| | | | | | | | | | | | | | | | | 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 sixnine months ended DecemberMarch 31, 20082009 and 2007,2008, as excerpted from internal management reports, is as follows: | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the SixNine Months Ended | | | | December 31, | | | December 31, | | Construction:
| | 2008 | | | 2007 | | | 2008 | | | 2007 | | Sales | | $ | 788,428 | | | $ | 1,121,774 | | | $ | 1,794,539 | | | $ | 2,263,288 | | Intersegment expenses | | | (12,351 | ) | | | (22,102 | ) | | | (27,760 | ) | | | (36,614 | ) | Cost of sales | | | (533,417 | ) | | | (728,851 | ) | | | (1,011,420 | ) | | | (1,451,249 | ) | Corporate and other expenses | | | (279,455 | ) | | | (341,088 | ) | | | (678,819 | ) | | | (694,953 | ) | Segment income | | $ | (36,795 | ) | | $ | 29,733 | | | $ | 76,540 | | | $ | 80,472 | | | | | March 31, | | March 31, | | | | | | | | | | | | EngineeringConstruction:
| 2009 | | 2008 | | 2009 | | 2008 | | | | | | | | | | Sales | | $ | 78,632 495,747 | | | $ | 68,796 966,826 | | | $ | 134,868 2,289,911 | | | $ | 137,451 | 3,230,114 | | Intersegment revenuesexpenses | (9,000) | | | 12,351(17,484) | | | | 22,102(36,760) | | (54,098) | | 27,760 | | | | 36,614 | | Cost of sales | (454,777) | | (44,637 | )(556,340) | | | (57,733 | )(1,466,197) | | (2,007,589) | (94,834 | ) | | | (121,081 | ) | Corporate and other expenses | (205,163) | | (24,567 | )(360,520) | | | (22,116 | )(883,607) | | | (37,753 | ) | | | (38,115 | ) | Segment income (loss) | | $ | 21,779 | | | $ | 11,049 | | | $ | 30,041 | | | $ | 14,869 | (1,055,474) | | Segment income | $ (173,193) | | $ 32,482 | | $ (96,653) | | $ 112,953 | | | | | | | | | | | | NOTE 7 - OPERATING LEASE COMMITMENTSEngineering: | | | | | | | | | Sales | | $ 44,842 | | $ 55,847 | | $ 179,710 | | $ 193,298 | | Intersegment revenues | 9,000 | | 17,484 | | 36,760 | | 54,098 | | Cost of sales | (41,934) | | (57,484) | | (136,768) | | (178,565) | | Corporate and other expenses | (14,665) | | (8,561) | | (52,287) | | (46,675) | | Segment income (loss) | $ (2,757) | | $ 7,286 | | $ 27,415 | | $ 22,156 | | | | | | | | | | | 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 $6,600. The lease expires on December 31, 2014. For the three and sixnine months ended DecemberMarch 31, 20082009 and 2007,2008, we recognized rental expense for these spaces of $19,800, $39,600, $19,650,$59,400, $19,750, and $39,300,$59,050, respectively. | | | | | | | | | | | | | | | | | | ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS | | | | | With the exception of historical facts stated herein, the matters discussed in this report are "forward-looking" statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such "forward-looking" statements include, but are not necessarily limited to, statements regarding anticipated levels of future revenues and earnings from operations of the Company. Readers of this report are cautioned not to put undue reliance on "forward-looking" statements, which are by their nature, uncertain as reliable indicators of future performance. |
Description of Business | | | | | | | | | Background | | | | | | | | | As discussed in detail in Note 1, the Company was incorporated under the laws of the Commonwealth of Virginia on April 7, 1993 and, on June 30, 2000, entered into a reverse merger in which it became the wholly owned subsidiary of a public Nevada shell corporation, renamed Metwood, Inc. Effective January 1, 2002, Metwood acquired certain assets of Providence Engineering, PC in a transaction accounted for under the purchase method of accounting. | | | | | | | | | Principal Products/Services and Markets | | | | | | | | | Metwood | Residential builders are aware of the superiority of steel framing vs. wood framing, insofar as steel framing is lighter; stronger; termite, pest, rot and fire resistant; and dimensionally more stable in withstanding induced loads. Although use of steel framing in residential construction has generally increased each year since 1980, many residential builders have been hesitant to utilize steel due to the need to retrain framers and subcontractors who are accustomed to a "stick-built" construction method where components are laid out and assembled with nails and screws. The Company's founders, Robert ("Mike") Callahan and Ronald Shiflett, saw the need to combine the strength and durability of steel with the convenience and familiarity of wood and wood fasteners. | | | | | | | | | Metwood manufactures light-gage steel construction materials, usually combined with wood or wood fasteners, for use in residential and commercial applications in place of more conventional wood products, which are inferior in terms of strength and durability. The steel and steel/wood products allow structures to be built with increased load strength and structural integrity and fewer support beams or support configurations, thereby allowing for structural designs that are not possible with wood-only products. | | | | | | | | | Metwood's primary products and services are: | | · Girders and headers · Garage, deck and porch concrete pour-over systems | | | · Floor joists · Garage and post-and-beam buildings | | · Floor joist reinforcers · Engineering, design and custom building services | | | · Roof and floor trusses | | | | | | | | | | | | | Providence | | | | | | | | | | | | | | Providence is extensively involved in ongoing product research and development for Metwood. Additionally, Providence offers its customers civil engineering capabilities which include rezoning and special use submissions; erosion and sediment control and storm-water management design; residential, commercial, and religious facility site development design; and utility design, including water, sewer and onsite treatment systems. Providence's staff is familiar with construction practices and has been actively involved in construction administration and inspection on multiple projects. |
Providence also performs a variety of structural design and analysis work, successfully providing solutions for many projects, including retaining walls, residential framing, commercial building framing, light-gage steel fabrication drawings, metal building retrofits and additions, mezzanines, and seismic anchors and restraints. | | | | | | | | | | | Providence has designed numerous foundations for a variety of structures. Its foundation design expertise includes metal building foundations, traditional building construction foundations, atypical foundations for residential structures, tower foundations, and sign foundations for a variety of uses and applications. | | | | | | | | | | | Providence has also designed and drafted full building plans for several applications. When subcontracting with local professional firms, Providence has the ability to provide basic architectural, mechanical, electrical, and detailed civil and structural design services for these facilities. | | | | | | | | | | | Providence has reviewed designs by manufacturers for a variety of structures and structural components, including retaining walls, radio towers, tower foundations, sign foundations, timber trusses, light-gage steel trusses, and light-gage steel beams. This service enables clients to take generic designs and have them certified and approved for construction in the desired locality. | | | | | | | | | | | Distribution Methods of Products and Services | | | | | | | | | | | | | | | | The Company's sales are primarily retail, directly to contractors and do-it-yourself homeowners in Virginia and North Carolina. Approximately 90% of the Company's sales are wholesale to lumberyards, home improvement stores, hardware stores, and plumbing and electrical suppliers in Virginia and North Carolina, including Lowe's and 84 Lumber. Metwood relies primarily on its own sales force to generate sales; additionally, however, the Company has distributors in Virginia, New York, Oklahoma, Arizona, Colorado and Pennsylvania and also utilizes the salespeople of wholesale yards stocking the Company's products as an additional sales force. Metwood intends to continue expanding the wholesale marketing of its unique products to retailers and to license the Company's technology and products to increase its distribution outside of Virginia, North Carolina and the South. | | | | | | | | | | | Status of Publicly Announced New Products or Services | | | | | | | | | | | | | | | The Company has acquired four new patents through assignment from Robert M. Callahan and Ronald B. Shiflett, the patent holders. All four patents reflect various modifications to the Company's Joist Reinforcing Bracket which will make it even easier for tradesmen to insert utility conduits through wood joists. | | | | | | | | | | | Seasonality of Market | | | | | | | | | | | | | | | | | | The Company's sales can be subject to seasonal impacts, as its products are used in residential and commercial construction projects which tend to be at peak levels in Virginia and North Carolina between the months of March and October. Accordingly, the Company's sales tend to be greater in its fourth and first fiscal quarters. However, the Company is expanding into less weather-sensitive markets, such as Florida, Georgia, Arizona, South Carolina and Alabama in order to ameliorate seasonality factors. The Company builds an inventory of its products throughout the winter and spring to support its sales season. |
Competition | | Nationally, there are over one hundred manufacturers of the types of products produced by the Company. However, the majority of these manufacturers are using wood-only products or products without metal reinforcement. Metwood has identified only one other manufacturer in the United States that manufactures a wood-metal floor truss similar to that of the Company. However, Metwood has often found that its products are the only ones that will work within many customers' design specs. | | Sources and Availability of Raw Materials and the Names of Principal Suppliers | | All of the raw materials used by the Company are readily available on the market from numerous suppliers. The light-gage metal used by the Company is supplied primarily by Marino-Ware, Telling Industries and Wheeling Corrugating Company. The Company's main sources of lumber are BlueLinx and The Contractor Yard. Gerdau Amersteel, Descosteel and Adelphia Metals provide the majority of the Company's rebar. Because of the number of suppliers available to the Company, its decisions in purchasing materials are dictated primarily by price and secondarily by availability. The Company does not anticipate a lack of supply to affect its production; however, a shortage might cause the Company to pass on higher materials prices to its buyers. | | Dependence on One or a Few Major Customers | | Presently the Company does not have any one customer whose loss would have a substantial impact on the Company's operations. | | Patents | | The Company has eightnine U.S. Patents: | | U.S. Patent No.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. | | 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. The Company works with other engineers to seal products in all fifty states. | | Time Spent During the Last Two Fiscal Years on Research and Development Activities | | Approximately fifteen percent of the Company's time and resources have been spent during the last two fiscal years researching and developing its metal/wood products, new product lines, and new patents. | | Costs and Effects of Compliance with Environmental Laws | | The Company does not incur any costs to comply with environmental laws. It is an environmentally friendly business in that its products are fabricated from recycled steel. | | Number of Total Employees and Number of Full-Time Employees | | The Company had thirty employees at DecemberMarch 31, 2008,2009, twenty-nine of whom were full time. | | Results of Operations | | Net Income | Loss | The Company had a net loss of $15,016$175,950 for the three months ended DecemberMarch 31, 2008,2009, versus net income of $40,782$39,768 for the three months ended DecemberMarch 31, 2007,2008, a decrease of $55,798.$215,718. The decrease in net income for the three months ended DecemberMarch 31, 20082009 compared to 20072008 was attributable to a general downturn in the economy, in particular, as it affects the Company, the building industry. Construction area sales decreased 30%49% comparing 20082009 to 2007,2008, and as a percentage of sales, costs of goods sold increased 3%35% comparing 2009 to 2008. Engineering sales decreased 20% comparing 2009 to 2008, further contributing to 2007. Payrollthe net loss for the quarter. Administrative expenses decreased for4% comparing the three months ended DecemberMarch 31, 2008 compared to 2007 due to the decreased demand for the Company's products. Less job installs cut down on the amount of overtime required, and some exployees volunteered to take time off. Research and development costs for the three months ended December 31, 2008 compared2009 to the same period in 2007 went from $-0-2008. However, this slight decrease did not offset the Company's 89% decline in gross profit in the quarter ended March 31, 2009 compared to $22,115, further diminishingthe quarter ended March 31, 2008. | | Management is currently discussing the possibility of taking the Company private as a means of rasing capital, improving the bottom line. line, and removing the high compliance costs incurred as a public company. The present economic environment may make privatization the best option as the Company goes forward. |
For the six months ended December 31, 2008 and 2007, net income decreased $468,749, or 21%. On the other hand, engineering gross profit increased both for the three and six months ended December 31, 2008 compared to 2007 (200% and 145%, respectively), while administrative expenses remained relatively constant for the three and six months period. Nevertheless, engineering net income contributions were not enough to overcome the loss in the construction segment of the Company. | | Sales | | Revenues were $867,060$540,589 for the three months ended DecemberMarch 31, 20082009 compared to $1,190,570$1,022,673 for the same period in 2007,2008, a decrease of $323,510,$482,084, or 27%47%. For the six-monthnine-month periods ended DecemberMarch 31, 20082009 and 2007,2008, sales were $1,929,407$2,469,621 and $2,400,739,$3,423,412, respectively, a decrease of $471,332 (20%$953,791 (28%). The sales decline for the three and six-monthnine-month periods in 20082009 versus 20072008 reflects a general downtown in the building industry. Although the Company has sold product in over twenty-five states since July 2007, our local market is down 20%more than 50%. Nonetheless, truss sales have increased over 2007,2008, and the commercial market has overcome some of the residential downturn. The potential for increased sales volume as the Company goes forward is enhanced by the fact that we are now an authorized fabricator for the Dynatruss light-gauge steel truss system, begun in March 2008. | | Expenses | | Total administrative expenses were $341,309$343,300 for the three months ended DecemberMarch 31, 2008,2009, versus $341,120$358,296 for the three months ended DecemberMarch 31, 2007,2008, a slight increasedecrease of $189.$14,996. For the sixnine months ended DecemberMarch 31, 2008,2009, administrative expenses were $675,961$1,018,755 compared to $691,736$1,056,767 for the sixnine months ended DecemberMarch 31, 2007.2008. The biggest decline in both the three and six-monthnine-month periods occurred in payroll expenses travel and other costs. In the six-monthnine-month period ended DecemberMarch 31, 20082009 compared to 2007,2008, those decreased expenses were offset somewhat by a jump in research and development costs. | | Liquidity and Capital Reserves | | On DecemberMarch 31, 2008,2009, the Company had cash of $43,212$107,902 and working capital of $1,822,966.$1,655,495. Net cash provided by operating activities was $186,030$197,402 for the sixnine months ended DecemberMarch 31, 20082009 compared to $237,331$209,313 for the sixnine months ended DecemberMarch 31, 2007.2008. The lower provision of cash from operating activities in the current year resulted primarily from the decrease in accounts payable and accrued expenses partially offset by a decrease in accounts receivable. | | Cash used in investing activities was $60,899$57,581 for the sixnine months ended DecemberMarch 31, 2008,2009, compared to cash used of $106,095$111,399 during the same period in the prior year. Cash flows used in investing activities for the current period were for shop equipment $452)$2,629); computers and peripherals and furniture and fixtures ($8,400)15,400); and leasehold and land improvements ($33,847), and vehicles ($18,200)18,200 less disposals of $12,495)). | | Cash used in financing activities was $149,799$99,799 for the sixnine months ended DecemberMarch 31, 20082009 compared to cash used of $186 for the period ended DecemberMarch 31, 2007.2008. The cash used in 20082009 was to pay off the Company's credit line balance ($150,000)100,000) offset by proceeds from the issuance of common stock ($201). |
ITEM 4 - CONTROLS AND PROCEDURES | | (a) Evaluation of disclosure controls and procedures. | | Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. | | Based on our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. | | (b) Changes in internal control over financial reporting. | | We regularly review our system of internal control over financial reporting to ensure we maintain an effective internal control environment. As we grow geographically and with new product offerings, we continue to create new processes and controls as well as improve our existing environment to increase efficiencies. Improvements may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. | | There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
PART II - OTHER INFORMATION | | ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K | | (a) Exhibits | | See index to exhibits. | | (b) Reports on Form 8-K | | There were no reports on Form 8-K filed during the quarter ended DecemberMarch 31, 2008. | |
| | 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 24,May 12, 2009 /s/ Robert M. Callahan | Robert M. Callahan | Chief Executive Officer | | | Date: May 12, 2009 /s/ /s/ Shawn A. Callahan | Shawn A. Callahan | Chief Financial Officer | |
INDEX TO EXHIBITS | | | | | | | | | | | | | | | | | | NUMBER | | DESCRIPTION OF EXHIBIT | | | | | | | | | | | | | | | 3(i)* | | Articles of Incorporation | | | | | | | | | | | | | | | | 3(ii)** | | By-Laws | | | | | | | | | | | | | | | | | | 31.1 | | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | | 31.2 | | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | | 32 | | Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18U.S.C. 1350) | | | | | | | | | | | *Incorporated by reference on Form 8-K, filed February 16, 2000 | | | | | | | | | | | | | | **Incorporated by reference on Form 8-K, filed February 16, 2000 | | | | | | | | | | | | | |
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