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 November 30, 2012 and August 31, 2012 and its results of operations and cash flows for the three month period ended November 30, 2012 and November 30, 2011 in accordance with U.S. GAAP. Operating results for the three month period ended November 30, 2012 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2013.

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

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 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 manufacturer and distributor of specialty metal products and a wholesaler of wood products. Wood products include fencing and landscape timbers, while metal products include dog kennels, proprietary gate support systems, 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 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 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; that are primarily sold to retailers that in turn sell to contractors and end users.

RESULTS OF OPERATIONS

Three Months Ended November 30, 2012 and November 30, 2011

For the three months ended November 30, 2012, sales increased $2,055,795 to $9,296,405 from $7,240,610 for the three months ended November 30, 2011. The increase is due to higher sales in the lawn and garden, industrial wood, and seed segments.

Sales at Greenwood were $2,361,471 for the three months ended November 30, 2012 compared to sales of $1,487,774 for the three months ended November 30, 2011, which was an increase of $873,697, or 59%. The increase in sales was due to successful sales efforts obtaining international export orders for our specialty plywood. The marine market, however, remains very weak. Sales to boat manufacturers represented approximately 17% of Greenwood's total sales for the year ended August 31, 2012, and demand from these kinds of customers has been severely affected by the uncertain economic environment. Boat manufacturers continue to work down excess inventory accumulated over the past several years, and until such point, we do not foresee an industry recovery. We continue to develop a readiness to participate when the market rebounds. Operating income before taxes at Greenwood was $62,545 compared to a loss of ($83,586) for the three months ended November 30, 2011. The net income for the current quarter is a result of the higher level of sales as well as management's operating expense control.

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Sales at JCLC were $4,772,939 for the three months ended November 30, 2012 compared to sales of $3,574,366 for the three months ended November 30, 2011, which was an increase of $1,198,573, or 34%. Operating income was $570,240, which is an increase of $398,012 compared to income of $172,228 for the quarter ended November 30, 2011. The higher sales were due to several factors. The Company's older products have increased their market share with existing customers due to our sales efforts and the Company being recognized as a reliable and valued supplier. Also, the weakened economy has resulted in many consumers employing a "staycation" approach which has produced increased spending on home and backyard projects, including their pets. Therefore, many of our customers have expanded their pet product lines, including adding the Company's newer pet containment products. 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.

Sales at JCSC were $1,810,645 for the three months ended November 30, 2012 compared to sales of $1,687,111 for the three months ended November 30, 2011. This represents an increase of $123,534, or 7%. In the current quarter, JCSC operating income was $109,004, which was relatively flat compared to operating income of $108,218 for the first quarter of fiscal 2012. Higher cereal and livestock feed prices have caused a shift by some growers from grass seed to grains, which have begun to have a positive effect on surpluses and wholesale prices. However, demand remains relatively weak, primarily from the new home construction and golf course industry in North America.

Sales at MSI were $351,350 for the three months ended November 30, 2012 compared to sales $491,359 for the three months ended November 30, 2011, which was a decrease of $140,009, or 28%. The sales decline was due to the Company winding down certain sales programs of lower margin products, and focusing on selling our more profitable products. This sales shift resulted in an operating profit for the quarter of $34,732 compared to an operating loss of $6,681 for the comparative quarter in the prior year.

Gross margin for the three month period ended November 30, 2012 was 21.4% compared to 20.2% for the three months ended November 30, 2011. The slight rise in margins in the current quarter were due to a favorable sales mix of higher margin metal products. However, higher raw material and transportation costs continue to restrain our overall margins.

The Company's income tax expense in the current period was $308,349 compared to $82,699 in the three month period ended November 30, 2011. Net income for the three months ended November 30, 2012 was $480,746, or $0.31 per basic and diluted share, compared to net income of $64,033, or $0.03 per basic and diluted share in the three months ended November 30, 2011. The higher net income per share for the current period was also favorably affected by the lower weighted average of common shares outstanding as the Company repurchased and cancelled 340,486 common shares in fiscal 2012.

LIQUIDITY AND CAPITAL RESOURCES

As of November 30, 2012, the Company had working capital of $15,370,735 compared to working capital of $14,930,305 as of August 31, 2012. This represents an increase of $440,430, which was largely due to the Company's net income from the first quarter ended November 30, 2012. Cash declined by $52,933 primarily due to the increase in prepaid expenses and reduction in accounts payable and accrued liabilities. Accounts receivable declined by $426,020 due to the seasonal cycle of sales to customers, and the related timing of cash receipts.
Inventory decreased by $1,324,365 and prepaid expenses, which are largely related to down payments for future inventory purchases, increased by $1,579,612. Note receivable declined by $20,000 as the remaining balance of the note was repaid during the quarter. Accounts payable declined $748,730 due to the seasonal cycle of payments to inventory suppliers. Accrued liabilities declined by $222,499. Accrued income taxes rose by $293,754 due to the timing of estimated tax payments and the higher net income for the quarter. Litigation reserve declined by $6,661 as differences in interest rates resulted in a reduction in the amount reserved.

As of November 30, 2012, accounts receivable and inventory represented 48% of current assets and 42% of total assets. For the three months ended November 30, 2012, the accounts receivable collection period, or DSO, was 26 compared to 36 for the three months ended November 30, 2011. Inventory turnover for the three months ended November 30, 2012 was 80 days compared with 113 days in the three months ended November 30, 2011.

External sources of liquidity include a line of credit from U.S. Bank of $5,000,000. As of November 30, 2012, the Company had no borrowing balance leaving the entire amount available. 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 200 basis points. As of November 30, 2012 the one month LIBOR rate plus 200 basis points was 2.21% (0.21% + 2.00%). The line of credit has certain financial covenants. The Company is in compliance with these covenants.

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The Company has been utilizing its cash position by repurchasing common shares under 10b5-1 plans in order to increase shareholder value. On August 17, 2012, the Board of Directors authorized the implementation of a new share repurchase plan for purchase and cancellation of up to 400,000 common shares. This amount represents approximately 26% of the common shares outstanding. The share repurchase plan will be 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 Jewett-Cameron'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. Transactions may involve insiders or their affiliates executed in compliance with Jewett-Cameron's Insider Trading Policy. The repurchase plan commenced on August 20, 2012 and will remain in place until March 15, 2013 but may be limited or terminated at any time without prior notice. As of November 30, 2012, the Company had repurchased no common shares under this 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.

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 3,934 shares for the three months ended November 30, 2012. With this limited trading volume, investors could find it difficult to purchase or sell our common stock.

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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 three months ended November 30, 2012, our top ten customers represented 58% 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 marine, and retail home improvement 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 $5,000,000, of which $5,000,000 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 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, 2012. 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.

Item 3.