstanding at February 28, 2007.  There was no outstanding balances at August 31, 2006.  The Company was able to fund growth through internally generated cash.  The bank indebtedness is secured by an assignment of accounts receivable and inventory.  Interest is calculated at either prime or the LIBOR rate plus 190 basis points. The weighted average interest rate for the six month period ended February 28, 2007 was 8.25% compared to 7.50% for the same prior year period. This increase is consistent with the overall rise of prevailing interest rates in the United States.

Based on the Company’s current working capital position, its policy of retaining earnings, and the line of credit available, the Company has adequate working capital to meet its needs during the current fiscal year.

Business Risks

This quarterly report includes “forward–looking statements” as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates,” or “hopeful,” or the negative of those terms or other comparable terminology, or by discussions of strategy, plans or intentions. For example, this section contains numerous forward-looking statements.  All forward-looking statements in this report are made based on management’s current expectations and estimates, which involve risks and uncertainties, including those described in the following paragraphs.

Risks Related to Our Common Stock

We may decide to acquire assets or enter into business combinations, which could be paid for, either wholly or partially with our common stock and if we decide to do this our current shareholders would experience dilution in their percentage of ownership.

Our Articles of Incorporation give our Board of Directors the right to enter into any contract without the approval of our shareholders.  Therefore, our management could decide to make an investment (buy shares, loan money, etc.) without shareholder approval.  If we acquire an asset or enter into a business combination, this could include exchanging a large amount of our common stock, which could dilute the ownership interest of present stockholders.

Future stock distributions could be structured in such a way as to be 1) diluting to our current shareholders or 2) could cause a change in control to new investors.

If we raise additional funds by selling more of our stock, the new stock may have rights, preferences or privileges senior to those of the rights of our existing stock.  If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders.  The result of this would be a lessening of each present stockholder’s relative percentage interest in our company.

Our shareholders could experience significant dilution if we issue our authorized 10,000,000 preferred shares.

We registered 500,000 common shares with the Securities and Exchange Commission which became effective September 28, 2006; this could result in a substantial proportion of the voting power being transferred to new investor(s).  The result would be that the new shareholder(s) could control our company and persons unknown could replace current management.

We have not established a minimum amount of proceeds that we must receive in the offering before any proceeds may be accepted.  Once accepted, the funds will be deposited into an account maintained by us and considered our general assets.  None of the proceeds will be placed in any escrow, trust or other arrangement; therefore, there are no investor protections for the return of subscription funds once accepted.

The Company’s common shares currently trade within the NASDAQ Capital Market in the United States and on the Toronto Stock Exchange in Canada.  The average daily trading volume for the six month period ended 2007 is 10,804 shares in the United States and significantly less in Canada.  With this limited trading volume, investors could find it difficult to purchase or sell our common stock.

Risks Related to Our Business

We could experience a decrease in the demand for our products resulting in lower sales volumes, which would give us less capital with which to operate.

In the past we have experienced decreasing annual sales in the areas of home-improvement products (sold through JCLC) and industrial tools.  The reasons for this can be generally attributed to: increased competition; worldwide economic conditions, specifically those pertaining to lumber prices; demand for industrial tools; and consumer interest rates.  If economic conditions deteriorate or if consumer preferences change, we could experience a significant decrease in profitability.

If our top customers were lost and could not be replaced.

Our top ten customers represent 37% of our business. We would experience a significant decrease in sales and would have to cut back our operations.  Our top ten customers are in the U.S. and are primarily in the marine and retail building industries.  

We could experience delays in the delivery of our products to our customers causing us to lose business.

We purchase our products from other vendors and a delay in shipment from these vendors to us could cause significant delays in our delivery to our customers.  This could result in a decrease in sales orders to us and we would experience a loss in profitability.

We could lose our credit agreement and could result in our not being able to pay our creditors.

We have a line of credit with U.S. Bank in the amount of $5 million of which $ 2 , 201 , 734 is available.  We are currently in compliance with the requirements of our existing line of credit.  If we lost this credit it could become impossible to pay some of our creditors on a timely basis.

If we fail to maintain an effective system of internal controls, we may not be able to detect fraud or report our financial results accurately, which could harm our business and we could be subject to regulatory scrutiny.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), we will be required, beginning in fiscal year 2009, to perform an evaluation of our internal controls over financial reporting and have our independent registered public accounting firm test and evaluate the design and operating effectiveness of such internal controls and publicly attest to such evaluation. We have not yet prepared any internal plan of action for compliance with the requirements of Section 404 or any effectiveness evaluation. Although we believe our internal controls are operating effectively, we cannot guarantee that we will not have any material weaknesses as reported by our independent registered public accounting firm. Compliance with the requirements of Section 404 is expected to be expensive and time-consuming. If we fail to complete this evaluation in a timely manner, or if our independent registered public accounting firm cannot timely attest to our evaluation, we could be subject to regulatory scrutiny and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The Company does not have any derivative financial instruments as of February 28, 2007.  However, the Company is exposed to interest rate risk.

The Company’s interest income and expense are most sensitive to changes in the general level of U.S. interest rates.  In this regard, changes in U.S. interest rates affect the interest earned on the Company’s cash equivalents as well as interest paid on debt.

The Company has a line of credit whose interest rate is based on various published rates that may fluctuate over time based on economic changes in the environment.  The Company is subject to interest rate risk and could be subject to increased interest payments if market interest rates fluctuate.  The Company does not expect any change in the interest rates to have a material adverse effect on the Company’s results from operations.

Foreign Currency Risk

Management does not expect foreign currency exchange rates to significantly impact the Company in the future as all of the Company’s business operations are in the United States.

Item 4.

Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods.  They are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.  For the period ended February 28 , 200 7 the CEO and CFO have concluded that our disclosure controls and procedures were effective. For the period ended February 28 , 200 7 the CEO and CFO have  also concluded that the disclosure controls and procedures were effective for the purpose of ensuring that material information required to be in this report is made known to management and others, as appropriate, to allow timely decisions regarding required disclosures .

CEO and CFO CERTIFICATIONS

Appearing immediately following the Signatures section of this Quarterly Report there are two separate forms of "Certifications" of the CEO and CFO.  The second form of Certification is required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certification).  This section of the Quarterly Report, which you are currently reading is the information concerning the Controls Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS.

Disclosure Controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (Exchange Act), such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (SEC) rules and forms.  Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Internal Controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS.

The Company's management, including the CEO and CFO, does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CONCLUSION

In accordance  with SEC requirements, the CEO and CFO note that, as of the period ended February 28 , 200 7 covered by this repor t , there were  no significant deficiencies and material weaknesses in our Internal Controls.

Part II – OTHER INFORMATION

Item 1.

Legal Proceedings

One of our subsidiaries is a plaintiff in a lawsuit filed in Portland, Oregon, entitled, Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc. et al., Case No. 05-02553 (Multnomah County Circuit Court).  During fiscal 2002, the Company entered into a purchase agreement to acquire inventory over a fifteen-month period with an initial estimated value of $7,000,000 from Greenwood Forest Products, Inc.  During the year ended August 31, 2003, the Company completed the final phase of the inventory acquisition.  As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased. The Company believes it overpaid the obligation by approximately $820,000. The holder has counterclaimed for approximately $2,400,000.  Management is of the opinion that the counterclaim is of no merit and believes it will be successful in its claim. However, in the event that resolution of the dispute results in a change to the promissory notes, any gain or loss will be recognized in the period that the final determination of the amount is made. However, any potential charge is currently not determinable at this time.

The Company does not know of any other material, active or pending legal proceedings against them; nor is the Company involved as a plaintiff in any other material proceeding or pending litigation.  The Company knows of no other active or pending proceedings against anyone that might materially adversely affect an interest of the Company.

Item 2.

Changes in Securities and Use of Proceeds

---No Disclosure Required---

Item 3.

Defaults Upon Senior Securities

---No Disclosure Required---       

Item 4.

Submission of Matters to a Vote of Securities Holders

---No Disclosure Required---

Item 5.

Other Information

---No Disclosure Required---

Item 6.

Exhibits

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Donald Boone

31.2

Certification of Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Daniel McDonell

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Donald Boone

32.2

Certification of Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Daniel McDonell

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Jewett-Cameron Trading Company Ltd.

(Registrant)

Dated: April 12, 2007

/s/  Donald M. Boone

Donald M. Boone, President/CEO/Director

Dated:  April 12, 2007

/s/  Daniel R. McDonell

Daniel R. McDonell, Chief Financial Officer