|
TABLE
OF CONTENTS - FORM
10-QSB
|
| PART I - FINANCIAL INFORMATION Page(s) |
| Item 1 Financial Statements |
| Consolidated Balance Sheet As of December 31, 2007 3-4 |
| Consolidated Statements of Income for the Three and Six Months 5 |
| Ended Decembr 31, 2007 and 2006 |
| Consolidated Statements of Cash Flows for the Six Months 6 |
| Ended December 31, 2007 and 2006 |
| Notes to Consolidated Financial Statements 7 |
| Item 2 Management's Discussion and Analysis 11 |
| Item 3 Controls and Procedures 16 |
| PART II - OTHER INFORMATION |
| Item 6 Exhibits and Reports on Form 8-K 17 |
| Signatures 17 |
| Index to Exhibits 18 |
|
METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2007
(UNAUDITED)
|
||||
| ASSETS | ||||
| Current Assets | ||||
| Cash and cash equivalents | $ | 169,337 | ||
| Accounts receivable | 460,830 | |||
| Deposits | 15,091 | |||
| Inventory | 1,216,563 | |||
| Prepaid expenses | 45,557 | |||
| Total current assets | 1,907,378 | |||
| Property and Equipment | ||||
| Leasehold and land improvements | 165,963 | |||
| Furniture, fixtures and equipment | 81,351 | |||
| Computer hardware, software and peripherals | 190,694 | |||
| Machinery and shop equipment | 381,024 | |||
| Vehicles | 366,751 | |||
| 1,185,783 | ||||
| Less accumulated depreciation | (646,798) | |||
| Net property and equipment | 538,985 | |||
| Goodwill | 253,088 | |||
| TOTAL ASSETS | $ | 2,699,451 | ||
|
|
||||
|
METWOOD,
INC. AND
SUBSIDIARY
|
||||
|
CONSOLIDATED
BALANCE
SHEET
|
||||
|
AS
OF DECEMBER 31,
2007
|
||||
|
(UNAUDITED)
|
||||
|
LIABILITIES
AND STOCKHOLDERS'
EQUITY
|
||||
|
Current
Liabilities
|
||||
|
Accounts
payable and accrued
expenses
|
$ | 258,546 | ||
|
Income
taxes
|
20,350 | |||
|
Total
current
liabilities
|
278,896 | |||
|
Long-term
Liabilities
|
||||
|
Amounts
owed to related-party
company
|
8,787 | |||
|
Deferred
income taxes,
net
|
128,317 | |||
|
Total
long-term
liabilities
|
137,104 | |||
|
Total
liabilities
|
416,000 | |||
|
Stockholders'
Equity
|
||||
|
Common
stock, $.001 par,
100,000,000 shares authorized;
|
||||
|
12,096,249
shares issued; 12,091,399 outstanding
|
12,096 | |||
|
Common
stock not yet issued ($.001
par, 2,150 shares)
|
2 | |||
|
Additional
paid-in
capital
|
1,345,759 | |||
|
Retained
earnings
|
927,394 | |||
| 2,285,251 | ||||
|
Treasury
stock, at
cost
|
(1,800 | ) | ||
|
Total
stockholders'
equity
|
2,283,451 | |||
|
TOTAL
LIABILITIES
|
||||
|
AND
STOCKHOLDERS'
EQUITY
|
$ | 2,699,451 | ||
|
See
accompanying notes to
consolidated financial
statements.
|
||||
|
METWOOD,
INC. AND
SUBSIDIARY
|
||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF
INCOME
|
||||||||||||||||
|
FOR
THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 2007 AND 2006
|
||||||||||||||||
|
(UNAUDITED)
|
||||||||||||||||
|
Three
Months
Ended
|
Six
Months
Ended
|
|||||||||||||||
|
December
31,
|
December
31,
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
REVENUES
|
||||||||||||||||
|
Construction
sales
|
$ | 1,121,774 | $ | 1,093,077 | $ | 2,263,288 | $ | 2,199,033 | ||||||||
|
Engineering
sales
|
68,796 | 42,891 | 137,451 | 87,459 | ||||||||||||
|
Gross
sales
|
1,190,570 | 1,135,968 | 2,400,739 | 2,286,492 | ||||||||||||
|
Cost
of construction
sales
|
728,851 | 512,678 | 1,451,249 | 1,083,354 | ||||||||||||
|
Cost
of engineering
sales
|
57,733 | 52,443 | 121,081 | 98,362 | ||||||||||||
|
Gross
cost of
sales
|
786,584 | 565,121 | 1,572,330 | 1,181,716 | ||||||||||||
|
Gross
profit
|
403,986 | 570,847 | 828,409 | 1,104,776 | ||||||||||||
|
ADMINISTRATIVE
EXPENSES
|
||||||||||||||||
|
Advertising
|
26,699 | 31,032 | 47,530 | 61,546 | ||||||||||||
|
Bad
debts
|
4,181 | 409 | 4,181 | 23,470 | ||||||||||||
|
Depreciation
|
16,290 | 13,326 | 32,274 | 26,357 | ||||||||||||
|
Insurance
|
16,925 | 24,438 | 38,259 | 43,792 | ||||||||||||
|
Payroll
expenses
|
168,190 | 224,495 | 333,784 | 413,984 | ||||||||||||
|
Professional
fees
|
5,905 | 7,816 | 33,513 | 30,116 | ||||||||||||
|
Rent
|
19,650 | 20,700 | 39,300 | 39,300 | ||||||||||||
|
Telephone
|
9,454 | 10,459 | 17,489 | 19,529 | ||||||||||||
|
Travel
|
3,070 | 10,024 | 16,864 | 19,833 | ||||||||||||
|
Vehicle
|
14,249 | 11,148 | 27,721 | 20,220 | ||||||||||||
|
Other
|
56,507 | 58,032 | 100,821 | 100,715 | ||||||||||||
|
Total
administrative
expenses
|
341,120 | 411,879 | 691,736 | 798,862 | ||||||||||||
|
Operating
income
|
62,866 | 158,968 | 136,673 | 305,914 | ||||||||||||
|
Other
income
(expense)
|
6,021 | 2,848 | 6,725 | 5,925 | ||||||||||||
|
Income
before income
taxes
|
68,887 | 161,816 | 143,398 | 311,839 | ||||||||||||
|
Income
taxes
|
(28,105 | ) | (62,658 | ) | (48,057 | ) | (119,007 | ) | ||||||||
|
Net
income
|
$ | 40,782 | $ | 99,158 | $ | 95,341 | $ | 192,832 | ||||||||
|
Basic
and diluted earnings per
share
|
$ | - | $ | 0.01 | $ | 0.01 | $ | 0.01 | ||||||||
|
Weighted
average number of
shares
|
12,114,769 | 11,923,999 | 12,052,265 | 11,916,478 | ||||||||||||
|
See
accompanying notes to
consolidated financial
statements.
|
||||||||||||||||
|
METWOOD,
INC. AND
SUBSIDIARY
|
||||||||
|
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
|
||||||||
|
FOR
THE SIX MONTHS ENDED DECEMBE
31, 2007 AND 2006
|
||||||||
|
(UNAUDITED)
|
||||||||
|
2007
|
2006
|
|||||||
|
CASH
FLOWS FROM OPERATING
ACTIVITIES
|
||||||||
|
Net
income
|
$ | 95,341 | $ | 192,832 | ||||
|
Adjustments
to reconcile net
income to net cash from operating
|
||||||||
|
activities
|
||||||||
|
Depreciation
|
67,441 | 59,425 | ||||||
|
Provision
for deferred income
taxes
|
11,308 | 5,844 | ||||||
|
(Increase)
decrease in operating
assets:
|
||||||||
|
Accounts
receivable
|
(60,673 | ) | 26,438 | |||||
|
Inventory
|
(6,125 | ) | (178,578 | ) | ||||
|
Recoverable
income
taxes
|
57,077 | - | ||||||
|
Other
operating
assets
|
56,650 | (18,850 | ) | |||||
|
Increase
(decrease) in operating
liabilities:
|
||||||||
|
Accounts
payable and accrued
expenses
|
(4,038 | ) | (9,313 | ) | ||||
|
Current
income taxes
payable
|
20,350 | (42,425 | ) | |||||
|
Net
cash from operating
activities
|
237,331 | 35,373 | ||||||
|
CASH
FLOWS USED FOR INVESTING
ACTIVITIES
|
||||||||
|
Net
expenditures for fixed
assets
|
(106,095 | ) | (59,408 | ) | ||||
|
Net
cash used for investing
activities
|
(106,095 | ) | (59,408 | ) | ||||
|
CASH
FLOWS USED IN FINANCING
ACTIVITIES
|
||||||||
|
Decrease
in credit
line
|
(25,000 | ) | - | |||||
|
Proceeds
from issuance of common
stock
|
26,614 | - | ||||||
|
Purchase
of treasury
stock
|
(1,800 | ) | - | |||||
|
Net
cash used for inancing
activities
|
(186 | ) | - | |||||
|
Net
increase (decrease) in
cash
|
131,050 | (24,035 | ) | |||||
|
Cash,
beginning of the
year
|
38,287 | 99,880 | ||||||
|
Cash,
end of the
period
|
$ | 169,337 | $ | 75,845 | ||||
|
See
accompanying notes to
consolidated financial
statements.
|
||||||||
|
METWOOD,
INC. AND
SUBSIDIARY
|
|||
|
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
|
|||
|
DECEMBER
31,
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.
|
|||
|
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 December 31, 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 December 31, 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 December 31, 2007 and
2006, the amount of bad debts charged off was $4,181 and $409
respectively. For the six months ended December 31, 2007 and
2005, the amount of bad debts charged off was $4,181 and $23,470,
respectively including chargeoffs relating to receivables
whic
|
|
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.
|
|
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. There were no research and development costs
for the three months ended December 31, 2007 or 2006. For the
six months ended December 31, 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 December 2007, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accountaing Standards ("SFAS") No. 141 (revised 2007), "Business
Combinations," which replaces SFAS No. 141. The statement
retains the purchase method of accounting for acquisitions, but requires
a
number of changes, including changes in the way assets and liabilities
are
recognized in the purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research
and
development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is
effective for fiscal years beginning after December 15, 2008 and
will
apply prospectively to business combinations completed on or after
that
date. We are currently assessing the potential impact that
adoption of SFAS No. 160 would have on our financial
statements.
|
|||||||||
|
In
December 2007, the FASB issued
SFAS No. 160, "Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB 51," which changes the accounting
and
reporting for minority interests. Minority interests will be
recharacterized as noncontrolling interests and will be reported
as a
component of equity separate from the parent's equity, and purchases
or
sales of equity interests that do not result in a change in control
will
be accounted for as equity transactions. In addition, net
income attributable to the noncontrolling interest will be included
in
consolidated net income on the face of the income statement and,
upon a
loss of control, the interest sold, as well as any interest retained,
will
be recorded at fair value with any gain or loss recognized in
earnings. SFAS No. 160 is effective for fiscal years beginning
after December 15, 2008 and will apply prospectively, except for
the
presentation and disclosure requirements, which will apply
retrospectively. We are currently assessing tassessing the
potential impact that adoption of SFAS No. 160 would have on our
financial
statements.
|
|
On
July 1, 2007, we adopted the
provisions of FASB Interpretation No. 48 ("FIN 48"), "Accounting
for
Uncertainty in Income Taxes - an interpretation of FASB Statement
No.
109," which provides a financial statement recognition threshold
and
measurement attribute for a tax position taken or expected to be
taken in
a tax return. Under FIN 48, we may recognize the tax benefit
from an uncertain tax position only if it is more likely than not
that the
tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. FIN 48
also provides guidance on derecognition of income tax assets and
liabilities, classification of current and deferred income tax
assets and
liabilities, accounting for interest and penalties associated with
tax
positions, and income tax disclosures. The Company does not
believe the the application of FIN 48 will have a material effect
on its
consolidated results of operations or financial
position.
|
|||||||||||
|
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.
|
|||||||||||
|
NOTE
2 - EARNINGS PER
SHARE
|
|||||||||||
|
Net
income and earnings per share
for the three and six months ending December 31, 2007 and 2006
are as
follows:
|
|||||||||||
|
For
the Three Months
Ended
|
For
the Six Months
Ended
|
||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||
|
Net
income
|
$ 40,782
|
$ 99,158
|
$ 95,341
|
$ 192,832
|
|||||||
|
Income
per share - basic and fully
diluted
|
$
--
|
$ 0.01
|
$
--
|
$ 0.01
|
|||||||
|
Weighted
average number of
shares
|
12,114,769
|
11,923,999
|
12,052,265
|
11,916,478
|
|||||||
|
NOTE
3 - SUPPLEMENTAL CASH FLOW
INFORMATION
|
|||||||||||
|
Supplemental
disclosures of cash
flow information for the three and six months ended December 31,
2007 and
2006 are summarized as follows:
|
|||||||||||
|
For
the Three Months
Ended
|
For
the Six Months
Ended
|
||||||||||
|
December 31,
|
December
31,
|
||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||
|
Cash
paid
for:
|
|||||||||||
|
Income
taxes
|
$ --
|
$ 96,588
|
$
--
|
$ 155,588
|
|||||||
|
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 and six months ended December
31,
2007 and 2006. For the three months ended December 31, 2007 and
2006, the Company had sales of $52,179 and $6,633, respectively,
to the
company referred to above. For the six months ended December
31, 2007 and 2006, sales were $83,216 and $32,131,
respectively. As of December 31, 2007, the related receivables
outstanding were $116,679. See also Note
7.
|
|||||||||||
|
NOTE
5 - BANK CREDIT
LINE
|
|||||||||
|
The
Company has available a
$600,000 revolving line of credit with a local bank. The
balance outstanding at December 31, 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 and six months
ended
December 31, 2007 and 2006, as excerpted from internal management
reports,
is as follows:
|
|||||||||
|
For
the Three Months
Ended
|
For
the Six Months
Ended
|
||||||||
|
December
31,
|
December
31,
|
||||||||
|
Construction:
|
2007
|
2006
|
2007
|
2006
|
|||||
|
Sales
|
$ 1,121,774
|
$ 1,093,077
|
$
2,263,288
|
$
2,199,033
|
|||||
|
Intersegment
expenses
|
(22,102)
|
(27,330)
|
(36,614)
|
(32,167)
|
|||||
|
Cost
of
sales
|
(728,851)
|
(512,678)
|
(1,451,249)
|
(1,083,354)
|
|||||
|
Corporate
and other
expenses
|
(341,088)
|
(460,604)
|
(694,953)
|
(896,687)
|
|||||
|
Segment
income
|
$ 29,733
|
$ 92,465
|
$ 80,472
|
$ 186,825
|
|||||
|
Engineering:
|
|||||||||
|
Sales
|
$ 68,796
|
$ 42,891
|
$ 137,451
|
$ 87,459
|
|||||
|
Intersegment
revenues
|
22,102
|
27,330
|
36,614
|
32,167
|
|||||
|
Cost
of
sales
|
(57,733)
|
(52,443)
|
(121,081)
|
(98,362)
|
|||||
|
Corporate
and other
expenses
|
(22,116)
|
(11,085)
|
(38,115)
|
(15,257)
|
|||||
|
Segment
income (loss)
|
$ 11,049
|
$ 6,693
|
$ 14,869
|
$ 6,007
|
|||||
|
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 and six months
ended
December 31, 2007 and 2006, we recognized rental expense for these
spaces
of $19,650, $39,300, $19,300, and $37,900,
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-three
employees at December 31, 2007, thirty-one of whom were full
time.
|
|
Results
of
Operations
|
|
Net
Income
|
|
The
Company had net income of
$40,782 for the three months ended December 31, 2007, versus $99,158
for
the three months ended December 31, 2006, a decrease of
$58,376. The decrease in net income in 2007 compared to 2006
was attributable primarily to higher materials costs that were
not offset
with a comparable increase in sales. Sales increased only 5%,
while cost of sales increased 39%. For the six months ended
December 31, 2007 and 2006, the Company's net income was $95,341
and
$192,832, respectively, a decrease of $97,491. Decreased sales
and increased materials costs comparing 2007 to 2006 account for
the
decline in net income
|
|
Revenues
were $1,190,570 for the three months ended December 31, 2007 compared
to
$1,135,968 for the same period in 2006, a decrease of $54,602,
or
5%. For the six-month periods ended December 31, 2007 and 2006,
sales were $2,400,739 and $2,286,492, respectively, an increase
of
$114,247, or 5%. The sales decline for the three-month period
in 2007 versus 2006 was the result of a weak housing market and
a poor
subprime maket.
|
|
Expenses
|
|
Total
administrative expenses were
$341,120 and $691,736 for the three and six months ended December
31,
2007, versus $411,879 and $798,862 for the three and six months
ended
December 31, 2006, a decrease of $70,759 (17%) and $107,126 (13%),
respectively. Decreases in advertising and in payroll expenses
in 2007 over 2006 were the largest contributors to the overall
decrease.
|
|
Liquidity
and Capital
Reserves
|
|
On
December 31, 2007, the Company
had cash of $169,337 and working capital of $1,628,482. Net
cash provided by operating activities was $237,331 for the six
months
ended December 31, 2007 compared to $35,373 for the six months
ended
December 31, 2006. The higher provision of cash in the current
year resulted primarily from refunded income taxes and an increase
in
other operating assets and expenses of a non-cash nature (depreciation
and
deferred income taxes).
|
|
Cash
used in investing activities
was $106,095 for the six months ended December 31, 2007 compared
to cash
used of $59,408 during the same period in the prior year. Cash
flows used in investing activities for the current period were
for
vehicles (net $1,250); shop equipment $65,705); computers and peripherals
and furniture and fixtures ($9,461); website development ($3,300);
and
leasehold and land improvements ($26,379).
|
|
Cash
used in financing activities
was $186 for the six months ended December 31, 2007 compared to
$-0- for
the period ended December 31, 2006. Proceeds from the issuance
of common stock of $26,614 was offset by repayment of the Company's
credit
line ($25,000) and by the cost of treasury stock
($1,800).
|
|
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 December
31,
2007.
|
|
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: February
12,
2008 /s/Robert
M. Callahan
|
|
Robert
M. Callahan
|
|
Chief
Executive Officer
|
|
Date: February
12,
2008 /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
|
Certification
of Chief Executive
Officer Pursuant to Securities Exchange Act Rules 13a-14 and
15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002
|
||||||||
|
31.2
|
Certification
of Chief Financial
Officer Pursuant to Securities Exchange Act Rules 13a-14 and
15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002
|
||||||||
|
32
|
Certifications
Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18U.S.C.
1350)
|
||||||||
|
*Incorporated
by reference on Form
8-K, filed February 16, 2000
|
|||||||||
|
**Incorporated
by reference on
Form 8-K, filed February 16, 2000
|
|||||||||