JEWETT CAMERON TRADING CO LTD - Quarter Report: 2008 May (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 MAY 31, 2008.

[  ]

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 – 2,390,977 shares outstanding at July 9, 2008.           

#

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)

MAY 31, 2008

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 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 13)

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)

MAY 31, 2008

(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 at 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 the vicinity of Portland, Oregon.   JCLC’s business consists of warehouse distribution and direct sales of wood products and specialty metal products to home centers and other retailers located primarily in the United States. Greenwood is a processor and distributor of industrial wood and other specialty building products principally to customers in the marine and transportation industries in the United States. MSI is an importer and distributor of pneumatic air tools and industrial clamps in the United States. JCSC is a processor and distributor of agricultural seeds in the United States.

At the Company’s annual meeting, which was held on March 9, 2007, shareholders approved a three for two stock split, which was distributed on or about March 23, 2007 to holders of record on March 19, 2007.  The stock started trading on a post-split basis on March 15, 2007.  All share counts and per share figures reflect this stock split.  

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 May 31, 2008 and August 31, 2007, cash and cash

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

equivalents consisted of cash held at a financial institution.  The Company has not experienced any losses in such accounts.  

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.  The most significant intangible assets are two patents and manufacturing rights.  Amortization is calculated using the straight-line method over the remaining lives of 117 months and 129 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).  The Company does not have any significant asset retirement obligations.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

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 as follows:

Stock-Based Compensation

The Company follows SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), and related interpretations. All stock-based compensation is recognized as an expense in the financial statements and such costs are measured at the fair value of the award.

No options were granted in the nine months ended May 31, 2008.  The Company recorded pre-tax expense of $ 26,389, which is reflected in selling, general and administrative expenses, in the nine months ended May 31, 2007 related to the granting of options to three directors of the Company.  

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

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 nine month periods as follows:

Stock option activity during the nine month period ended May 31, 2008 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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

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.

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.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards (“SFAS”) No. 157: Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007,

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

and interim periods within those fiscal years. Management is analyzing the requirements of this new standard.

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Included an amendment of SFAS No. 115. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement applies to all entities, including not-for-profit organizations. Most of the provisions of this Statement apply only to entities that elect the fair value option. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Management is analyzing the requirements of this new standard and believes that its adoption will not have any significant impact on the Company's financial statements.

FASB Staff Position (“FSP”) No. FIN 46 (R)-7, The Application of FASB Interpretation No. 46 (R) to Investment Companies, amends interpretation 46 (R) to provide an exception to the scope of the Interpretation for companies within the scope of the AICPA Audit and Accounting Guide (“Guide”). This FSP concludes that no additional consolidation guidance is necessary to the Guide. The Company’s preliminary assessment does not indicate that this FSP will have a significant impact on the financial statements.

FASB Interpretation (“FIN”) No. 48:  Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No.109, clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  This interpretation (1) prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and (2) provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. Management is analyzing the requirements of this new standard.

3.

INVENTORY

A summary of inventory follows:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

4.

PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant, and equipment follows:

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.

5.

INTANGIBLE ASSETS

A summary of intangible assets follows:

During the fiscal year ended August 31, 2007 the Company purchased two patents and manufacturing rights for fence gate support systems.

6.

DEFERRED TAXES

Deferred income taxes of $119,700 (August 31, 2007 - $119,700) reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

7.

BANK INDEBTEDNESS

The carrying amount of bank indebtedness follows:

The bank indebtedness is secured by an assignment of accounts receivable and inventory.  Prior to January 31, 2008 interest was calculated at either prime or the one month LIBOR rate plus 190 basis points.  Because it was cumbersome to use the LIBOR based borrowing, the effective borrowing rate was prime.  Starting on January 31, 2008 the borrowing mechanism was simplified, and the interest rate is based solely on the one month LIBOR rate plus 190 basis points.  As of May 31, 2008 prime was 5.00%, and the one month LIBOR rate plus 190 basis points was 4.40% (2.50% + 1.90%).

8.

LONG TERM LIABILITIES

The carrying amounts are as follows:

The promissory note is secured by the property at the Company’s headquarters location in North Plains, Oregon.  The note payable was used to partially fund the purchase of the patents related to the fence gate support systems.  The Company granted a security interest in the patents.

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:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

At June 15, 2010 the promissory note amount of principal at renewal will be $1,890,589.  The promissory note has certain financial covenants.  The Company is in compliance with these covenants.

9.

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.

At the Company’s annual meeting, which was held on March 9, 2007, shareholders approved a three for two stock split, which was distributed on or about March 23, 2007 to holders of record on March 19, 2007.  The stock started trading on a post-split basis on March 15, 2007.  All share counts and per share figures reflect this stock split.

10.

CONTINGENT LIABILITIES AND COMMITMENTS

a)

One of our subsidiaries was 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 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 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 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. Any potential charge is not determinable at this time.

Litigation was completed on March 5, 2007 with the court’s general judgment and money award.  The net effect was money judgment in favor of Greenwood Forest Products, Inc. for $242,604.  The Company has accrued reserves to cover the money judgment related to this dispute.  

Both parties have filed appeals for review of the court’s opinion.

b)

Greenwood leases office premises pursuant to operating leases.  One of these leases expired on January 31, 2008, and the company moved to a new location.  The new lease expires on January 31, 2009.  Unless terminated by Greenwood this new lease has automatic extensions through April 30, 2011.   For the nine months ended May 31, 2008 and 2007 rental expense was $108,685 and $154,565, respectively.

JCLC leases office premises pursuant to an operating lease which expires in January 31, 2010.  For the nine months ended May 31, 2008 and 2007 rental expense was $6,563 and $6,563, respectively.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

Future minimum lease payments are as follows:

c)

The Company has a line of credit of $5,000,000 of which $300,000 is dedicated to standby letters of credit to support international transactions.  At May 31, 2008 the Company did not have a borrowing balance outstanding leaving $4,700,000 available to be borrowed.  At August 31, 2007 the Company had a borrowing balance of $1,059 leaving $4,698,941 available to be borrowed.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

11.

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 nine month periods to the ended May 31:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

MAY 31, 2008

(Unaudited)                                                                                                                                                                                   

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

12.

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 among a small number of customers.  At May 31, 2008 two customer accounted for over 10% of total accounts receivable at 28.0%.  At August 31, 2007 one customer accounted for over 10% of total accounts receivable at 14.8%.  The Company controls credit risk through credit approvals, credit limits, credit insurance 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 nine months ended May 31, 2008 there were two suppliers that each accounted for greater than 10% of total purchases, and their aggregate purchases amounted to 41.9% of total purchases.  For the nine months ended May 31, 2007 there were two suppliers that each accounted for purchases greater than 10% of total purchases, and their aggregate purchases amounted to 34.1% of total purchases.   

13.

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 May 31, 2008 and August 31, 2007 and its results of operations and cash flows for the three month periods ended May 31, 2008 and May 31, 2007 in accordance with U.S. GAAP.  Operating results for the three month period ended May 31, 2008 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2008.

The Company’s operations are classified into four reportable segments, which were determined based on the nature of the products offered along with the markets being served.  The segments are as follows:

•

Industrial wood products

•

Lawn, garden, pet and other

•

Seed processing and sales

•

Industrial tools and clamps

The industrial wood products segment reflects the business conducted by Greenwood Products, Inc. (Greenwood), a wholly owned subsidiary of Jewett-Cameron Lumber Corporation (JCLC).  Greenwood is a processor and distributor of industrial wood and other specialty building products.  A major product category is treated plywood that is sold to boat manufacturers and the transportation industry.  

The lawn, garden, pet and other segment reflects the business of Jewett-Cameron Lumber Corporation, which is a wholesaler of wood products and a manufacturer and distributor of specialty metal products. Wood products include fencing and landscape timbers, while metal products include dog kennels, a proprietary gate support system, perimeter fencing, and greenhouses.  JCLC uses contract manufacturers to make the specialty metal products.  Some of the products that JCLC distributes flow through the Company’s distribution center located in North Plains, Oregon, and some are shipped direct to the customer from the manufacturer.  Primary customers are home centers and other large retailers.  

The seed processing and sales segment reflects the business of Jewett-Cameron Seed Company (JCSC), a wholly owned subsidiary of JCLC.  JCSC processes and distributes agricultural seed.  Most of this segment’s sales come from selling seed to distributors with a lesser amount of sales derived from cleaning seed.

The industrial tools and clamps segment reflects the business of MSI-PRO (MSI), a wholly owned subsidiary of JCLC.  MSI imports and distributes products including pneumatic air tools, industrial clamps, and saw blades.  These products are primarily sold to retailers that in turn sell to contractors and end users.  

RESULTS OF OPERATIONS

Reclassifications

Based on a recent review of the Company’s operations certain expense reclassifications are reflected in the operating results for the nine months ended May 31, 2008.  As a result of making these reclassifications certain line items in the income statement for the three months ended May 31, 2008 are less comparable, when compared with previous quarterly results.

The reclassifications include sales; cost of sales; selling, general and administrative expense; and wages and employee benefits.  However, these reclassifications have no effect on income for the three months and nine months periods ended May 31, 2008, nor were these reclassifications considered significant in the aggregate.

Three Months Ended May 31, 2008 and May 31, 2007

For the three months ended May 31, 2008, sales decreased $3,191,127 to $17,664,365 from $20,855,492 for the three months ended May 31, 2007.  Primarily this reflects a relatively large decrease in sales at Greenwood that was only partially offset by an increase in sales at JCLC. Also, $974,759 of the decline is related to the reclassifications.  Excluding the effect of the reclassification sales were down 11% from the prior year.

Sales at Greenwood were $7,540,185 for the three months ended May 31, 2008, which was a decrease of $3,488,193 compared to sales of $11,028,378 for the three months ended May 31, 2007.  A slowdown in the boat manufacturing industry, where much of Greenwood’s sales are targeted was a significant factor contributing to the decline in sales.  Also, $234,575 of the declince is related to the reclassifications, and excluding the effect of the reclassifications sales were down 30% from the prior year.  Operating income at Greenwood was down $36,605 or 11% in line with the sales decline.  Going forward this fiscal year depressed conditions in the boating industry will likely continue to be a challenge for Greenwood.  Also, beginning in July 2008 various boat manufacturing companies that are owned by Brunswick Corporation will start to conclude the buying they have been doing from Greenwood.  These companies include U.S. Marine, which in recent years has been one of Greenwood and Jewett-Cameron’s largest customers.  Greenwood has been selling to the Brunswick group of companies under a two year contract, which ended June 30, 2008, and in bidding for a new two year contract Greenwood was not selected to be Brunswick’s plywood supplier.  The Brunswick business generated a relatively low gross margin.  However, it was profitable, and the loss of this group of customers will negatively impact profitability going forward.  On the other hand, a relatively large amount of inventory was required to support these customers, and the liquidation of this inventory will improve our cash position and improve Greenwood’s return on assets.

Sales at JCLC were $8,859,943 for the three months ended May 31, 2008, which was an increase of $643,311 compared to sales of $8,216,632 for the three months ended May 31, 2007.  The increase primarily reflects a significant increase in the sales of specialty metal products.  Also, the reclassifications reduced sales in the quarter by $740,184 and excluding the effect of the reclassifications sales were up 17% from the prior year. Operating income was up $425,691 or 49% based on the fact that the gross margin on the sale of the specialty metal products is significantly higher than on wood products sales.  Going forward the sale of specialty metal products should continue to increase very significantly.  Overall the operating results of JCLC are seasonal with the first two quarters of the fiscal year being much slower than the final two quarters of the fiscal year.  This was evident in the third quarter, which just ended, and the fourth quarter should also be strong.

Sales at JCSC were $1,006,469 for the three months ended May 31, 2008, which was decrease of $289,442 or 22% compared to $1,295,911 for the three months ended May 31, 2007.  Operating income declined by $160,211 to a loss of $21,390.

Sales at MSI were $257,768 for the three months ended May 31, 2008, which was a decrease of $56,803 or 18% compared to $314,571 for the three months ended May 31, 2007.  Operating income increased from a small loss a year ago to a small profit in the current year.

Gross margin for the three month period ended May 31, 2008 was 17.7% compared with 15.1% for the three months ended May 31, 2007.  Without the reclassifications, which reduced sales and reduced cost of sales, gross margin in the current year would have been 18.1%.  This gross margin percentage improvement primarily reflects the increasing sales of specialty metal products at JCLC, which have higher margins than most of our other sales.  

Operating expenses decreased by $303,519 from $1,846,534 for the three month period ended May 31, 2007 to $1,815,272 for the three month period ended May 31, 2008.  However, $245,400 of the decrease was based on the reclassifications, and without the reclassifications operating expenses were down by $58,119.  Without the reclassifications selling, general, and administrative expenses decreased by $65,894, depreciation and amortization decreased by $6,788, and wages and benefits increased by $14,563

Interest expense increased by $4,332 from $65,130 for the three month period ended May 31, 2007 to $69,462 for the three month period ended May 31, 2008.  The interest expense in the current year includes $32,149, which was paid at the conclusion of a tax audit related to the year ended August 31, 2006.  Without this unusual payment, interest expense would have been lower in the current year compared with the prior year.

Income tax expense for the three month period ended May 31, 2008 was $567,819 compared to $489,001 for the three month period ended May 31, 2007.  The Company estimates income tax expense based on combined federal and state rates that are currently in effect.  

Net income for the three month period ended May 31, 2008 was $961,178 or $.40 per diluted share compared to $756,897 or $.32 per diluted share for the three month period ended May 31, 2007, which is a 26% increase.  This most recent quarter is the most profitable quarter in the Company’s history.

Nine Months Ended May 31, 2008 and May 31, 2007

For the nine months ended May 31, 2008, sales decreased $5,764,236 to $47,010,755 from $52,774,991 for the nine months ended May 31, 2007.  Primarily this reflects a relatively large decrease in sales at Greenwood that was only partially offset by increases in sales at the other three business segments.  Also, $974,759 of the decline is related to the reclassifications.  Excluding the effect of the reclassification sales were down 9% from the prior year.

Sales at Greenwood were $22,908,955 for the nine months ended May 31, 2008, which was a decrease of $9,244,781 compared to sales of $32,153,736 for the nine months ended May 31, 2007.  A slowdown in the boat manufacturing industry, where much of Greenwood’s sales are targeted was a significant factor contributing to the decline in sales.  Also, $234,575 of the decline is related to the reclassifications, and excluding the effect of the reclassifications sales were down 28% from the prior year.   However, operating income at Greenwood was up $303,287 or 38% based on gross margin improvement and operating expense reduction.  

Sales at JCLC were $17,901,504 for the nine months ended May 31, 2008, which was an increase of $3,367,931 compared to sales of $14,533,573 for the nine months ended May 31, 2007.  The increase primarily reflects a significant increase in the sales of specialty metal products.  Also, the reclassifications reduced sales in the quarter by $740,184 and excluding the effect of the reclassifications sales were up 28% from the prior year.   The year ago period includes a $150,000 inventory reserve reversal, and if this is excluded then operating income for the current year was up $513,044 or 37% from the prior year.  

Sales at JCSC were $5,398,978 for the nine months ended May 31, 2008, which was an increase of $102,193 or 2% compared to $5,296,785 for the nine months ended May 31, 2007.  Operating income declined by $57,480.  

Sales at MSI were $801,318 for the nine months ended May 31, 2008, which was an increase of $10,421 or 1% compared to $790,897 for the nine months ended May 31, 2007.  Operating income increased by $58,796.

Gross margin for the nine month period ended May 31, 2008 was 17.8% compared with 15.4% for the nine months ended May 31, 2007.  Without the reclassifications, which reduced sales and reduced cost of sales, gross margin in the current period would have been 18.0%.  Also, if the $150,000 inventory reserve reversal that was reflected in the year ago period is excluded, then the gross margin in that period would have been 15.1%.  The improvement in gross margin percentage reflects the margin improvement that occurred at Greenwood along with the increasing sales of specialty metal products at JCLC, which have higher margins than wood products sales.

Operating expenses decreased by $416,212 from $5,669,737 for the nine month period ended May 31, 2007 to $5,253,525 for the nine month period ended May 31, 2008.  However, $245,400 of the decrease was based on the reclassifications, and without the reclassifications operating expenses were down by $170,812.  Without the reclassifications selling, general, and administrative expenses decreased by $160,436, depreciation and amortization increased by $1,015, and wages and benefits decreased by $11,391.

Income tax expense for the nine month period ended May 31, 2008 was $1,147,319 compared to $895,445 for the nine month period ended May 31, 2007. The Company estimates income tax expense based on combined federal and state rates that are currently in effect.  

Net income for the nine month period ended May 31, 2008 was $1,848,291 or $.77 per diluted share compared to $1,366,128 or $.57 per diluted share for the nine month period ended May 31, 2007, which is a 35% increase.  If the $150,000 inventory reserve reversal that was reflected in the year ago period is excluded, then earnings per diluted share in that period would have been $.54, and the current year is a 43% increase over this level of adjusted earnings.  

LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2008 the Company had working capital of $15,468,213, which represented an increase of $1,754,473 compared to working capital of $13,713,740 as of August 31, 2007.  The largest components of the change in working capital were a $856,695 increase in cash, a $619,929 increase in accounts receivable, and a $294,966 decrease in accrued income tax payable.

As of May 31, 2008 accounts receivable and inventory represented 92% of current assets and 81% of total assets.  For the three months ended May 31, 2008 the accounts receivable collection period or DSO was 35.5 days compared with 29.7 days for the three months ended May 31, 2007.  DSO for the nine months ended May 31, 2008 was 36.1 days compared with 33.7 days for the nine months ended May 31, 2007.  Inventory turnover for the three months ended May 31, 2008 was 58.7 days compared with 50.1 days for the three months ended May 31, 2007, and inventory turnover for the nine months ended May 31, 2008 was 68.0 days compared with 56.7 days for the nine months ended May 31, 2007.  

External sources of liquidity include a line of credit from the United States National Bank of Oregon of $5,000,000 of which $300,000 is presently dedicated to standby letters of credit to support international transactions.  At May 31, 2008 the company did not have a balance outstanding leaving $4,700,000 available.  As of August 31, 2007 the borrowing balance was $1,059.  Borrowing under the line of credit is secured by an assignment of accounts receivable and inventory.  Prior to January 31, 2008 interest was calculated at either prime or the one month LIBOR rate plus 190 basis points. However, starting on January 31, 2008 the borrowing mechanism was simplified, and the interest rate is calculated solely on the one month LIBOR rate plus 190 basis points.  As of May 31, 2008 prime was 5.00%, and the one month LIBOR rate plus 190 basis points was 4.40% (2.50% + 1.90%).

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 750,000 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.  On NASDAQ the average daily trading volume for the three month period ended May 31, 2008 was 1,659 shares, and for the nine month period ended May 31, 2008 it was 3,159 shares.  Trading volume on the Toronto Stock Exchange was significantly less than on NASDAQ.  With this limited trading volume, investors could find it difficult to purchase or sell the Company’s 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 at times we have experienced decreasing products sales with certain customers.  The reasons for this can be generally attributed to factors such as competition, wood products prices, and 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.

For the three months and nine months ended May 31, 2008 our top ten customers represented 56.3% and 47.6% of our total sales, respectively.  We would experience a significant decrease in sales and profitability and would have to cut back our operations, if these customers were lost and could not be replaced.  Our top ten customers are in the U.S. and are primarily in the marine, home improvement, and agricultural 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 $300,000 is dedicated to standby letters of credit to support international transactions, and $4,700,000 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.

We are required to have completed a management assessment of internal controls as prescribed by Section 404 of the Sarbanes-Oxley Act by our year ending August 31, 2008.  Furthermore, for the year ending August 31, 2010 our external auditors need to attest to the state of our Section 404 compliance.  

We have retained the assistance of a consulting firm and a sole practitioner consultant to help us complete the management assessment of internal controls and expect to have this completed in a timely way by our year ending August 31, 2008. Although we believe our internal controls are operating effectively, we cannot guarantee that we will not identify any material weaknesses in connection with this process.

Compliance with the requirements of Section 404 is relatively 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 May 31, 2008.  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

The Company operates primarily in the United States.  However, a relatively small amount of business is conducted in currencies other than U.S. dollars.  Also, to the extent that the Company uses contract manufacturers in China, currency exchange rates can influence the Company’s purchasing costs.

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 May 31, 2008 the CEO and CFO have concluded that our disclosure controls and procedures were effective. For the period ended May 31, 2008 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 May 31, 2008 covered by this report , there were no material weaknesses in our Internal Controls.  

Part II – OTHER INFORMATION

Item 1.

Legal Proceedings

One of our subsidiaries was 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 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 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 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. Any potential charge is not determinable at this time.

Litigation was completed on March 5, 2007 with the court’s general judgment and money award.  The net effect was money judgment in favor of Greenwood Forest Products, Inc. for $242,604 and an award of contested intellectual property rights to the Company.  The Company has accrued reserves to cover the money judgment related to this dispute.  

Both parties have filed appeals for review of the court’s opinion.

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 M. Boone

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Terry D. Schumacher

32.1

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

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Terry D. Schumacher

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: July 9, 2008

/s/  Donald M. Boone

Donald M. Boone, President/CEO/Director

Dated:  July 9, 2008

/s/  Terry D. Schumacher

Terry D. Schumacher, Chief Financial Officer