UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 12 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________
Commission File Number 000-05391
METWOOD, INC.
(Exact name of registrant as specified in its charter)
NEVADA 83-0210365
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
819 Naff Road, Boones Mill, VA 24065
(Address of principal executive offices)
(540) 334-4294 (Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes__X___ No______
Number of shares of common stock outstanding as of November 11, 2003:
12,057,549
Transitional Small Business Disclosure Format (Check one) Yes [ ] No [X]
METWOOD, INC. AND SUBSIDIARY
TABLE OF CONTENTS - FORM 10-QSB
PART I - FINANCIAL INFORMATION Page(s)
Item 1 Financial Statements
Consolidated Balance Sheet As of September 30, 2003 1-2
Consolidated Statements of Income for the Three Months 3
Ended September 30, 2003 and 2002
Consolidated Statements of Cash Flows for the Three Months 4
Ended September 30, 2003 and 2002
Notes to Consolidated Financial Statements 5-10
Item 2 Management's Discussion and Analysis 11-15
Item 3 Controls and Procedures 15
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 16
Index to Exhibits 17
ii
METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2003
(UNAUDITED)
ASSETS
Current Assets
Cash $109,272
Accounts receivable 248,885
Inventory 392,851
Prepaid expenses 39,049
Refundable income taxes 8,269
---------------
Total current assets 798,326
Property and Equipment
Furniture, fixtures and equipment 37,390
Computer hardware, software and peripherals 97,652
Machinery and shop equipment 187,387
Vehicles 176,239
Buildings and improvements 794,030
Land and land improvements 180,142
---------------
1,472,840
Less accumulated depreciation (281,599)
---------------
Net property and equipment 1,191,241
Goodwill 253,088
---------------
TOTAL ASSETS $2,242,655
===============
See accompanying notes to consolidated financial statements.
1
METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2003
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $132,179
Bank line of credit 545,200
---------------
Total current liabilities 677,379
Long-term Liabilities
Note payable 2,038
Deferred income tax 55,093
---------------
Total liabilities 734,510
---------------
Stockholders' Equity
Common stock, $.001 par, 100,000,000 shares authorized;
12,057,549 shares issued and outstanding 12,058
Common stock not yet issued ($.001 par, 4,950 shares) 5
Additional paid-in capital 1,346,541
Retained earnings 149,541
---------------
Total stockholders' equity 1,508,145
---------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $2,242,655
===============
See accompanying notes to consolidated financial statements.
2
METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
2003 2002
---------------- ---------------
REVENUES
Construction sales $523,148 $437,197
Engineering sales 72,410 33,454
---------------- ---------------
Gross Sales 595,558 470,651
Cost of construction sales 301,174 232,907
Cost of engineering sales 37,478 41,751
---------------- ---------------
Gross cost of sales 338,652 274,658
---------------- ---------------
Gross Profit 256,906 195,993
---------------- ---------------
ADMINISTRATIVE EXPENSES
Advertising 6,915 3,196
Depreciation 12,637 10,741
Insurance 8,681 8,419
Payroll taxes 7,025 7,201
Professional fees 5,301 21,414
Salaries and wages 106,701 94,038
Telephone 5,714 4,609
Travel 2,828 3,577
Vehicle 5,907 5,755
Other 32,616 33,675
---------------- ---------------
Total administrative expenses 194,325 192,625
---------------- ---------------
Operating income 144,327 82,033
Other income (expense) 6,164 (60)
---------------- ---------------
Income before income taxes 150,491 81,973
Income taxes 24,837 1,415
---------------- ---------------
Net income $125,654 $80,558
================ ===============
Basic and diluted earnings per share ** **
Weighted average number of shares 12,053,245 12,053,549
**Less than $.01
See accompanying notes to consolidated financial statements.
3
METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
2003 2002
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $43,908 $1,893
Adjustments to reconcile net income to net cash from operating
activities
Depreciation 23,200 18,127
Common stock issued for services 3,500
Changes in operating assets and liabilities:
Decrease in accounts receivable 70,367 36,350
Increase in inventory (46,381) (22)
Increase in prepaid expenses (11,987) (12,139)
Increase (decrease) in accounts payable and accrued expenses (4,198) 5,033
Increase (decrease) in current income taxes payable 17,069 (16,058)
Increase in deferred income taxes 7,768 17,473
------------- ------------
Net cash from operating activities 103,246 50,657
------------- ------------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Expenditures for fixed assets (37,844) (42,159)
------------- ------------
Net cash used for investing activities (37,844) (42,159)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from related party 12,622
Net borrowings (repayment) of note payable 3,566 (21,757)
Net borrowings (repayment) under line-of-credit agreement 18,200 (10,000)
------------- ------------
Net cash from (used in) financing activities 34,388 (31,757)
------------- ------------
Net increase (decrease) in cash 99,790 (23,259)
Cash, beginning of the year 9,482 78,088
------------- ------------
Cash, end of the period $109,272 $54,829
============= ============
See accompanying notes to consolidated financial statements.
4
METWOOD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(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, P.C. ("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. The purchase price
was allocated as follows:
Accounts receivable $ 75,000
Fixed assets 45,000
Goodwill 230,000
------------
Total $350,000
============
The consolidated company ("the Company") provides construction-related products
and engineering services to residential customers and contractors, commercial
contractors, developers and retail enterprises, primarily in southwestern
Virginia.
Basis of Presentation - The financial statements include the accounts of
Metwood, Inc. (a Nevada corporation) and its wholly owned subsidiary, Metwood
Inc. (a Virginia corporation) prepared in accordance with accounting principles
generally accepted in the United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission. All significant
intercompany balances and transactions have been eliminated.
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, 2003
are not necessarily indicative of the results to be expected for the entire
fiscal year ending June 30, 2004.
5
Fair Value of Financial Instruments - For certain of the Company's financial
instruments, none of which are held for trading, including cash, accounts
receivable, accounts payable and accrued expenses, and the bank lines of credit,
the carrying amounts approximate fair value due to their short maturities.
Management's Use of Estimates - The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities at the date of consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable - The Company grants credit in the form of unsecured
accounts receivable to its customers based on an evaluation of their financial
condition. The Company performs ongoing credit evaluations of its customers. The
estimate of the allowance for doubtful accounts, which is charged off to bad
debt expense, is based on management's assessment of current economic conditions
and historical collection experience with each customer. At September 30, 2003,
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 both the three months ended September 30, 2003 and 2002, the
bad debt expense was $0.
Inventory - Inventory, consisting of metal and wood raw materials, is located on
the Company's premises and is stated at the lower of cost or market using the
first-in, first-out method.
Property and Equipment - Property and equipment are recorded at cost and include
expenditures for improvements when they substantially increase the productive
lives of existing assets. Maintenance and repair costs are expensed to
operations as incurred. Depreciation is computed using the straight-line method
over the assets' estimated useful lives, which range from three to forty years.
When a fixed asset is disposed of, its cost and related accumulated depreciation
are removed from the accounts. The difference between undepreciated cost and the
proceeds from disposition is recorded as a gain or loss.
Goodwill - In June 2001 the Financial Accounting Standards Board ('FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." This statement requires that goodwill and intangible
assets deemed to have an indefinite life not be amortized. Instead, such assets
are to be tested for impairment annually or immediately if conditions indicate
that such an impairment could exist. Transition to the new rules of SFAS 142
requires the completion of a transitional impairment test of goodwill within the
first year of adoption. The Company adopted the provisions of SFAS 142 beginning
July 1, 2002 and completed the transitional impairment test of goodwill as of
July 1, 2002 and again as of June 30, 2003 using discounted cash flow estimates
and found no goodwill impairment.
6
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.
Impairment of Long-Lived Assets - In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144
generally establishes a standard framework within which to measure impairment of
long-lived assets and expands APB Opinion No. 30, "Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," to
include a component of the entity rather than a segment of the business. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001. The adoption of SFAS No. 144 has had no material effect
on the Company's consolidated financial condition and consolidated cash flows.
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, 2003 and
2002, the expenses relating to research and development were approximately
$6,700 and $6,900, respectively.
Earnings Per Common Share - Basic earnings per share amounts are based on the
weighted average shares of common stock outstanding. If applicable, diluted
earnings per share would assume the conversion, exercise or issuance of all
potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. This presentation has been adopted for the quarters presented. There were
no adjustments required to net income for the years presented in the computation
of diluted earnings per share.
Reclassifications - Certain items in the financial statements for the three
months ended September 30, 2002 have been reclassified to conform to the
September 30, 2003 financial statement presentation.
7
Recent Accounting Pronouncements - In October 2001, the FASB issued SFAS No.
143, "Accounting for Asset Retirement Obligurions," which requires companies to
record a liability for asset retirement obligations in the period in which they
are incurred if a reasonable estimate of their fair value can be made. The
statement applies to a company's legal obligations associated with the
retirement of a tangible long-lived asset that results from the acquisition,
construction, or development and (or) the normal operation of a long-lived
asset. When a liability for an asset retirement obligation is initially
recognized, a company capitalizes the asset retirement cost by increasing the
carrying amount of the related long-lived asset by the same amount as the
liability. The capitalized asset retirement cost is depreciated over the life of
the respective asset, while the liability is accreted to its present value. Upon
settlement of the liability, the obligation is settled at its recorded amount,
or the company inc of this statement has had no material impact on the Company's
consolidated financial condition or results of operations.
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishment of Debt"; an amendment of that statement, FASB
Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements"; and FASB Statement No. 44, "Accounting for Intangible Assets of
Motor Carriers." This statement also amends FASB Statement No. 13, "Accounting
for Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. The adoption of this statement has had no material impact on the
Company's consolidated financial condition or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." This statement requires that a liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred instead of at the date an entity commits to an exit plan. The statement
is effective for exit and disposal activities entered into after December 31,
2002. The adoption of this statement has had no material impact on the Company's
consolidated financial condition or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-- Transition and Disclosure--an amendment of FASB Statement No.
123." This statement amends SFAS 123, "Accounting for Stock-Based Compensation,"
to allow for alternative methods of transition for a voluntary change to the
fair-value-based method of accounting for stock-based employee compensation.
This statement also amends FASB No. 123 to require disclosure of the accounting
method used for valuation in both annual and interim financial statements. It
permits an entity to recognize compensation expense under the prospective
method, modified prospective method, or the retroactive restatement method. If
an entity elects to adopt this statement, financial statements for fiscal years
beginning after December 15, 2003 must include this change in accounting for
stock-based employee compensation.
8
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The effective date for implementation of this statement is for
contracts entered into or modified after June 30, 2003. The adoption of this
statement has had no material impact on the Company's consolidated financial
condition or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
remaining provisions of this statement are consistent with the Board's proposal
to revise the definition of liabilities to encompass certain obligations that a
reporting entity can or must settle by issuing its own equity shares, depending
on the nature of the relationship established between the holder and the issuer.
This statement is effective for financial instruments entered into or modified
after May 31, 2003, and is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this statement has had no
material impact on the Company's consolidated financial condition or results of
operations.
NOTE 2 - EARNINGS PER SHARE
Net income and earnings per share for the three months ending
September 30, 2003 and 2002 are as follows:
2003 2002
----------- -----------
Net income $43,908 $1,893
Income per share - basic and fully ** **
diluted
Weighted average number of shares 12,053,245 12,053,549
**Less than $.01
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information for the three months
ended September 30, 2003 and 2002 are summarized as follows:
2003 2002
----------- -----------
Cash paid for:
--------------
Income taxes $-- $--
Interest $5,592 $2,128
9
NOTE 4 - RELATED-PARTY TRANSACTIONS
From time to time, the Company contracts with a construction company
related through common ownership and from whom the Company earns equipment
rental fees. There were no fees earned for the three months ended September 30,
2003 or 2002. The Company did, however, enter into certain agreements with the
related party in which the related party transferred ownership of two vehicles
to the Company in exchange for the Company's note. The net amount payable to the
related party was $12,622 at September 30, 2003 and $0 at September 30, 2002.
Also, for the three months ended September 30, 2003, the Company had sales of
$9,526 to its shareholder and CEO, Robert M. Callahan. As of September 30, 2003,
the related receivable was still outstanding.
NOTE 5 - BANK CREDIT LINE
The Company has available a $600,000 revolving line of credit with a local
bank. Interest is payable monthly on the outstanding balance at the prime
lending rate, which was 4.0% as of September 30, 2003. The note is secured by
accounts receivable, equipment, general intangibles, inventory, and fixtures and
furniture. The note is personally guaranteed by the Company's CEO. The balance
outstanding as of September 30, 2003 was $545,200.
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, 2003 and 2002, as excerpted
from internal management reports, is as follows:
Construction: 2003 2002
----------------------------------------------------------- ------------------------
Sales $523,148 $437,197
Intersegment expenses (240) (200)
Cost of sales (301,174) (232,907)
Corporate and other expenses (186,933) (179,322)
------------ ------------------------
Segment income $34,801 $24,768
Engineering:
-----------------------------------------------
Sales $72,410 $33,454
Intersegment revenues 240 200
Cost of sales (37,478) (41,751)
Corporate and other expenses (26,065) (14,777)
------------ ------------------------
Segment income (loss) $9,107 $(22,874)
10
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, P.C. 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:
o Girders and headers
o Garage, deck and porch concrete pour-over systems
o Floor joists
o Garage and post-and-beam buildings
o Floor joist reinforcers
o Engineering, design and custom building services
o Roof and floor trusses
11
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 20% of
the Company's sales are wholesale to lumberyards, home improvement stores,
hardware stores, and plumbing and electrical suppliers in Virginia and North
Carolina. Metwood relies primarily on its own sales force to generate sales;
additionally, however, the Company has distributors in Virginia, New York,
Oklahoma, Arizona and Colorado and also utilizes the salespeople of wholesale
yards stocking the Company's products as an additional sales force. The Company
is in discussions with national engineered I-joist manufacturers who are
interested in marketing the Company's products and expects to announce
affiliations with these companies in the near future. Metwood intends to
continue expanding the wholesale marketing of its unique products to retailers
and to license the Company's technology and products to increase its
distribution outside of Virginia, North Carolina and the South.
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.
12
Seasonality of Market
The Company's sales are subject to seasonal impacts, as its products are used in
residential and commercial construction projects which tend to be at peak levels
in Virginia and North Carolina between the months of March and October.
Accordingly, the Company's sales are greater in its fourth and first fiscal
quarters. The Company builds an inventory of its products throughout the winter
and spring to support its sales season.
Competition
Nationally, there are over one hundred manufacturers of the types of products
produced by the Company. However, the majority of these manufacturers are using
wood-only products or products without metal reinforcement. Metwood has
identified only one other manufacturer in the United States that manufactures a
wood-metal floor truss similar to that of the Company. However, Metwood has
often found that its products are the only ones that will work within many
customers' design specs.
Sources and Availability of Raw Materials and the Names of Principal Suppliers
All of the raw materials used by the Company are readily available on the market
from numerous suppliers. The light-gage metal used by the Company is supplied
primarily by Dietrich Industries, Marino-Ware, and Consolidated Systems, Inc.
The Company's main sources of lumber are Lowe's, 84 Lumber Company and Smith
Mountain Building Supply. Gerdau Amersteel, Descosteel and Adelphia Metals
provide the majority of the Company's rebar. Because of the number of suppliers
available to the Company, its decisions in purchasing materials are dictated
primarily by price and secondarily by availability. The Company does not
anticipate a lack of supply to affect its production; however, a shortage might
cause the Company to pass on higher materials prices to its buyers.
Dependence on One or a Few Major Customers
Presently the Company does not have any one customer whose loss would have a
substantial impact on the Company's operations.
Patents
The Company has four 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.
13
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.
The Company also has a patent pending on a modification of the floor joist patch
kit. The Company expects that this patent will be granted from the U.S. Patent
office within the next twelve months.
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 twenty-six employees at September 30, 2003, all of whom were
full time.
Results of Operations
Net Income
The Company had net income of $43,908 for the three months ended September 30,
2003, versus $1,893 for the three months ended September 30, 2002, an increase
of $42,015. The increase in income was attributable to increased sales, net of
the related income tax effect.
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Sales
Revenues were $595,558 for the three months ended September 30, 2003 compared to
$470,651 for the same period in 2002, an increase of $124,907, or 27%. The
increase in sales resulted primarily from an increase in truss sales and their
related engineering and design fees. Average selling prices and gross margins
remained fairly constant.
Expenses
Total administrative expenses were $194,325 for the three months ended September
30, 2003, versus $192,625 for the three months ended September 30, 2002, an
increase of only $1,700 (1%). A decrease of approximately $16,000 in
professional fees in 2003 over 2002 was offset by increases in advertising,
depreciation and payroll expenses.
Liquidity and Capital Reserves
On September 30, 2003, the Company had cash of $109,272 and working capital of
$120,947. Net cash provided by operating activities was $99,746 for the three
months ended September 30, 2003 compared to $50,657 for the three months ended
September 30, 2002. The greater provision of cash in the current year resulted
primarily from a paydown of accounts receivable and an increase in income taxes
payable that did not require a current cash outlay.
Net cash used in investing activities was $37,844 for the three months ended
September 30, 2003 compared to net cash used of $42,159 during the same period
in the prior year. Cash flows used in investing activities for the current
period were for building improvements ($9,073), shop vehicles ($18,313), and
office equipment, computers, software and engineering equipment ($12,772) less
sale/trade-in of assets of $22,500.
Cash provided by financing activities totaled $34,388 for the three months ended
September 30, 2003 as compared with cash used in financing activities of $31,757
for the three months ended September 30, 2002. Cash was borrowed from the bank
line of credit in both the current period and the prior year for operating
capital and for the purchase of plant and equipment.
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.
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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, 2003.
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 11, 2003 /s/ Robert M. Callahan
Robert M. Callahan
Chief Executive Officer
/s/ Annette G. Mariano
Annette G. Mariano
Chief Financial Officer
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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.
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