|
UNITED
STATES
|
|||||
|
SECURITIES
AND EXCHANGE COMMISSION
|
|||||
|
Washington,
D.C. 20549
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|
FORM
10-Q
|
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|
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|||||
|
For
the quarterly period ended September 30, 2009
|
|||||
|
[ ]
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 (IRS Employer | |||||
| of incorporation) 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 October 31, 2009, 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.
|
|||||
|
TABLE
OF CONTENTS - FORM 10-QSB
|
|||||
|
PART
I - FINANCIAL INFORMATION
|
Page(s)
|
||||
| Item 1 Financial Statements | |||||
| Consolidated Balance Sheets As of September 30, 2009 (Unaudited) and June 30, 2009 | 1-2 | ||||
| Consolidated Statements of Income (Unaudited) for the Three Months Ended September 30, 2009 and 2008 | 3 | ||||
| Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2009 and 2008 | 4 | ||||
| Notes to Consolidated Financial Statements | 5-9 | ||||
| Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Item 4 Controls and Procedures | |||||
|
PART
II - OTHER INFORMATION
|
|||||
| Item 6 Exhibits and Reports on Form 8-K | |||||
|
Signatures
|
17 | ||||
|
Index
to Exhibits
|
18 | ||||
|
METWOOD,
INC. AND SUBSIDIARY
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
(UNAUDITED)
|
(AUDITED)
|
|||||||
|
September
30,
|
June
30,
|
|||||||
|
2009
|
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 176,862 | $ | 199,868 | ||||
|
Accounts
receivable, net
|
419,564 | 383,673 | ||||||
|
Inventory
|
905,987 | 912,169 | ||||||
|
Recoverable
income taxes
|
114,639 | 90,533 | ||||||
|
Prepaid
expenses
|
40,002 | 49,239 | ||||||
|
Total
current assets
|
1,657,054 | 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
|
214,729 | 211,861 | ||||||
|
Machinery
and shop equipment
|
400,140 | 403,731 | ||||||
|
Vehicles
|
378,141 | 378,141 | ||||||
| 1,307,360 | 1,303,285 | |||||||
|
Less
accumulated depreciation
|
(861,202 | ) | (834,811 | ) | ||||
|
Net
property and equipment
|
446,158 | 468,474 | ||||||
|
Goodwill
|
253,088 | 253,088 | ||||||
|
TOTAL
ASSETS
|
$ | 2,356,300 | $ | 2,357,044 | ||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
||||||||
|
CONSOLIDATED
BALANCE SHEET
|
||||||||
|
(UNAUDITED)
|
(AUDITED)
|
|||||||
|
September
30,
|
June
30,
|
|||||||
|
2009
|
2009
|
|||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities
|
||||||||
|
Accounts
payable and accrued expenses
|
$ | 126,994 | $ | 85,269 | ||||
|
Total
current liabilities
|
126,994 | 85,269 | ||||||
|
Long-term
Liabilities
|
||||||||
|
Deferred
income taxes, net
|
77,414 | 82,344 | ||||||
|
Total
long-term liabilities
|
77,414 | 82,344 | ||||||
|
Total
liabilities
|
204,408 | 167,613 | ||||||
|
Stockholders'
Equity
|
||||||||
|
Common
stock, $.001 par, 100,000,000 shares authorized;
|
||||||||
|
12,231,797
shares issued and outstanding at September 30, 2009
|
12,232 | 12,232 | ||||||
|
Common
stock not yet issued ($.001 par, 8,150 shares)
|
8 | 8 | ||||||
|
Additional
paid-in capital
|
1,544,268 | 1,544,268 | ||||||
|
Retained
earnings
|
595,384 | 632,923 | ||||||
|
Total
stockholders' equity
|
2,151,892 | 2,189,431 | ||||||
|
TOTAL
LIABILITIES
|
||||||||
|
AND
STOCKHOLDERS' EQUITY
|
$ | 2,356,300 | $ | 2,357,044 | ||||
|
See
accompanying notes to consolidated financial
statements.
|
||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||
|
(UNAUDITED)
|
||||||||
|
Three
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
REVENUES
|
||||||||
|
Construction
sales
|
$ | 557,716 | $ | 1,006,111 | ||||
|
Engineering
sales
|
44,411 | 56,236 | ||||||
|
Gross
sales
|
602,127 | 1,062,347 | ||||||
|
Cost
of construction sales
|
350,908 | 478,003 | ||||||
|
Cost
of engineering sales
|
41,620 | 50,197 | ||||||
|
Gross
cost of sales
|
392,528 | 528,200 | ||||||
|
Gross
profit
|
209,599 | 534,147 | ||||||
|
ADMINISTRATIVE
EXPENSES
|
||||||||
|
Advertising
|
19,317 | 18,490 | ||||||
|
Depreciation
|
13,534 | 14,615 | ||||||
|
Insurance
|
11,871 | 19,832 | ||||||
|
Payroll
expenses
|
153,943 | 165,145 | ||||||
|
Professional
fees
|
19,462 | 28,178 | ||||||
|
Rent
|
19,800 | 19,800 | ||||||
|
Research
and development
|
- | 4,400 | ||||||
|
Travel
|
4,776 | 6,291 | ||||||
|
Vehicle
|
8,814 | 13,284 | ||||||
|
Other
|
32,595 | 44,616 | ||||||
|
Total
administrative expenses
|
284,112 | 334,651 | ||||||
|
Operating
income (loss)
|
(74,513 | ) | 199,496 | |||||
|
Other
income
|
7,938 | 3,214 | ||||||
|
Income
(loss) before income taxes
|
(66,575 | ) | 202,710 | |||||
|
Income
taxes (benefit)
|
(29,036 | ) | 81,099 | |||||
|
Net
income (loss) from operations
|
$ | (37,539 | ) | $ | 121,611 | |||
|
Basic
and diluted earnings per share
|
** | $ | 0.01 | |||||
|
Weighted
average number of shares
|
12,231,797 | 12,229,364 | ||||||
|
**Less
than $0.01
|
||||||||
|
See
accompanying notes to consolidated financial statements.
|
||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
|
(UNAUDITED)
|
||||||||
|
Three
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
OPERATIONS
|
||||||||
|
Net
income (loss)
|
$ | (37,539 | ) | $ | 121,611 | |||
|
Adjustments
to reconcile net income
|
||||||||
|
to
net cash from operating activities:
|
||||||||
|
Depreciation
|
26,391 | 34,135 | ||||||
|
Reversal
of deferred income taxes
|
(4,930 | ) | (11,687 | ) | ||||
|
(Increase)
decrease in operating assets:
|
||||||||
|
Accounts
receivable
|
(36,599 | ) | 125,349 | |||||
|
Inventory
|
6,183 | 18,733 | ||||||
|
Recoverable
income taxes
|
(24,106 | ) | 45,955 | |||||
|
Other
operating assets
|
9,945 | (822 | ) | |||||
|
Increase
(decrease) in operating liabilities:
|
||||||||
|
Accounts
payable and accrued expenses
|
41,725 | (209,270 | ) | |||||
|
Current
income taxes payable
|
- | 46,831 | ||||||
|
Net
cash from (used for) operating activities
|
(18,930 | ) | 170,835 | |||||
|
INVESTING
|
||||||||
|
Capital
expenditures
|
(4,076 | ) | (30,453 | ) | ||||
|
Net
cash used for investing activities
|
(4,076 | ) | (30,453 | ) | ||||
|
FINANCING
|
||||||||
|
Decrease
in credit line
|
- | (150,000 | ) | |||||
|
Net
cash used for financing activities
|
- | (150,000 | ) | |||||
|
Net
increase in cash
|
(23,006 | ) | (9,618 | ) | ||||
|
Cash,
beginning of the year
|
199,868 | 67,880 | ||||||
|
Cash,
end of the period
|
$ | 176,862 | $ | 58,262 | ||||
|
See
accompanying notes to consolidated financial
statements.
|
||||||||
|
METWOOD,
INC. AND SUBSIDIARY
|
|||||||||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|||||||||
|
SEPTEMBER
30, 2009
|
|||||||||
|
(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 September 30, 2009 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.
|
|||||||||
|
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 September 30, 2009, the allowance for doubtful
accounts was $5,000. Specific customer receivables are
considered past due when they are outstanding beyond their contractual
terms and are charged off to bad debt expense when determined
uncollectible. For the three months ended September 30,
2009, the amount of bad debts charged off was
$-0-. For the three months ended September 30, 2008, recovery
of bad debts was $520.
|
|
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 September 30, 2009.
|
|
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 September 30, 2009 and 2008 were $-0- and $4,400,
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 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. We do not expect the adoption of SFAS 168
to have a material impact on our consolidated financial
statements.
|
|||||||||
|
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 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 are
effective for the Company beginning July 1, 2009. The adoption
of SFAS 165 did not have 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.
|
||||||||
|
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying consolidated financial statements.
|
||||||||
|
NOTE
3 - EARNINGS PER SHARE
|
||||||||
|
Net
income (loss) and earnings per share for the three months ending September
30, 2009 and 2008 are as follows:
|
||||||||
|
For
the Three Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
income (loss)
|
$ | (37,539 | ) | $ | 121,611 | |||
|
Income
per share - basic and fully diluted
|
$ | ** | $ | 0.01 | ||||
|
Weighted
average number of shares
|
12,231,797 | 12,229,364 | ||||||
|
**Less
than $0.01
|
||||||||
|
NOTE
4 - SUPPLEMENTAL CASH FLOW INFORMATION
|
||||||||
|
Supplemental
disclosures of cash flow information for the three September 30, 2009 and
2008 are summarized as follows:
|
||||||||
|
For
the Three Months Ended
|
||||||||
|
September
30,
|
||||||||
| 2009 | 2008 | |||||||
|
Cash paid for:
|
||||||||
|
Income
taxes
|
$ | -- | $ | -- | ||||
|
Interest
|
$ | -- | $ | 444 | ||||
|
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 months ended September 30,
2009 and 2008. For the three months ended September 30, 2009 and
2008, the Company had sales of $32,020 and $14,046, respectively, to the
company referred to above. As of September 30, 2009 and 2008, the
related receivable was $2,916 and $6,976. 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 balance outstanding at September 30, 2009 and 2008 was
$-0-.
|
||||||||
|
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 months ended September 30, 2009 and
2008, as excerpted from internal management reports, is as
follows:
|
||||||||
|
For
the Three Months Ended
|
||||||||
|
September
30,
|
||||||||
|
Construction:
|
2009
|
2008
|
||||||
|
Sales
|
$ | 557,716 | $ | 1,006,111 | ||||
|
Intersegment
expenses
|
(12,540 | ) | (15,409 | ) | ||||
|
Cost
of sales
|
(350,908 | ) | (478,003 | ) | ||||
|
Corporate
and other expenses
|
(234,424 | ) | (399,364 | ) | ||||
|
Segment
income
|
$ | (40,156 | ) | $ | 113,335 | |||
|
Engineering:
|
||||||||
|
Sales
|
$ | 44,411 | $ | 56,236 | ||||
|
Intersegment
revenues
|
12,540 | 15,409 | ||||||
|
Cost
of sales
|
(41,260 | ) | (50,197 | ) | ||||
|
Corporate
and other expenses
|
(13,074 | ) | (13,172 | ) | ||||
|
Segment
income (loss)
|
$ | 2,617 | $ | 8,276 | ||||
|
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 the three months
ended September 30, 2009 and 2008, we recognized rental expense for these
spaces of $19,800.
|
||||||||
|
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 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, Stock Building Supply, 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. We are in
discussions with national engineered I-joist manufacturers who are
interested in marketing the Company's products and expect to announce
affiliations with these companies in the near
future. 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
|
|||||||||
|
We
acquired four new patents through assignment from Robert Callahan and
Ronald Shiflett, the patent holders. All four patents reflect
various modifications to our Joist Reinforcing Bracket which will make it
even easier for tradesmen to insert utility conduits through wood
joists.
|
|||||||||
|
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, Marino-Ware, Telling
Industries, Wheeling Corrugating, and Consolidated Systems,
Inc. Our main sources of lumber are BlueLinx, Lowe's, 84 Lumber
Company and Smith Mountain Building Supply. Gerdau Amersteel,
Descosteel and Adelphia Metals 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 months ending September 30, 2009, sales to Price Buildings and
Probuild East, LLC each accounted for approximately 9% of total sales; no
other customer accounted for more than 5% of sales. For the
three months ending September 30, 2008, sales to Architecture-Planning
& Development accounted for 15% of total sales, and Probuild East, LLC
accounted for approximately 11% of total sales. No other
customer accounted for more than 6% of
sales.
|
|||||||||
|
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 International Code
Council ("ICC") code approval on our joist reinforcers and
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-one employees at September 30, 2009, all of whom were
full time.
|
|
Results
of Operations
|
|
Net Loss
|
|
We
had a net loss of $37,539 for the three months ended September 30, 2009,
versus net income of $121,611 for the three months ended September 30,
2008, a decrease of $159,150. The decrease in net income for
the three months ended September 30, 2009 compared to 2008 was
attributable to a general downturn in the economy, in particular, as it
affects the Company, the building industry. Construction sales
decreased 45% comparing 2009 to 2008, and as a percentage of sales, costs
of goods sold increased 31% comparing 2009 to 2008. Engineering
sales decreased 21% comparing 2009 to 2008, further contributing to the
net loss for the quarter. Administrative expenses decreased 15% comparing
the three months ended September 30, 2009 to the same period in
2008. However, this decrease did not significantly offset our
61% decline in gross profit in the quarter ended September 30, 2009
compared to the quarter ended September 30, 2008.
|
|
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
|
|
Revenues
were $602,127 for the three months ended September 30, 2009 compared to
$1,062,347 for the same period in 2008, a decrease of $460,220, or
43%. The sales decline for the three-month period in 2009
versus 2008 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%. The potential for increased sales volume as we go forward
is enhanced by the fact that we are now an authorized fabricator for the
Dynatruss light-gauge steel truss system, begun in March
2008.
|
|
Expenses
|
|
Total
administrative expenses were $284,112 for the three months ended September
30, 2009, versus $334,651 for the three months ended September 30, 2008, a
decrease of $50,539. The biggest decline occurred in payroll
expenses, vehicle and other costs.
|
|
Liquidity and Capital
Reserves
|
|
On
September 30, 2009, we had cash of $176,862 and working capital of
$1,530,060. Net cash used for operating activities was $18,930
for the three months ended September 30, 2009 compared to net cash from
operating activities of $170,835 for the three months ended September 30,
2008. The lower provision of cash from operating activities in
the current year resulted primarily from the increase in accounts
receivable and recoverable income taxes and the decrease in accounts
payable and accrued expenses.
|
|
Cash
used in investing activities was $4,076 for the three months ended
September 30, 2009, compared to cash used of $30,453 during the same
period in the prior year. Cash flows used in investing
activities for the current period were for shop equipment ($809); computer
software ($2869); furniture and fixtures ($2,378); and leasehold
improvements ($2,420), less disposals of $4,400.
|
|
Cash
used in financing activities was $-0- for the three months ended September
30, 2009 compared to cash used of $150,000 for the period ended September
30, 2008. The cash used in 2008 was to pay off the Company's
credit line balance.
|
|
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 September 30,
2009.
|
|
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: October
31,
2009 /s/ Robert M.
Callahan
|
|
Robert
M. Callahan
|
|
Chief
Executive Officer
|
|
Date: October
31,
2009 /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
|
|||||||||