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NEVADA
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83-0210365
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|
(State
or other jurisdiction
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(IRS
Employer
|
|
of
incorporation)
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Identification
No.)
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819
Naff Road, Boones Mill, VA 24065
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||||
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(Address
of principal executive offices)
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||||
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(540)
334-4294
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||||
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(Issuer's
telephone number)
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METWOOD,
INC. AND SUBSIDIARY
|
|||||||||
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TABLE
OF CONTENTS - FORM 10-QSB
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|||||||||
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PART
I - FINANCIAL INFORMATION
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Page(s)
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||||||||
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Item
1
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Financial
Statements
|
||||||||
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Consolidated
Balance Sheet As of September 30, 2007
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3
|
||||||||
|
Consolidated
Statements of Income for the Three Months Ended September 30, 2007
and
2006
|
4
|
||||||||
|
Consolidated
Statements of Cash Flows for the Three Months Ended September 30,
2007 and
2006
|
5
|
||||||||
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Notes
to Consolidated Financial Statements
|
7-11
|
||||||||
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Item
2
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Management's
Discussion and Analysis
|
12-16
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|||||||
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Item
3
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Controls
and Procedures
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16
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|||||||
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PART
II - OTHER INFORMATION
|
|||||||||
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Item
6
|
Exhibits
and Reports on Form 8-K
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17
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|||||||
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Signatures
|
18
|
||||||||
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Index
to Exhibits
|
19
|
||||||||
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METWOOD,
INC. AND SUBSIDIARY
|
||||
|
CONSOLIDATED
BALANCE SHEET
|
||||
|
AS
OF SEPTEMBER 30, 2007
|
||||
|
(UNAUDITED)
|
||||
|
ASSETS
|
||||
|
Current
Assets
|
||||
|
Cash
and cash equivalents
|
$ |
42,440
|
||
|
Accounts
receivable
|
556,527
|
|||
|
Deposits
|
15,091
|
|||
|
Inventory
|
1,159,749
|
|||
|
Prepaid
expenses
|
62,825
|
|||
|
Recoverable
income taxes
|
54,583
|
|||
|
Total
current assets
|
1,891,215
|
|||
|
Property
and Equipment
|
||||
|
Leasehold
and land improvements
|
163,701
|
|||
|
Furniture,
fixtures and equipment
|
81,351
|
|||
|
Computer
hardware, software and peripherals
|
187,049
|
|||
|
Machinery
and shop equipment
|
380,110
|
|||
|
Vehicles
|
371,501
|
|||
|
1,183,712
|
||||
|
Less
accumulated depreciation
|
(612,969 | ) | ||
|
Net
property and equipment
|
570,743
|
|||
|
Goodwill
|
253,088
|
|||
|
TOTAL
ASSETS
|
$ |
2,715,046
|
||
|
See
accompanying notes to consolidated financial
statements.
|
||||
|
METWOOD,
INC. AND SUBSIDIARY
|
||||
|
CONSOLIDATED
BALANCE SHEET
|
||||
|
AS
OF SEPTEMBER 30, 2007
|
||||
|
(UNAUDITED)
|
||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||
|
Current
Liabilities
|
||||
|
Accounts
payable and accrued expenses
|
$ |
302,388
|
||
|
Total
current liabilities
|
302,388
|
|||
|
Long-term
Liabilities
|
||||
|
Amounts
owed to related-party company
|
35,522
|
|||
|
Deferred
income taxes, net
|
134,467
|
|||
|
Total
long-term liabilities
|
169,989
|
|||
|
Total
liabilities
|
472,377
|
|||
|
Stockholders'
Equity
|
||||
|
Common
stock, $.001 par, 100,000,000 shares authorized;
|
||||
|
12,121,249
shares issued; 12,116,399 outstanding
|
12,121
|
|||
|
Common
stock not yet issued ($.001 par, 2,150 shares)
|
2
|
|||
|
Additional
paid-in capital
|
1,345,734
|
|||
|
Retained
earnings
|
886,612
|
|||
|
2,244,469
|
||||
|
Treasury
stock, at cost
|
(1,800 | ) | ||
|
Total
stockholders' equity
|
2,242,669
|
|||
|
TOTAL
LIABILITIES
|
||||
|
AND
STOCKHOLDERS' EQUITY
|
$ |
2,715,046
|
||
|
See
accompanying notes to consolidated financial
statements.
|
||||
|
METWOOD,
INC. AND SUBSIDIARY
|
||||||||
|
CONSOLIDATED
STATEMENTS OF INCOME
|
||||||||
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
|
||||||||
|
(UNAUDITED)
|
||||||||
|
2007
|
2006
|
|||||||
|
REVENUES
|
||||||||
|
Construction
sales
|
$ |
1,141,513
|
$ |
1,105,956
|
||||
|
Engineering
sales
|
68,655
|
44,568
|
||||||
|
Gross
sales
|
1,210,168
|
1,150,524
|
||||||
|
Cost
of construction sales
|
722,397
|
570,608
|
||||||
|
Cost
of engineering sales
|
63,348
|
45,919
|
||||||
|
Gross
cost of sales
|
785,745
|
616,527
|
||||||
|
Gross
profit
|
424,423
|
533,997
|
||||||
|
ADMINISTRATIVE
EXPENSES
|
||||||||
|
Advertising
|
20,831
|
30,514
|
||||||
|
Bad
debts
|
-
|
23,061
|
||||||
|
Depreciation
|
15,984
|
13,031
|
||||||
|
Insurance
|
21,334
|
19,354
|
||||||
|
Payroll
expenses
|
165,594
|
189,557
|
||||||
|
Professional
fees
|
27,608
|
22,300
|
||||||
|
Rent
|
19,650
|
18,600
|
||||||
|
Research
and development
|
7,576
|
8,000
|
||||||
|
Telephone
|
8,035
|
9,071
|
||||||
|
Travel
|
13,794
|
9,809
|
||||||
|
Vehicle
|
13,472
|
9,073
|
||||||
|
Other
|
36,738
|
34,681
|
||||||
|
Total
administrative expenses
|
350,616
|
387,051
|
||||||
|
Operating
income
|
73,807
|
146,946
|
||||||
|
Other
income (expense)
|
704
|
3,077
|
||||||
|
Income
before income taxes
|
74,511
|
150,023
|
||||||
|
Income
taxes
|
19,952
|
56,349
|
||||||
|
Net
income
|
$ |
54,559
|
$ |
93,674
|
||||
|
Basic
and diluted earnings per share
|
$ |
-
|
$ |
0.01
|
||||
|
Weighted
average number of shares
|
11,989,761
|
11,908,958
|
||||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
|
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
|
||||||||
|
(UNAUDITED)
|
||||||||
|
2007
|
2006
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net
income
|
$ |
54,559
|
$ |
93,674
|
||||
|
Adjustments
to reconcile net income to net cash from operating
|
||||||||
|
activities
|
||||||||
|
Depreciation
|
33,611
|
29,086
|
||||||
|
Provision
for deferred income taxes
|
17,458
|
4,778
|
||||||
|
(Increase)
decrease in operating assets:
|
||||||||
|
Accounts
receivable
|
(156,369 | ) |
11,861
|
|||||
|
Inventory
|
50,689
|
(81,450 | ) | |||||
|
Recoverable
income taxes
|
2,494
|
-
|
||||||
|
Other
operating assets
|
39,382
|
(2,639 | ) | |||||
|
Increase
(decrease) in operating liabilities:
|
||||||||
|
Accounts
payable and accrued expenses
|
41,539
|
(16,520 | ) | |||||
|
Current
income taxes payable
|
-
|
(7,429 | ) | |||||
|
Net
cash from operating activities
|
83,363
|
31,361
|
||||||
|
CASH
FLOWS USED FOR INVESTING ACTIVITIES
|
||||||||
|
Expenditures
for fixed assets
|
(104,024 | ) | (33,715 | ) | ||||
|
Net
cash used for investing activities
|
(104,024 | ) | (33,715 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Proceeds
from issuance of common stock
|
26,614
|
-
|
||||||
|
Purchase
of treasury stock
|
(1,800 | ) |
-
|
|||||
|
Net
cash from financing activities
|
24,814
|
-
|
||||||
|
Net
increase (decrease) in cash
|
4,153
|
(2,354 | ) | |||||
|
Cash,
beginning of the year
|
38,287
|
99,880
|
||||||
|
Cash,
end of the period
|
$ |
42,440
|
$ |
97,526
|
||||
|
See
accompanying notes to consolidated financial
statements.
|
||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
|||||||||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||||||||
|
SEPTEMBER
30, 2007
|
|||||||||
|
(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. In 2002 Metwood purchased from that
shareholder and retired 15,000 of the originally issued 290,000
shares for
$15,000 and in 2004 purchased from that shareholder and retired
the
remaining 275,000 of the originally issued 290,000 shares for $50,000.
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
|
|
During
the year ended June 30, 2003, liabilities assumed at the date of
acquisition were identified and paid. The amount of the
liabilities paid was $23,088, and this amount was 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.
|
|||||||||
|
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.
|
|||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
|||||||||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||||||||
|
SEPTEMBER
30, 2007
|
|||||||||
|
(UNAUDITED)
|
|
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, 2007 are not necessarily indicative of the
results to
be expected for the entire fiscal year ending June 30,
2008.
|
|
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 - 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,
2007, the allowance for doubtful accounts was $-0-. 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
months ended September 30, 2007 and 2006, the amount of bad debts
charged
off was $-0- and $23,061 respectively, including chargeoffs for
the three
months ended September 30, 2006 relating to receivables which have
been
awarded to the Company as a result of lawsuits whose
collectibilit
|
|
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 is recorded as a gain or loss.
|
|
Goodwill
- The Company accounts 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.
The Company performed its required annual goodwill impairment test
as of
June 30, 2007 using discounted cash flow estimates and found that
there
was no impairment of goodwill.
|
|
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.
|
|
METWOOD,
INC. AND SUBSIDIARY
|
|||||||||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||||||||
|
SEPTEMBER
30, 2007
|
|||||||||
|
(UNAUDITED)
|
|
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 - 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, 2007 and 2006, the expenses relating to research
and
development were $7,576 and $8,000, 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 July 2006, the Financial Accounting Standards Board ("FASB")
issued
Interpretation ("FIN") No. 48, "Uncertainty in Income
Taxes." FIN 48 applies to all tax positions within the scope of
Statement 109 and clarifies when and how to recognize tax benefits
in the
financial statements with a two-step approach to recognition and
measurement. FIN 48 became effective for fiscal years beginning
after December 15, 2006. The Company does not believe that the
application of FIN 48 will have a material effect on our consolidated
results of operations or financial position.
|
|||||||||
|
In
September 2006, the SEC released Staff Accounting Bulletin ("SAB")
No.
108, "Considering the Effects of Prior Year Misstatements when
Quantifying
Misstatements in Current Year Financial Statements." SAB 108 provides
interpretive guidance on the SEC's views regarding the process
of
quantifying materiality of financial statement misstatements. SAB
108 is
effective for fiscal years ending after November 15, 2006. The
Company
does not believe that the application of SAB 108 will have a material
effect on our consolidated results of operations or financial
position.
|
|||||||||
|
In
September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value,
establishes a framework and gives guidance regarding the methods
used for
measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 is effective for financial statements issued
for
fiscal years beginning after November 15, 2007, and interim periods
within
those fiscal years. The Company is currently assessing the impact
that
SFAS 157 will have on our consolidated results of operations or
financial
position.
|
|||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
|||||||||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||||||||
|
SEPTEMBER
30, 2007
|
|||||||||
|
(UNAUDITED)
|
|
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for
Financial Assets and Financial Liabilities ("SFAS 159"). SFAS
159 permits entities to choose to measure many financial instruments
and
certain other items at fair value. The objective of SFAS 159 is
to improve financial reporting by providing entities with the opportunity
to mitigate volatility in reported earnings caused by measuring
related
assets and liabilities differently without having to apply complex
hedge
accounting provisions. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. We have not completed our
evaluation of SFAS 159, but we do not currently believe that it
will have
a material impact on our results of operations or financial
position.
|
||||||||||
|
In
February 2007, the EITF issued EITF 07-03, "Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research
and
Development Activities" ("EITF 07-03"). In EITF 07-3, the task
force reached a consensus that nonrefundable advance payments for
goods or
services to be received in the future for use in research and development
activities should be deferred and capitalized. The capitalized
amounts should be expensed as the related goods are delivered or
the
services are performed. EITF 07-03 is effective for new
contracts entered into during fiscal years beginning after December
15,
2007, including interim periods within those fiscal years. We
have not completed our evaluation of EITF 07-03, but we do not
currently
believe that it will have a material impact on our results of operation
or
financial position.
|
||||||||||
|
NOTE
2 - EARNINGS PER SHARE
|
||||||||
|
Net
income and earnings per share for the three months ending September
30,
2007 and 2006 are as follows:
|
||||||||
|
2007
|
2006
|
|||||||
|
Net
income
|
$ |
54,559
|
$ |
93,674
|
||||
|
Income
per share - basic and fully diluted
|
$ |
--
|
$ |
0.01
|
||||
|
Weighted
average number of shares
|
11,989,761
|
11,908,958
|
||||||
|
NOTE
3 - SUPPLEMENTAL CASH FLOW INFORMATION
|
||||||||
|
Supplemental
disclosures of cash flow information for the three months ended
September
30, 2007 and 2006 are summarized as follows:
|
||||||||
|
2007
|
2006
|
|||||||
|
Cash
paid for:
|
||||||||
|
Income
taxes
|
$ |
--
|
$ |
59,000
|
||||
|
Interest
|
$ |
356
|
$ |
--
|
||||
|
NOTE
4 - RELATED-PARTY TRANSACTIONS
|
||||||||
|
From
time to time, the Company contracts 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 months ended September 30, 2007 and 2006. For the three months
ended September 30, 2007 and 2006, the Company had sales of $31,037
and
$25,248, respectively, to the company referred to above. As of
September 30, 2007, the related receivables outstanding were
$54,352. See also Note
7.
|
||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
|||||||||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||||||||
|
SEPTEMBER
30, 2007
|
|||||||||
|
(UNAUDITED)
|
|
NOTE
5 - BANK CREDIT LINE
|
||||||
|
The
Company has available a $600,000 revolving line of credit with
a local
bank. The balance outstanding at September 30, 2007 was
$-0-.
|
||||||
|
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,
2007 and
2006, as excerpted from internal management reports, is as
follows:
|
||||||
|
Construction:
|
2007
|
2006
|
||||||
|
Sales
|
$ |
1,141,513
|
$ |
1,105,956
|
||||
|
Intersegment
expenses
|
(14,512 | ) | (4,837 | ) | ||||
|
Cost
of sales
|
(722,397 | ) | (570,608 | ) | ||||
|
Corporate
and other expenses
|
(353,865 | ) | (436,151 | ) | ||||
|
Segment
income
|
$ |
50,739
|
$ |
94,360
|
||||
|
Engineering:
|
||||||||
|
Sales
|
$ |
68,655
|
$ |
44,568
|
||||
|
Intersegment
revenues
|
14,512
|
4,837
|
||||||
|
Cost
of sales
|
(63,348 | ) | (45,919 | ) | ||||
|
Corporate
and other expenses
|
(15,999 | ) | (4,172 | ) | ||||
|
Segment
income (loss)
|
$ |
3,820
|
$ | (686 | ) | |||
|
NOTE
7 - 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 $6,550. The lease expires on December 31, 2014. For the
three months ended September 30, 2007 and 2006, we recognized rental
expense for these spaces of $19,650 and $18,600,
respectively.
|
||||||
|
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
("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
|
|||||||||
|
The
Company's sales are primarily retail, directly to contractors and
do-it-yourself homeowners in Virginia and North
Carolina. Approximately 90% of the Company's sales are
wholesale to lumberyards, home improvement stores, hardware stores,
and
plumbing and electrical suppliers in Virginia and North Carolina,
including Lowe's and 84 Lumber. Metwood relies primarily on its
own sales force to generate sales; additionally, however, the Company
has
distributors in Virginia, New York, Oklahoma, Arizona, Colorado
and
Pennsylvania and also utilizes the salespeople of wholesale yards
stocking
the Company's products as an additional sales force. 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.
|
|||||||||
|
Status
of Publicly Announced New Products or Services
|
|||||||||
|
The
Company has acquired four new patents through assignment from Robert
M.
Callahan and Ronald B. 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 can be 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 tend to be
greater in its fourth and first fiscal quarters. However, the
Company is expanding into less weather-sensitive markets, such
as Florida,
Georgia, Arizona, South Carolina and Alabama in order to ameliorate
seasonality factors. 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 Marino-Ware, Telling Industries
and
Wheeling Corrugating Company. The Company's main sources of
lumber are BlueLinx and The Contractor Yard. 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 has eight U.S. Patents:
|
|
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.
|
|
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.
|
|
Each
of these patents was originally issued to the inventors and Company
founders, Robert Callahan and Ronald B. 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 thirty-six employees at September 30, 2007, thirty-four
of
whom were full time.
|
|
Results
of Operations
|
|
Net
Income
|
|
The
Company had net income of $54,559 for the three months ended September
30,
2007, versus $93,674 for the three months ended September 30, 2006,
a
decrease of $39,115. The decrease in net income was
attributable primarily to higher materials costs, since gross sales
comparing 2007 to 2006 increased slightly and administrative expenses
were
lower.
|
|
Sales
|
|
Revenues
were $1,210,168 for the three months ended September 30, 2007 compared
to
$1,150,524 for the same period in 2006, an increase of $59,644,
or
5%. The increase in sales resulted primarily from a slight
increase in volume comparing the two
periods.
|
|
Expenses
|
|
Total
administrative expenses were $350,616 for the three months ended
September
30, 2007, versus $387,051 for the three months ended September
30, 2006, a
decrease of $36,435 (9%). A decrease of approximately $10,000
in advertising and $24,000 in payroll expenses in 2007 over 2006
were the
largest contributors to the overall decrease.
|
|
Liquidity
and Capital Reserves
|
|
On
September 30, 2007, the Company had cash of $42,440 and working
capital of
$1,588,827. Net cash provided by operating activities was
$83,363 for the three months ended September 30, 2007 compared
to $31,361
for the three months ended September 30, 2006. The higher
provision of cash in the current year resulted primarily from the
use of
inventory on hand, an increase in payables, and expenses of a non-cash
nature (depreciation and deferred income taxes).
|
|
Cash
used in investing activities was $104,024 for the three months
ended
September 30, 2007 compared to cash used of $33,715 during the
same period
in the prior year. Cash flows used in investing activities for
the current period were for vehicles ($6,000); shop equipment $64,791);
computers and peripherals and furniture and fixtures ($9,117);
and
leasehold and land improvements ($24,116).
|
|
Cash
provided by financing activities was $24,814 for the three months
ended
September 30, 2007 compared to $-0- for the period ended September
30,
2006. Proceeds from the issuance of common stock of $26,614 was
offset by the cost ($1,800) of treasury stock.
|
|
ITEM
3 - CONTROLS AND PROCEDURES
|
|
The
management of Metwood, Inc. has reviewed the systems of internal
controls
and disclosures within the specified time frame of ninety
days. Management believes that the systems in place allow for
proper controls and disclosures of financial reporting
information. There have been no changes in these controls since
our last evaluation date.
|
|
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 September
30,
2006.
|
|
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: November
14,
2007
/s/ Robert M.
Callahan
|
|
Robert
M. Callahan
|
|
Chief
Executive Officer
|
|
/s/ Shawn
A. Callahan
|
|
Shawn
A. Callahan
|
|
Chief
Financial Officer
|
|
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
|
|||||||||