As used in these footnotes, “we,” “us,” “our,” “Metwood,” “Company,” or “our company” refers to Metwood, Inc.
ITEM 1.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
General
The accompanying reviewed interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity with generally accepted accounting principles applicable in the United States of America. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in our Company’s annual report on Form 10-K for the year ended June 30, 2017. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended September 30, 2017 are not necessarily indicative of the results that can be expected for the year ending June 30, 2018.
METWOOD, INC.
TABLE OF CONTENTS - FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
TABLE OF CONTENTS
CERTIFICATIONS
|
|
Exhibit 31 – Management certification
|
|
Exhibit 32 – Sarbanes-Oxley Act
|
METWOOD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2017 AND JUNE 30, 2017
(UNAUDITED)
|
|
September 30,
2017
|
|
|
June 30,
2017
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
80,123
|
|
|
$
|
67,854
|
|
Accounts receivable
|
|
|
171,583
|
|
|
|
184,290
|
|
Inventory
|
|
|
407,943
|
|
|
|
518,001
|
|
Other current assets
|
|
|
12,539
|
|
|
|
14,755
|
|
Total current assets
|
|
|
672,188
|
|
|
|
784,900
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Leasehold Improvements
|
|
|
274,869
|
|
|
|
274,869
|
|
Furniture, fixtures and equipment
|
|
|
78,222
|
|
|
|
78,222
|
|
Computer and software
|
|
|
189,420
|
|
|
|
186,517
|
|
Machinery & Equipment
|
|
|
741,884
|
|
|
|
741,884
|
|
Vehicles
|
|
|
393,887
|
|
|
|
393,887
|
|
Land improvements
|
|
|
67,959
|
|
|
|
67,959
|
|
Total Property and Equipment
|
|
|
1,746,241
|
|
|
|
1,743,338
|
|
Less accumulated depreciation
|
|
|
(1,293,530
|
)
|
|
|
(1,273,705
|
)
|
Net Property and Equipment
|
|
|
452,711
|
|
|
|
469,633
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,124,899
|
|
|
$
|
1,254,533
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
125,723
|
|
|
$
|
178,928
|
|
Accrued payroll expense
|
|
|
4,167
|
|
|
|
22,625
|
|
Note payable to related party
|
|
|
77,460
|
|
|
|
77,460
|
|
Total current liabilities
|
|
|
207,350
|
|
|
|
279,013
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities
|
|
|
|
|
|
|
|
|
Convertible note payable-related company net of debt discount of $30,882 and $35,294, respectively
|
|
|
19,118
|
|
|
|
14,706
|
|
Total long term libilities
|
|
|
19,118
|
|
|
|
14,706
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
226,468
|
|
|
|
293,719
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contengencies Note 4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock ($.001 par) 40,000,000 shares authorized none outstanding
|
|
|
|
|
|
|
|
|
Common stock ($.001) 100,000,000 shares authorized 17,776,747 and 17,766,747 outstanding
|
|
|
17,767
|
|
|
|
17,767
|
|
Paid in capital
|
|
|
3,550,236
|
|
|
|
3,550,236
|
|
Accumulated deficit
|
|
|
(1,811,572
|
)
|
|
|
(1,671,189
|
)
|
Contra equity-prepaid rent
|
|
|
(858,000
|
)
|
|
|
(936,000
|
)
|
Total stockholders' equity
|
|
|
898,431
|
|
|
|
960,814
|
|
Total liabilities and stockolders' equity
|
|
$
|
1,124,899
|
|
|
$
|
1,254,533
|
|
See the accompanying notes to the condensed consolidated financial statements
METWOOD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
|
|
2017
|
|
|
2016
|
|
Gross sales
|
|
$
|
530,043
|
|
|
$
|
525,505
|
|
Cost of sales
|
|
|
(389,255
|
)
|
|
|
(333,596
|
)
|
Gross profit
|
|
|
140,788
|
|
|
|
191,909
|
|
|
|
|
|
|
|
|
|
|
Operating expenses expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll expense
|
|
|
115,366
|
|
|
|
109,920
|
|
Other
|
|
|
162,479
|
|
|
|
173,388
|
|
Total operating expense
|
|
|
277,845
|
|
|
|
283,308
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(137,057
|
)
|
|
|
(91,399
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Gain on disposal of assets
|
|
|
0
|
|
|
|
21,177
|
|
Other income (expense)
|
|
|
1,086
|
|
|
|
1,542
|
|
Interest expense
|
|
|
(4,412
|
)
|
|
|
(1,471
|
)
|
Total other income (expense)
|
|
|
(3,326
|
)
|
|
|
21,248
|
|
Net operating loss
|
|
|
(140,383
|
)
|
|
|
(70,151
|
)
|
Provision for income taxes
|
|
|
0
|
|
|
|
0
|
|
Net loss
|
|
$
|
(140,383
|
)
|
|
$
|
(70,151
|
)
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
Weighted number of shares outstanding
|
|
|
17,766,647
|
|
|
|
17,766,647
|
|
See the accompanying notes to the condensed consolidated financial statements
METWOOD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(UNAUDITED)
|
|
2017
|
|
|
2016
|
|
Net loss
|
|
$
|
(140,383
|
)
|
|
|
(70,151
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operations
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
19,825
|
|
|
|
13,930
|
|
Amortization of note discount
|
|
|
4,412
|
|
|
|
1,471
|
|
Amortization of prepaid rent
|
|
|
78,000
|
|
|
|
78,000
|
|
Gain on disposal of assets
|
|
|
0
|
|
|
|
(21,177
|
)
|
(Increase) decrease in operating assets
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
12,707
|
|
|
|
2,699
|
|
Inventory
|
|
|
110,058
|
|
|
|
(2,833
|
)
|
Other current assets
|
|
|
2,216
|
|
|
|
(1,247
|
)
|
Increase (decrease) in liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(53,205
|
)
|
|
|
(53,835
|
)
|
Accrued payroll
|
|
|
(18,458
|
)
|
|
|
(4,394
|
)
|
Net cash provided (used) in operting activities
|
|
|
15,172
|
|
|
|
(57,537
|
)
|
Investment activities
|
|
|
|
|
|
|
|
|
Property and equipment purchases
|
|
|
(2,903
|
)
|
|
|
(1,515
|
)
|
Proceeds from insurance on assets
|
|
|
0
|
|
|
|
21,177
|
|
Net cash provided (used) in investing activities
|
|
|
(2,903
|
)
|
|
|
19,662
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Advances from related party
|
|
|
0
|
|
|
|
0.00
|
|
Proceeds from convertible note
|
|
|
0
|
|
|
|
50,000
|
|
Net cash provided by (used) in financing activities
|
|
|
0
|
|
|
|
50,000
|
|
Increase (decrease) in cash
|
|
|
12,269
|
|
|
|
12,125
|
|
Beginning cash
|
|
|
67,854
|
|
|
|
91,309
|
|
Ending cash
|
|
$
|
80,123
|
|
|
$
|
103,434
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
0
|
|
|
$
|
0
|
|
Income taxes paid
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash investing and financing activitiies
|
|
|
|
|
|
|
|
|
Debt discount on convertible note
|
|
$
|
0
|
|
|
$
|
50,000
|
|
See the accompanying notes to the condensed consolidated financial statements
METWOOD, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(UNAUDITED)
NOTE 1 - ORGANIZATION AND OPERATIONS
Metwood, Inc. (The Company,our,we) was incorporated under the laws of the State of Wyoming on June 19, 1969. On January 28, 2000, the Company, through a majority shareholder vote, changed its domicile to Nevada through a merger with EMC Energies, Inc., a Nevada corporation. The Company also changed its par value to $.001 and the amount of authorized common stock to 100,000,000 shares.
Prior to 1990, the Company was engaged in the business of exploring for and producing oil and gas in the Rocky Mountain and mid-continental areas of the United States. The Company liquidated substantially all of its assets in 1990 and was dormant until June 30, 2000, when it acquired, in a stock-for-stock, tax-free exchange, all of the outstanding common stock of a privately held Virginia corporation, Metwood, Inc. (“Metwood”), which was incorporated in 1993. Metwood has been in the metal and metal/wood construction materials manufacturing business since 1992. Following the acquisition, the Company approved a name change from EMC Energies, Inc. to Metwood, Inc.
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 ACCOUNTING PRACTICES
Going Concern
Our consolidated financial statements have been presented on the basis that we are a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have sustained significant operating losses since inception which raises substantial doubt about the Company’s ability to continue as a going concern. During the three months ended September 30, 2017, the Company incurred a loss from operations of $140,383 and has an accumulated deficit of $1,811,572. Management will continue its ongoing efforts to increase the customer base and seek lower cost suppliers to generate future profits. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. The basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.
Basis of Presentation
- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals unless otherwise noted) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ended June 30, 2018. The consolidated balance sheet at June 30, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in Metwood, Inc.’s annual report on Form 10-K for the year ended June 30, 2017.
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 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
- For purposes of the CondensedConsolidated Statements of cash Flows, we consider liquid investments with an original maturity of three months or less to be cash equivalents. We maintain our cash in bank deposit accounts, which, at times, may exceed the federally insured limit of $250,000. We have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on cash and cash equivalents.
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 September 30, 2017, the allowance for doubtful accounts was $ 8,362. Specific customer receivables are considered past due when they are outstanding beyond their contractual terms and are charged off to bad debt expense when they are determined to be uncollectible. For the three months ended September 30, 2017 and 2016, the net amount of bad debts charged off was $-0-.
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 at September 30, 2017. The inventory at September 30, 2017 consisted of $294,912 in raw materials and $113,025 work in process.
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 fair value. There have been no such impairments of long-lived assets through September 30, 2017.
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 FASB ASC 740, “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 September 30, 2017 and 2016 were $740 and $-0-, 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 loss for the years presented in the computation of diluted earnings per share.
If the convertible note is converted in its entirety the Company will issued 50,000,000 shares of common stock, the maximum conversion for any one year is 10,000,000. If the contract for change of control is consummated, then an additional 30,000,000 shares of common stock will be issued.
Recent Accounting Pronouncements
– In February, 2016 the FASB issued ASU 20 16-0 2, “Leases (Topic 842)” requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The adoption of this standard is not expected have a material impact on the Company’s consolidated financial statements.
Accounting Standard Update No. 2014-09, (“ASU 2014-09’) Revenue from Customers (Topic 606), became effective for us in the period ending June 30, 2019. No significant adjustment was required as a result of adopting the new revenue standard. The comparative information has not been restated and continues to be reported under the historic accounting standards in effect for those periods. The impact of the adoption of the new revenue standard is expected to be immaterial to the Company’s net income on an ongoing basis.
NOTE 3 CONCENTRATIONS OF CUSTOMER RISK
For the three months ended September 30, 2017, a table is presented to show customer concentration of over 10% for sales and accounts receivable.
|
|
% of Sales
|
|
|
% of Open
Accounts Receivable
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
84 Lumber
|
|
*
|
|
|
|
18.9
|
|
|
*
|
|
|
|
15.9
|
|
Builders First
|
|
|
21.9
|
|
|
|
15
|
|
|
|
14.93
|
|
|
|
14.14
|
|
David James Homes
|
|
*
|
|
|
*
|
|
|
|
27.92
|
|
|
|
12.14
|
|
Superior Home
|
|
*
|
|
|
*
|
|
|
|
10.58
|
|
|
|
21.67
|
|
________
*Total less than 10%
NOTE 4 – COMMITMENTS AND CONTINGENCIES
During the year ended June 30, 2005, The Company into as sales and leaseback transaction with a related party. The Company sold various buildings at the corporate headquarters which house it’s manufacturing plants, executive offices and other buildings for $600,000 in cash. The Company simultaneously entered into a commercial lease agreement with the related party whereby the Company is committed to lease back these same properties for $6,800 per month over a ten-year term expiring December 31, 2014. On July 1, 2015 a new lease was entered into with the related party. This lease has a term of five years and the monthly rental is $5,500 in cash, in addition the Company issued common stock as part of the transaction. The Company incurred rent expense of $100,000 for the ,three months ended September 30, 2017, $78,000 of this figure was amortization of prepaid rent.
NOTE 5 - RELATED-PARTY TRANSACTIONS
The Company has executed a demand note with it’s controlling shareholder, Cahas Mountain, LLC, that Cahas Mountain will make available cash advances from time to time to bridge cash flow shortfalls. These advances ae repaid to Cahas Mountain as cash flow allows. The unpaid balance due to Cahas Mountain at the end of each month is subject to an interest rate of 6% per year, At September 30, 2017 and 2016, advances under this note are payable to Cahas Mountain Properties of approximately $77,000 and $77,000, respectively. Accrued interest payable to Cahas Mountain Properties totaled approximately $20,000 and $20,000 at September 30, 2017 and June 30, 2016, respectively. The Company recognized interest expense of approximately $4,412 and $-0- for the three months ended September 30, 2017 and 2016, respectively. The unpaid advances are due on demand.
On August 18, 2016 the Company entered into a convertible note with Cahas Mountain in the amount of $50,000 with an interest rate of 8% per year, this note matures on June 30, 2019. The note is convertible into common shares of Metwood, Inc. at par value of $.001 and if converted in its entirety will dilute the current shareholders by a maximum of 50,000,000 shares of common stock. The maximum conversion in any year is 10,000,000 shares of common stock. A debt discount of $50,000 was recorded at issuance and $4,412 and $1,472 was amortized during the three months ended September 30, 2017 and 2016, respectively. The unamortized debt discount was $30,882 at September 30, 2017, and $35,294 and June 30,2017, respectively.
NOTE 6 – EQUITY
During the three months ended September 30, 2017 The Company did not issue any preferred shares or common shares of stock. There are 100,000,000 shares of common stock authorized and at the quarter end there are 17,766,647 shares issued and outstanding. The authorized preferred stock is 40,000,000 shares and there are -0- shares of preferred stock issued and outstanding.
If the convertible note that is covered in the related party note (Note 5) and is converted into common stock of The Company, an additional 50,000,000 shares of common stock could be issued, resulting in dilution of the current shareholders. When the contract of October 11, 2018 is completed (see Note 8) there will be an additional 30,000,000 shares issued to the principals of Emerge Nutraceuticals, Inc.
NOTE 7. LEGAL PROCEEDINGS
On June 27, 2016, a law suit was brought against the Company alleging breach of contract. This action alleges that the Company failed to complete a contract that would have transferred control of the public portion of the Company to third parties. The Company attorneys has determined that there is an affirmative defense against this claim and that the company will prevail. See note 8.
NOTE 8. SUBSEQUENT EVENTS
The law suit in Note 7 was subsequently decided in the favor of the company and the judgment was upheld on appeal. Final judgment was rendered in October 2017.
A contract that will eventually change control of the company was entered into on October 11, 2018 and is planned to close within the first quarter of calendar year 2019.
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the financial statements and notes included herein. Further, this MD&A should be read in conjunction with the “Business” and “Risk Factors” sections within this Quarterly Report on Form 10-Q.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
Included in this interim report are “forward-looking” statements, within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”) as well as historical information. Some of our statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Notes to Financial Statements and elsewhere in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the expectations reflected in these forward-looking statements will prove to be correct. Our actual results could differ materially from those anticipated in forward-looking statements as a result of certain factors, including matters described in the section titled “Risk Factors.” Forward-looking statements include those that use forward-looking terminology, such as the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “project,” “plan,” “will,” “shall,” “should,” and similar expressions, including when used in the negative. Although we believe that the expectations reflected in these forward-looking statements are reasonable and achievable, these statements involve risks and uncertainties and we cannot assure you that actual results will be consistent with these forward-looking statements. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. We undertake no obligation to update or revise these forward-looking statements, whether to reflect events or circumstances after the date initially filed or published, to reflect the occurrence of unanticipated events or otherwise.
On October 1, 2013, the Company filed with the Nevada Secretary of State a Certificate of Amendment to the Company’s Articles of Incorporation. The Amendment was approved by a “Unanimous Written Consent of The Board of Directors of Metwood, Inc.” on August 6, 2013, pursuant to the authority granted them by a “Written Consent of the Holders of a Majority of the Voting Shares of Metwood, Inc.” dated August 6, 2013. The information regarding this issue was fully disclosed in the Company’s Form 8-K Report filed on October 2, 2013. The Amendment incorporated the following changes:
a. The total number of shares of preferred stock that the Corporation is authorized to issue is 40,000,000 shares with a par value of $0.001 per share.
b. Grant to the Board of Directors the full right and authority to increase or otherwise change the authorized shares of common stock and preferred stock without any shareholder action or approval.
c. Grant to the Board of Directors the full right and authority to change the name of the corporation at a future date without any shareholder action or approval.
Description of Business
Overview of
The Company
We have been in the metal and metal/wood construction materials manufacturing business since 1992. Our Company 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.
Our primary products and services are:
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TUFF BEAM - internally reinforced cold-formed steel beam
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TUFF JOIST - cold-formed steel joint system
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TUFF JOIST+ - internally reinforced cold-formed steel joist
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TUFF FLOOR SYSTEM - combinations of TUFFBEAM, NUJOIST and TUFFJOIST are utilized to make up a complete floor system
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TUFF DECK - concrete deck systems
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RIM BEAM - internally reinforced CFS load distribution member
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TUFF FRAME 3.5 & 5.5 - a fully proprietary panelized load bearing and non-load bearing CFS wall framing solution
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TUFF TRUSS 2.0 - a proprietary roof and floor truss system
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Aegis - Metwood is a distributor of Aegis Metal Framing’s cold-formed steel trusses SURE-SPAN™
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Trimmable square columns
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Joist reinforcers
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Engineering, design and custom building services
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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 we believe the 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. Our Company’s founders saw the need to combine the strength and durability of steel with the convenience and familiarity of wood and wood fasteners.
Our management is continually performing ongoing product research and development. Through a strategic partnership with an outside engineering firm, we are able to offer our 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.
Our 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. Our company relies primarily on its own sales force to generate sales; additionally, however, we have distributors in Virginia, New York, Oklahoma, Arizona and Colorado and also utilize the salespeople of wholesale yards stocking our products as an additional sales force. We are an authorized vendor for Lowe’s, Home Depot, 84 Lumber, 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. Our management intends to continue expanding the wholesale marketing of its unique products to retailers, to increase dealer sales, and to license our technology and products to increase its distribution outside of Virginia, North Carolina and the South.
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, we believe there are over one hundred manufacturers of the types of products produced by our Company. However, we contend that the majority of these manufacturers are using wood-only products or products without metal reinforcement. Our management 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 Principle 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, Nuconsteel, New Millenium, Allied Tube & Conduit, and Vulcraft. Our main source of lumber is BlueLinx. Adelphia Metals, 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 months ended September 30, 2017, a table is presented to show customer concentration of over 10% for sales and accounts receivable.
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% of Sales
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% of Open
Accounts Receivable
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2017
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2016
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2017
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2016
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84 Lumber
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*
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18.9
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*
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15.9
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Builders First
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21.9
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15
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14.93
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14.14
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David James Homes
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*
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*
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27.92
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12.14
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Superior Home
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*
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*
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10.58
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21.67
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*Total less than 10%
Patents
We have 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. 5,921,053, “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
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, our 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
An insignificant 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. As of the date of this report the efforts are continuing, but not yet successfully completed.
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 12 employees at September 30, 2017, eleven of whom were full time.
Changes in Results of Operations
We had a net loss of $140,383 for the three months ended September 30, 2017 compared to a net loss of $70,151 for the three months ended September 30, 2016. Gross profit decreased to 26.6% for the three months ended September 30, 2017 compared to 36.5% in the same period in 2016.
Liquidity and Capital Reserves – Cash flows provided by operating activities for the three months ended September 30, 2017 were $15,172 compared to cash used $(57,537) for the three months ended September 30, 2016. The decrease comparing those two periods was primarily due to an increase in inventory, accounts payables and accrued expenses.
Cash flows used in investing activities were $2,903 for the three months ended September 30, 2017 and cash flows provided were $19,662 for September 30, 2016, respectively, and the September 30, 2017 use of funds resulted from the purchase of equipment. The increase in the cash provided was as a result of a gain on disposition of assets of $21,177 for 2016.
Cash flows provided from financing activities for the three months ended September 30, 2017 were a decrease of $50,000 compared to increase of $50,000 for the three months ended September 30, 2016 and the 2016 increase were derived from the discount of a convertible note of $50,000.
We have historically funded our cash needs through operating income and credit line draws as needed with a related company. We will continue to rely on sales revenue as our main source of liquidity and will incur debt primarily to fund inventory purchases as sales growth produces increased product demand. Liquidity needs that cannot be met by current sales revenue may also arise in certain unusual circumstances such as has previously occurred when rain and snow significantly slowed construction activity and resulted in a corresponding decline in demand for our products. In those circumstances, debt may be added to meet our fixed costs and to maintain inventory in anticipation of a spurt in product demand that generally occurs once a weather-related slowdown has ended.
On a long-term basis, we also anticipate that product demand will increase considerably once we get awarded our Code Compliance Report. As sales increase, we can add a second shift to meet the additional product demand without having to use funds to expand our production facilities. If additional cash becomes necessary to fund our growth, we may raise this capital through an additional follow-on stock offering rather than taking on more debt. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future. If we are unable to raise additional capital as needed, our growth potential will be adversely affected, and we would have to significantly modify our plans. Upon the date of this filing the code report has not been received, but management is putting in place a testing program to achieve this goal.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity or capital expenditures.
Critical Accounting Policies
In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), we record certain assets at the lower of cost or fair market value. In determining the fair value of certain of our assets, we must make judgments, estimates and assumptions regarding circumstances or trends that could affect the value of these assets, such as economic conditions. Those judgments, estimates and assumptions are based on information available to us at that time. Many of those conditions, trends and circumstances are outside our control and if changes were to occur in the events, trends or other circumstances on which our judgments or estimates were based, we may be required under U.S. GAAP to adjust those estimates that are affected by those changes. Changes in such estimates may require that we reduce the carrying value of the affected assets on our balance sheet (which are commonly referred to as “write downs” of the assets involved).
It is our practice to establish reserves or allowances to record adjustments or “write-downs” in the carrying value of assets, such as accounts receivable. Such write-downs are recorded as charges to income or increases in the expense in our Statement of Operations in the periods when such reserves or allowances are established or increased. As a result, our judgments, estimates and assumptions about future events can and will affect not only the amounts at which we record such assets on our balance sheet but also our results of operations.
In making our estimates and assumptions, we follow U.S. GAAP applicable to our business and those that we believe will enable us to make fair and consistent estimates of the fair value of assets and establish adequate reserves or allowances. Set forth below is a summary of the accounting policies that we believe are material to an understanding of our financial condition and results of operations.
Recently Issued Accounting Pronouncements
Refer to Note 2 in the accompanying interim financial statements.
Additional Information
You are advised to read this Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.