form10-q.htm
 


UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
           
           
FORM 10-Q
           
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2010
 
           
[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from ________ to ________
 
           
           
Commission File Number 000-05391
 
           
METWOOD, INC.
(Exact name of small business issuer as specified in its charter)
 
           
NEVADA                                                   83-0210365
(State or other jurisdiction  of incorporation)         (IRS Employer Identification No.)
                   
           
819 Naff Road, Boones Mill, VA 24065
 
(Address of principal executive offices) (Zip code)
 
           
(540) 334-4294
(Registrant's telephone number, including area code)
 
           
 
N/A
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
           
 
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 [   ]
       
           
 
Indicate by check mark whether the regiatrant is a large accelerated filer, an accelerated filer, a
 
 
non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act:
 
           
 
                                Large accelerated filer [   ]           Non-accelerated filer [   ]
 
 
                                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 ]
 
           
 
As of April 29, 2010, the number of shares outstanding of the registrant's common stock,
$0.001 par value (the only class of voting stock), was 12,231,797 shares.
 
 

1

 
 

 
    METWOOD, INC. AND SUBSIDIARY
 TABLE OF CONTENTS - FORM 10-QSB
         
         
         
PART I - FINANCIAL INFORMATION
Page(s)
         
Item 1
  Financial Statements
 
         
 
  Consolidated Balance Sheets As of March 31, 2010 (Unaudited) and June 30, 2009
3-4
         
 
  Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended March 31, 2010 and 2009
5
         
 
  Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended March 31, 2010 and 2009
6
         
 
  Notes to Consolidated Financial Statements
7-8
     
Item 2
  Management's Discussion and Analysis of Financial Condition and Results of Operations
9
         
Item 4
  Controls and Procedures
11
         
PART II - OTHER INFORMATION
 
         
Item 6
  Exhibits and Reports on Form 8-K
11
         
Signatures
   
11
         
Index to Exhibits
   
12
         

2

 
METWOOD, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
 
   
   
             
   
(UNAUDITED)
   
(AUDITED)
 
   
March 31,
   
June 30,
 
   
2010
   
2009
 
ASSETS
           
             
Current Assets
           
Cash and cash equivalents
  $ 201,029     $ 199,868  
Accounts receivable, net
    325,233       383,673  
Inventory
    936,197       912,169  
Recoverable income taxes
    100,903       90,533  
Prepaid expenses
    42,836       49,239  
                 
Total current assets
    1,606,198       1,635,482  
                 
Property and Equipment
               
Leasehold and land improvements
    210,652       208,233  
Furniture, fixtures and equipment
    103,698       101,319  
Computer hardware, software and peripherals
    218,024       211,861  
Machinery and shop equipment
    400,140       403,731  
Vehicles
    378,141       378,141  
      1,310,655       1,303,285  
Less accumulated depreciation
    (918,973 )     (834,811 )
                 
Net property and equipment
    391,682       468,474  
                 
Goodwill
    253,088       253,088  
                 
TOTAL ASSETS
  $ 2,250,968     $ 2,357,044  
                 
See accompanying notes to consolidated financial statements.

 
3

 
METWOOD, INC. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEET
 
             
   
(UNAUDITED)
   
(AUDITED)
 
   
March 31,
   
June 30,
 
   
2010
   
2009
 
LIABILITIES AND STOCKHOLDERS' EQUITY
           
             
Current Liabilities
           
Accounts payable and accrued expenses
  $ 166,346     $ 85,269  
                 
Total current liabilities
    166,346       85,269  
                 
Long-term Liabilities
               
Deferred income taxes, net
    54,890       82,344  
                 
Total long-term liabilities
    54,890       82,344  
                 
Total liabilities
    221,236       167,613  
                 
Stockholders' Equity
               
Common stock, $.001 par, 100,000,000 shares authorized;
               
   12,231,797 shares issued and outstanding at March 31, 2010
    12,232       12,232  
Common stock not yet issued ($.001 par, 8,150 shares)
    8       8  
Additional paid-in capital
    1,544,268       1,544,268  
Retained earnings
    473,224       632,923  
                 
Total stockholders' equity
    2,029,732       2,189,431  
                 
TOTAL LIABILITIES
               
  AND STOCKHOLDERS' EQUITY
  $ 2,250,968     $ 2,357,044  
                 
See accompanying notes to consolidated financial statements.
 
4

 
METWOOD, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(UNAUDITED)
 
                         
   
Three Months Ended
   
Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2010
   
2009
   
2010
   
2009
 
REVENUES
                       
                         
Construction sales
  $ 407,207     $ 495,747     $ 1,469,584     $ 2,289,911  
Engineering sales
    48,006       44,842       140,598       179,710  
Gross sales
    455,213       540,589       1,610,182       2,469,621  
                                 
Cost of construction sales
    196,141       454,777       874,071       1,466,197  
Cost of engineering sales
    37,595       41,934       121,515       136,768  
Gross cost of sales
    233,736       496,711       995,586       1,602,965  
                                 
Gross profit
    221,477       43,878       614,596       866,656  
                                 
ADMINISTRATIVE EXPENSES
                               
Advertising
    14,476       38,701       56,370       81,598  
Bad debt provision
    42,784       30,095       42,764       29,575  
Depreciation
    12,559       15,818       39,213       46,147  
Payroll expenses
    165,559       158,637       470,667       484,447  
  Rent
    19,800       19,800       59,400       59,400  
  Other
    70,492       80,249       229,817       317,588  
Total administrative expenses
    325,670       343,300       898,231       1,018,755  
                                 
Operating loss
    (104,193 )     (299,422 )     (283,635 )     (152,099 )
                                 
Other income
    7,100       5,881       22,536       20,871  
                                 
Loss before income tax benefit
    (97,093 )     (293,541 )     (261,099 )     (131,228 )
                                 
Income tax benefit
    (60,671 )     (117,591 )     (101,400 )     (61,990 )
                                 
Net loss from operations
  $ (36,422 )   $ (175,950 )   $ (159,699 )   $ (69,238 )
                                 
Basic and diluted deficit per share
    **     $ (0.01 )   $ (0.01 )   $ (0.01 )
                                 
Weighted average number of shares
    12,231,797       12,277,381       12,231,797       12,266,836  
                                 
**Less than $0.01
                               
                                 
See accompanying notes to consolidated financial statements.
 
5

 
METWOOD, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)
 
             
   
Nine Months Ended
 
   
March 31,
 
   
2010
   
2009
 
OPERATIONS
           
Net loss
  $ (159,699 )   $ (69,238 )
Adjustments to reconcile net income
               
to net cash from operating activities:
               
Depreciation
    84,162       97,587  
Reversal of deferred income taxes
    (27,454 )     (10,227 )
(Increase) decrease in operating assets:
               
Accounts receivable
    58,440       284,616  
Inventory
    (24,028 )     244,480  
Recoverable income taxes
    (10,370 )     (51,763 )
Other operating assets
    6,403       (8,340 )
Increase (decrease) in operating liabilities:
               
Accounts payable and accrued expenses
    81,077       (291,673 )
Net cash from operating activities
    8,531       195,442  
                 
INVESTING
               
Capital expenditures
    (11,770 )     (70,076 )
Proceeds from disposal of assets
    4,400       12,495  
Net cash used for investing activities
    (7,370 )     (57,581 )
                 
FINANCING
               
Decrease in credit line
    -       (100,000 )
Proceeds from issuance of common stock
    -       2,161  
Net cash used for financing activities
    -       (97,839 )
                 
Net increase in cash
    1,161       40,022  
                 
Cash, beginning of the year
    199,868       67,880  
                 
Cash, end of the period
  $ 201,029     $ 107,902  
                 
                 
                 
See accompanying notes to consolidated financial statements.

6

 
 
METWOOD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(UNAUDITED)
                   
NOTE 1 - ORGANIZATION AND OPERATIONS
         
                   
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.  The transaction was accounted for under the purchase method of accounting.  Liabilities assumed at the date of acquisition were identified, paid and added to goodwill.
                   
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.
                   
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
   
                   
Basis of Presentation - The financial statements include the accounts of Metwood, Inc. and its wholly owned subsidiary, Providence Engineering, PC, 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.
                   
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 March 31, 2010, are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2010.
                   
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, 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  - We grant credit in the form of unsecured accounts receivable to our customers based on an evaluation of their financial condition.  We perform ongoing credit evaluations of our 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 March 31, 2010, the allowance for doubtful accounts was $30,000.  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 the three and nine months ended March 31, 2010,  the amount of bad debts charged off was $17,784 and $17,764, respectively.  For the three and nine months ended March 31, 2009, the amount of bad debts charged off was $30,095 and $29,575, respectively.
 
Inventory - Inventory, consisting of metal and wood raw materials, is located on our 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 is recorded as a gain or loss.
 
Goodwill - We account for goodwill and intangibles under SFAS No. 142, “Goodwill and Other Intangible Assets.” As such, goodwill is not amortized, but is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be an impairment. We performed our required annual goodwill impairment test as of June 30, 2009 using discounted cash flow estimates and found that there was no impairment of goodwill.
 
Impairment of Long-lived Assets - We evaluate our long-lived assets for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability is measured by comparing the carrying amounts to the future net undiscounted cash flows which the assets are expected to generate. Should an impairment exist, the impairment would be measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset. There have been no such impairments of long-lived assets through March 31, 2010.
 
Patents - We have been assigned several key product patents developed by certain Company officers.  No value has been recorded in our financial statements because the fair value of the patents was not determinable within reasonable limits at the date of assignment.
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 carryforwards, 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 - We perform research and development on our metal/wood products, new product lines, and new patents.  Costs, if any, are expensed as they are incurred.  Research and development costs for the three months ended March 31, 2010 and 2009 were $5,310 and $7,075, respectively.  For the nine months ended March 31, 2010 and 2009, research and development costs were $6,270 and $33,590, 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.
                   
Recent Accounting Pronouncements - In April 2009, the FASB issued SFAS No. 167 (“SFAS 167”), Amendments to FASB Interpretation No 46(R). SFAS 167 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (“VIE”), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. SFAS 167 is effective for annual reporting periods beginning after November 15, 2009. The adoption of SFAS No. 167 is not expected to have a material impact on our consolidated financial statements.
                   
In April 2009, the FASB issued SFAS No. 165 (“SFAS 165”), Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. We adopted SFAS 165 for the quarter ending June 30, 2009. The adoption of SFAS 165 did not have a material impact on our consolidated financial statements.

7

 
METWOOD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(UNAUDITED)
 
In April 2009, the FASB issued three FASB Staff Positions ("FSP") that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured. FSP 115-2 and FSP 124-2 establish a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income.   FSP 107-1  and APB 28-1  expand the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to interim periods. All three FSPs were effective for the Company beginning July 1, 2009.  The adoption of SFAS 165 did not have a material impact on our consolidated financial statements.
                       
In June 2009, the FASB issued SFAS No. 168 (“SFAS 168”), The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. SFAS 168 identifies the FASB Accounting Standards Codification as the authoritative source of generally accepted accounting principles in the United States. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of SFAS 168 has not had a material impact on our consolidated financial statements.
                       
On July 1, 2009, the Financial Accounting Standards Board Accounting Standards Codification™ (“Codification” or “ASC”) became the single source of authoritative GAAP (other than rules and interpretive releases of the U.S. Securities and Exchange Commission). The Codification is topically based with topics organized by ASC number and updated with Accounting Standards Updates (“ASUs”). ASUs will replace accounting guidance that historically was issued as FASB Statements (“SFAS”), FASB Interpretations (“FIN”), FASB Staff Positions (“FSP”), Emerging Issue Task Force (“EITF”) Issues or other types of accounting standards. The Codification became effective September 30, 2009 for the Company, and disclosures within this Quarterly Report on Form 10-Q have been updated to reflect the change.
In December 2009, the FASB issued Accounting Standards Update 2009-16 (ASU 2009-16) which improves financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The pending content that links to this paragraph shall be effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, and for interim periods within that first annual reporting period and interim and annual reporting periods thereafter. This Update is not expected to have a material impact on the Company’s consolidated financial statements.
 
NOTE 3 - EARNINGS PER SHARE
   
                       
Net income (loss) and earnings per share for the three and nine months ended March 31, 2010 and 2009 are as follows:
                       
         
For the Three Months Ended
 
For the Nine Months Ended
         
March 31,
 
March 31,
         
2010
 
2009
 
2010
 
2009
Net loss
     
 $    (36,422)
 
 $  (175,950)
 
 $  (159,699)
 
 $    (69,238)
Deficit per share - basic and fully diluted
 $     **
 
 $        (0.01)
 
 $        (0.01)
 
 $        (0.01)
Weighted average number of shares
  12,231,797
 
  12,277,381
 
  12,231,797
 
  12,266,836
                       
**Less than $0.01
                 
                       
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
                       
Supplemental disclosures of cash flow information for the three and nine months ended March 31, 2010 and 2009 are summarized as follows:
                       
         
For the Three Months Ended
 
For the Nine Months Ended
         
March 31,
 
March 31,
         
2010
 
2009
 
2010
 
2009
 
Cash paid for:
                 
 
Income taxes
   
 $     --
 
 $     --
 
 $     --
 
 $     --
 
Interest
     
 $     --
 
 $           779
 
 $     --
 
 $        1,251
                       
NOTE 5 - RELATED-PARTY TRANSACTIONS
           
                       
From time to time, we contract with a company related through common ownership for building and grounds-related maintenance services.  There were no fees paid to the related company for the three and nine months ended March 31, 2010 and 2009.  For the three months ended March 31, 2010 and 2009, we had sales of $6,478 and $6,252, respectively, to the company referred to above.  For the nine months ended March 31, 2010 and 2009, we had sales of $11,890 and $22,130 to the company.  As of March 31, 2010 and 2009, the related receivable was $6,478 and $6,310, respectively.  See also Note 8.
                       
NOTE 6 - BANK CREDIT LINE
             
                       
The Company has available a $600,000 revolving line of credit with a local bank.  The balances outstanding at March 31, 2010 and 2009 were $-0- and $50,000, respectively.

NOTE 7 - SEGMENT INFORMATION
             
                         
We operate 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 and nine months ended March 31, 2010 and 2009, as excerpted from internal management reports, is as follows:
 
                         
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 31,
   
March 31,
 
Construction:
 
2010
   
2009
   
2010
   
2009
 
Sales
  $ 407,207     $ 495,747     $ 1,469,584     $ 2,289,911  
Intersegment expenses
    (23,936 )     (9,000 )     (43,046 )     (36,760 )
Cost of sales
    (196,141 )     (454,777 )     (874,071 )     (1,466,197 )
Corporate and other expenses
    (241,345 )     (205,163 )     (729,166 )     (883,607 )
     Segment income (loss)
  $ (54,215 )   $ (173,193 )   $ (176,699 )   $ (96,653 )
                                 
Engineering:
                               
Sales
  $ 48,006     $ 44,842     $ 140,598     $ 179,710  
Intersegment revenues
    23,936       9,000       43,046       36,760  
Cost of sales
    (37,595 )     (41,934 )     (121,515 )     (136,768 )
Corporate and other expenses
    (16,554 )     (14,665 )     (45,129 )     (52,287 )
     Segment income (loss)
  $ 17,793     $ (2,757 )   $ 17,000     $ 27,415  
                                 
NOTE 8 - OPERATING LEASE COMMITMENTS
                       
   
On January 3, 2005, the Company entered into a ten-year commercial operating lease with a company related through common ownership. The lease covers various buildings and property which house our manufacturing plant, executive offices and other buildings with a current monthly rental of $6,600. The lease expires on December 31, 2014. For both the three months ended March 31, 2010 and 2009, we recognized rental expense for these spaces of $19,800; and for both the nine months ended March 31, 2010 and 2009, we recognized rental expense and $59,400.
 

 
8


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, we were 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 ("Mike") 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 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.
                   
Metwood's primary products and services are:
 
 
    ·  Girders and headers
·  Garage, deck and porch concrete pour-over systems
 
    ·  Floor joists
·  Garage and post-and-beam buildings
 
    ·  Floor joist reinforcers
·  Engineering, design and custom building services
 
    ·  Roof and floor trusses
           
Providence
           
                 
Providence is extensively involved in ongoing product research and development for Metwood.  Additionally, Providence offers its customers 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
   
                 
Our sales are primarily wholesale, directly to local contractors, 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.  We are an authorized vendor for Lowe's, Home Depot, 84 Lumber, The Contractor Yard, and many more.  We have several stocking dealers of our square columns and reinforcing products.  We will sell directly to contractors in areas where we do not have a dealer, but with our national dealer relationships,  we typically  have a dealer to use.  Metwood  intends  to continue  expanding  the  wholesale  marketing  of  its unique products to retailers,   to increase dealer  sales,  and  to license the Company's technology and products to increase its distribution outside of Virginia, North Carolina and the South.
Status of Publicly Announced New Products or Services
                     
Currently, there are no publicly announced new products or services.
                     
Seasonality of Market
                     
Our sales are subject to seasonal impacts, as our 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, our sales are greater in our fourth and first fiscal quarters.  We build an inventory of our products throughout the winter and spring to support our sales season.  Due to the seasonality of our local market, we are continuing our efforts to expand into markets that are not so seasonally impacted.  We have shipped projects to Florida, Georgia, South Carolina, Arizona, Washington, and more.  These markets have some seasonality, but increased exposure in these markets wil help maintain stronger sales year round.
                     
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 ours.  However, we have often found that our 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 we use are readily available on the market from numerous suppliers.  The light-gage metal used by the Company is supplied primarily by Dietrich Industries, Nuconsteel, Clark Western, and Wheeling Corrugating.  Our main source of lumber is BlueLinx.  Nucor and Gerdau Amersteel provide the majority of our rebar.  Because of the number of suppliers available to us, our decisions in purchasing materials are dictated primarily by price and secondarily by availability.  We do not anticipate a lack of supply to affect our production; however, a shortage might cause us to pass on higher materials prices to our buyers.
                     
Dependence on One or a Few Major Customers
             
                     
For the three and nine months ended March 31, 2010 and 2009, sales to certain customers amounted to more than 5% of total sales.  Those customers and the related percent of sales greater than 5% were as follows:
                     
       
Three Months Ended
 
Nine Months Ended
       
March 31,
 
March 31,
       
2010
 
2009
 
2010
 
2009
 
84 Lumber
   
9%
 
6%
 
6%
 
6%
 
Architecture-Planning & Development
-
 
7%
 
-
 
12%
 
Capps Home Building
   
-
 
7%
 
-
 
-
 
English Construction
   
-
 
7%
 
-
 
-
 
Ideal Building Supply
   
-
 
7%
 
-
 
-
 
Probuild Company
   
9%
 
9%
 
8%
 
10%
 
Southern Management Corporation
6%
 
-
 
-
 
-
 
Timber Truss
   
9%
 
7%
 
6%
 
-
                     

 
9


Patents
 
The Company has nine U.S. Patents:
 
     U.S. Patent Nos. 5,519,977 and 7,347,031, "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.
 
     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 Reinforcing Bracket, which will be used for repairs of wood I-joists.
 
Need for Government Approval of Principal Products
 
Our products must either be sold with an engineer's seal or applicable building code approval.  The Company's chief engineer has obtained professional licensure in several states, which permits products not building code approved to be sold and used with his seal.   We expect his licensure in a growing number of states to greatly assist in the uniform acceptability of our products as we expand to new markets. Currently, we are seeking CCR code compliance on our beams.  Once that approval is obtained, our products can be used in all fifty states and will eliminate the need for an engineer's seal on individual products.  To date, the Company's 2x10 floor joist reinforcer has received both Bureau Officials Code Association approval (2001) and ICC approval (2004).
 
Time Spent During the Last Two Fiscal Years on Research and Development Activities
 
Approximately fifteen percent of our 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
 
We do not incur any costs to comply with environmental laws.  We are an environmentally friendly business in that our products are fabricated from recycled steel.
 
 
Number of Total Employees and Number of Full-Time Employees
 
The Company had twenty employees at March 31, 2010, all of whom were full time.
 
Results of Operations
 
Net Loss
 
We had a net loss of $36,422 for the three months ended March 31, 2010, versus a net loss of $175,950 for the three months ended March 31, 2009, a decrease in loss of $139,528, or 79%.  Construction sales decreased 18% comparing 2010 to 2009; however, cost of sales decreased 57% comparing 2010 to 2009.  Engineering sales increased 7% comparing 2010 to 2009. The cost of engineering sales decreased 10% comparing 2010 to 2009.  Administrative expenses decreased 5% comparing the three months ended March 31, 2010 to the same period in 2009.
 
For the nine months ended March 31, 2010 and 2009, we went from a net loss of $69,238 to a net loss of $159,699, a decline of $90,461 comparing the two periods.  While administrative costs did decrease 12% comparing the nine months ended March 31, 2010 compared to the same period in 2009, this improvement was not enough to strengthen the bottom line.
 
Management is currently discussing the possibility of taking the Company private as a means of rasing capital, improving the bottom line, and removing the high compliance costs incurred as a public company.  The present economic environment may make privatization the best option as the Company goes forward.
 
Sales
 
Gross sales were $455,213 for the three months ended March 31, 2010 compared to $540,589 for the same period in 2009, a decrease of $85,376, or 16%.  For the nine-month periods ended March 31, 2010 and 2009, sales were $1,610,182 and $2,469,621, respectively, a decrease of $859,439, or 39%.  The sales decline for both the three-month and nine-month periods in 2010 versus 2009 reflects a general downtown in the building industry.  Although we have sold product in over twenty-five states since July 2007, our local market is down more than 30%.
 
Expenses
 
Total administrative expenses were $325,670 for the three months ended March 31, 2010, versus $343,300 for the three months ended March 31, 2009, a decrease of $17,630, or 5%.  For the nine months ended March 31, 2010, administrative expenses were $898,231 compared to $1,018,755 for the nine months ended March 31, 2009, a decrease of $120,524, or 12%.  Advertising costs continue to decline as we reduce the number of out-of-state building shows we attend.
 
Liquidity and Capital Reserves
 
On March 31, 2010, we had cash of $201,029 and working capital of $1,439,852.  Net cash provided from operating activities was $8,531 for the nine months ended March 31, 2010 compared to net cash from operating activities of $195,442 for the nine months ended March 31, 2009.  The lower provision of cash from operating activities in the current year resulted primarily from the increase in inventory, accounts payable and accrued expenses.
 
Cash used in investing activities was $7,370 for the nine months ended March 31, 2010, compared to cash used of $57,581 during the same period in the prior year.  Cash flows used in investing activities for the current period were for shop equipment ($809); computers and computer software ($6,163); furniture and fixtures ($2,378); and leasehold improvements ($2,420), less disposals of $4,400.
 
Cash used in financing activities was $-0- for the nine months ended March 31, 2010 compared to cash used of $97,839 for the period ended March 31, 2009.  The net cash used in 2009 was to pay off the Company's credit line balance less proceeds from stock issuance of $2,161.
 
10

 
ITEM 4 - CONTROLS AND PROCEDURES
 
(a) Evaluation of disclosure controls and procedures.
 
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
(b) Changes in internal control over financial reporting.
 
We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. As we grow geographically and with new product offerings, we continue to create new processes and controls as well as improve our existing environment to increase efficiencies. Improvements may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
 
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
 
      (a)  Exhibits
 
             See index to exhibits.
 
      (b)  Reports on Form 8-K
 
             There were no reports on Form 8-K filed during the quarter ended March 31, 2010.
 
 
 
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.
 
Date:  April 29, 2010                                     /s/  Robert M. Callahan
                                                                         Robert M. Callahan
                                                                         Chief Executive Officer
 
Date:  April 29, 2010                                     /s/  Shawn A. Callahan
                                                                         Shawn A. Callahan
                                                                         Chief Financial Officer
 

11

 
INDEX TO EXHIBITS
                   
NUMBER
 
DESCRIPTION OF EXHIBIT
       
                   
3(i)*
 
Articles of Incorporation
         
                   
   3(ii)**
 
By-Laws
             
                   
31.1
 
                   
31.2
 
                   
32
 
                   
*Incorporated by reference on Form 8-K, filed February 16, 2000
     
                   
**Incorporated by reference on Form 8-K, filed February 16, 2000