UNITED
      STATES


SECURITIES AND EXCHANGE
      COMMISSION


Washington,
      D.C. 20549










FORM
      10-KSB







**[X]  
      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**


****


**For the fiscal year ended June 30, 2006**





**[ 
      ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934**




**For the transition period from________to________**





**Commission
      fle number 000-05391**







METWOOD,
      INC.


(Name
      of
      small business issuer in its charter)







**NEVADA**
            **83-0210365**(State
                or other jurisdiction
            (IRS
                Employerof
                incorporation or organization)
            Identification
                No.)




**819
      Naff Road, Boones Mill, VA 24065**


(Address
      of principal executive offices)





**(540)
      334-4294**


(Issuer’s
      telephone number)







Securities
      registered under Section 12(b) of the Exchange Act:


None





Securities
      registered under Section 12(g) of the Exchange Act:


$0.001
      Par Value Common Voting Stock


(Title
      of
      Class)







Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15 (d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes X No





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or an
      amendment to this Form 10-KSB. [  ]





State
      issuer’s revenues for its most recent fiscal year: $4,242,123





As
      of
      September 27, 2006 there were 11,923,999 common shares outstanding, and the
      aggregate market value of the common shares (based upon the average of the
      bid
      price ($.35) reported by brokers) held by non-affiliates was approximately
      $1,144,256.





Transitional
      Small Business Disclosure Format (check one): Yes [  ] No [X]














**METWOOD,
        INC. AND SUB** **SIDIARY**
 **FORM
        10-KSB**
 **TABLE
        OF CONTENTS**
  Page**PART
                  I**Item
                  1Description
                  of Business
              3Item
                  2Description
                  of Property
              7Item
                  3Legal
                  Proceedings
              7Item
                  4Submission
                  of Matters to a Vote of Security
                  Holders
              7**PART
                  II**Item
                  5Market
                  for Common Equity and Related Stockholder
                  Matters
              8Item
                  6Management’s
                  Discussion and Analysis or Plan of
                  Operation
              9Item
                  7Financial
                  Statements
              11Item
                  8AControls
                  and Procedures
              26**PART
                  III**Item
                  9Directors
                  and Executive Officers of the
                  Registrant
              26Item
                  10Executive
                  Compensation
              28Item
                  11Security
                  Ownership of Certain Beneficial Owners and
                  Management
              29Item
                  12Certain
                  Relationships and Related
                  Transactions
              31Item
                  13Exhibits
                  and Reports on Form 8-K
              31Item
                  14Principal
                  Accountant Fees and Services
              31Signatures
              32Index
                  to Exhibits
              33




2
 *Table
          of Contents*




*SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS*





*This
      Annual Report on Form 10-KSB contains certain forward-looking statements within
      the meaning of the Private Securities Litigation Reform Act of 1995 with respect
      to the financial condition, results of operations, business strategies,
      operating efficiencies or synergies, competitive positions, growth opportunities
      for existing products, and plans and objectives of management. Statements that
      are not historical in nature and which include such words as “anticipate,”
“estimate,” “should,” “expect,” believe,” “intend,” and similar expressions are
      intended to identify forward-looking statements for the purpose of the safe
      harbor provided by Section 21E of the Exchange Act and Section 27A of the
      Securities Act.*





**PART
      I**





**Item
      1.** **Description
      of Business**





Business
      Development





We
      were
      incorporated under the laws of the State of Wyoming on June 19, 1969. Following
      an involuntary dissolution for failure to file an annual report, we were
      reinstated as a Wyoming corporation on October 14, 1999. On January 28, 2000,
      we, through a majority shareholder vote, changed its domicile to Nevada through
      a merger with EMC Energies, Inc., a Nevada corporation. The Plan of Merger
      provided for the dissenting shareholders to be paid the amount, if any, to
      which
      they would be entitled under the Wyoming Corporation Statutes with respect
      to
      the rights of dissenting shareholders. We also changed our par value to $.001
      and the amount of authorized common stock to 100,000,000 shares.





Prior
      to
      1990, we were engaged in the business of exploring for and producing oil and
      gas
      in the Rocky Mountain and mid-continental areas of the United States. We
      liquidated substantially all of its assets in 1990 and were 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. See Form 8-K and attached exhibits
      filed August 11, 2000. Metwood has been in the metal and metal/wood construction
      materials manufacturing business since 1992. Following the acquisition, we
      approved a name change from EMC Energies, Inc. to Metwood, Inc.





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, paying $60,000 in cash and issuing 290,000 Metwood common
      shares to the two Providence shareholders (one of whom was also an officer
      and
      existing shareholder of Metwood prior to the acquisition). These shares were
      valued at the closing quoted stock price of $1.00 per share at the effective
      date of the purchase. On October 15, 2002, $15,000 additional cash was paid
      to
      one shareholder in exchange for the shareholder’s surrender of 15,000 shares of
      Metwood stock, and $50,000 was paid to that shareholder in two installments
      of
      $25,000 each (on January 15, 2004 and April 15, 2004) for 275,000 shares. All
      of
      the originally issued 290,000 shares of Metwood stock have thus been repurchased
      as of June 30, 2004. The initial purchase transaction was accounted for under
      the purchase method of accounting.





The
      consolidated company (“the Company, We, Us, Our”) provides construction-related
      products and engineering services to residential customers and contractors,
      commercial contractors, developers and retail enterprises, primarily in
      southwestern Virginia.




3
 *Table
          of Contents*




Principal
      Products or 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. Our founders, Robert Callahan and Ronald Shiflett, saw
      the need to combine the strength and durability of steel with the convenience
      and familiarity of wood and wood fasteners.





Our
      primary products and services are:





•
            Girders
                and headers




•
            Floor
                joists




•
            Floor
                joist reinforcers




•
            Roof
                and floor trusses and rafters




•
            Metal
                framing




•
            Square
                structural columns




•
            Garage,
                deck and porch concrete pour over systems




•
            Garage
                and post-and-beam buildings




•
            Engineering,
                design and custom building services








Metwood
      manufactures light-gage steel construction materials, usually combined with
      wood
      or wood fasteners, for use in residential and commercial applications in place
      of more conventional wood products, which are inferior in terms of strength
      and
      durability. The steel and steel/wood products allow structures to be built
      with
      increased load strength and structural integrity and fewer support beams or
      support configurations, thereby allowing for structural designs that are not
      possible with wood-only products.





*Providence
      —* Extensively
      involved in ongoing product research and development for Metwood, Providence
      also 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.




4
 *Table
          of Contents*





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





Our
      sales
      are primarily retail, directly to contractors and do-it-yourself homeowners
      in
      Virginia and North Carolina. Approximately 30% of our sales are wholesale to
      lumberyards, home improvement stores, hardware stores, and plumbing and
      electrical suppliers in Virginia and North Carolina. Metwood relies primarily
      on
      its own sales force to generate sales; additionally, however, our distributors
      in Virginia, New York, Oklahoma, Arizona and Colorado and also utilizes the
      salespeople of wholesale yards stocking our products as an additional sales
      force. We are in discussions with national engineered I-joist manufacturers
      who
      are interested in marketing our products and expect to announce affiliations
      with these companies in the near future. Metwood 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.





Status
      of Publicly Announced New Products or Services





We
      have
      acquired four new patents through assignment from Robert Callahan and Ronald
      Shiflett, the patent holders. All four patents reflect various modifications
      to
      our Joist Reinforcing Bracket which will make it even easier for tradesmen
      to
      insert utility conduits through wood joists.





Seasonality
      of Market




Our
        sales
        are subject to seasonal impacts, as its products are used in residential
        and
        commercial construction projects which tend to be at peak levels in Virginia
        and
        North Carolina between the months of March and October. Accordingly, our
        sales
        are greater in its fourth and first fiscal quarters. We build an inventory
        of
        its products throughout the winter and spring to support its 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 stonger sales year around.




Competition





Nationally,
      there are over one hundred manufacturers of the types of products produced
      by
      us. 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 us. However, Metwood has often found that its products are
      the only ones that will work within many customers’ design specs.




5
 *Table
          of Contents*





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




All
        of
        the raw materials used by us are readily available on the market from numerous
        suppliers. The light-gage metal used by us is supplied primarily by Dietrich
        Industries, Marino-Ware, Telling Industries, Wheeling Corrugating, and
        Consolidated Systems, Inc. Our main sources of lumber are BlueLinx, Lowe’s, 84
        Lumber Company and Smith Mountain Building Supply. Gerdau Amersteel, Descosteel
        and Adelphia Metals provide the majority of our rebar. Because of the number
        of
        suppliers available to us, its decisions in purchasing materials are dictated
        primarily by price and secondarily by availability. We do not anticipate
        a lack
        of supply to affect its production; however, a shortage might cause us to
        pass
        on higher materials prices to its buyers.




Dependence
      on One or a Few Major Customers





Presently
      we do not have any one customer whose loss would have a substantial impact
      on
      our operations.





Patents





We
      have
      eight U.S. Patents:





U.S.
      Patent No. 5,519,977, “Joist Reinforcing Bracket,” a bracket that reinforces
      wooden joists with a hole for the passage of a utility conduit. We refer 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, a continuation in part of 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. 5,921,053, “Internally Reinforced Girder with Pierceable Nonmetal
      Components,” a girder that includes a pair of “c” -shaped members secured
      together so as to form a hollow box which permits the girder to be secured
      within a building structure with conventional fasteners such as nails, screws
      and staples.





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





Each
      of
      these patents was originally issued to the inventors our founders, Robert
      Callahan and Ronald B. Shiflett, who licensed these patents to us.




6
 *Table
          of Contents*




Need
      for Government Approval of Principal Products





Our
      products must either be sold with an engineer’s seal or applicable building code
      approval. Our chief engineer has obtained professional licensure in several
      states, which permits products not building code approved to be sold and used
      with his seal. We expect his licensure in a growing number of states to greatly
      assist in the uniform acceptability of its products as it expands to new
      markets. Currently, we are seeking International Code Council (“ICC”) code
      approval on its joist reinforcers and beams. Once that approval is obtained,
      the
      products can be used in all fifty states and will eliminate the need for an
      engineer’s seal on individual products. To date, our 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 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





We
      do 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





We
      had
      thirty-seven employees at June 30, 2006, thirty-five of whom were full time.





**Item
      2.** **Description
      of Property**





During
      the year ended June 30, 2005, we sold our facilities to a related party for
      $600,000 and subsequently leased the facilities back under a long-term lease
      agreement. We now lease our facilities in Boones Mill, Virginia, which consist
      of corporate offices, warehouses, a garage/vehicle maintenance building, and
      other multi-use buildings. The condition of these buildings is
      excellent.





We
      do not
      invest in real estate or interests in real estate, real estate mortgages or
      securities of or interests in persons primarily engaged in real estate
      activities and therefore have no policies related to such investments.





**Item
      3.** **Legal
      Proceedings**





We
      are
      not a party to any legal proceedings, nor, to the best of its knowledge, is
      any
      such proceedings threatened or contemplated.





**Item
      4.** **Submission
      of Matters to a Vote of Security Holders**





None.




7
 *Table
          of Contents*





**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder Matters**





Because
      there is no active trading market for Metwood, Inc. common stock, it is
      difficult to determine the market value of the stock. Based on the average
      bid
      price for our common stock at September 27, 2006 of $.35 per share (average
      asking price of $.70), the market value of shares held by non-affiliates would
      be $1,144,256. There are no preferred shares authorized.





We
      are
      listed on the OTC Bulletin Board of the National Association of Securities
      Dealers (“NASD”) under the symbol “MTWD.OB.”





Set
      forth
      below are the high and low bid prices for our common stock for the last two
      years:




Quarter
                Ended
            High
                Bid
            Low
                BidSeptember
                2004
            $0.51
            $0.90December
                2004
            $0.51
            $1.10March
                2005
            $0.60
            $1.01June
                2005
            $0.60
            $1.40September
                2005
            $1.48
            $1.10December
                2005
            $0.81
            $1.25March
                2006
            $0.91
            $1.10June
                2006
            $0.90
            $1.03





Holders





The
      number of holders of record of our common stock as of September 27, 2006 was
      1,117. This number does not include an indeterminate number of stockholders
      whose shares are held by brokers in street name. The number of stockholders
      has
      been substantially the same during the past ten years.





Dividends





Per
      the
      negative covenants in the line-of-credit agreements, we are restricted from
      paying dividends until the debt is repaid. We have not paid any dividends on
      its
      common stock and do not intend to pay dividends in the foreseeable future.





8
 *Table
          of Contents*





**Item
      6. Management’s Discussion and Analysis or Plan of Operation**





Plan
      of Operation





We
      anticipate that the next twelve months will be a period of continued growth
      as
      it seeks to further expand its presence in new markets throughout the United
      States through increased numbers of distributors, licensees and dealers. ICC
      code approval is being sought for our joist reinforcers and beams and is
      expected to be obtained within the coming fiscal year. If this approval is
      obtained, product marketability would be greatly enhanced and would likely
      lead
      to higher demand.





Higher
      product demand would likely increase the need for more capital as inventory
      requirements grew, which could be met through borrowing or a stock offering.
      No
      decision has been made at the present time, however, as to which means might
      be
      used to raise capital.





Management’s
      Discussion and Analysis of Financial Condition and Results of Operations





Below
      are
      selected financial data for the years ended June 30, 2006 and 2005:





2006
            
            2005Revenues
            
            $
            4,242,123
            
            $
            4,181,280Net
                income
            
            $
            171,160
            
            $
            120,995Net
                income per common share
            
            $
            0.01
            
            $
            0.01Weighted
                average commonshares
                outstanding
            
            
            11,894,593
            
            
            11,876,204At
                June 30, 2006 and 2005:Total
                assets
            
            $
            2,375,931
            
            $
            2,145,088Working
                capital
            
            $
            1,342,988
            
            $
            1,256,383Shareholders’
                equity
            
            $
            1,951,213
            
            $
            1,765,519**Less
                than $.01





No
      dividends have been declared or paid during the periods presented.





*Results
      of Operations Fiscal 2006 Compared with Fiscal 2005*





*Revenues
      and Cost of Sales —* Consolidated
      gross sales increased $60,843, or 2%, for the year ended June 30, 2006 (“fiscal
      2006”) compared to the year ended June 30, 2005 (“fiscal 2005”). Construction
      sales consisted of product sales, engineering, delivery and installation fees.
      Engineering sales consisted of fees for engineering services. Gross profit
      decreased $73,869 (4%) from fiscal 2005 to fiscal 2006.





The
      increase in construction revenues was due to several factors, including adding
      inside sales support for outside sales reps, thereby freeing up the reps to
      make
      more daily contacts; increased marketing efforts, such as regular seminars
      for
      building inspectors and architects on our systems and services; and strengthened
      dealer relationships. Also, product prices were raised in the third quarter
      to
      compensate for the increasing cost of steel. In addition, we experienced
      heightened demand for our pour over systems for fiscal 2006 compared to fiscal
      2005 which had the added benefit of increasing related installation fees. Growth
      in engineering sales resulted from both higher demand and quicker turnaround
      time on jobs.




9
 *Table
          of Contents*





Cost
      of
      sales rose $134,712 overall (6%) in fiscal 2006 compared to fiscal 2005. On
      the
      construction side, cost of sales increased $201,374 (9%), while cost of
      engineering sales decreased $66,662 (30%). The rise in construction costs was
      due primarily to the higher steel prices we faced in fiscal 2006. However,
      efforts were made to secure as much steel as possible just prior to the new
      higher prices taking effect, thereby alleviating some of the impact of those
      increases. We anticipate that steel prices will continue to be high for the
      foreseeable future.





*Administrative
      expenses —* These
      costs increased $247,605, or 20%, to $1,461,583 in fiscal 2006 from $1,213,978
      in fiscal 2005. The increase was due primarily to higher advertising and
      marketing, insurance and payroll costs. The increase is mainly attributable
      to
      an increase in payroll costs from $575,904 in fiscal 2005 to $692,372 in fiscal
      2006 or an increase of $116,468 (20%). We hired new personnel to capacitate
      the
      increase in sales and new customers in fiscal 2006.





*Other
      Income (Expense) —* Due
      to
      the sale of our facilities in fiscal 2005 as mentioned above, we recorded a
      loss
      on the sale in the amount of $372,011 for fiscal 2005. Interest expense amounted
      to $-0- in fiscal 2006 compared to $16,296 in fiscal 2005, a decrease of $16,296
      and reflective of a complete repayment of our notes payable with the bank in
      fiscal 2005.





*Income
      Taxes —* In
      fiscal
      2006 our income tax expense was $89,145 compared to income tax expense of
      $63,599 in fiscal 2005. We increased our deferred tax liability by $18,193
      in
      fiscal 2006. The primary components of the deferred tax liability relate to
      timing differences between book and tax depreciation and the treatment of
      goodwill amortization.,





*Liquidity
      and Capital Reserves —* Cash
      flows provided by operations in fiscal 2006 were $84,986 versus cash flows
      provided by operations in fiscal 2005 of $250,415, a change of $165,429. The
      decrease in cash flows from operations was primarily attributable to higher
      net
      income attributable to the loss on the sale of our facilities in fiscal 2005
      and
      an increase in inventory which required cash outlays. We also used $231,115
      for
      capital improvements and purchases of fixed assets, while approximately $600,000
      was recouped from asset disposals in fiscal 2005. Financing activities in fiscal
      2006 provided $11,402 compared to $540,895 used in fiscal 2005. The main use
      of
      funds in 2005 was due to a net decrease in borrowings under our line-of-credit
      agreement of $422,000 attributable to the repayment of the notes payable in
      fiscal 2005. We also repaid all notes payables in fiscal 2005.





We
      have
      historically funded its cash needs through operating income and credit line
      draws as needed. It will continue to rely on sales revenue as its 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 as it continues to expand its marketing and advertising campaign,
      which may include the use of television, radio, print and internet advertising.
      Efforts are well underway to increase the number of out-of-state sales
      representatives/brokers who will market our products throughout the country.
      As
      sales increase, we can add a second shift to meet the additional product demand
      without having to use funds to expand its production facilities. If additional
      cash becomes necessary to fund its 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 its plans.





10
 *Table
          of Contents*




**Item
      7. Financial Statements**






**CONTENTS**REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            12CONSOLIDATED
                BALANCE SHEET ASSETS,
                LIABILITIES AND STOCKHOLDERS’ EQUITY
            13CONSOLIDATED
                INCOME STATEMENTS
            14CONSOLIDATED
                STATEMENT OF STOCKHOLDERS’ EQUITY
            15CONSOLIDATED
                STATEMENTS OF CASH FLOWS
            16NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            17-25






11
 *Table
          of Contents*


**REPORT
        OF INDEPENDENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
  To
        the
        Board of Directors
 Metwood,
        Inc.
 819
        Naff
        Road
 Boones
        Mill, Virginia 24065
 
 We
        have
        audited the accompanying consolidated balance sheet of Metwood, Inc. (a Nevada
        corporation) and its wholly-owned subsidiary as of June 30, 2006 and the
        related
        consolidated statements of income, stockholders’ equity, and cash flows for the
        two years then ended. These consolidated financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these consolidated financial statements based on our
        audits.
 
 We
        conducted our audits in accordance with auditing standards of the Public
        Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free from material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Metwood,
        Inc.
        and its wholly owned subsidiary as of June 30, 2006, and the consolidated
        results of its operations and its cash flows for the two years then ended
        in
        conformity with accounting principles generally accepted in the United States
        of
        America.
 
  /s/
        Bongiovanni & Associates, P.A.
 Bongiovanni
        & Associates, P.A.
 Cornelius,
        North Carolina
 September
        15, 2006






12
 *Table
          of Contents*


**METWOOD,
                  INC. AND WHOLLY OWNED SUBSIDIARY****Balance
                  Sheet*****At
                  June 30, 2006***ASSETSCURRENT
                  ASSETSCash
                  and Cash Equivalents
              
              $
              99,880Accounts
                  Receivable, net of Allowance of $8,000
              
              
              493,640Inventory
              
              
              982,971Prepaid
                  Expenses and Other Current Assets
              
              
              84,061TOTAL
                  CURRENT ASSETS
              
              
              1,660,552FIXED
                  ASSETSLeasehold
                  Improvements
              
              
              119,233Furniture,
                  Fixtures and Equipment
              
              
              75,851Computer
                  Hardware, Software & Peripherals
              
              
              152,335Machinery
                  and Shop Equipment
              
              
              266,806Vehicles
              
              
              312,430926,655Accumulated
                  Depreciation
              
              
              (464,364
              )Net
                  Fixed Assets
              
              
              462,291OTHER
                  ASSETSGoodwill
              
              
              253,088TOTAL
                  ASSETS
              
              $
              2,375,931LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIESAccounts
                  Payable
              
              $
              213,162Accrued
                  Expenses
              
              
              37,814Customer
                  Deposits
              
              
              5,000Income
                  Taxes Payable
              
              
              61,588TOTAL
                  CURRENT LIABILITIES
              
              
              317,564LONG-TERM
                  LIABILITIESDeferred
                  Income Taxes, Net
              
              $
              107,154COMMITMENT
                  - NOTE D and GSTOCKHOLDERS'
                  EQUITYCommon
                  Stock ($.001 par value, 100,000,000 shares authorized:11,905,299
                  shares issued and outstanding at June 30, 2006)
              
              
              11,905Common
                  Stock Not Yet Issued ($.001 par value, 18,700 shares)
              
              
              19Additional
                  Paid-in-Capital
              
              
              1,319,317Retained
                  Earnings
              
              
              619,972TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              1,951,213TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              2,375,931See
                  notes to consolidated audited financial statements and auditors'
                  report




13
 *Table
          of Contents*


**METWOOD,
                  INC. AND WHOLLY OWNED SUBSIDIARY****Income
                  Statements*****For
                  the Years Ending June 30, 2006 and 2005***2006
              
              2005REVENUES
                  AND COST OF SALES:Construction
                  Sales
              
              $
              4,030,648
              
              $
              3,838,966Engineering
                  Sales
              
              
              211,475
              
              
              342,314Gross
                  Sales
              
              
              4,242,123
              
              
              4,181,280Cost
                  of Construction Sales
              
              
              2,382,542
              
              
              2,181,168Cost
                  of Engineering Sales
              
              
              156,450
              
              
              223,112Gross
                  Cost of Sales
              
              
              2,538,992
              
              
              2,404,280Gross
                  Profit
              
              
              1,703,131
              
              
              1,777,000ADMINISTRATIVE
                  EXPENSES:Advertising
              
              
              218,452
              
              
              145,296Construction/Bidding
                  Data
              
              
              11,419
              
              
              14,813Depreciation
              
              
              52,212
              
              
              53,817Insurance
              
              
              68,074
              
              
              53,652Office
                  Expense
              
              
              51,034
              
              
              52,563Payroll
                  Expense
              
              
              692,372
              
              
              575,904Professional
                  Fees
              
              
              42,390
              
              
              43,073Research
                  and Development
              
              
              8,000
              
              
              6,920Telephone
              
              
              34,924
              
              
              28,695Travel
              
              
              35,270
              
              
              24,518Vehicle
                  Expense
              
              
              34,834
              
              
              28,477Other
              
              
              212,602
              
              
              186,250TOTAL
                  EXPENSES
              
              
              1,461,583
              
              
              1,213,978OPERATING
                  INCOME
              
              
              241,548
              
              
              563,022Loss
                  on Sale of Fixed Assets
              
              
              (866
              )
              
              (372,011
              )Other
                  Income (Expense)
              
              
              19,623
              
              
              (6,417
              )Income
                  Before Income Taxes
              
              
              260,305
              
              
              184,594Income
                  Taxes
              
              
              (89,145
              )
              
              (63,599
              )Net
                  Income
              
              $
              171,160
              
              $
              120,995Net
                  Income Per Common ShareBasic
                  & Fully Diluted
              
              $
              0.01
              
              $
              0.01Weighted
                  Average CommonShares
                  Outstanding
              
              
              11,894,593
              
              
              11,876,204See
                  notes to consolidated audited financial statements and auditors'
                  report




14
 *Table
          of Contents*


**METWOOD,
                  INC. AND WHOLLY OWNED SUBSIDIARY****Statement
                  of Stockholders' Equity*****For
                  the Years Ending June 30, 2006 and 2005***Common
              
              CommonShares
              
              StockCommon
              
              Common
              
              Not
                  Yet
              
              Not
                  Yet
              
              AdditionalShares
              
              Stock
              
              Issued
              
              Issued
              
              Paid-in
              
              Retained(000's)
              
              ($.001
                  Par)
              
              (000's)
              
              ($.001
                  Par)
              
              Capital
              
              EarningsBalances,
                  July 1, 2004
              
              
              11,863
              
              $
              11,863
              
              
              -0-
              
              
              -0-
              
              $
              1,296,738
              
              $
              327,817Net
                  income for year
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              120,995Common
                  stock subscribed but not yet issued
              
              
              -0-
              
              
              -0-
              
              
              8
              
              
              8
              
              
              -0-
              
              
              -0-Issuance
                  of common stock for services rendered
              
              
              3
              
              
              3
              
              
              -0-
              
              
              -0-
              
              
              1,967
              
              
              -0-Issuance
                  of common stock subscribed
              
              
              12
              
              
              12
              
              
              -0-
              
              
              -0-
              
              
              6,113
              
              
              -0-Balances,
                  June 30, 2005
              
              
              11,878
              
              $
              11,878
              
              
              8
              
              $
              8
              
              $
              1,304,818
              
              $
              448,812Net
                  income for year
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              -0-
              
              
              171,160Common
                  stock subscribed but not yet issued
              
              
              -0-
              
              
              -0-
              
              
              19
              
              
              19
              
              
              5,946
              
              
              -0-Issuance
                  of common stock for services rendered
              
              
              9
              
              
              9
              
              
              -0-
              
              
              -0-
              
              
              3,126
              
              
              -0-Issuance
                  of common stock subscribed
              
              
              18
              
              
              18
              
              
              (11
              )
              
              (11
              )
              
              5,427
              
              
              -0-Balances,
                  June 30, 2006
              
              
              11,905
              
              $
              11,905
              
              
              16
              
              $
              16
              
              $
              1,319,317
              
              $
              619,972See
                  notes to consolidated audited financial statements and auditors'
                  report




15
 *Table
          of Contents*


**METWOOD,
                  INC. AND WHOLLY OWNED SUBSIDIARY****Statements
                  of Cash Flows*****For
                  the Years Ending June 30, 2006 and 2005***2006
              
              2005CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              171,160
              
              $
              120,995Adjustments
                  to reconcile net income to netcash
                  provided by operating activities:Depreciation
              
              
              112,967
              
              
              108,536Bad
                  debt expense
              
              
              1,220
              
              
              8,855Provision
                  for deferred income taxes
              
              
              18,193
              
              
              (9,947
              )Loss
                  on sale of fixed assets
              
              
              866
              
              
              372,011Common
                  stock issued for services
              
              
              3,135
              
              
              1,970(Increase)
                  decrease in operating assets:Accounts
                  receivable
              
              
              (10,829
              )
              
              (80,258
              )Inventory
              
              
              (253,510
              )
              
              (96,236
              )Prepaid
                  expenses and other current assets
              
              
              (15,838
              )
              
              (40,874
              )Recoverable
                  income taxes
              
              
              30,666
              
              
              (30,666
              )Increase
                  (decrease) in operating liabilities:Accounts
                  payable, accrued expenses and customer deposits
              
              
              (13,314
              )
              
              (65,462
              )Current
                  income taxes payable
              
              
              40,270
              
              
              (38,509
              )NET
                  CASH PROVIDED BY OPERATING ACTIVITIES
              
              
              84,986
              
              
              250,415CASH
                  FLOWS FROM INVESTING ACTIVITIES:Disposals
                  of fixed assets
              
              
              -
              
              
              600,000Expenditures
                  for fixed assets
              
              
              (231,115
              )
              
              (112,649
              )NET
                  CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
              
              
              (231,115
              )
              
              487,351CASH
                  FLOWS FROM FINANCING ACTIVITIES:Proceeds
                  from issuance of common stock
              
              
              11,402
              
              
              6,125Borrowings
                  from (repayment of) notes payable
              
              
              -
              
              
              (125,020
              )Net
                  borrowings from (repayment of) line of credit
              
              
              -
              
              
              (422,000
              )NET
                  CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
              
              
              11,402
              
              
              (540,895
              )NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              (134,727
              )
              
              196,871CASH
                  AND CASH EQUIVALENTS:Beginning
                  of year
              
              
              234,607
              
              
              37,736End
                  of year
              
              $
              99,880
              
              $
              234,607See
                  notes to consolidated audited financial statements and auditors'
                  report




16
 *Table
          of Contents*




**METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 Business
        Activity -
        Metwood, Inc. (the Company) was organized under the laws of the State of
        Virginia on April 7, 1993.
 
 Effective
        June 30, 2000, the Company entered an Agreement and Plan of Reorganization
        to
        acquire the majority of the outstanding common stock of a publicly held shell
        corporation. The acquisition resulted in a tax-free exchange for federal
        and
        state income tax purposes. Upon acquisition, the name of the shell corporation
        was changed to Metwood, Inc. (a Nevada corporation). Metwood, Inc. (a Virginia
        corporation) became a wholly owned subsidiary of Metwood, Inc. (a Nevada
        corporation). The transaction was accounted for as a reverse merger in
        accordance with Accounting Principles Board (“APB”) Opinion No. 16 wherein the
        stockholders of Metwood, Inc. (a Virginia corporation) retained the majority
        of
        the outstanding common stock of the Company after the merger. The publicly
        traded shell corporation did not have a material operating history for several
        years prior to the merger.
 
 Effective
        January 1, 2002, the Company acquired certain assets of Providence Engineering,
        PC (“Providence”), a professional engineering firm with customers in the same
        proximity as the Company. The total purchase price of $350,000 was paid with
        $60,000 in cash and with 290,000 shares of the Company’s common stock to the two
        Providence shareholders. These shares were valued at the closing active quoted
        market price of the stock at the effective date of the purchase, which was
        $1
        per share. One of the shareholders of Providence was also an officer and
        existing shareholder of the Company prior to the acquisition. The transaction
        was accounted for under the purchase method of accounting, and the purchase
        price was allocated as follows:
  Accounts
                  receivable
              
              $
              75,000Fixed
                  assets
              
              
              45,000Goodwill
              
              
              230,000Total
              
              $
              350,000
 
 During
        the year ended June 30, 2003, liabilities assumed at the date of acquisition
        were identified and paid. The amount of the liabilities paid was $23,088
        and has
        been added to goodwill.
 
 The
        consolidated company provides construction-related products and engineering
        services to residential customers and contractors, commercial contractors,
        developers and retail enterprises, primarily in southwestern Virginia.
 
 17
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)**
 
 Basis
        of Presentation —
The
        financial statements include the accounts of Metwood, Inc. (a Nevada
        corporation) and its wholly owned subsidiary, Metwood Inc. (a Virginia
        corporation) prepared in accordance with accounting principles generally
        accepted in the United States of America and pursuant to the rules and
        regulations of the Securities and Exchange Commission. All significant
        intercompany balances and transactions have been eliminated.
 
 Fair
        Value of Financial Instruments - The
        carrying amounts reported in the consolidated balance sheet for cash, accounts
        receivable, inventory, prepaid expenses and other current assets, accounts
        payable, accrued expenses and customer deposits approximate fair values based
        on
        the short-term maturity of these instruments.
 
 Accounts
        Receivable —
The
        Company grants credit in the form of unsecured accounts receivable to its
        customers based on an evaluation of their financial condition. The Company
        performs ongoing credit evaluations of its customers. The estimate of the
        allowance for doubtful accounts, which is charged off to bad debt expense,
        is
        based on management’s assessment of current economic conditions and historical
        collection experience with each customer. At June 30, 2006 allowance for
        doubtful accounts was approximately $8,000. Specific customer receivables
        are
        considered past due when they are outstanding beyond their contractual terms
        and
        are charged off to the allowance for doubtful accounts when determined
        uncollectible. For the years ended June 30, 2006 and 2005, the bad debt expense
        was $1,220 and $8,855, respectively.
 
 Fixed
        Assets - Fixed
        assets are recorded at cost and include expenditures that substantially increase
        the productive lives of the existing assets. Maintenance and repair costs
        are
        expensed as incurred. Depreciation is provided using the straight-line method.
        Depreciation of fixed assets is calculated over management prescribed recovery
        periods that range from three to thirty years.
 
 When
        a
        fixed asset is disposed of, its cost and related accumulated depreciation
        are
        removed from the accounts. The difference between undepreciated cost and
        the
        proceeds from disposition is recorded as a gain or loss.
 
 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 and 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. At June 30, 2006, the
        significant estimates used by management include the valuation of its goodwill.
        Actual results could differ from those estimates.
 
 18
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)**
 
 Cash
        and Cash Equivalents —
For
        purposes of the Consolidated Statements of Cash Flows, the Company considers
        liquid investments with an original maturity of three months or less to be
        cash
        equivalents. The Company maintains its cash in bank deposit accounts, which,
        at
        times, may exceed the federally insured limit of $100,000. The Company has
        not
        experienced any losses in such accounts. The Company believes it is not exposed
        to any significant credit risk on cash and cash equivalents.
 
 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
        carry
        forwards, 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.
 
 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 years presented. There were no adjustments required to net income for
        the
        years presented in the computation of diluted earnings per share.
 
 Advertising —
The
        Company expenses advertising costs as incurred. However, certain expenditures
        are treated as prepaid (such as trade show fees) if they are for goods or
        services which will not be received until after the end of the accounting
        period, and they are subsequently recognized as expenses in those periods
        in
        which the goods or services are received.
 
 Inventory -
        Inventory, consisting of metal and wood raw materials located in the Company’s
        leased premises and is stated at the lower of cost or market using the first-in,
        first-out (FIFO) method.
 
 19
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)**
 
 Patents —
The
        Company has been assigned several key product patents developed by certain
        Company officers. No value has been recorded in the Company’s financial
        statements because the fair value of the patents was not determinable within
        reasonable limits at the date of assignment.
 
 Research
        and Development —
The
        Company performs research and development on its metal/wood products, new
        product lines, and new patents. Costs, if any, are expensed as they are
        incurred. For the years ended June 30, 2006 and 2005, the expenses relating
        to
        research and development were $8,000 and $6,920, respectively.
 
 Goodwill —
In
        June
        2001 the Financial Accounting Standards Board (“FASB”) issued Statement of
        Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible
        Assets.” This statement requires that goodwill and intangible assets deemed to
        have an indefinite life not be amortized. Instead, such assets are to be
        tested
        for impairment annually or immediately if conditions indicate that such an
        impairment could exist. Transition to the new rules of SFAS 142 requires
        the
        completion of a transitional impairment test of goodwill within the first
        year
        of adoption. The Company adopted the provisions of SFAS 142 beginning July
        1,
        2002 and completed the transitional impairment test of goodwill as of July
        1,
        2002 and again as of June 30, 2005 and 2006 using discounted cash flow estimates
        and found no goodwill impairment.
 
 Recent
        Accounting Pronouncements -
        In
        June 2006, the Financial Accounting Standards Board (“FASB”) ratified the
        provisions of Emerging Issues Task Force (“EITF”) Issue No. 06-3, “How
        Taxes Collected from Customers and Remitted to Governmental Authorities Should
        Be Presented in the Income Statement (that is, Gross versus Net Presentation).”
EITF Issue No. 06-3 requires that the presentation of taxes within
        revenue-producing transactions between a seller and a customer, including
        but
        not limited to sales, use, value added, and some excise taxes, should be
        on
        either a gross (included in revenue and cost) or a net (excluded from revenue)
        basis.
 
 In
        addition, for any such taxes that are reported on a gross basis, a company
        should disclose the amounts of those taxes in interim and annual financial
        statements for each period for which an income statement is presented if
        those
        amounts are significant. The disclosure of those taxes can be done on an
        aggregate basis. EITF Issue No. 06-3 is effective for fiscal years
        beginning after December 15, 2006, which will be our third quarter of
        fiscal 2007. The Company expects that the adoption of EITF Issue No. 06-3
        will not have a material impact on its consolidated results of operations
        or
        financial position.
 
 20
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)**
 
 Recent
        Accounting Pronouncements (Cont.) -
        On July
        13, 2006, the FASB released FIN 48, “Accounting for Uncertainty in Income Taxes
        - an Interpretation of FASB Statement 109.”  FIN 48 requires companies to
        evaluate and disclose material uncertain tax positions it has taken with
        various
        taxing jurisdictions. The Company is currently reviewing FIN 48 and is
        unable to determine the effect, if any, that FIN 48 will have to our
        consolidated operating results, consolidated financial position, or future
        consolidated cash flows.
 
 **NOTE
        B - SUPPLEMENTAL CASH FLOW INFORMATION**
 
 Supplemental
        disclosures of cash flow information for the years ended June 30, 2006 and
        2005
        are summarized as follows:
 2006
                
                2005Cash
                    paid for :Income
                    taxes
                
                $
                21,318
                
                $
                141,917Interest
                
                $
                —
                
                $
                16,296Supplemental
                    disclosures of non-cash investing and financing
                    activities:
  **NOTE
        C - RELATED PARTY TRANSACTIONS**
 
 For
        the
        year s
        ended
        June 30, 2006 and 2005, the Company had sales of $47,831 and $129,234 to
        its
        shareholder and CEO, Robert Callahan, respectively. As of June 30, 2006,
        the
        related receivable with Mr. Callahan was $-0-.
 
 **NOTE
        D - COMMITMENT**
 
 During
        the year ended June 30, 2003, the Company implemented a stock-based incentive
        compensation plan for its employees. Participating employees have an after-tax
        deduction withheld by the Company throughout the calendar year. As of December
        31 of each year, the employee is considered vested in the plan, and the Company
        will match the participating employee’s withheld amounts. The Company may also
        make a discretionary contribution based upon pay incentives or attendance.
        Periodically, the Company will purchase restricted stock on behalf of the
        employee in the amount of his withholdings, the Company’s match, and any
        discretionary contributions.
 
 As
        of
        June 30, 2006, the Company had ten participating employees who withheld an
        amount immaterial to the consolidated financial statements. No accrual for
        the
        Company’s match has been made in the current year.
  21
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        E - SHORT-TERM BORROWINGS AND CREDIT ARRANGEMENTS**
 
 The
        Company has available a $600,000 revolving line of credit with a local bank.
        Interest is payable monthly on the outstanding balance at the prime
        lending rate, which was 8.0% as of June 30, 2006. The note is secured by
        accounts receivable, equipment, general intangibles, inventory, and fixtures
        and
        furniture and is personally guaranteed by the Company’s CEO. The balance
        outstanding as of June 30, 2006 was $-0- because the Company fully repaid
        the
        line of credit with the proceeds from the sale of its facilities during the
        year
        ended June 30, 2005. See
        footnote G below for discussion of the sale.
 
 In
        addition, the Company fully repaid its bank notes payable and credit corporation
        note in full during the year ended June 30, 2005 with the proceeds from the
        sale
        of its facilities.
 
 **NOTE
        F - EQUITY**
 
 During
        the year s
        ended
        June 30, 2006 and 2005, the Company issued 9,500 and 3,300 common shares
        in
        payment for services valued at $3,135 and $1,970, respectively. The common
        shares were valued
        at
        the fair market value of the shares at the time of issuance as determined
        by a
        third party source.
 
 **NOTE
        G - SALE OF FIXED ASSETS AND RELATED OPERATING LEASE**
 
 During
        the year ended June 30, 2005, the Company entered into a sales and leaseback
        transaction with a related party. The Company sold its various buildings
        at its
        corporate headquarters which house its manufacturing plants, executive offices,
        and other buildings for $600,000 in cash. The Company simultaneously entered
        into a commercial lease agreement with this entity whereby the Company is
        committed to lease back these same properties for $6,200 per month over a
        ten
        year term expiring on December 31, 2014. Rent expense charged to operations
        for
        the years ended June 30, 2006 and 2005 was $78,000 and $37,300,
        respectively.
 
 22
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        G - SALE OF FIXED ASSETS AND RELATED OPERATING LEASE
        (CONT.)**
 
 Future
        minimum rental payments as of June 30, 2006 in the aggregate and for each
        of the
        five succeeding years and thereafter are as follows:
 Year
                
                Amount2007
                
                $
                74,4002008
                
                
                74,4002009
                
                
                74,4002010
                
                
                74,4002011
                
                
                74,400Thereafter
                
                
                260,400$
                634,400
 
 
 **NOTE
        H - INCOME TAXES**
 
 The
        components of income tax expense for the years ended June 30, 2006 and 2005
        consist of:
  2006
                
                2005Current:Federal
                
                $
                58,869
                
                $
                46,785State
                
                
                12,067
                
                
                6,86770,936
                
                
                53,652Deferred:Federal
                
                
                14,247
                
                
                5,111State
                
                
                3,962
                
                
                4,83618,209
                
                
                9,947Total
                    income tax expense
                
                $
                89,145
                
                $
                63,599
  23
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        H - INCOME TAXES (CONT.)**
 
 The
        reconciliation of the provision for income taxes at the U. S. federal statutory
        income tax rate of 39% to the Company’s income taxes for the years ending June
        30, 2006 and 2005 is as follows:
  Income
                  before income taxes
              
              $
              260,305
              
              $
              184,594Income
                  tax expense computed at the statutory rate
              
              
              101,519
              
              
              71,992State
                  income tax, net of federal tax effect
              
              
              14,637
              
              
              6,867Non-deductible
                  expenses
              
              
              (2,575
              
              
              (1,693
              )Tax-exempt
                  state workforce development funding
              
              
              —
              
              
              (4,086
              )Effect
                  of graduated income tax rates
              
              
              24,436
              
              
              (9,481
              )Total
                  income tax expense
              
              $
              89,145
              
              $
              63,599
 
 Deferred
        income taxes reflect the net tax effects of temporary differences between
        the
        carrying amounts of assets and liabilities for financial reporting purposes
        and
        the amount used for federal and state income tax purposes. Deferred tax
        liabilities at June 30, 2006 were $107,154, net of deferred tax assets of
        $-0-.
        The components of these amounts are as follows:
  Depreciation
              
              $
              82,810Amortization
                  of goodwill
              
              
              25,376Restricted
                  stock compensation
              
              
              (1,032
              )Net
                  deferred tax liabilities
              
              $
              107,154
 
 **NOTE
        I - CONCENTRATIONS**
 
 There
        is
        no single customer or group of related customers from whom the Company derived
        more than 10% of its accounts receivable as of June 30, 2006. The Company
        is
        potentially vulnerable to a concentration-related risk with respect to its
        metal
        suppliers, however, since three vendors supply approximately 70% of the metal
        used in the manufacture of the Company’s products, though these vendors have
        been used primarily because of their competitive pricing. Several other metal
        suppliers are available to the Company, but purchasing from them, should
        that
        become necessary, would likely result in increased costs.
 
 24
 *Table
            of Contents*
  **METWOOD,
        INC. AND WHOLLY OWNED SUBSIDIARY**
 **Consolidated
        Notes To Audited Financial Statements**
 **For
        the Years Ended June 30, 2006 and 2005**
 
  **NOTE
        J - SEGMENT INFORMATION**
  The
        Company operates in two principal business segments: (1) construction-related
        products and (2) engineering services. Performance of each segment is evaluated
        based on profit or loss from operations before income taxes. These reportable
        segments are strategic business units that offer different products and
        services. Summarized revenue and expense information by segment for the years
        ended June 30, 2006 and 2005 is as follows:
 2006
                
                2005Construction:Sales
                
                $
                4,030,648
                
                $
                3,838,966Cost
                    of sales
                
                
                (2,382,542
                )
                
                (2,181,168
                )Corporate
                    and other expenses
                
                
                (1,496,312
                )
                
                (1,579,875
                )Segment
                    income
                
                $
                151,794
                
                $
                77,923Total
                    assets
                
                $
                2,122,843
                
                $
                1,724,298Capital
                    expenditures
                
                $
                208,823
                
                $
                96,764Depreciation
                
                $
                100,428
                
                $
                95,980Interest
                    expense
                
                $
                —
                
                $
                16,288
  2006
                
                2005Engineering:Sales
                
                $
                211,475
                
                $
                342,314Cost
                    of sales
                
                
                (156,450
                )
                
                (223,112
                )Corporate
                    and other expenses
                
                
                (35,659
                )
                
                (76,130
                )Segment
                    income
                
                $
                19,366
                
                $
                43,072
                )Total
                    assets
                
                $
                253,088
                
                $
                420,790Capital
                    expenditures
                
                $
                22,292
                
                $
                15,885Depreciation
                
                $
                12,539
                
                $
                12,556Interest
                    expense
                
                $
                —
                
                $
                8


25
 *Table
          of Contents*




**Item
      8A. Controls and Procedures**





a.
            Our
                Chief Executive Officer and Chief Financial Officer have evaluated
                the
                effectiveness of our disclosure controls and procedures, as defined
                in
                Rules 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
                Act”), as of the end of the period covered by this Annual Report (the
                “Evaluation Date”). Based on such evaluation, such officers have concluded
                that, as of the Evaluation Date, our disclosure controls and procedures
                are effective in alerting our management on a timely basis to material
                information required to be disclosed in our reports filed under the
                Exchange Act.





b.
            There
                have been no significant changes in our internal controls or in other
                factors that could significantly affect such controls since the Evaluation
                Date.





**PART
      III**




**Item
      9. Directors and Executive Officers of the Registrant**





Identification
      of Directors and Executive Officers





The
      following table sets forth the names and the nature of all positions and offices
      held by all directors and executive officers for the year ending June 30, 2006
      and to the date of the filing of this report and the periods during which each
      such director or executive officer has served in his or her respective
      positions:





**Name**
            **Position
                and Background****Robert
                M. Callahan**
            **President**




Mr.
                Callahan has been involved in the building industry for over thirty
                years.
                He is well recognized in southwestern Virginia as an innovator in
                the uses
                of passive solar design and wood/metal products in custom home building.
                Along with Mr. Ronald Shiflett, he formed Metwood, Inc. in 1993 to
                bring
                light-gage construction, used in commercial building for years, into
                common use in residential construction.




**Shawn
                A. Callahan**
            **Secretary/Treasurer,
              Vice President/General Manager, Chief Financial Officer**Education:
                 B.S. Computer Science and Mathematics, Virginia Military Institute




Since
                starting with Metwood, Inc. in May 1996, Mr. Callahan has played
                a major
                role in our restructuring, increasing production, improving efficiency,
                and developing computer aids for us.





Ronald
      B.
      Shiflett                  
Vice President


Education:
       B.S. Civil Engineering, Virginia Polytechnic Institute & State
      University M.S.
      Civil Engineering, Virginia Polytechnic Institute & State University




Mr.
                Shiflett has been engaged in the structural design of industrial,
                commercial, residential, and institutional buildings for over twenty-five
                years. He is recognized by the design community in southwestern Virginia
                as an innovator in the use and design of light-gage steel framing
                in
                building construction. Along with Mr. Callahan, he formed Metwood,
                Inc. in
                1993.




26
 *Table
          of Contents*




Term
      of Office





The
      term
      of office of the current directors shall continue until new directors are
      elected or appointed.





Family
      Relationships





Robert
      Callahan is the father of Shawn Callahan.





Involvement
      in Certain Legal Proceedings





Except
      as
      indicated below and to the knowledge of management, during the past five years,
      no present or former director, person nominated to become a director, executive
      officer, promoter or control person of us:





(1)    
      was a general partner or executive officer of any business by or against which
      any bankruptcy petition was filed, whether at the time of such filing or two
      years prior thereto;





(2)    
      was convicted in a criminal proceeding or named the subject of a pending
      criminal proceeding (excluding traffic violations and other minor offenses);





(3)    
      was the subject of any order, judgment or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently or
      temporarily enjoining, barring, suspending or otherwise limiting his involvement
      in any type of business, securities or banking activities;





(4)    
      was the subject of any order, judgment or decree, not subsequently reversed,
      suspended or vacated, of any federal or state authority barring, suspending
      or
      otherwise limiting for more than sixty days the right of such person to engage
      in any activity described above under this Item, or to be associated with
      persons engaged in any such activity; or





(5)    
      was found by a court of competent jurisdiction (in a civil action), the
      Commission or the Commodity Futures Trading Commission to have violated a
      federal or state securities or commodities law, nor has a judgment been
      reversed, suspended, or vacated.





Compliance
      with Section 16(a) of the Exchange Act





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires our
      directors, officers and persons who own more than 10% of our common stock or
      other registered class of equity securities to file reports of ownership and
      changes in ownership with the Securities and Exchange Commission. Officers,
      directors and greater than 10% shareholders are required to furnish us with
      copies of all Section 16(a) forms they file.





Based
      solely on a review of the forms received covering purchase and sale transactions
      in our common stock during the fiscal year ended June 30, 2006, we believe
      that
      each person who, at any time during that period, was a director, executive
      officer, or beneficial owner of more than 10% of our common stock complied
      with
      all Section 16(a) filing requirements except as follows: Ronald Shiflett failed
      to timely report sale transactions in January and April 2004.




27
 *Table
          of Contents*





**Item
      10. Executive Compensation**





The
      following table sets forth in summary form the compensation received during
      each
      of our last three fiscal years by our President and Chief Executive Officer,
      Robert M. Callahan:





***Summary
      Compensation Table***





**Fiscal**
              **Year**
            **Annual**
              **Salary**
            **Bonuses**
            **Other**
              **Compen****sation**
            **Restricted**
              **Stock****Awards**
            **LTIP**
              **Options**
            **Restricted**
              **Stock****Bonuses**(1)
            (2)
            (3)
            (4)
            (5)
            (5)2006
            $79,000
            5,000
            -0-
            -0-
            -0-
            -0-2005
            $72,000
            -0-
            -0-
            -0-
            -0-
            -0-2004
            $109,200
            -0-
            -0-
            -0-
            -0-
            -0-





(1)
            The
                dollar value of base salary (cash and non-cash) received, including
                amounts paid to Carolyn Callahan, wife of Robert M. Callahan.





(2)
            The
                dollar value of bonuses (cash and non-cash) received.





(3)
            During
                the periods covered by the table, we did not pay any other annual
                compensation not properly categorized as salary or bonus, including
                perquisites and other personal benefits, securities or property.





(4)
            During
                the periods covered by the table, we did not make any award of restricted
                stock.





(5)
            We
                currently have no stock option or restricted stock bonus plans.





No
      member
      of our management has been granted any option or stock appreciation right;
      accordingly, no tables relating to such items have been included within this
      item.





Compensation
      of Directors





There
      are
      no standard arrangements pursuant to which our directors are compensated for
      any
      services provided as director. No additional amounts are payable to our
      directors for committee participation or special assignments.





There
      are
      no arrangements pursuant to which any of our directors was compensated during
      our last completed fiscal year or the previous two fiscal years for any services
      provided as director.




28
 *Table
          of Contents*





Termination
      of Employment and Change of Control Arrangement





There
      are
      no compensatory plans or arrangements, including payments to be received from
      us, with respect to any person named in the Summary Compensation Table set
      out
      above which would in any way result in payments to any such person because
      of
      his resignation, retirement or other termination of such person’s employment
      with us or our subsidiaries, or any change in control of us, or a change in
      the
      person’s responsibilities following a change in control of us.





**Item
      11 . Security Ownership of Certain Beneficial Owners and Management**




Security
      Ownership of Certain Beneficial Owners





The
      following table sets forth the shares held by those persons who owned more
      than
      five percent of Metwood’s common stock as of September 27, 2006, based upon
      11,923,999 shares outstanding:





***Greater
      Than 5% Owners***





**Title
                of****Class**
            **Name
                and Address****of
                Beneficial Owner**
            **No.
                of****Shares**
            **Percent****of
                Class**Common
            Robert
                Callahan
              819
                Naff Road
              Boones
                Mill, VA 24065
            6,503,415 (1)
            54.5%Common
            Ronald
                Shiflett
              819
                Naff Road
              Boones
                Mill, VA 24065
            2,151,282
                (2)
            18.0%




(1)
            Includes
                direct and indirect interests. There are 4,000,000 common shares
                included
                in this amount that are owned in the names of family members of Mr.
                Callahan.


(2)   Ronald Shiflett has authorized Robert M. Callahan to have the
        voting rights for his shares of stock.




29
 *Table
          of Contents*




Security
      Ownership of Management





The
      following table sets forth the shares held by Metwood directors and officers
      as
      of September 27, 2006:





***Management
      Ownership***





**Title
                of****Class**
            **Name
                and Address****of
                Beneficial Owner**
            **No.
                of****Shares**
            **Percent****of
                Class**Common
            Robert
                Callahan
              819
                Naff Road
              Boones
                Mill, VA 24065
            6,503,415
                (1)
            54.5%Common
            Ronald
                Shiflett
              819
                Naff Road
              Boones
                Mill, VA 24065
            2,151,282
                (2)
            18.0%






(2) 
      Ronald Shiflett has authorized Robert M. Callahan to have the voting rights
      for
      his shares of stock.




* Less
                than 1%





Ownership
              of shares by directors and officers of Metwood as a group:
              73.1%.





Changes
      in Control





We
      know
      of no contractual arrangements which may at a subsequent date result in a change
      our control.





30
 *Table
          of Contents*





**Item
      12 . Certain Relationships and Related Transactions**





Following
      are the transactions between Metwood and members of management, directors,
      officers, 5% shareholders, and promoters of Metwood:





We
      contract with a construction company 50% owned by our CEO which provides capital
      improvements and maintenance work on our buildings and grounds.





On
      January 3, 2005, we entered into a sales and leaseback transaction with Cahas
      Mountain Properties, LLC (“Cahas”). Cahas is an LLC that is partially owned by
      members of the Callahan family which are also officers and directors of us.
      We
      sold our various buildings at our corporate headquarters which house our
      manufacturing plants, executive offices, and other buildings on January 3,
      2005
      for $600,000 in cash. We simultaneously entered into a commercial lease
      agreement with this entity whereby we committed to lease back these same
      properties for $6,200 per month over a ten year term. We paid $78,000 and
      $37,300 in rent to Cahas during fiscal 2006 and fiscal 2005,
      respectively.




**Item
      13 . Exhibits and Reports on Form 8-K**





(a)
            Exhibits





See
              index to exhibits





(b)
            Reports
                on Form 8-K





None.





**Item
      14 . Principal Accountant Fees and Services**





The
      following table sets forth the aggregate fees billed by Bongiovanni &
Associates, CPA’s for audit services rendered in connection with the
      consolidated financial statements and reports for the years ended June 30,
      2006
      and 2005:


2006
              
              2005Audit
                  fees
              
              $
              17,000
              
              $
              15,500Audit-related
                  fees
              
              
              —
              
              
              —Tax
                  fees
              
              
              —
              
              
              —All
                  other fees
              
              
              —
              
              
              —Total
                  fees
              
              $
              17,000
              
              $
              15,500




*Audit
      fees* :
       Consist of fees billed for professional services rendered for the audits
      of our consolidated financial statements and reviews of the interim consolidated
      financial statements included in quarterly reports and services that are
      normally provided by our auditors in connection with statutory and regulatory
      filings or engagements and attest services, except those not required by statute
      or regulation.





*Audit-related
      fees* :
       Consist of fees billed for assurance and related services that are
      reasonably related to the performance of the audit or review of our consolidated
      financial statements and are not reported under “Audit fees.” These services
      include accounting consultations in connection with the Sarbanes-Oxley Act
      of
      2002.





*Tax
      fees* :
      Consist
      of fees billed for tax compliance, tax advice and tax planning services.





*All
      other fees* :
      Consist
      of fees billed for all other services other than those reported
      above.





31
 *Table
          of Contents*




**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.





Date:
                 September 27, 2006
            */s/
                Robert M. Callahan*
              Robert
                M. Callahan
              President,
                CEO and DirectorDate:
                 September 27, 2006
            */s/
                Ronald B. Shiflett*
              Ronald
                B. Shiflett
              Vice-President
                and DirectorDate:
                 September 27, 2006
            */s/
                Shawn A. Callahan*
              Shawn
                A. Callahan
              Secretary/Treasurer
                and Director/CFO







32
 *Table
          of Contents*





**INDEX
      TO EXHIBITS**








**NUMBER**
            **DESCRIPTION
                OF EXHIBIT**3(i)*
            Articles
                of Incorporation3(ii)*
            By-Laws31.1
            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 200231.2
            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 200232.1
            Certifications
                Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)32.2
            Certifications
                Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)





*Incorporated
      by reference on Form 8-K, filed February 16, 2000






33