JEWETT CAMERON TRADING CO LTD - FORM 10-Q

Attached files

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EX-31.1 - CERTIFICATION - JEWETT CAMERON TRADING CO LTD	ceo302certificationsoleoffic.htm
EX-32.1 - CERTIFICATION - JEWETT CAMERON TRADING CO LTD	ceo906certificationsoleoffic.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2015

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

JEWETT-CAMERON TRADING COMPANY LTD.

(Exact Name of Registrant as Specified in its Charter)


BRITISH COLUMBIA		NONE
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


32275 N.W. Hillcrest, North Plains, Oregon		97133
(Address Of Principal Executive Offices)		(Zip Code)

(503) 647-0110

(Registrant’s Telephone Number, Including Area Code)

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 ¨	Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in 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 – 2,491,832 common shares as of July 20, 2015

Jewett-Cameron Trading Company Ltd.

Index to Form 10-Q


PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults Upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	28


	- 2 -

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, 2015


	- 3 -

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


	May 31, 2015	August 31, 2014

ASSETS

Current assets
Cash	$ 1,836,849	$ 4,327,540
Accounts receivable, net of allowance of $Nil (August 31, 2014 - $Nil)	4,926,096	2,442,928
Inventory, net of allowance of $81,249 (August 31, 2014 - $111,756) (note 3)	8,617,284	9,154,129
Note receivable	1,425	15,000
Prepaid expenses	721,339	762,533
Prepaid income taxes	195,484	546,347

Total current assets	16,298,477	17,248,477

Property, plant and equipment, net (note 4)	2,076,263	2,147,387

Intangible assets, net (note 5)	241,426	295,956

Total assets	$ 18,616,166	$ 19,691,820

- Continued -

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


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JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


	May 31, 2015	August 31, 2014

Continued

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable	$ 626,523	$ 240,825
Litigation reserve (note 13(a))	97,404	117,387
Accrued liabilities	959,037	1,073,930

Total current liabilities	1,682,964	1,432,142

Deferred tax liability (note 6)	56,100	60,972

Total liabilities	1,739,064	1,493,114

Contingent liabilities and commitments (note 13)

Stockholders’ equity
Capital stock (note 8)
Authorized
21,567,564 common shares, without par value
10,000,000 preferred shares, without par value
Issued
2,496,610 common shares (August 31, 2014 – 2,704,630)	1,178,044	1,276,201
Additional paid-in capital	600,804	600,804
Retained earnings	15,098,254	16,321,701

Total stockholders’ equity	16,877,102	18,198,706

Total liabilities and stockholders’ equity	$ 18,616,166	$ 19,691,820

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


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JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


	Three Month Period Ended May 31,		Nine Month Period Ended May 31,
	2015	2014	2015	2014

SALES	$ 13,289,408	$ 15,335,570	$ 30,755,429	$ 33,074,500

COST OF SALES	11,047,607	12,384,976	24,741,485	26,516,458

GROSS PROFIT	2,241,801	2,950,594	6,013,944	6,558,042

OPERATING EXPENSES
Selling, general and administrative expenses	465,864	402,013	1,438,687	1,240,800
Depreciation and amortization	71,211	73,145	210,894	212,694
Wages and employee benefits	925,386	922,899	2,588,420	2,599,270

	(1,462,461)	(1,398,057)	(4,238,001)	(4,052,764)

Income from operations	779,340	1,552,537	1,775,943	2,505,278

OTHER ITEMS
Gain on sale of property, plant and equipment	-	-	-	4,109
Interest and other income	8,534	6,734	22,617	20,008
Interest expense	(658)	-	(658)	-
	7,876	6,734	21,959	24,117

Income before income taxes	787,216	1,559,271	1,797,902	2,529,395

Income tax expense	(326,116)	(622,942)	(725,455)	(1,023,089)

Net income	$ 461,100	$ 936,329	$ 1,072,447	$ 1,506,306

Basic earnings per common share	$ 0.18	$ 0.33	$ 0.41	$ 0.50

Diluted earnings per common share	$ 0.18	$ 0.33	$ 0.41	$ 0.50

Weighted average number of common shares outstanding:
Basic	2,561,702	2,866,273	2,612,199	3,042,692
Diluted	2,561,702	2,866,273	2,612,199	3,042,692

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


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JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


	Capital Stock
	Number of Shares	Amount	Additional paid-in capital	Retained earnings	Total

August 31, 2012	3,135,942	$ 1,479,721	$ 600,804	$ 15,392,665	$ 17,473,190

Shares repurchased and cancelled (note 9)	(1,006)	(475)	-	(6,713)	(7,188)
Net income	-	-	-	3,132,019	3,132,019

August 31, 2013	3,134,936	1,479,246	600,804	18,517,971	20,598,021

Shares repurchased and cancelled (note 9)	(430,306)	(203,045)	-	(4,054,723)	(4,257,768)
Net income	-	-	-	1,858,453	1,858,453

August 31, 2014	2,704,630	1,276,201	600,804	16,321,701	18,198,706

Shares repurchased and cancelled (note 9)	(208,020)	(98,157)	-	(2,295,894)	(2,394,051)
Net income	-	-	-	1,072,447	1,072,447

May 31, 2015	2,496,610	$ 1,178,044	$ 600,804	$ 15,098,254	$ 16,877,102

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


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JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


	Three Month Period Ended May 31,		Nine Month Period Ended May 31,
	2015	2014	2015	2014

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 461,100	$ 936,329	$ 1,072,447	$ 1,506,306
Items not involving an outlay of cash:
Depreciation and amortization	71,211	73,145	210,894	212,694
Gain on sale of property, plant and equipment	-	-	-	(4,109)
Deferred income tax expense (recovery)	(2,163)	2,355	(4,872)	(6,011)
Interest income on litigation	(6,734)	(6,734)	(19,983)	(19,982)

Changes in non-cash working capital items:
(Increase) decrease in accounts receivable	107,980	(666,858)	(2,483,168)	(1,578,367)
Decrease in inventory	2,485,712	283,331	536,845	1,275,596
(Increase) decrease in note receivable	275	(15,000)	13,575	-
(Increase) decrease in prepaid expenses	104,098	762,010	41,194	(739,215)
(Increase) decrease in prepaid income taxes	19,133	174,587	350,863	(47,022)
Increase (decrease) in accounts payable and accrued liabilities	631,547	133,976	270,805	(774,746)

Net cash provided by (used in) operating activities	3,872,159	1,677,141	(11,400)	(174,856)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment	(70,543)	(18,899)	(85,240)	(94,274)
Proceeds from sale of property, plant and equipment	-	-	-	4,800

Net cash used in investing activities	(70,543)	(18,899)	(85,240)	(89,474)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank indebtedness	-	-	875,386	-
Repayment of bank indebtedness	(875,386)	-	(875,386)	-
Redemption of common stock	(1,101,574)	(3,234,699)	(2,394,051)	(3,803,718)

Net cash used in financing activities	(1,976,960)	(3,234,699)	(2,394,051)	(3,803,718)

Net increase (decrease) in cash	$ 1,824,656	$ (1,576,457)	$ (2,490,691)	$ (4,068,048)

Cash, beginning of period	$ 12,193	$ 5,816,854	$ 4,327,540	$ 8,308,445

Cash, end of period	$ 1,836,849	$ 4,240,397	$ 1,836,849	$ 4,240,397

Supplemental disclosure with respect to cash flows (note 16)

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


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

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. Effective September 1, 2013, the Company reorganized certain of its subsidiaries. JCLC’s name was changed to JC USA Inc. (“JC USA”), and a new subsidiary, Jewett-Cameron Company (“JCC”), was incorporated.

JC USA has the following wholly owned subsidiaries: MSI-PRO Co. (“MSI”), incorporated April 1996, Jewett-Cameron Seed Company, (“JCSC”), incorporated October 2000, Greenwood Products, Inc. (“Greenwood”), incorporated February 2002, and Jewett-Cameron Company, incorporated September 2013. 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, Oregon. JCC’s business consists of the manufacturing and distribution of specialty metal products and wholesale distribution of wood 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. JC USA provides professional and administrative services, including accounting and credit services, to its subsidiary companies.

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, 2015 and August 31, 2014 and its results of operations and cash flows for the three and nine month periods ended May 31, 2015 and May 31, 2014 in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”). Operating results for the three and nine month periods ended May 31, 2015 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2015.

SIGNIFICANT ACCOUNTING POLICIES

Generally accepted accounting principles

These consolidated financial statements have been prepared in conformity with U.S. GAAP.

Principles of consolidation

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

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


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP 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. Significant estimates incorporated into the Company’s consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated allowances for doubtful accounts receivable and inventory obsolescence, possible product liability and possible product returns, and litigation contingencies and claims. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. At May 31, 2015, cash was $1,836,849 compared to $4,327,540 at August 31, 2014. At May 31, 2015 and August 31, 2014, there were no cash equivalents.

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 allowance for doubtful accounts, which are generally ones that are ninety days or greater overdue.

The Company extends credit to 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 primarily 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:


	Office equipment	3-7 years
	Warehouse equipment	2-10 years
	Buildings	5-30 years

Intangibles

The Company’s intangible assets have a finite life and are recorded at cost. The most significant intangible assets are two patents related to gate support systems. Amortization is calculated using the straight-line method over the remaining lives of 33 months and 45 months, respectively, and are reviewed annually for impairment.


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

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.

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

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.

The Company does not have non-monetary or monetary assets and liabilities that are in a currency other than the U.S. dollar. Any statement of operations 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 net 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.


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Earnings per share (cont’d…)

The earnings per share data for the three and nine month periods ended May 31, 2015 and May 31, 2014 are as follows:


	Three Month Period Ended May 31,		Nine Month Period Ended May 31,

	2015	2014	2015	2014

Net income	$ 461,100	$ 936,329	$ 1,072,447	$ 1,506,306

Basic weighted average number of common shares outstanding	2,561,702	2,866,273	2,612,199	3,042,692

Effect of dilutive securities
Stock options	-	-	-	-

Diluted weighted average number of common shares outstanding	2,561,702	2,866,273	2,612,199	3,042,692

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.

Stock-based compensation

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 during the nine month period ended May 31, 2015, and there were no options outstanding on May 31, 2015.

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 - the carrying amount approximates fair value because the amounts consist of cash held at a bank and cash held in short term investment accounts.

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

Notes receivable - the carrying amounts approximate fair value due to the short-term nature of the amount.


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

Financial instruments (cont’d…)

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

The estimated fair values of the Company's financial instruments as of May 31, 2015 and August 31, 2014 follows:


	May 31, 2015		August 31, 2014
	Carrying	Fair	Carrying	Fair
	Amount	Value	Amount	Value
Cash	$1,836,849	$1,836,849	$4,327,540	$4,327,540
Accounts receivable, net of allowance	4,926,096	4,926,096	2,442,928	2,442,928
Note receivable	1,425	1,425	15,000	15,000
Accounts payable and accrued liabilities	1,585,560	1,585,560	1,314,755	1,314,755

The following table presents information about the assets and liabilities that are measured at fair value on a recurring basis as of May 31, 2015, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:


	May 31, 2015		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Cash	$	1,836,849	$	1,836,849	$	—	$	—

The fair values of cash are determined through market, observable and corroborated sources.

Income taxes

A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. 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.


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

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 products, specialty metal products, 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 from 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, products sold and collection of the amounts is reasonably assured.

Reclassifications

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

Recent Accounting Pronouncements

Management has reviewed the new accounting guidance and determined that there is not a material impact on our financial statements.

INVENTORY

A summary of inventory is as follows:


	May 31, 2015	August 31, 2014


Wood products and metal products	$ 7,535,588	$ 8,219,574
Industrial tools	629,600	665,563
Agricultural seed products	452,096	268,992

	$ 8,617,284	$ 9,154,129


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant, and equipment is as follows:


	May 31, 2015	August 31, 2014

Office equipment	$ 591,124	$ 562,423
Warehouse equipment	1,504,546	1,482,278
Buildings	2,686,887	2,688,616
Land	761,924	761,924
	5,544,481	5,495,241

Accumulated depreciation	(3,468,218)	(3,347,854)

Net book value	$ 2,076,263	$ 2,147,387

In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future discounted 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.

INTANGIBLE ASSETS

A summary of intangible assets is as follows:


	May 31, 2015	August 31, 2014

Patent	$ 850,000	$ 850,000
Other	43,655	43,655
	893,655	893,655
Accumulated amortization	(652,229)	(597,699)

Net book value	$ 241,426	$ 295,956

DEFERRED INCOME TAXES

Deferred income tax liability as of May 31, 2015 of $56,100 (August 31, 2014 – $60,972) 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.


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JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

BANK INDEBTEDNESS

Bank indebtedness under the Company’s $3,000,000 line of credit as of May 31, 2015 was $Nil (August 31, 2014 - $Nil). During the third quarter ended May 31, 2015, the Company repaid $875,386 drawn against the line of credit during the second quarter.

Bank indebtedness, when it exists, is secured by an assignment of accounts receivable and inventory. Interest is calculated solely on the one month LIBOR rate plus 175 basis points.

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.

CANCELLATION OF CAPITAL STOCK

Treasury stock may be kept based on an acceptable inventory method such as the average cost basis. Upon disposition or cancellation, the treasury stock account is credited for an amount equal to the number of shares cancelled, multiplied by the cost per share and the difference is treated as additional paid-in-capital in excess of stated value.

During the 3^rd quarter of fiscal 2015 ended May 31, 2015, the Company repurchased and cancelled a total of 89,051 common shares under a 10b5-1 share repurchase plan. The total cost was $1,101,574 at an average price of $12.37 per share. The premium paid to acquire these shares over their per share book value in the amount of $1,059,554 was recorded as a decrease to retained earnings.

During the 1^st quarter of fiscal 2015 ended November 30, 2014, the Company repurchased and cancelled a total of 118,969 common shares under a 10b5-1 share repurchase plan. The total cost was $1,292,477 at an average price of $10.86 per share. The premium paid to acquire these shares over their per share book value in the amount of $1,236,340 was recorded as a decrease to retained earnings.

During the 4^thquarter of fiscal 2014 ended August 31, 2014, the Company repurchased and cancelled a total of 45,048 common shares under a 10b5-1 share repurchase plan. The total cost was $454,050 at an average price of $10.08 per share. The premium paid to acquire these shares over their per share book value in the amount of $432,794 was recorded as a decrease to retained earnings.

During the 3rd quarter of fiscal 2014 ended May 31, 2014, the Company repurchased and cancelled a total of 327,078 common shares under a 10b5-1 share repurchase plan. The total cost was $3,234,699 at an average price of $9.89 per share. The premium paid to acquire these shares over their per share book value in the amount of $3,080,365 was recorded as a decrease to retained earnings.

During the 2nd quarter of fiscal 2014 ended February 28, 2014, the Company repurchased and cancelled a total of 58,180 common shares under a 10b5-1 share repurchase plan. The total cost was $569,019 at an average price of $9.78 per share. The premium paid to acquire these shares over their per share book value in the amount of $541,564 was recorded as a decrease to retained earnings.


	- 16 -

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

10.

STOCK OPTIONS

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 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 favor 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.

The Company had no stock options outstanding as of May 31, 2015 and August 31, 2014.

11.

EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP”)

The Company formerly sponsored an ESOP that covered all U.S. employees who were employed by the Company on August 31 of each year and who had at least one thousand hours with the Company in the twelve months preceding that date. The ESOP formerly held common shares of the Company and granted to participants in the plan certain ownership rights in, but not possession of, or voting control of, any common stock of the Company held by the Trustee of the Plan. Shares of common stock were allocated annually to participants in the ESOP pursuant to a prescribed formula. The Company recorded compensation expense based on the market price of the Company's shares when they were allocated. Any dividends on allocated ESOP shares were recorded as a reduction of retained earnings. Beginning in fiscal 2010, the ESOP began its investment in diversified mutual funds. During fiscal 2011 and 2012, all of the Company’s shares held by the ESOP were sold, with the majority repurchased by the Company and cancelled under the 10b5-1 share repurchase plans. Effective June 30, 2012, the ESOP was terminated, subject to the approval of the Internal Revenue Service. No further contributions were made to the ESOP. On October 18, 2013, the Internal Revenue Service issued a favorable determination letter for the termination of the ESOP, and the Plan has distributed the remaining assets to participants.

ESOP compensation expense was $Nil and $Nil for the fiscal years ended August 31, 2014 and 2013, respectively. No shares were owned by the ESOP at August 31, 2014 or 2013.

12.

PENSION AND PROFIT-SHARING PLANS

The Company has a deferred compensation 401(k) plan for all employees with at least 12 months of service pending a semi-annual enrolment time. The plan allows for a non-elective discretionary contribution based on the first $60,000 of eligible compensation. For the nine month periods ended May 31, 2015 and 2014, the 401(k) compensation expense was $186,345 and $147,685, respectively.


	- 17 -

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

13.

CONTINGENT LIABILITIES AND COMMITMENTS

A subsidiary 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.

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 accrued reserves to cover the money judgment related to this dispute. Both parties filed appeals for review of the court’s opinion.

During the 1st quarter of fiscal 2011, the Oregon Court of Appeals ruled that the judgment in favor of Jewett Cameron as plaintiffs should be reversed and the judgment in favor of the defendants should stand. The judgment in favor of the Company was for $819,000 plus attorneys fees. The judgment against the plaintiffs is for $1,187,137. The Company appealed the decision to the Oregon Supreme Court. During the 1st quarter of fiscal 2011, the Company recorded a litigation loss of $962,137 and interest of $391,988 in addition to the existing litigation reserve of $225,000. Additional interest of $48,790 was recorded during the remainder of fiscal 2011. During the 1st quarter of fiscal 2012 ended November 30, 2011, additional interest of $16,204 was accrued.

In February 2012, the Company received the decision from the Oregon Supreme Court which was favorable to Jewett Cameron as plaintiff. As a result, the Company has reversed $1,459,832 of the litigation reserve and accrued interest during the 2nd quarter of fiscal 2012 ended February 29, 2012. The reversal was treated as a one-time gain during the quarter.

In July 2014, upon remand from the Oregon Supreme Court, the Oregon Court of Appeals has concluded that Greenwood Forest Products, Inc. as defendants are entitled to a new trial, and, as a consequence, ruled that the judgment in favor of Jewett Cameron as plaintiffs should be reversed and the judgment in favor of defendants should stand. The judgment in favor of the Company was for $819,000 plus attorney’s fees. The judgment against plaintiffs was for $1,187,137. On August 7, 2014, the Company filed a petition with the Oregon Supreme Court for a review of the Oregon Court of Appeals notice. The petition requests the Oregon Supreme Court review the most recent ruling by the Oregon Court of Appeals, reverse the decision, and affirm the original judgment of the trial court. In December 2014, the Company received notice that the Oregon Supreme Court has accepted the case for review. As of the date of this filing, the potential exposure to the Company of this new ruling is $1,900,000.

During the year ended August 31, 2014, the Company recorded $26,716 of interest income due to the favorable difference in interest rates between the judgments. During the nine months ended May 31, 2015, the Company recorded $19,983 of interest income.


	- 18 -

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

13.

CONTINGENT LIABILITIES AND COMMITMENTS (cont’d…)

A summary of the litigation reserve is as follows:


	May 31, 2015	August 31, 2014

Litigation reserve	$ 117,387	$ 144,103
Interest income	(19,983)	(26,716)
Total	$ 97,404	$ 117,387

At May 31, 2015 the Company had no borrowing under the $3,000,000 line-of-credit (August 31, 2014 - $Nil) (note 7). The line-of-credit has certain financial covenants. The Company is in compliance with these covenants.

14.

SEGMENT 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.

Effective September 1, 2013, the Company reorganized certain of its subsidiaries. The majority of fixed and intangible assets, and certain Corporate and administrative functions which were formerly contained within the “Lawn, garden, pet and other” reporting segment are now classified as “Corporate and administrative.”

Following is a summary of segmented information for the nine month periods ended May 31:


	2015		2014

Sales to unaffiliated customers:
Industrial wood products	$	3,183,802	$	4,439,588
Lawn, garden, pet and other		24,164,127		25,472,054
Seed processing and sales		2,103,553		2,045,763
Industrial tools and clamps		1,303,947		1,117,095
	$	30,755,429	$	33,074,500

Income (loss) before income taxes:
Industrial wood products	$	60,543	$	(41,110)
Lawn, garden, pet and other		1,058,352		1,863,335
Seed processing and sales		50,753		48,170
Industrial tools and clamps		68,227		63,137
Corporate and administrative		560,026		595,863
	$	1,797,901	$	2,529,395


	- 19 -

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

14.

SEGMENT INFORMATION (cont’d…)


		2015		2014

Identifiable assets:
Industrial wood products	$	1,242,471	$	1,056,139
Lawn, garden, pet and other		11,342,373		11,037,069
Seed processing and sales		552,280		435,798
Industrial tools and clamps		747,022		715,657
Corporate and administrative		4,762,020		7,315,043
	$	18,616,166	$	20,559,706

Depreciation and amortization:
Industrial wood products	$	735	$	735
Lawn, garden, pet and other		43,537		36,507
Seed processing and sales		8,209		9,565
Industrial tools and clamps		2,067		3,628
Corporate and administrative		156,346		162,259
	$	210,894	$	212,694

Capital expenditures:
Industrial wood products	$	-	$	-
Lawn, garden, pet and other		-		-
Seed processing and sales		-		-
Industrial tools and clamps		-		1,300
Corporate and administrative		85,240		92,974
	$	85,240	$	94,274

Interest expense:
Lawn, garden, pet and other	$	658	$	-

The following table lists sales made by the Company to customers which were in excess of 10% of total sales for the nine months ended May 31, 2015 and 2014:


	2015		2014

Sales	$	13,426,962	$	16,443,767

The Company conducts business primarily in the United States, but also has limited amounts of sales in foreign countries. The following table lists sales by country for the nine months ended May 31, 2015 and 2014:


	2015		2014

United States	$	29,044,754	$	30,761,104
Canada		919,603		686,530
Mexico / Latin America		744,775		1,318,436
Europe		-		183,753
Middle East		12,164		-
Africa		2,960		-
Asia/Pacific		31,173		124,677
	$	30,755,429	$	33,074,500

All of the Company’s significant identifiable assets were located in the United States as of May 31, 2015 and 2014.


	- 20 -

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2015

(Unaudited)

15.

CONCENTRATIONS

Credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company places its cash 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 May 31, 2015, four customers accounted for accounts receivable greater than 10% of total accounts receivable at 77%. At May 31, 2014, three customers accounted for accounts receivable greater than 10% of total accounts receivable at 66%. 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, 2015, there were three suppliers that each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $15,064,820. For the nine months ended May 31, 2014, there were two suppliers that each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $12,850,844.

16.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

Certain cash payments for the nine months ended May 31, 2015 and 2014 are summarized as follows:


	2015		2014

Cash paid during the periods for:
Interest	$	-	$	-
Income taxes	$	379,234	$	1,075,824

There were no non-cash investing or financing activities during the periods presented.

17.

SUBSEQUENT EVENTS

Subsequent to the end of the third quarter, the Company re-purchased and is in the process of cancelling a total of 4,778 shares of its common stock pursuant to the Company’s 10b5-1 share re-purchase plan, previously announced on February 11, 2015. The total cost was $54,491 at an average share price of $11.40 per share. Effective July 17, 2015, the Board of Directors terminated the current 10b5-1 share re-purchase plan.


	- 21 -

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, 2015 and August 31, 2014 and its results of operations and cash flows for the three and nine month periods ended May 31, 2015 and May 31, 2014 in accordance with U.S. GAAP. Operating results for the three and nine month periods ended May 31, 2015 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2015.

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

Effective September 1, 2013, the Company reorganized certain of its subsidiaries. Jewett-Cameron Lumber Corporation (JCLC) was changed to JC USA Inc. (JC USA), which has the following four wholly-owned subsidiaries.

The industrial wood products segment reflects the business conducted by Greenwood Products, Inc. (Greenwood), Greenwood is a processor and distributor of industrial wood 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 the newly incorporated Jewett-Cameron Company (JCC), which is a manufacturer and distributor of specialty metal products and a wholesaler of wood products formerly conducted by JCLC. Wood products include fencing and landscape timbers, while metal products include dog kennels, proprietary gate support systems, perimeter fencing, and greenhouses. JCC uses contract manufacturers to make the specialty metal products. Some of the products that JCC 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 retailers.

The seed processing and sales segment reflects the business of Jewett-Cameron Seed Company (JCSC). 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 segment reflects the business of MSI-PRO (MSI). MSI imports and distributes products including pneumatic air tools, industrial clamps, and saw blades; that are primarily sold to retailers that in turn sell to contractors and end users.

RESULTS OF OPERATIONS

Three Months Ended May 31, 2015 and May 31, 2014

For the three months ended May 31, 2015, sales declined by $2,046,162, or 13%, to $13,289,408 from sales of $15,335,570 for the three months ended May 31, 2014.

Sales at Greenwood were $1,063,599 for the three months ended May 31, 2015 compared to sales of $1,034,638 for the three months ended May 31, 2014, which was an increase of $28,961, or 3%. Demand for Greenwood’s products continues to be weak. In February 2014, the Company sold its excess inventory related to the marine industry in an arm’s length transaction. The Company does not anticipate a significant marine industry recovery in the near future. Nevertheless, the Company will maintain a readiness to participate in the marine segment when, and if, the market rebounds. Greenwood is continuing to develop new customer relationships and establish additional uses for its products. For the three months ended May 31, 2015, Greenwood had an operating profit of $42,551, which was an improvement of $51,312 compared to an operating loss of ($8,761) for the three months ended May 31, 2014.


	- 22 -

Sales at JCC were $11,430,273 for the three months ended May 31, 2015 compared to sales of $13,542,198 for the three months ended May 31, 2014. This represents a decline of $2,111,925, or 16%. Several new products were introduced during the quarter, which were well received by the Company’s established customer base. However, the current quarter was negatively impacted by the prolonged winter weather across much of the United States, which delayed the start of the lawn and garden product season and significantly reduced product demand from retailers. The quarter also continued to be affected by the US West Coast marine port slowdowns and shutdowns, which impacted the delivery of many of the Company’s products from the manufacturers in China and resulted in sales order delays and increased freight costs. Operating income for the current quarter was $1,062,168 compared to $1,583,787 for the quarter ended May 31, 2014. JCC also continues to be affected by an increase in overall market competitiveness and higher raw material prices, which have resulted in lower margins.

Sales at JCSC were $416,416 for the three months ended May 31, 2015 compared to sales of $366,902 for the three months ended May 31, 2014. This is an increase of $49,514, or 13%. Sales have begun to rebound since the departure of our lead salesman in 2013, but the sales environment for the segment remains challenging due to the decline in seed cleaning services from more growers cleaning in-house, and an overall reduction in grass seed acreage as higher grain prices have encouraged growers to shift acreage to higher margin food crops. For the quarter, JCSC had an operating loss of ($10,408) compared to an operating loss of ($56,050) for the prior year’s quarter.

Sales at MSI for the three months ended May 31, 2015 were $379,120, which was a decline of $12,713, or 3%, from sales of $391,833 for the three months ended May 31, 2014. The segment has recently become more competitive, and the Company has reduced prices on certain of its products which reduced operating margins. Operating income was $21,325 for the current three month period compared to operating income of $25,149 for the three month period ended May 31, 2014.

Gross margin for the three months ended May 31, 2015 was 16.9% compared to 19.2% for the three months ended May 31, 2014. Higher raw material prices and an increase in market competitiveness have continued to pressure the Company’s margins.

Operating expenses increased by $64,404 to $1,462,461 from $1,398,057 for the three months ended May 31, 2014. Selling, General and Administrative Expenses rose to $465,864 from $402,013, which was primarily due to added labor, travel and marketing expense in effort to capture market share for new and existing products. Wages and Employee Benefits increased slightly to $925,386 from $922,899, and Depreciation and Amortization fell to $71,211 from $73,145.

Income tax expense for the three months ended May 31, 2015 was $326,116 compared to $622,942 for the three month period ended May 31, 2014. The Company estimates income tax expense for the quarter based on combined federal and state rates that are currently in effect.

Net income for the quarter ended May 31, 2015 was $461,100, or $0.18 per basic and diluted share, compared to $936,329, or $0.33 per basic and diluted share, for the quarter ended May 31, 2014. The current quarter’s earnings per share was positively affected by the repurchase of common shares and lower weighted average number of common shares outstanding.

Nine Months Ended May 31, 2015 and May 31, 2014

For the nine months ended May 31, 2015, sales decreased by $2,319,071, or 7%, to $30,755,429 from sales of $33,074,500 in the nine month period ended May 31, 2014.

Sales at Greenwood were $3,183,802 for the nine months ended May 31, 2015 compared to sales of $4,439,588 for the nine months ended May 31, 2014. This represents a decrease of $1,255,786, or 28%. Sales declined due to the continued slowdown in demand from many of the market segments served by Greenwood, and the sale of the Company’s excess inventory related to the marine industry in an arm’s length transaction in February 2014. The Company does not anticipate a significant marine industry recovery in the near future. Nevertheless, the Company will maintain a readiness to participate in the marine segment when, and if, the market rebounds. Greenwood is continuing to develop new customer relationships and establish additional uses for its products. For the nine months ended May 31, 2015, Greenwood had an operating profit of $134,231 compared to an operating loss of ($41,110) for the nine months ended May 31, 2014.


	- 23 -

Sales at JCC were $24,164,127 for the nine months ended May 31, 2015 compared to sales of $25,472,054 for the nine months ended May 31, 2014, which was a decline of $1,317,927, or 5%. Operating income at JCC was $2,179,054 compared to $2,480,573 for the nine months ended May 31, 2014, which was a decrease of $301,519, or 12%. The decline in sales for the current period were due to several factors, including the prolonged winter weather across much of the United States which significantly delayed and reduced the demand for lawn and garden products by retailers. The Company also was impacted by the slowdown and shutdowns of US West Coast Marine ports. These disruptions caused delays in the shipping and receipt of many of JCC’s products from the manufacturers in China to the Company, and resulted in sales delays from the Company to their retail customers. Although the ports and labor unions reached an agreement to end the slowdowns in February 2015, the effects of the port and marine shipping disruptions continued into the Company’s third quarter and produced higher freight costs as some of the Company’s products were rerouted to alternate and more distant ports. Overall, the operating results of JCC are seasonal with the first two quarters of the fiscal year being much slower than the final two quarters of the fiscal year.

Sales at JCSC for the nine months ended May 31, 2015 were $2,103,553, which was an increase of $57,790, or 3%, from sales of $2,045,763 for the nine months ended May 31, 2014. Product seed sales have begun to rebound from the departure of JCSC’s lead salesman during 2013. The sales environment for the segment remains challenging due to the decline in seed cleaning services from more growers cleaning in-house, and an overall reduction in grass seed acreage as higher grain prices have encouraged growers to shift acreage to higher margin food crops. Operating income for the nine months ended May 31, 2015 was $249,055 compared to income of $60,984 for the nine months ended May 31, 2014.

Sales at MSI were $1,303,947 for the nine months ended May 31, 2015 compared to sales of $1,117,095 for the nine months ended May 31, 2014, which was an increase of $186,852, or 17%. The segment has recently become more competitive, and the Company has reduced prices on certain of its products which reduced operating margins. Operating income was $74,252 for the current nine month period compared to operating income of $83,336 for the nine months ended May 31, 2014.

Gross margin for the nine month period ended May 31, 2015 was 19.6% compared to 19.8% for the nine months ended May 31, 2014.

Operating expenses rose by $185,237 to $4,238,001 from operating expenses of $4,052,764 in the nine month period ended May 31, 2014. Selling, general and administrative expenses rose to $1,438,687 from $1,240,800, an increase of $197,887. The Company has recently added several new products which resulted in additional labor, travel and marketing expenses. Wages and employee benefits were largely flat at $2,588,420 compared to $2,599,270, and depreciation and amortization fell to $210,894 from $212,694.

Other items in the current nine month period ended May 31, 2015 included Interest and Other Income of $22,617, which was largely due to the interest income on litigation, and interest expense related to the Company’s draw against its line of credit of ($658). During the prior nine month period, other items included the gain on sale of property, plant and equipment of $4,109 and interest and other income of $20,008.

Income tax expense in the current nine month period was $725,455 compared to $1,023,089 for the nine months ended May 31, 2014. The Company estimates income tax expense for the period based on combined federal and state rates that are currently in effect.

Net income for the nine months ended May 31, 2015 was $1,072,477, or $0.41 per basic and diluted share, compared to net income of $1,506,306, or $0.50 per basic and diluted share, for the nine months ended May 31, 2014. The net income in the current nine month period was positively affected by the buyback of common shares which resulted in a lower weighted average number of common shares.

LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2015, the Company had working capital of $14,615,513 compared to working capital of $15,816,335 as of August 31, 2014, a decrease of $1,200,822. The decrease was primarily due to the Company’s repurchase of common shares. Cash declined to $1,836,849, a decrease of $2,490,691. The decrease in the Company’s cash position was due to the repurchase of 208,020 common shares at a cost of $2,394,051. Accounts receivable rose to $4,926,096 from $2,442,928 and inventory declined to $8,617,284 from $9,154,129 which is consistent with the seasonal nature of the Company’s sales cycle. Note receivable fell to $1,425 from $15,000. Prepaid expenses, which are largely related to down payments for future inventory purchases, declined to $721,339 from $762,533. Prepaid income taxes declined to $195,484 from $546,347. Accounts payable rose to $626,523 from $240,825 and accrued liabilities declined by $114,893 to $959,037. Litigation reserve declined by $19,983 as differences in interest rates resulted in a reduction in the amount reserved.


	- 24 -

As of May 31, 2015, accounts receivable and inventory represented 83% of current assets and 73% of total assets. For the three months ended May 31, 2015, the accounts receivable collection period, or DSO, was 34 compared to 30 for the three months ended May 31, 2014. For the nine month period ended May 31, 2015, the DSO was 44 compared to 41 for the nine months ended May 31, 2014. Inventory turnover for the three months ended May 31, 2015 was 82 days compared to 55 days for the three months ended May 31, 2014. For the nine months ended May 31, 2015, inventory turnover was 98 compared to 81 days for the nine months ended May 31, 2014.

External sources of liquidity include a line of credit from U.S. Bank of $3,000,000 of which the entire amount was available as of May 31, 2015. During the nine month period ended May 31, 2015, the Company increased the line of credit to $3,000,000 from $1,000,000. Borrowing under the line of credit is secured by an assignment of accounts receivable and inventory. The interest rate is calculated solely on the one month LIBOR rate plus 175 basis points. As of May 31, 2015, the one month LIBOR rate plus 175 basis points was 1.93% (0.18% + 1.75%). The line of credit has certain financial covenants. The Company is in compliance with these covenants.

The Company has been utilizing its cash position by repurchasing common shares under formal repurchase plans in order to increase shareholder value. On January 13, 2014, the Company announced the Board of Directors had authorized a Rule 10b5-1 share repurchase plan to purchase for cancellation up to 313,493 common shares through the facilities of NASDAQ. Transactions may involve Company insiders or their affiliates executed in compliance with the Company’s Insider Trading Policy. The share repurchase plan was effected in accordance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934, which contains restrictions on the number of shares that may be purchased on a single day, subject to certain exceptions for block purchases, based on the average daily trading volumes ("ADTV") of the Company’s shares on NASDAQ. Purchases shall be limited to one “Block” purchase per week in lieu of the 25% of ADTV limitation for compliance with Rule 10b-18(b)(4). A “block” as defined under Rule 10b-18(a)(5) means a quantity of stock that, among other things, is at least 5,000 shares and has a purchase price of at least US$50,000. The share repurchase plan commenced on January 20, 2014 and terminated on March 24, 2014. A total of 313,493 common shares were repurchased under this plan. The total cost of the shares acquired was $3,055,591 at an average price of $9.75 per share.

On April 9, 2014, the Company announced the Board of Directors had authorized a share repurchase plan to purchase for cancellation up to 300,000 common shares through the facilities of NASDAQ under similar terms as the January 13, 2014 repurchase plan. This share repurchase plan commenced on April 14, 2014 and terminated on November 14, 2014. Under the Plan, the Company repurchased a total of 235,782 common shares at a cost of $2,494,654 which is an average price of $10.58 per share.

On February 11, 2015, the Company announced the Board of Directors had authorized a new share repurchase plan to purchase for cancellation up to 300,000 common shares through the facilities of NASDAQ under similar terms to the January 13, 2014 repurchase plan. The plan commenced on February 17, 2015 and was scheduled to remain in place until August 14, 2015 but could be limited or terminated at any time without prior notice. During the second quarter of fiscal 2015, no common shares were repurchased under the plan. During the third quarter of fiscal 2015, a total of 89,051 common shares were repurchased at a cost of $1,101,574 which is an average price of $12.37. Subsequent to the end of the third quarter, a total of 4,778 common shares were repurchased at a cost of $54,492 which is an average price of $11.40 per share. Effective July 17, 2015, the Board of Directors terminated the current 10b5-1 share re-purchase plan.

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.


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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.

The Company’s common shares currently trade within the NASDAQ Capital Market in the United States. The common shares also formerly traded on the Toronto Stock Exchange (“TSX”) in Canada until the Company voluntarily delisted from the TSX on October 11, 2012. The average daily trading volume of our common stock on NASDAQ was 2,611 shares for the nine months ended May 31, 2015. 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.

In the past we have at times experienced decreasing products sales with certain customers. The reasons for this can be generally attributed to: increased competition; general economic conditions; demand for products; 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, we could experience lower sales volumes.

For the nine months ended May 31, 2015, our top ten customers represented 73% of our total sales. 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., Canada and Mexico and are primarily in the retail home improvement industry.

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 $3,000,000 as of May 31, 2015, of which the entire amount was available as of that date. 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 have completed a management assessment of internal controls as prescribed by Section 404 of the Sarbanes-Oxley Act, which we were required to do in connection with our year ended August 31, 2014. Based on this process we did not identify any material weaknesses. Although we believe our internal controls are operating effectively, we cannot guarantee that in the future we will not identify any material weaknesses in connection with this ongoing process.


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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, 2015. 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 as well as interest paid on debt.

The Company has a line of credit whose interest rate 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

Disclosure Controls and Procedures

Management of the Company, including the Company’s Principal Executive and Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Principal Executive and Financial Officer has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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).


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During the 1st quarter of fiscal 2011, the Oregon Court of Appeals ruled that the judgment in favor of Jewett Cameron as plaintiffs should be reversed and the judgment in favor of the defendants should stand. The judgment in favor of the Company was for $819,000 plus attorney’s fees. The judgment against the plaintiffs is for $1,187,137. The Company appealed the decision to the Oregon Supreme Court. During the 1st quarter of fiscal 2011, the Company recorded a litigation loss of $962,137 and interest of $391,988 in addition to the existing litigation reserve of $225,000. Additional interest of $48,790 was recorded during the remainder of fiscal 2011. During the 1st quarter of fiscal 2012 ended November 30, 2011, additional interest of $16,204 was accrued.

In January 2013, the Company's subsidiary JC USA Inc. (formerly Jewett-Cameron Lumber Corporation) reached a settlement with the State of Oregon Department of Transportation in the Circuit Court of the State of Oregon for Washington County, Case No. C122901CV. Under the settlement agreement, the Company agreed to sell approximately 1.64 acres of land to the Department of Transportation for $410,000. The land had a cost basis of $56,148, and the Company recorded a gain on sale of property plant and equipment of $353,852 during the fiscal year ended August 31, 2013.

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.

Unregistered Sales of Equity Securities and Use of Proceeds

---No Disclosure Required---

Item 3.

Defaults Upon Senior Securities

---No Disclosure Required---

Item 4. Mine Safety Disclosures

---No Disclosure Required---

Item 5.

Other Information

---No Disclosure Required---

Item 6.

Exhibits

3.1

Amended and Restated Articles of Incorporation of Jewett-Cameron Lumber Corporation

-= Filed as an exhibit to the 10-Q Quarterly Report filed on January 13, 2014 =-

3.2

Articles of Incorporation of Jewett-Cameron Company.

-= Filed as an exhibit to the 10-Q Quarterly Report filed on January 13, 2014 =-

31.1

Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Donald M. Boone

32.1

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


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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)

July 20, 2015

/s/ “Donald M. Boone”

Donald M. Boone,

President/CEO/Treasurer/Director


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JEWETT CAMERON TRADING CO LTD - FORM 10-Q - July 20, 2015

Attached files

JEWETT CAMERON TRADING CO LTD Reports