Edgar Filing: METWOOD INC

Metwood 10-QSB 02-22-2005

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 December 31, 2004

o	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

(State or other jurisdiction

of incorporation)

83-0210365

(IRS Employer

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 o

Number of shares of common stock outstanding as of February 18, 2005: 12,167,499

Transitional Small Business Disclosure Format (Check one) Yes o No x

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METWOOD, INC. AND SUBSIDIARY

FORM 10-QSB

TABLE OF CONTENTS


**Part I. Financial Information**		Page (s)

Item 1. Financial Statements

Consolidated Balance Sheet As of December 31, 2004		1-2

Consolidated Statements of Income for the Three and Six Months Ended December 31, 2004 and 2003		3

Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2004 and 2003		4

Notes to Consolidated Financial Statements		5-9

Item 2. Management’s Discussion and Analysis		10-15

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

Exhibits		18-22

See accompanying notes to consolidated financial statements.

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Part I. Financial Information

Item 1. Financial Statements

METWOOD, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheet
December 31, 2004
*(unaudited)*

ASSETS
	2004
CURRENT ASSETS
Cash and Cash Equivalents	$	36,847
Accounts Receivable, net of allowance of $10,262		479,715
Inventory		679,807
Other Current Assets		18,910
TOTAL CURRENT ASSETS		1,215,279

PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment		44,022
Computer hardware, software and peripherals		98,353
Machinery and shop equipment		262,967
Vehicles		252,469
Buildings and improvements		855,885
Land and land improvement		194,786
		1,708,482
Accumulated Depreciation		(400,405	)
Net Property and Equipment		1,308,077

OTHER ASSETS
Goodwill		253,088
Net Other Assets		253,088
TOTAL ASSETS	$	2,776,444

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Current Liabilities:
Accounts Payable	$	118,769
Accrued Expenses		37,726
Customer Deposits		5,200
Current Maturities of Long-term Debt		365,024
Bank Line of Credit		34,000
Income Taxes Payable		135,827
TOTAL CURRENT LIABILITIES		696,546

Long-term Debt, excluding current maturities		81,800
Deferred Income Taxes,net		86,014
TOTAL LONG-TERM LIABILITIES		167,814

STOCKHOLDERS' EQUITY
Common Stock ($.001par value, 100,000,000 shares authorized:
11,877,499 shares issued and outstanding)		11,877
Common Stock Subscribed but not Issued ($.001 par, 2950 shares)		3
Additional Paid-in-Capital		1,306,147
Retained Earnings		594,057
TOTAL STOCKHOLDERS' EQUITY		1,912,084

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,776,444

The accompanying notes are an integral part of the consolidated financial statements

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METWOOD, INC. AND SUBSIDIARY
Consolidated Income Statements
For the three and six months ended December 31, 2004 and 2003
(unaudited)

	Three Months Ended December 31,				Six Months Ended December 31,
	2004		2003		2004		2003
REVENUES
Construction Sales	$	811,189	$	704,727	$	1,830,090	$	1,227,874
Engineering sales		86,186		70,691		182,105		143,102
Gross Sales		897,375		775,418		2,012,195		1,370,976

Cost of construction sales		350,344		357,230		907,427		658,404
Cost of engineering sales		75,509		45,485		124,448		82,963
Gross cost of sales		425,853		402,715		1,031,875		741,367

Gross Profit		471,522		372,703		980,320		629,609

ADMINISTRATIVE EXPENSES:
Advertising		41,804		5,033		88,533		11,948
Construction/bidding data		6,558		-		11,340		-
Depreciation		15,517		12,870		31,052		25,507
Dues and publications		4,554		-		10,942		-
Insurance		20,895		11,219		33,997		19,900
Office expenses		12,616		-		18,790		218,642
Payroll expenses		148,568		111,941		270,980		22,247
Professional fees		7,973		12,893		36,515		18,194
Research and development		-		8,700		-		15,903
Telephone		6,670		5,747		13,281		11,461
Travel		6,351		-		9,776		-
Vehicle		6,866		910		16,440		6,817
Property taxes		5,501		15,222		5,500		-
Other		13,732		49,020		35,445		77,261
Total administrative expenses		297,605		233,555		582,591		427,880

OPERATING INCOME		173,917		139,148		397,729		201,729

OTHER INCOME:		8,875		88		5,511		6,252

INCOME BEFORE INCOME TAXES		182,792		139,236		403,240		207,981

INCOME TAXES		55,000		51,082		137,000		75,919

NET INCOME	$	127,792	$	88,154	$	266,240	$	132,062

Basic and diluted earnings per share	$	0.01		**	$	0.02	$	0.01

Weighted Average Common
Shares Outstanding		11,877,499		12,057,549		11,874,874		12,055,396

** Less than .01

The accompanying notes are an integral part of the consolidated financial statements

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METWOOD, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the six months ended December 31, 2004 and 2003
(unaudited)

	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	266,240		$	132,062
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		47,690			47,012
Net loss on sale of property and equipment		2,948			-
Common stock issued for services		-			3,500
Provision for deferred income taxes		7,000			17,006
(Increase) decrease in operating assets:
Accounts receivable		(100,511	)		(44,511	)
Inventory		(46,582	)		(38,884	)
Prepaid expenses		21,964			(24,677	)
Increase (decrease) in operating liabilities:
Accounts payable, accrued expenses and customer deposits		(173,057	)		(15,702	)
Current income taxes payable		76,000			58,913
NET CASH PROVIDED BY OPERATING ACTIVITIES		101,692			134,719

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(44,260	)		(67,452	)
NET CASH (USED IN) INVESTING ACTIVITIES		(44,260	)		(67,452	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (repayment of ) notes payable		(9,220	)		3,184
Net borrowings from (repayment of ) related party		-			10,154
Borrowings (Repayments) under line-of-credit agreement		(56,976	)		8,000
Common stock issued for cash		7,875			-
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(58,321	)		21,338

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS		(889	)		88,605

CASH AND CASH EQUIVALENTS:
Beginning of period		37,736			9,482

End of period		36,847			98,087

The accompanying notes are an integral part of the consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004

(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. On January 15, 2004, Metwood purchased from that shareholder and retired 137,500 of the originally issued 290,000 shares for $25,000. 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

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 December 31, 2004 are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2005.

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.

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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, 2004, the allowance for doubtful accounts was $10,262. 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 and six months ended December 31, 2004 and 2003, 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.

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.

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. 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 December 31, 2004 and 2003 using discounted cash flow estimates and found no goodwill impairment.

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 December 31, 2004 and 2003, the expenses relating to research and development were $-0- and $8,700, respectively. For the six months ended December 31, 2004 and 2003, the expenses relating to research and development were $-0- and $15,903, respectively.

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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 and six months ended December 31, 2003 have been reclassified to conform to the December 31, 2004 financial statement presentation.

Recent Accounting Pronouncements — 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 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.

In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based Compensation". SFAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SGAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. SFAS 123(R) shall be effective for the Company as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The adoption of this new accounting pronouncement is expected to have a material impact on the financial statements of the Company commencing with the third quarter of the year ending September 30, 2006. Small business issuers need not comply with the new standard until fiscal periods beginning after December 15, 2005. We have no expense of employee stock options for annual and quarterly periods on fair value calculation according to SFAS No.123.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (SFAS 151). This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory costs incurred in fiscal years beginning after June 15, 2005.

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Note 2 — Earnings Per Share

Net income and earnings per share for the three and six months ended December 31, 2004 and 2003 are as follows:

	For the Three Months Ended December 31,				For the Six Months Ended December 31,
	2004		2003		2004		2003
Net income	$	127,792	$	88,154	$	266,240	$	132,062
Income per share - basic and fully diluted		0.01		**		0.02		0.01
Weighted average number of shares		11,877,499		12,057,549		11,874,874		12,055,396

**Less than $.01

Note 3 — Supplemental Cash Flow Information

Supplemental disclosures of cash flow information for the three and six months ended December 31, 2004 and 2003 are summarized as follows:

	For the Three Months Ended December 31,				For the Six Months Ended December 31,
	2004		2003		2004		2003
Cash paid for income taxes	$	--	$	--	$	--	$	--
Cash paid for interest	$	3,960	$	5,553	$	10,429	$	11,145

Note 4 — Related-Party Transactions

For the three months ended December 31, 2004 and 2003, we had sales of $36,847 and $50,288 respectively, to our shareholder and CEO, Robert Callahan. As of December 31, 2004, the related party receivable was $20,667.

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 December 31, 2004. The note is secured by accounts receivable, equipment, general intangibles, inventory, and furniture and fixtures. The note is personally guaranteed by the Company’s CEO. The balance outstanding as of December 31, 2004 was $446,824.

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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, 2004 and 2003, as excerpted from internal management reports, is as follows:

		For the Three Months Ended December 31,				For the Six Months Ended December 31,
		2004		2003		2004		2003
Construction:
Sales	$	811,189	$	704,727	$	1,830,090	$	1,227,874
Cost of sales		(350,344)		(357,230)		(907,427)		(658,644)
Corporate and other expenses		(329,665)		(266,411)		(687,767)		(453,343)

Segment income (loss)	$	131,180	$	81,086	$	234,896	$	115,887

Engineering:
Sales	$	86,185	$	70,691	$	182,105	$	143,342
Cost of sales		(75,509)		(45,485)		(124,448)		(82,963)
Corporate and other expenses		(17,965)		(18,138)		(26,313)		(44,204)

Segment income (loss)	$	(3,387)	$	7,068	$	31,344	$	16,175

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 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.

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Metwood’s primary products and services are:

· Girders and headers

· Floor joists

· Floor joist reinforcers

· Roof and floor trusses

· Garage, deck and porch concrete pour-over systems

· Garage and post-and-beam buildings

· Engineering, design and custom building services

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.

Status of Publicly Announced New Products or Services

The Company has acquired four new patents through assignment from Robert Callahan and Ronald 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 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.

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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’s eight U.S. Patents are:

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 Joist 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 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-one employees at December 31, 2004, twenty of whom were full time.

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Results of Operations

Net Income

The Company had net income of $127,792 and $266,240 for the three and six months ended December 31, 2004, versus net income of $88,154 and $132,062 for the three and six months ended December 31, 2003. This represents an increase in net income of $39,638 and $134,178 for the three and six months ended December 31, 2004, respectively, compared to prior period amounts. The increase in net income for the quarter ended December 31, 2004 over 2003 resulted from gross sales, which increased by 15.7% to $897,375 from $775,418 for the three months in 2004 compared to 2003 and fairly constant administrative expenses .

Revenues

Gross sales were $897,375 for the three months ended December 31, 2004 compared to $775,418 for the same period in 2003, an increase of $121,957, or 15.7%. These increases resulted from a combination of greater sales volume, an average increase in selling prices and materials costs decrease.

The Company’s significant growth in 2004 sales over 2003 resulted from several factors, all of which will continue to have a positive impact on sales into the future. Awareness of the Company’s products has increased as a result of aggressive marketing campaigns, and its patented, innovative products are becoming known throughout the country. The Company’s customer base continues to grow as a result. Additionally, new products using the technology of the Company’s four newly issued patents began production at the beginning of the current fiscal year and contributed to the growth in revenues for the three months ending December 31, 2004.

Expenses

Total administrative expenses were $297,605 for the quarter ended December 31, 2004, versus $233,555 for the quarter ended December 31, 2003, an increase of $64,050 (27%). Areas of particular increase for the three months ended December 31, 2004 over 2003 were advertising (731%), insurance (86%), payroll expense (33%). We hired additional employees to handle our increase in sales volume in 2004. We also advertised more which generated the increase in sales above.

Liquidity and Capital Reserves

On December 31, 2004, the Company had cash of $36,847 and working capital of $518,733. Net cash provided by operating activities was $101,692 for the six months ended December 31, 2004 compared to net cash provided by operating activities of $134,719 for the six months ended December 31, 2003. The lesser provision of cash in the current year resulted primarily from a decrease in account payable, accrued expenses and customer deposits that required a current cash outlay.

Net cash used in investing activities was $44,260 for the six months ended December 31, 2004 compared to net cash used of $67,452 during the same period in the prior year. Cash flows used in investing activities for the current period were for shop equipment, office equipment, computers, software ($4,991), vehicles ($9,744).

Cash used in financing activities totaled $58,321 for the six months ended December 31, 2004 as compared to $21,338 provided by financing activities for the six months ended December 31, 2003. During the period ended December 31, 2004, the Company issued 15,750 shares of stock for cash of $7,875.

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Item 3 — Controls and Procedures

The Company’s management 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 1 — Legal Proceedings

None

Item 2 — Changes in Securities

None

Item 3 — Defaults Upon Senior Securities

None

Item 4 — Submission of Matters to a Vote of Security Holders

None

Item 5 — Other Information

None

Item 6 — Eexhibits and Reports on Form 8-K

(a) Exhibits are incorporated by reference.

(b) On November 18, 2004, we filed an 8-K/A regarding the filing of a change in auditors.

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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 18, 2005

/s/ Robert M. Callahan

Robert M. Callahan

Chief Executive Officer

Date: February 18, 2005		/s/ Shawn Callahan Shawn Callahan 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 (18 U.S.C. 1350)