UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 12 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________
Commission File Number 000-05391
METWOOD, INC.
(Exact name of registrant as specified in its charter)
NEVADA 83-0210365
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
819 Naff Road, Boones Mill, VA 24065
(Address of principal executive offices)
(540) 334-4294
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes X No
---
Number of shares of common stock outstanding as of November 17, 2004:
12,167,499
Transitional Small Business Disclosure Format (Check one) Yes [ ] No [X]
METWOOD, INC. AND SUBSIDIARY
TABLE OF CONTENTS - FORM 10-QSB
PART I - FINANCIAL INFORMATION Page(s)
Item 1 Financial Statements
Consolidated Balance Sheet As of September 30, 2004 1-2
Consolidated Statements of Income for the Three Months
Ended September 30, 2004 and 2003 3
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 2004 and 2003 4
Notes to Consolidated Financial Statements 5-9
Item 2 Management's Discussion and Analysis 10-15
Item 3 Controls and Procedures 15
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 16
Index to Exhibits 17
Exhibits 18-22
METWOOD,INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2004
(UNAUDITED)
==============================================================================
ASSETS
2004
------------
CURRENT ASSETS
Cash and Cash Equivalents $ 63,526
Accounts Receivable, net of allowance of $10,262 451,529
Inventory 653,790
Other Current Assets 3,029
------------
TOTAL CURRENT ASSETS 1,171,874
------------
PROPERTY AND EQUIPMENT
Furniture, fixtures and euipment 53,649
Computer hardware, software and peripherals 62,414
Machinery and shop equipment 286,232
Vehicles 232,336
Buildings and improvements Land and land improvement 193,142
------------
1,680,357
Accumulated Depreciation (382,652)
------------
Total property and equipment 1,297,705
------------
OTHER ASSETS
Goodwill 253,088
------------
Net Other Assets 253,088
------------
TOTAL ASSETS $ 2,722,667
============
1
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts Payable $ 186,055
Accrued Expenses 40,205
Customer deposits 5,200
Current maturities of long-term debt 34,000
Bank line of credit 371,824
Income taxes paybale 134,827
------------
TOTAL CURRENT LIABILITIES 772,112
------------
Long-term debt, excluding current maturities
81,800
Deferred Income Taxes,net 86,014
------------
TOTAL LONG-TERM LIABILITY 167,814
Commitment
STOCKHOLDERS' EQUITY
Common Stock ($.001par value, 100,000,000 shares authorized:
11,877,499 shares issued and outstanding) 11,877
Common Stock Subscribed but not Issued ($.001 par, 2950 shares) 3
Additional Paid-in-Capital 1,304,598
Retained Earnings 466,263
------------
TOTAL STOCKHOLDERS' EQUITY 1,782,741
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,722,667
============
The accompanying notes are an integral part of the financial statements
2
METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
==========================================================================================================
Three Months Ended September 30,
2004 2003
------------ ------------
REVENUES:
Construction sales $ 922,426 $ 523,148
Engineering sales 192,395 72,410
------------ ------------
Gross Sales 1,114,821 595,558
Cost of construction sales 495,804 301,174
Cost of engineering sales 110,218 37,478
------------ ------------
Gross cost of sales 606,022 338,652
Gross Profit 508,799 256,906
------------ ------------
ADMINSTRATIVE EXPENSES:
Advertising 46,729 6,915
Constructure/bidding data 4,841 0
Depreciation 15,535 12,637
Dues and publications 6,387 0
Insurance 13,211 8,681
Office expenses 6,174 0
Payroll expenses 122,411 113,726
Professional fees 24,624 5,301
Telephone 6,611 5,714
Travel 3,426 2,828
Vehicle 9,466 5,907
Other 24,735 32,616
------------ ------------
Total administrative expenses 284,152 194,325
------------ ------------
OPERATING INCOME 224,647 62,581
------------ ------------
OTHER INCOME (EXPENSE:) (4,200) 6,164
------------ ------------
INCOME BEFORE INCOME TAX 220,447 68,745
------------ ------------
INCOME TAXES $ 82,000 $ 24,837
------------ ------------
NET INCOME $ 138,447 $ 43,908
============ ============
Basic and diluted earning per share 0.01 **
============ ============
Weighted Average Common Shares Outstanding 11,872,249 12,053,245
============ ============
** Less than .01
The accompanying notes are an integral part of the financial statements
3
METWOOD, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
==========================================================================================================
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 138,447 $ 43,908
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 29,937 23,200
Common stock issued for services - 3,500
Provision for deferred income taxes 7,000 7,768
(Increase) decrease in operating assets:
Accounts receivable (72,325) 70,367
Inventory (20,565) (46,381)
Prepaid expenses 37,845 (11,987)
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses and customer deposits (161,797) (4,198)
Current income taxes payable 75,000 17,069
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 33,542 103,246
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Property, plant and equipment: Purchases (14,735) (37,844)
------------ ------------
NET CASH (USED IN) INVESTMENT ACTIVITIES (14,735) (37,844)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (repayments of) note payable (892) 3,566
Net borrowings from (repayments of) related party - 12,622
Net borrowings under line-of-credit agreement - 18,200
Common stock issued for cash 7,875 -
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,983 34,388
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,790 99,790
CASH AND CASH EQUIVALENTS:
Beginning of period 37,736 9,482
------------ ------------
End of period 63,526 109,272
============ ============
The accompanying notes are an integral part of the financial statements
4
METWOOD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity- Metwood, Inc. ("Metwood") was organized under the laws of the
-----------------
Commonwealth of Virginia on April 7, 1993. On June 30, 2000, Metwood entered
into an Agreement and Plan of Reorganization in which the majority of its
outstanding common stock was acquired by a publicly held Nevada shell
corporation. The acquisition was a tax-free exchange for federal and state
income tax purposes and was accounted for as a reverse merger in accordance with
Accounting Principles Board ("APB") Opinion No. 16. Upon acquisition, the name
of the shell corporation was changed to Metwood, Inc., and Metwood, Inc., the
Virginia corporation, became a wholly owned subsidiary of Metwood, Inc., the
Nevada corporation. The publicly traded shell corporation had not had a material
operating history for several years prior to the merger.
Effective January 1, 2002, Metwood acquired certain assets of Providence
Engineering, PC ("Providence"), a professional engineering firm with customers
in the same proximity as Metwood. The total purchase price of $350,000 was paid
with $60,000 in cash and with 290,000 shares of the Company's common stock to
the two Providence shareholders. These shares were valued at the closing active
quoted market price of the stock at the effective date of the purchase, which
was $1.00 per share. One of the shareholders of Providence was also an officer
and existing shareholder of Metwood prior to the acquisition. On January 15,
2004, Metwood purchased from that shareholder and retired 137,500 of the
originally issued 290,000 shares for $25,000. The initial purchase transaction
was accounted for under the purchase method of accounting. The purchase price
was allocated as follows:
Accounts receivable $ 75,000
Fixed assets 45,000
Goodwill 230,000
------------
Total $ 350,000
The consolidated company ("the Company") provides construction-related products
and engineering services to residential customers and contractors, commercial
contractors, developers and retail enterprises, primarily in southwestern
Virginia.
Basis of Presentation- The financial statements include the accounts of Metwood,
---------------------
Inc. (a Nevada corporation) and its wholly owned subsidiary, Metwood Inc. (a
Virginia corporation) prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission. All significant
intercompany balances and transactions have been eliminated.
5
In the opinion of management, the unaudited condensed consolidated financial
statements contain all the adjustments necessary in order to make the financial
statements not misleading. The results for the period ended September 30, 2004
are not necessarily indicative of the results to be expected for the entire
fiscal year ending June 30, 2005.
Fair Value of Financial Instruments- For certain of the Company's financial
---------------------------------------
instruments, none of which are held for trading, including cash, accounts
receivable, accounts payable and accrued expenses, and the bank lines of credit,
the carrying amounts approximate fair value due to their short maturities.
Management's Use of Estimates- The preparation of consolidated financial
--------------------------------
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities at the date of consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable- The Company grants credit in the form of unsecured accounts
-------------------
receivable to its customers based on an evaluation of their financial condition.
The Company performs ongoing credit evaluations of its customers. The estimate
of the allowance for doubtful accounts, which is charged off to bad debt
expense, is based on management's assessment of current economic conditions and
historical collection experience with each customer. At September 30, 2004, the
allowance for doubtful accounts was $10,262. Specific customer receivables are
considered past due when they are outstanding beyond their contractual terms and
are charged off to the allowance for doubtful accounts when determined
uncollectible. For both the three months ended September 30, 2004 and 2003, the
bad debt expense was $-0-.
Inventory- Inventory, consisting of metal and wood raw materials, is located on
---------
the Company's premises and is stated at the lower of cost or market using the
first-in, first-out method.
Property and equipment- Property and equipment are recorded at cost and include
-----------------------
expenditures for improvements when they substantially increase the productive
lives of existing assets. Maintenance and repair costs are expensed to
operations as incurred. Depreciation is computed using the straight-line method
over the assets' estimated useful lives, which range from three to forty years.
When a fixed asset is disposed of, its cost and related accumulated depreciation
are removed from the accounts. The difference between undepreciated cost and the
proceeds from disposition is recorded as a gain or loss.
Patents- The Company has been assigned several key product patents developed by
-------
certain Company officers. No value has been recorded in the Company's financial
statements because the fair value of the patents was not determinable within
reasonable limits at the date of assignment.
6
Goodwill- In June 2001 the Financial Accounting Standards Board ('FASB") issued
--------
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." This statement requires that goodwill and intangible
assets deemed to have an indefinite life not be amortized. Instead, such assets
are to be tested for impairment annually or immediately if conditions indicate
that such an impairment could exist. The Company adopted the provisions of SFAS
142 beginning July 1, 2002 and completed the transitional impairment test of
goodwill as of July 1, 2002 and again as of June 30, 2003 and 2004 using
discounted cash flow estimates and found no goodwill impairment.
Revenue Recognition- Revenue is recognized when goods are shipped and earned or
--------------------
when services are performed, provided collection of the resulting receivable is
probable. If any material contingencies are present, revenue recognition is
delayed until all material contingencies are eliminated. Further, no revenue is
recognized unless collection of the applicable consideration is probable.
Income Taxes- Income taxes are accounted for in accordance with SFAS No. 109,
-------------
"Accounting for Income Taxes." A deferred tax asset or liability is recorded for
all temporary differences between financial and tax reporting and for net
operating loss carry forwards, where applicable. 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 the entire deferred tax asset will not be
realized. Deferred tax assets and liabilities are adjusted for the effect of
changes in tax laws and rates on the date of enactment.
Research and Development- The Company performs research and development on its
--------------------------
metal/wood products, new product lines, and new patents. Costs, if any, are
expensed as they are incurred. For the three months ended September 30, 2004 and
2003, the expenses relating to research and development were $-0- and $-0-,
respectively.
Earnings Per Common Share-Basic earnings per share amounts are based on the
----------------------------
weighted average shares of common stock outstanding. If applicable, diluted
earnings per share would assume the conversion, exercise or issuance of all
potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. This presentation has been adopted for the quarters presented. There were
no adjustments required to net income for the years presented in the computation
of diluted earnings per share.
Reclassifications- Certain items in the financial statements for the three
-----------------
months ended September 30, 2003 have been reclassified to conform to the
September 30, 2004 financial statement presentation.
Recent Accounting Pronouncements- In April 2003, the FASB issued SFAS No. 149
----------------------------------
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
This statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities under FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The effective date for implementation of this statement
is for contracts entered into or modified after June 30, 2003. The adoption of
this statement has had no impact on the Company's consolidated financial
condition or results of operations.
7
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The remaining provisions of
this statement are consistent with the Board's proposal to revise the definition
of liabilities to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. This statement is
effective for financial instruments entered into or modified after May 31, 2003,
and is effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of this statement has had no material impact on the
Company's consolidated financial condition or results of operations.
NOTE 2 - EARNINGS PER SHARE
Net income and earnings per share for the three months ended September 30, 2004
and 2003 are as follows:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
------------ ------------
Net income $ 138,447 $ 43,908
Income per share - basic and fully diluted 0.01 **
Weighted average number of shares 11,872,249 12,053,245
** Less than $.01
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the three months ended
September 30, 2004 and 2003 are summarized as follows:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
------------ ------------
Cash paid for income taxes $ 0 $ 0
Cash paid for interest $ 6,469 $ 5,592
8
NOTE 4 - RELATED-PARTY TRANSACTIONS
For the three months ended September 30, 2004 and 2003, we had sales of $50,288
and $9,526 respectively, to our shareholder and CEO, Robert Callahan. As of
September 30, 2004, the related receivable was $20,667.
NOTE 5 - BANK CREDIT LINE
The Company has available a $600,000 revolving line of credit with a local bank.
Interest is payable monthly on the outstanding balance at the prime lending
rate, which was 4.0% as of September 30, 2004. The note is secured by accounts
receivable, equipment, general intangibles, inventory, and furniture and
fixtures. The note is personally guaranteed by the Company's CEO. The balance
outstanding as of September 30, 2004 was $371,824.
NOTE 6 - SEGMENT INFORMATION
The Company operates in two principal business segments: (1)
construction-related products and (2) engineering services. Performance of each
segment is evaluated based on profit or loss from operations before income
taxes. These reportable segments are strategic business units that offer
different products and services. Summarized revenue and expense information by
segment for the three months ended September 30, 2004 and 2003, as excerpted
from internal management reports, is as follows:
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
------------ ------------
Construction:
-------------
Sales $ 922,426 $ 523,148
Cost of sales (495,804) (301,414)
Corporate and other expenses (358,102) (186,933)
------------ ------------
Segment income $ 68,520 $ 34,801
Engineering:
------------
Sales $ 192,395 $ 72,650
Cost of sales (110,218) (37,478)
Corporate and other expenses (12,250) (26,065)
------------ ------------
Segment income $ 69,927 $ 9,107
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
With the exception of historical facts stated herein, the matters discussed in
this report are "forward-looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward-looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenues and earnings from operations of the Company. Readers of this report are
cautioned not to put undue reliance on "forward-looking" statements, which are
by their nature, uncertain as reliable indicators of future performance.
DESCRIPTION OF BUSINESS
Background
----------
As discussed in detail in Note 1, the Company was incorporated under the laws of
the Commonwealth of Virginia on April 7, 1993 and, on June 30, 2000, entered
into a reverse merger in which it became the wholly owned subsidiary of a public
Nevada shell corporation, renamed Metwood, Inc. Effective January 1, 2002,
Metwood acquired certain assets of Providence Engineering, PC in a transaction
accounted for under the purchase method of accounting.
Principal Products/Services and Markets
------------------------------------------
Metwood
-------
Residential builders are aware of the superiority of steel framing vs. wood
framing, insofar as steel framing is lighter; stronger; termite, pest, rot and
fire resistant; and dimensionally more stable in withstanding induced loads.
Although use of steel framing in residential construction has generally
increased each year since 1980, many residential builders have been hesitant to
utilize steel due to the need to retrain framers and subcontractors who are
accustomed to a "stick-built" construction method where components are laid out
and assembled with nails and screws. The Company's founders, Robert Callahan and
Ronald Shiflett, saw the need to combine the strength and durability of steel
with the convenience and familiarity of wood and wood fasteners.
Metwood's primary products and services are:
- Girders and headers - Garage, deck and porch concrete
- Floor joists pour-over systems
- Floor joist reinforcers - Garage and post-and-beam buildings
- Roof and floor trusses - Engineering, design and custom
building services
Metwood manufactures light-gage steel construction materials, usually combined
with wood or wood fasteners, for use in residential and commercial applications
in place of more conventional wood products, which are inferior in terms of
strength and durability. The steel and steel/wood products allow structures to
be built with increased load strength and structural integrity and fewer support
beams or support configurations, thereby allowing for structural designs that
are not possible with wood-only products.
10
Providence
----------
Providence is extensively involved in ongoing product research and development
for Metwood. Additionally, Providence offers its customer's civil engineering
capabilities which include rezoning and special use submissions; erosion and
sediment control and storm-water management design; residential, commercial, and
religious facility site development design; and utility design, including water,
sewer and onsite treatment systems. Providence's staff is familiar with
construction practices and has been actively involved in construction
administration and inspection on multiple projects.
Providence also performs a variety of structural design and analysis work,
successfully providing solutions for many projects, including retaining walls,
residential framing, commercial building framing, light-gage steel fabrication
drawings, metal building retrofits and additions, mezzanines, and seismic
anchors and restraints.
Providence has designed numerous foundations for a variety of structures. Its
foundation design expertise includes metal building foundations, traditional
building construction foundations, atypical foundations for residential
structures, tower foundations, and sign foundations for a variety of uses and
applications.
Providence has also designed and drafted full building plans for several
applications. When subcontracting with local professional firms, Providence has
the ability to provide basic architectural, mechanical, electrical, and detailed
civil and structural design services for these facilities.
Providence has reviewed designs by manufacturers for a variety of structures and
structural components, including retaining walls, radio towers, tower
foundations, sign foundations, timber trusses, light-gage steel trusses, and
light-gage steel beams. This service enables clients to take generic designs and
have them certified and approved for construction in the desired locality.
Distribution Methods of Products and Services
--------------------------------------------------
The Company's sales are primarily retail, directly to contractors and
do-it-yourself homeowners in Virginia and North Carolina. Approximately 20% of
the Company's sales are wholesale to lumberyards, home improvement stores,
hardware stores, and plumbing and electrical suppliers in Virginia and North
Carolina. Metwood relies primarily on its own sales force to generate sales;
additionally, however, the Company has distributors in Virginia, New York,
Oklahoma, Arizona and Colorado and also utilizes the salespeople of wholesale
yards stocking the Company's products as an additional sales force. The Company
is in discussions with national engineered I-joist manufacturers who are
interested in marketing the Company's products and expects to announce
affiliations with these companies in the near future. Metwood intends to
continue expanding the wholesale marketing of its unique products to retailers
and to license the Company's technology and products to increase its
distribution outside of Virginia, North Carolina and the South.
11
Status of Publicly Announced New Products or Services
------------------------------------------------------------
The Company has acquired four new patents through assignment from Robert
Callahan and Ronald Shiflett, the patent holders. All four patents reflect
various modifications to the Company's Joist Reinforcing Bracket which will make
it even easier for tradesmen to insert utility conduits through wood joists.
Seasonality of Market
-----------------------
The Company's sales are subject to seasonal impacts, as its products are used in
residential and commercial construction projects which tend to be at peak levels
in Virginia and North Carolina between the months of March and October.
Accordingly, the Company's sales are greater in its fourth and first fiscal
quarters. The Company builds an inventory of its products throughout the winter
and spring to support its sales season.
Competition
-----------
Nationally, there are over one hundred manufacturers of the types of products
produced by the Company. However, the majority of these manufacturers are using
wood-only products or products without metal reinforcement. Metwood has
identified only one other manufacturer in the United States that manufactures a
wood-metal floor truss similar to that of the Company. However, Metwood has
often found that its products are the only ones that will work within many
customers' design specs.
Sources and Availability of Raw Materials and the Names of Principal Suppliers
--------------------------------------------------------------------------------
All of the raw materials used by the Company are readily available on the market
from numerous suppliers. The light-gage metal used by the Company is supplied
primarily by Dietrich Industries, Marino-Ware, and Consolidated Systems, Inc.
The Company's main sources of lumber are Lowe's, 84 Lumber Company and Smith
Mountain Building Supply. Gerdau Amersteel, Descosteel and Adelphia Metals
provide the majority of the Company's rebar. Because of the number of suppliers
available to the Company, its decisions in purchasing materials are dictated
primarily by price and secondarily by availability. The Company does not
anticipate a lack of supply to affect its production; however, a shortage might
cause the Company to pass on higher materials prices to its buyers.
Dependence on One or a Few Major Customers
-------------------------------------------------
Presently the Company does not have any one customer whose loss would have a
substantial impact on the Company's operations.
Patents
-------
The Company's eight U.S. Patents are:
U.S. Patent No. 5,519,977, "Joist Reinforcing Bracket," a bracket that
reinforces wooden joists with a hole for the passage of a utility conduit. The
Company refers to this as its Floor Joist Patch Kit.
12
U.S. Patent No. 5,625,997, "Composite Beam," a composite beam that includes an
elongated metal shell and a pierceable insert for receiving nails, screws or
other penetrating fasteners.
U.S. Patent No. 5,832,691, "Composite Beam," a composite beam that includes an
elongated metal shell and a pierceable insert for receiving nails, screws or
other penetrating fasteners. This is a continuation-in-part of U.S. Patent No.
5,625,997.
U.S. Patent No. 5,921,053, "Internally Reinforced Girder with Pierceable
Nonmetal Components," a girder that includes a pair of c-shaped members secured
together so as to form a hollow box, which permits the girder to be secured
within a building structure with conventional fasteners such as nails, screws
and staples.
U.S. Patent Nos. D472,791S; D472,792S; D472,793S; and D477,210S, all
modifications of Metwood's Joist Reinforcing Bracket, which will be used for
repairs of wood I-joists.
Each of these patents was originally issued to the inventors and Company
founders, Robert Callahan and Ronald Shiflett, who licensed these patents to the
Company.
Need for Government Approval of Principal Products
--------------------------------------------------------
The Company's products must either be sold with an engineer's seal or applicable
building code approval. Once that approval is obtained, the products can be used
in all fifty states. The Company's Floor Joist Reinforcer received Bureau
Officials Code Association ("BOCA") approval in April 2001. Currently, the
Company's chief engineer has obtained professional licensure in several states
which permit products not building code approved to be sold and used with his
seal. The Company expects his licensure in a growing number of states to greatly
assist in the uniform acceptability of its products as it expands to new
markets.
Time Spent During the Last Two Fiscal Years on Research and Development
--------------------------------------------------------------------------------
Activities
----------
Approximately fifteen percent of the Company's time and resources have been
spent during the last two fiscal years researching and developing its metal/wood
products, new product lines, and new patents.
Costs and Effects of Compliance with Environmental Laws
--------------------------------------------------------------
The Company does not incur any costs to comply with environmental laws. It is an
environmentally friendly business in that its products are fabricated from
recycled steel.
Number of Total Employees and Number of Full-Time Employees
-------------------------------------------------------------------
The Company had twenty-one employees at September 30, 2004, twenty of whom were
full time.
13
Results of Operations
Net Income
-----------
The Company had net income of $138,447 for the three months ended September 30,
2004, versus net income of $43,908 for the three months ended September 30,
2003. This represents an increase in net income of $94,539 for the three months
ended September 30, 2004. The increase in net income for the quarter ended
September 30, 2004 over 2003 resulted from gross sales, which increased by 87%
to $1,114,821 from $595,558 for the three months in 2004 compared to 2003 and
fairly constant administrative expenses.
Revenues
--------
Gross sales were $1,114,821 for the three months ended September 30, 2004
compared to $595,558 for the same period in 2003, an increase of $519,263, or
87%. These increases resulted from a combination of greater sales volume, an
average increase of 20% in selling prices and materials costs decrease.
The Company's significant growth in 2004 sales over 2003 resulted from several
factors, all of which will continue to have a positive impact on sales into the
future. Awareness of the Company's products has increased as a result of
aggressive marketing campaigns, and its patented, innovative products are
becoming known throughout the country. The Company's customer base continues to
grow as a result. Additionally, new products using the technology of the
Company's four newly issued patents began production at the beginning of the
current fiscal year and contributed to the growth in revenues for the three
months ending September 30, 2004.
14
Expenses
--------
Total administrative expenses were $284,152 for the quarter ended September 30,
2004, versus $194,325 for the quarter ended September 30, 2003, an increase of
$89,827 (46%). Areas of particular increase for the three months ended September
30, 2004 over 2003 were advertising (676%), professional fees (464%), vehicle
expense (61%) and depreciation (23%). Advertising and professional fees
increased as we attended more trade shows, ran more advertisements in industry
trade magazines and incurred more trade show fees in order to increase in sales
as mentioned above. Professional fees also increased due to increased audit and
compliance fees, including Sarbanes-Oxley compliance, in maintaining our
publicly traded status.
Liquidity and Capital Reserves
---------------------------------
On September 30, 2004, the Company had cash of $63,526 and working capital of
$399,763. Net cash provided by operating activities was $33,542 for the three
months ended September 30, 2004 compared to net cash provided by operating
activities of $103,246 for the three months ended September 30, 2003. The lesser
provision of cash in the current year resulted primarily from a decrease in
account payable, accrued expenses and customer deposits that required a current
cash outlay.
Net cash used in investing activities was $14,735 for the three months ended
September 30, 2004 compared to net cash used of $37,844 during the same period
in the prior year. Cash flows used in investing activities for the current
period were for shop equipment, office equipment, computers, software ($4,991),
vehicles (9,744).
Cash provided from financing activities totaled $6,983 for the three months
ended September 30, 2004 as compared to $34,388 provided for the three months
ended September 30, 2003. During the period ended September 30, 2004, the
Company issued 15,750 unregistered and restricted common shares of stock for
$7,875 to unrelated individuals.
ITEM 3 - CONTROLS AND PROCEDURES
Quarterly Evaluation of Controls
As of the end of the period covered by this quarterly report on Form
10-QSB, we evaluated the effectiveness of the design and operation of (i) our
disclosure controls and procedures ("Disclosure Controls"), and (ii) our
internal control over financial reporting ("Internal Controls"). This evaluation
("Evaluation") was performed by our Chief Executive Officer, Robert M. Callahan
("CEO") and Shawn Callahan, our Chief Financial Officer. In this section, we
present the conclusions of our CEO and CFO based on and as of the date of the
Evaluation, (i) with respect to the effectiveness of our Disclosure Controls,
and (ii) with respect to any change in our Internal Controls that occurred
during the most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect our Internal Controls.
CEO and CFO Certifications
Attached to this annual report, as Exhibits 31.1 and 31.2, are certain
certifications of the CEO and CFO, which are required in accordance with the
Exchange Act and the Commission's rules implementing such section (the "Rule
13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains
the information concerning the Evaluation referred to in the Rule
13a-14(a)/15d-14(a) Certifications. This information should be read in
conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete
understanding of the topic presented.
Disclosure Controls and Internal Controls
Disclosure Controls are procedures designed with the objective of ensuring
that information required to be disclosed in our reports filed with the
Commission under the Exchange Act, such as this annual report, is recorded,
processed, summarized and reported within the time period specified in the
Commission's rules and forms. Disclosure Controls are also designed with the
objective of ensuring that material information relating to the Company is made
known to the CEO and the CFO by others, particularly during the period in which
the applicable report is being prepared. Internal Controls, on the other hand,
are procedures which are designed with the objective of providing reasonable
assurance that (i) our transactions are properly authorized, (ii) the Company's
assets are safeguarded against unauthorized or improper use, and (iii) our
transactions are properly recorded and reported, all to permit the preparation
of complete and accurate financial statements in conformity with accounting
principals generally accepted in the United States.
Limitations on the Effectiveness of Controls
Our management 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 developed and operated, can provide only reasonable, but not absolute
assurance that the objectives of the control system are met. Further, the design
of the 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 so
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 a 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 in achieving its stated objectives under all
potential future conditions. Over time, control may become inadequate because of
changes in conditions, or because 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.
Scope of the Evaluation
The CEO and CFO's evaluation of our Disclosure Controls and Internal
Controls included a review of the controls' (i) objectives, (ii) design, (iii)
implementation, and (iv) the effect of the controls on the information generated
for use in this annual report. In the course of the Evaluation, the CEO and CFO
sought to identify data errors, control problems, acts of fraud, and they sought
to confirm that appropriate corrective action, including process improvements,
was being undertaken. This type of evaluation is done on a quarterly basis so
that the conclusions concerning the effectiveness of our controls can be
reported in our quarterly reports on Form 10-QSB and annual reports on Form
10-KSB. The overall goals of these various evaluation activities are to monitor
our Disclosure Controls and our Internal Controls, and to make modifications if
and as necessary. Our external auditors also review Internal Controls in
connection with their audit and review activities. Our intent in this regard is
that the Disclosure Controls and the Internal Controls will be maintained as
dynamic systems that change (including improvements and corrections) as
conditions warrant.
Among other matters, we sought in our Evaluation to determine whether there
were any significant deficiencies or material weaknesses in our Internal
Controls, which are reasonably likely to adversely affect our ability to record,
process, summarize and report financial information, or whether we had
identified any acts of fraud, whether or not material, involving management or
other employees who have a significant role in our Internal Controls. This
information was important for both the Evaluation, generally, and because the
Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO
disclose that information to our Board (audit committee), and to our independent
auditors, and to report on related matters in this section of the annual report.
In the professional auditing literature, "significant deficiencies" are referred
to as "reportable conditions". These are control issues that could have
significant adverse affect on the ability to record, process, summarize and
report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce, to a relatively low level,
the risk that misstatement cause by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employee in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Evaluation, and in each case, if a problem was identified; we considered what
revisions, improvements and/or corrections to make in accordance with our
ongoing procedures.
Conclusions
Based upon the Evaluation, the Company's CEO and CFO have concluded that,
subject to the limitations noted above, our Disclosure Controls are effective to
ensure that material information relating to the Company is made known to
management, including the CEO and CFO, particularly during the period when our
periodic reports are being prepared, and that our Internal Controls are
effective to provide reasonable assurance that our financial statements are
fairly presented inconformity with accounting principals generally accepted in
the United States. Additionally, there has been no change in our Internal
Controls that occurred during our most recent fiscal quarter that has materially
affected, or is reasonably likely to affect, our Internal Controls.
ITEM 4 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have any material risk with respect to changes in foreign currency
exchange rates, commodities prices or interest rates. We do not believe that we
have any other relevant market risk with respect to the categories intended to
be discussed in this item of this report.
15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
During the three months ended September 30, 2004, the Company issued 15,750
unregistered and restricted common shares of stock to unrelated individuals.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended September 30, 2004, the majority of the security
holders voted to issue 15,750 unregistered and restricted common shares of stock
to unrelated individuals.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See index to exhibits.
(b) Reports on Form 8-K
Registrant's Annual Report on Form 10-KSB for the year ended June 30, 2004
is incorporated by reference herein.
An 8-K was filed on November 12, 2004 for a Change in Registrant's
Certifying Accountant, as incorporated by reference herein.
16
SIGNATURES
In accordance with 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.
/s/ Robert M. Callahan
-----------------------
Robert M. Callahan
Date: November 17, 2004 Chief Executive Officer
/s/ Shawn Callahan
-----------------------
Shawn Callahan
Chief Financial Officer
INDEX TO EXHIBITS
NUMBER DESCRIPTION OF EXHIBIT
------ ------------------------
3(i)* Articles of Incorporation
3(ii)* By-Laws
31.1 Certification of Chief Executive Officer Pursuant to Securities
Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Securities
Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350)
* incorporated by reference