UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

 

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________ to ________

 

Commission File Number 000-05391

 

METWOOD, INC.

(Exact name of small business issuer as specified in its charter)

 

NEVADA		83-0210365
(State or other jurisdiction of incorporation)		(IRS Employer Identification No)

  

819 Naff Road, Boones Mill, VA 24065

(Address of principle executive offices) (Zip Code)

 

(540) 334-4-294

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address, and former fiscal year, if changed since last report)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filings requirements for the past 90 days.

Yes [X] No [ ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company as defined by Rule 12-b of the Exchange Act.

 

Large accelerated filer [ ] Non-accelerated filer [ ]

Accelerated filer [ ] Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X]

 

As of May 10, 2013, the number of shares outstanding of the registrant’s common stock, $0.001 par value (the only class of voting stock), was 15,221,647 shares.

 

 

METWOOD, INC. AND SUBSIDIARY

TABLE OF CONTENTS – FORM 10-QSB

 

PART I	FINANCIAL INFORMATION	Page(s)
Item 1	Financial Statements
	Consolidated Balance Sheets As of March 31, 2013 (Unaudited) And June 30, 2012	3
	Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended March 31, 2013 and 2012	4
	Consolidated Statements of Cash Flows (Unaudited) for Nine Months Ended March 31, 2013 and 2012	5
	Notes to Consolidated Financial Statements	6-9
Item 2	Management’s Discussion and Analysis of Financial Condition And Results of Operations	10
Item 4	Controls and Procedures	14
PART II	OTHER INFORMATION
Item 6	Exhibits and Reports on Form 8-K	15
	Signatures	16
	Index to Exhibits	17

 

 

CONSOLIDATED BALANCE SHEETS
		(UNAUDITED)				(AUDITED)
		March 31,				June 30,
		2013				2012
ASSETS
Current Assets
Cash and cash equivalents		$	92,706			$	58,646
Accounts receivable, net			239,497				231,081
Inventory			917,876				961,780
Other current assets			113,506				31,871
Total current assets			1,363,585				1,283,378
Property and Equipment
Leasehold and land improvements			334,432				332,779
Furniture, fixtures and equipment			93,458				93,458
Computer hardware, software and peripherals			175,911				167,763
Machinery and shop equipment			462,795				459,087
Vehicles			374,937				381,373
			1,441,533				1,434,460
Less accumulated depreciation			(1,042,987	)			(1,001,068	)
Net property and equipment			398,546				433,392
Other Assets
Deferred tax asset			235,631				224,317
Less valuation reserve			(117,816	)			(112,159	)
Total other assets			117,815				112,158
TOTAL ASSETS		$	1,879,946			$	1,828,928

 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses		$	131,916			$	164,052
Total current liabilities			131,916				164,052
Long-term Liabilities
Due to related company			100,000				112,711
Total long-term liabilities			100,000				112,711
Total liabilities			231,916				276,763
Stockholders' Equity
Common stock, $.001 par, 100,000,000 shares
authorized; 15,221,647 shares issued and
outstanding at December 31, 2012			15,222				12,232
Common stock not yet issued ($.001 par, 8,150 shares)			8				8
Additional paid-in capital			1,669,278				1,544,268
Retained earnings			(36,478	)			(4,343	)
Total stockholders' equity			1,648,030				1,552,165
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY		$	1,879,946			$	1,828,928

 

See accompanying notes to consolidated financial statements.

 

METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
		Three Months Ended March 31,								Nine Months Ended March 31,
		2013				2012				2013				2012
REVENUES
Construction sales		$	439,494			$	446,419			$	1,682,066			$	1,508,192
Engineering sales			—				—				—				14,856
Gross sales			439,494				446,419				1,682,066				1,523,048
Cost of construction sales			291,292				253,583				1,054,517				888,013
Cost of engineering sales			—				—				—				19,565
Gross cost of sales			291,292				253,583				1,054,517				907,578
Gross profit			148,202				192,836				627,549				615,470
ADMINISTRATIVE EXPENSES
Advertising			7,343				14,139				19,631				35,254
Depreciation			7,806				9,374				24,048				28,394
Insurance			5,327				11,857				16,868				19,594
Payroll expenses			125,040				120,563				394,283				366,109
Professional fees			13,332				14,763				49,730				45,133
Rent			20,400				20,400				61,200				60,200
Vehicle			9,961				15,062				23,810				37,624
Other			36,684				24,937				85,187				77,627
Total administrative expenses			225,893				231,095				674,757				669,935
Operating loss			(77,691	)			(38,259	)			(47,208	)			(54,465	)
Other income			6,161				8,559				9,316				18,124
Loss before income taxes			(71,530	)			(29,700	)			(37,892	)			(36,341	)
Income tax benefit			(18,461	)			(4,019	)			(5,657	)			(12,823	)
Net loss from operations		$	(53,069	)		$	(25,681	)		$	(32,235	)		$	(23,518	)
Basic and diluted deficit per share			$     **				$     **				$     **				$     **
Weighted average number of shares			14,951,664				12,231,797				13,850,632				12,231,797
**Less than $0.01

 

See accompanying notes to consolidated financial statements.

 

METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Nine Months Ended March 31,
		2013				2012
OPERATIONS
Net loss		$	(32,235	)		$	(23,518	)
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation			41,919				71,732
Provision for (reversal of) deferred income taxes			(5,657	)			(12,823	)
(Increase) decrease in operating assets:
Accounts receivable			10,241				(88	)
Inventory			43,904				(102,908	)
Recoverable income taxes			—				42,606
Prepaid expenses			(100,835	)
Other operating assets			543				13,711
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses			(32,036	)			3,752
Net cash used for operating activities			(74,156	)			(7,536	)
INVESTING
Issuance of common stock			128,000				—
Capital expenditures			(26,873	)			(37,347	)
Proceeds from disposal of assets			19,800				36,383
Net cash provided by (used for) investing activities			120,927				(964	)
FINANCING
Decrease in note payable			—				(29,888	)
Decrease in borrowings from related party			(12,711	)			(15,608	)
Net cash used for financing activities			(12,711	)			(45,496	)
Net increase (decrease) in cash			34,060				(53,996	)
Cash, beginning of the year			58,646				180,448
Cash, end of the period		$	92,706			$	126,452

 

See accompanying notes to consolidated financial statements.

METWOOD, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND OPERATIONS

 

Metwood, Inc. ("Metwood") was organized under the laws of the Commonwealth of Virginia on April 7, 1993. On June 30, 2000, Metwood entered into an Agreement and Plan of Reorganization in which the majority of its outstanding common stock was acquired by a publicly held Nevada shell corporation. The acquisition was a tax-free exchange for federal and state income tax purposes and was accounted for as a reverse merger in accordance with Accounting Principles Board ("APB") Opinion No. 16. Upon acquisition, the name of the shell corporation was changed to Metwood, Inc., and Metwood, Inc., the Virginia corporation, became a wholly owned subsidiary of Metwood, Inc., the Nevada corporation. The publicly traded shell corporation had not had a material operating history for several years prior to the merger.

 

Effective January 1, 2002, Metwood acquired certain assets of Providence Engineering, PC ("Providence"), a professional engineering firm with customers in the same proximity as Metwood, for $350,000 and accounted for the transaction under the purchase method of accounting. As of June 30, 2012, Providence was no longer an operating segment of the Company. We concluded that the majority of the engineering portion of the business can best be handled through a strategic partnership with an outside engineering firm. We believe that continuing research and development efforts will soon enable us to meet code requirements for our products and will eliminate the need for individual engineering seals.

 

The company provides construction-related products and engineering services to residential customers and contractors, commercial contractors, developers and retail enterprises, primarily in southwestern Virginia.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUTING PRACTICES

 

Basis of Presentation - The financial statements include the accounts of Metwood, Inc. and its wholly owned subsidiary, Providence Engineering, PC, prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany balances and transactions have been eliminated.

 

In the opinion of management, the unaudited condensed financial statements contain all the adjustments necessary in order to make the financial statements not misleading. The results for the period ended March 31, 2013 are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2013.

 

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 - We grant credit in the form of unsecured accounts receivable to our customers based on an evaluation of their financial condition. We perform ongoing credit evaluations of our customers. The estimate of the allowance for doubtful accounts, which is charged off to bad debt expense, is based on management’s assessment of current economic conditions and historical collection experience with each customer. At December 31, 2012, the allowance for doubtful accounts was $5,000. Specific customer receivables are considered past due when they are outstanding beyond their contractual terms and are charged off to bad debt expense when determined uncollectible. For the three and nine months ended March 31, 2013, the amount of bad debts (recovered) charged off was ($102) and $110, respectively. For the three and nine months ended March 31, 2012, bad debts charged off were $-0- and $1,697, respectively.

 

Inventory - Inventory, consisting of metal and wood raw materials, is located on our premises and is stated at the lower of cost or market using the first-in, first-out method.

 

Property and Equipment - Property and equipment are recorded at cost and include expenditures for improvements when they substantially increase the productive lives of existing assets. Maintenance and repair costs are expensed to operations as incurred. Depreciation is computed using the straight-line method over the assets' estimated useful lives, which range from three to forty years. When a fixed asset is disposed of, its cost and related accumulated depreciation are removed from the accounts. The difference between undepreciated cost and the proceeds is recorded as a gain or loss.

 

Impairment of Long-lived Assets - We evaluate our long-lived assets for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amounts to the future net undiscounted cash flows which the assets are expected to generate. Should an impairment exist, the impairment would be measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset. There have been no such impairments of long-lived assets through March 31, 2013.

 

Patents - We have been assigned several key product patents developed by certain company officers. No value has been recorded in our financial statements because the fair value of the patents was not determinable within reasonable limits at the date of assignment.

 

Revenue Recognition - Revenue is recognized when goods are shipped and earned or when services are performed, provided collection of the resulting receivable is probable. If any material contingencies are present, revenue recognition is delayed until all material contingencies are eliminated. Further, no revenue is recognized unless collection of the applicable consideration is probable.

 

Income Taxes - Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes." A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and for net operating loss carryforwards, where applicable. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

 

Research and Development - We perform research and development on our metal/wood products, new product lines, and new patents. Costs, if any, are expensed as they are incurred. Research and development costs for the three months ended March 31, 2013 and 2012 were $143 and $1,289, respectively. For the nine months ended March 31, 2013 and 2012, research and development costs (refunded amounts) were $4,930 and $(803), 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 April 2013, the FASB issued ASU No. 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting (“ASU 2013-07"). With ASU 2013-07, the FASB amends the guidance in the FASB Accounting Standards Codification [FASB ASC] Topic 205, entitled Presentation of Financial Statements. The amendments serve to clarify when and how reporting entities should apply the liquidation basis of accounting. The guidance is applicable to all reporting entities, whether they are public or private companies or not-for-profit entities. The guidance also provides principles for the recognition of assets and liabilities and disclosures, as well as related financial statement presentation requirements. With the new guidance, reporting entities in liquidation are required to prepare financial statements using a basis of accounting that communicates information to users of the financial statements to enable those users to develop expectations about how much the reporting entities will have available for distribution to investors after disposing of its assets and settling its obligations. The requirements in ASU 2013-07 are effective for annual reporting periods beginning after December 15, 2013, and interim reporting periods within those annual periods. Reporting entities are required to apply the requirements in ASU 2013-07 prospectively from the day that liquidation becomes imminent. Early adoption is permitted

 

Management does not believe that any other recently issued accounting pronouncements would have a material effect on the accompanying financial statements.

 

NOTE 3 – EARNINGS PER SHARE

 

Net income (loss) and earnings per share for the three and six months ended March 31, 2013 and 2012 are as follows:

 

		For the Three Months Ended								For the Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
Net loss		$	(53,069	)		$	(25,681	)		$	(32,235	)		$	(23,518	)
Earnings per share - basic and fully diluted			$     **				$     **				$     **				$     **
Weighted average number of shares			14,951,664				12,231,797				13,850,632				12,231,797
**Less than $0.01

 

NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION

 

Supplemental disclosures of cash flow information for the three and nine months ended March 31, 2013 and 2012 are summarized as follows:

 

		For the Three Months Ended								For the Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
Cash paid for:
Income taxes		$	—			$	—			$	—			$	—
Interest		$	6			$	—			$	26			$	—

 

 

NOTE 5 - RELATED-PARTY TRANSACTIONS

 

From time to time, we contract with a company related through common ownership for building and grounds-related maintenance services and equipment rental. Fees paid to the related company for the three and nine months ended March 31, 2013 and 2012 were $7,360 and $17,440, respectively. For the three months ended March 31, 2013 and 2012, we had sales of $1,812 and $3,553, respectively, to the company referred to above. For the nine months ended March 31, 2013 and 2012, we had sales of $10,198 and $15,608 to the company. As of March 31, 2013 and 2012, the related receivable was $1,812 and $-0-, respectively. See also Note 7.

 

NOTE 6 - SEGMENT INFORMATION

 

Until June 30, 2012, we operated in two principal business segments: (1) construction-related products and (2) engineering services. Performance of each segment was evaluated based on profit or loss from operations before income taxes. These reportable segments are strategic business units that offer different products and services. The company concluded that the majority of the engineering portion of the business can best be handled through a strategic partnership with an outside engineering firm. We believe that continuing research and development efforts will soon enable us to meet code requirements for our products and will eliminate the need for individual engineering seals. Summarized revenue and expense information by segment for the three and nine months ended March 31, 2013 and 2012, as excerpted from internal management reports, is as follows:

 

		For the Three Months Ended								For the Nine Months Ended
		March 31,								March 31,
Construction:		2013				2012				2013				2012
Sales		$	439,494			$	446,419			$	1,682,066			$	1,508,192
Intersegment expenses			—				—				—				(200	)
Cost of sales			(291,292	)			(253,583	)			(1,054,517	)			(888,013	)
Other expenses			(201,271	)			(215,277	)			(659,784	)			(637,346	)
Segment income (loss)		$	(53,069	)		$	(22,441	)		$	(32,235	)		$	(17,367	)
Engineering:
Sales		$	—			$	—			$	—			$	14,856
Intersegment revenues			—				—				—				200
Cost of sales			—				—				—				(19,565	)
Other income (expenses)			—				(3,240	)			—				(1,642	)
Segment income (loss)		$	—			$	(3,240	)		$	—			$	(6,151	)

 

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 $6,800. The lease expires on December 31, 2014. For the three months ended March 31, 2013 and 2012, we recognized rental expense for these spaces of $20,400 and $20,400, respectively. For the nine months ended March 31, 2013 and 2012, we recognized rental expense of $61,200 and $60,200, respectively.

 

NOTE 8 - MERGER AGREEMENT, PLANNED REORGANIZATION AND STOCK OFFERING

 

Management has issued additional shares to Cahas Mountain Properties LLC the majority shareholder of Metwood stock, form a voting trust with an Investment Firm. Cahas has been in negotiations with an investment firm that has the potential to help the company meet the qualifications to up-list to NASDAQ or another major stock exchange. The Voting Trust will look at potential deals for potential mergers, acquisitions, and other business activities.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

 

With the exception of historical facts stated herein, the matters discussed in this report are "forward-looking" statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such "forward-looking" statements include, but are not necessarily limited to, statements regarding anticipated levels of future revenues and earnings from operations of the Company. Readers of this report are cautioned not to put undue reliance on "forward-looking" statements, which are by their nature, uncertain as reliable indicators of future performance.

 

Description of Business

 

Background

As discussed in detail in Note 1, we were incorporated under the laws of the Commonwealth of Virginia on April 7, 1993 and, on June 30, 2000, entered into a reverse merger in which it became the wholly owned subsidiary of a public Nevada shell corporation, renamed Metwood, Inc. Effective January 1, 2002, Metwood acquired certain assets of Providence Engineering, PC in a transaction accounted for under the purchase method of accounting.

 

Description

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:

 

·

TUFF BEAM – internally reinforced cold-formed steel beam

·

TUFF JOIST+ – internally reinforced cold-formed steel joist

·

TUFF FLOOR – combination of TUFFBEAM, TUFFJOIST TUFFJOIST are utilized to make up a complete floor system

·

TUFF DECK – concrete deck systems

·

RIM BEAM – internally reinforced cold-formed steel load distribution member

·

TUFF JOIST – Metwood is a national distributor for TUFF JOIST floor joists.

·

TUFF WALL – a fully proprietary panelized CFS wall framing solution

·

TUFF TRUSS – a proprietary roof and floor truss system

·

AEGIS – Metwood is a distributor and fabricator of Aegis Metal Framing’s CFS trusses

·

Trimmable square columns

·

Joist Reinforcers

·

Engineering, design, and custom building services

 

Metwood is performing ongoing product research and development. Through a strategic partnership with an outside engineering firm, Metwood is able to offer 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.

 

We also perform 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.

 

The company has designed numerous foundations for a variety of structures. Our 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.

 

We have also designed and drafted full building plans for several applications. When subcontracting for local companies, we have the ability, in partnership with our outside engineering firm, to provide basic architectural, mechanical, electrical, and detailed civil and structural design services for these facilities.

 

We have reviewed designs by manufacturers for a variety of structures and structural components, including retaining walls, radio towers, tower foundations, sign foundations, timber trusses, light-gage steel trusses, and light-gage steel beams. This service enables clients to take generic designs and have them certified and approved for construction in the desired locality.

Distribution Methods of Products and Services

 

Our sales are primarily wholesale, directly to lumberyards, home improvement stores, hardware stores, and plumbing and electrical suppliers in Virginia and North Carolina. Metwood relies primarily on its own sales force to generate sales; additionally, however, the Company has distributors in Virginia, New York, Oklahoma, Arizona and Colorado and also utilizes the salespeople of wholesale yards stocking the Company's products as an additional sales force. We are an authorized vendor for Lowe's, Home Depot, 84 Lumber, Stock Building Supply, ProBuild, and many more. We have several stocking dealers of our square columns and reinforcing products. We will sell directly to contractors in areas where we do not have a dealer, but with our national dealer relationships, we typically have a dealer to use. Metwood intends to continue expanding the wholesale marketing of its unique products to retailers, to increase dealer sales, and to license the Company's technology and products to increase its distribution outside of Virginia, North Carolina and the South.

 

Status of Publicly Announced New Products and Services

 

Metwood has become a fabricator of the Aegis steel truss system and is a supplier of their products to both residential and commercial customers.

 

Seasonality of Market

 

Our sales are subject to seasonal impacts, as our products are used in residential and commercial construction projects which tend to be at peak levels in Virginia and North Carolina between the months of March and October. Accordingly, our sales are greater in our fourth and first fiscal quarters. We build an inventory of our products throughout the winter and spring to support our sales season. Due to the seasonality of our local market, we are continuing our efforts to expand into markets that are not so seasonally impacted. We have shipped projects to Florida, Georgia, South Carolina, Arizona, Washington, and more. These markets have some seasonality, but increased exposure in these markets will help maintain stronger sales year round.

 

Competition

 

Nationally, there are over one hundred manufacturers of the types of products produced by the Company. However, the majority of these manufacturers are using wood-only products or products without metal reinforcement. Metwood has identified only one other manufacturer in the United States that manufactures a cold-formed steel beam. However, we have often found that our products are the only ones that will work within many customers' design specs.

 

Sources and Availability of Raw Materials and the Names of Principal Suppliers

 

All of the raw materials we use are readily available on the market from numerous suppliers. The light-gage metal used by the company is supplied primarily by Telling Industries, New Millenium, Allied Tube & Conduit, and Vulcraft. Our main source of lumber is BlueLinx. Re-Steel, Nucor and Gerdau Amersteel provide the majority of our rebar. Because of the number of suppliers available to us, our decisions in purchasing materials are dictated primarily by price and secondarily by availability. We do not anticipate a lack of supply to affect our production; however, a shortage might cause us to pass on higher materials prices to our buyers.

Dependence on One or a Few Major Customers
For the three and nine months ended March 31, 2013 and 2012, sales to certain customers amounted to more than 5% of total sales.  Those customers and the related percent of sales greater than 5% were as follows:
		Three Months Ended				Nine Months Ended
		March 31,				March 31,
			2013				2012				2013				2012
84 Lumber			—				7	%			—				8	%
Capps Home Building			7	%			—				—				—
Caribbean Building Supplies, Inc.			—				8	%			—				—
Davenport Development			—				—				—				6	%
Healing Strides of Virginia			—				8	%			—				—
Probuild Co., LLC			9	%			10	%			6	%			—
Luis Rivera			27	%			—				14	%			—
Smith Mtn. Building Supply, LLC			—				6	%			—				—
The Lester Group, Inc.			9	%			6	%			—				—

 

PATENTS

 

The Company has nine U.S. Patents:

 

U.S. Patent Nos. 5,519,977 and 7,347,031, "Joist Reinforcing Bracket," a bracket that reinforces wooden joists with a hole for the passage of a utility conduit. The Company refers to this as its floor joist patch kit.

 

U.S. Patent No. 5,625,997, "Composite Beam," a composite beam that includes an elongated metal shell and a pierceable insert for receiving nails, screws or other penetrating fasteners.

 

U.S. Patent No. 5,832,691, "Composite Beam," a composite beam that includes an elongated metal shell and a pierceable insert for receiving nails, screws or other penetrating fasteners. This is a continuation-in-part of U.S. Patent No. 5,625,997.

 

U.S. Patent No. 5,921,053, "Internally Reinforced Girder with Pierceable Nonmetal Components," a girder that includes a pair of c-shaped members secured together so as to form a hollow box, which permits the girder to be secured within a building structure with conventional fasteners such as nails, screws and staples.

 

U.S. Patent Nos. D472,791S, D472,792S, D472,793S, and D477,210S, all modifications of Metwood's Reinforcing Bracket, which will be used for repairs of wood I-joists.

 

Need for Government Approval of Principal Products

 

Our products must either be sold with an engineer's seal or applicable building code approval. Currently, we are seeking International Code Council ("ICC") code approval on our TUFFBEAMS. Once that approval is obtained, our products can be used in all fifty states and will eliminate the need for an engineer's seal on individual products. To date, the company's 2x10 floor joist reinforcer has received both Bureau Officials Code Association approval (2001) and ICC approval (2004).

 

Time Spent During the Last Two Fiscal Years on Research and Development Activities

 

Approximately fifteen percent of our time and resources has been spent during the last two fiscal years researching and developing our metal/wood products, new product lines, and new patents. We have performed several tests with NTA, Inc. to achieve a cold compliance report on our TUFFBEAM and TUFFJOIST product lines.

 

Costs and Effects of Compliance with Environmental Laws

 

We do not incur any costs to comply with environmental laws. We are an environmentally friendly business in that our products are fabricated from recycled steel.

 

Number of Total Employees and Number of Full-Time Employees

 

The Company had fourteen employees at March 31, 2013, all of whom were full time.

 

Results of Operations

 

Net Income

We had a net loss of $53,069 for the three months ended March 31, 2013, versus a net loss of $25,681 for the three months ended March 31, 2013. Sales decreased 1% comparing 2013 to 2012. As a percentage of sales, cost of goods sold was 66% for the three months ended March 31, 2013 and 57% for the three months ended March 31, 2012; for the nine months ended March 31, 2013 and 2012, it was 63% and 60%, respectively. Administrative expenses decreased 2% comparing the three months ended March 31, 2013 to the same period in 2012. This decrease was primarily attributable to decreased advertising and vehicle expenses.

 

For the nine months ended March 31, 2013 compared to March 31, 2012, we went from a net loss of $23,518 to a net loss of $32,235. Gross sales increased 10% between the two periods, while cost of sales increased 16% comparing 2013 and 2012. Administrative expenses decreased 1% for the nine months ended March 31, 2013 compared to 2012. The net result was a bottom line decrease of 37% comparing the two periods.

 

Sales

Revenues were $439,494 for the three months ended March 31, 2013 compared to $446,419 for the same period in 2012, a decrease of 1%. For the nine-month periods ended March 31, 2013 and 2012, sales were $1,682,066 and $1,508,192, respectively, an increase of 12%. The sales increase for the nine-month period in 2013 compared to 2012 may reflect an upturn in the overall economy and an improving building industry . However, although we have sold product in over twenty-five states since July 2007, our local market nonetheless remains down more than 30%. The potential for increased sales volume as we go forward is enhanced by the fact that we are now an authorized fabricator for the Aegis light-gauge steel truss system.

 

Expenses

Total administrative expenses were $225,893 for the three months ended March 31, 2013, versus $231,095 for the three months ended March 31, 2012, a decrease of $5,202. For the nine months ended March 31, 2013, administrative expenses were $674,757 compared to $669,935 for the nine months ended March 31, 2012, a 1% increase. The biggest increases in administrative expenses occurred in payroll and professional fees; however, there was also a 37% decrease in vehicle expenses.

 

Liquidity and Capital Reserves

 

On March 31, 2013, we had cash of $92,706 and working capital of $1,231,669. Net cash used for operating activities was $74,156 for the nine months ended March 31, 2013 compared to net cash used for operating activities of $7,536 for the nine months ended March 31, 2012.

 

Net cash provided by investing activities was $120,927 for the nine months ended March 31, 2013, compared to cash used of $964 during the same period in the prior year. Cash flows provided by investing activities for the nine months ended March 31, 2013 was from the issuance of common stock and the disposal of company fixed assets; cash flows used for investing activities were for computers and peripherals ($5,522), vehicles ($13,364), shop equipment ($3,708), leasehold improvements ($1,654) and software ($2,625).

 

Cash used in financing activities was $12,711 for the nine months ended March 31, 2013 compared to cash used of $45,496 for the period ended March 31, 2012. The net cash used in 2013 was to pay down borrowings from a related party.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

(a)

Evaluationof disclosure controls and procedures.

 

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

(b)

Changes in Internal Control over financial reporting.

 

We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. As we grow geographically and with new product offerings, we continue to create new processes and controls as well as improve our existing environment to increase efficiencies. Improvements may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 6 – EXHIBITS AND REPORTS ON FORM 8-K

 

(a)

Exhibits

 

See index to exhibits.

 

(b)

Reports on Form 8-K

 

There were no reports on Form 8-K Filed during the quarter ended March 31, 2013

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: May 10, 2013

 

/s/ Robert M. Callahan

Robert M. Callahan

Chief Executive Officer

 

 

 

Date: May 10, 2013

 

/s/ Shawn A. Callahan

Shawn A. Callahan

Chief Financial Officer

 

 

INDEX OF 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

Certification 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