EMERGE HEALTH INTERNATIONAL INC - FORM 10-Q

Attached files

file	filename
EX-32 - EMERGE HEALTH INTERNATIONAL INC	ex32.htm
EX-31.2 - EMERGE HEALTH INTERNATIONAL INC	ex31_2.htm
EX-31.1 - EMERGE HEALTH INTERNATIONAL INC	ex31_1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


	FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________


Commission File Number 000-05391

METWOOD, INC.
(Exact name of small business issuer as specified in its charter)

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


819 Naff Road, Boones Mill, VA 24065
(Address of principal executive offices) (Zip code)

(540) 334-4294
(Registrant's telephone number, including area code)

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

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

	Indicate by check mark whether the regiatrant is a large accelerated filer, an accelerated filer, a
	non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the Exchange Act:

	Large accelerated filer [ ] Non-accelerated filer [ ]
	Accelerated filer [ ] Smaller reporting company [ X ]

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

	As of October 31, 2010, the number of shares outstanding of the registrant's common stock,
	$0.001 par value (the only class of voting stock), was 12,231,797 shares.

METWOOD, INC. AND SUBSIDIARY
TABLE OF CONTENTS - FORM 10-QSB



PART I - FINANCIAL INFORMATION		Page(s)

Item 1	Financial Statements

	Consolidated Balance Sheets As of September 30, 2010 (Unaudited) and June 30, 2010	3-4

	Consolidated Statements of Income (Unaudited) for the Three Months Ended September 30, 2010 and 2009	5

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended September 30, 2010 and 2009	6

	Notes to Consolidated Financial Statements	7-9

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	10

Item 4	Controls and Procedures	13

PART II - OTHER INFORMATION

Item 6	Exhibits and Reports on Form 8-K	14

Signatures		15

Index to Exhibits		16

METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS



	(UNAUDITED)			(AUDITED)
	September 30,			June 30,
	2010			2010
ASSETS

Current Assets
Cash and cash equivalents	$	383,518		$	403,512
Accounts receivable, net		249,620			297,828
Inventory		1,002,952			938,878
Recoverable income taxes		101,190			84,383
Other current assets		56,882			53,329

Total current assets		1,794,162			1,777,930

Property and Equipment
Leasehold and land improvements		210,437			210,437
Furniture, fixtures and equipment		97,766			97,766
Computer hardware, software and peripherals		155,924			155,924
Machinery and shop equipment		356,866			356,166
Vehicles		373,591			380,834
		1,194,584			1,201,127
Less accumulated depreciation		(843,287	)		(825,942	)

Net property and equipment		351,297			375,185

Goodwill		253,088			253,088

TOTAL ASSETS	$	2,398,547		$	2,406,203

See accompanying notes to consolidated financial statements.

METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET

	(UNAUDITED)		(AUDITED)
	September 30,		June 30,
	2010		2010
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable	$	169,287	$	148,661
Accrued expenses		39,762		39,414

Total current liabilities		209,049		188,075

Long-term Liabilities
Due to related company		166,029		175,027
Deferred income taxes, net		46,691		49,755

Total long-term liabilities		212,720		224,782

Total liabilities		421,769		412,857

Stockholders' Equity
Common stock, $.001 par, 100,000,000 shares authorized;
12,231,797 shares issued and outstanding at September 30, 2010		12,232		12,232
Common stock not yet issued ($.001 par, 8,150 shares)		8		8
Additional paid-in capital		1,544,268		1,544,268
Retained earnings		420,270		436,838

Total stockholders' equity		1,976,778		1,993,346

TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY	$	2,398,547	$	2,406,203


See accompanying notes to consolidated financial statements.

METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended
	September 30,
	2010			2009
REVENUES

Construction sales	$	680,791		$	557,716
Engineering sales		57,629			44,411
Gross sales		738,420			602,127

Cost of construction sales		447,796			350,908
Cost of engineering sales		39,011			41,620
Gross cost of sales		486,807			392,528

Gross profit		251,613			209,599

ADMINISTRATIVE EXPENSES
Advertising		14,717			19,317
Depreciation		10,973			13,534
Insurance		4,475			11,871
Payroll expenses		151,627			153,943
Professional fees		24,773			19,462
Rent		19,800			19,800
Travel		5,225			4,776
Vehicle		10,132			8,814
Other		49,769			32,595
Total administrative expenses		291,491			284,112

Operating loss		(39,878	)		(74,513	)

Other income		3,439			7,938

Loss before income tax benefit		(36,439	)		(66,575	)

Income tax benefit		(19,871	)		(29,036	)

Net loss from operations	$	(16,568	)	$	(37,539	)

Basic and diluted earnings per share		**			**

Weighted average number of shares		12,231,797			12,231,797

See accompanying notes to consolidated financial statements.

METWOOD, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Three Months Ended
	September 30,
	2010			2009
OPERATIONS
Net loss	$	(16,568	)	$	(37,539	)
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation		17,345			26,391
Reversal of deferred income taxes		(3,064	)		(4,930	)
(Increase) decrease in operating assets:
Accounts receivable		63,408			(36,599	)
Inventory		(64,074	)		6,183
Recoverable income taxes		(16,807	)		(24,106	)
Other operating assets		(18,753	)		9,945
Increase in operating liabilities:
Accounts payable and accrued expenses		20,974			41,725
Net cash used for operating activities		(17,539	)		(18,930	)

INVESTING
Property, plant and equipment:
Purchases		(2,557	)		(4,076	)
Disposals		9,100			-
Net cash provided from (used for) investing activities		6,543			(4,076	)

FINANCING
Decrease in borrowings from related party		(8,998	)		-
Net cash used for financing activities		(8,998	)		-

Net decrease in cash		(19,994	)		(23,006	)

Cash, beginning of the year		403,512			199,868

Cash, end of the period	$	383,518		$	176,862


See accompanying notes to consolidated financial statements.

METWOOD, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(UNAUDITED)

NOTE 1 - ORGANIZATION AND OPERATIONS

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

Effective January 1, 2002, Metwood acquired certain assets of Providence Engineering, PC ("Providence"), a professional engineering firm with customers in the same proximity as Metwood. The total purchase price of $350,000 was paid with $60,000 in cash and with 290,000 shares of the Company's common stock to the two Providence shareholders. These shares were valued at the closing active quoted market price of the stock at the effective date of the purchase, which was $1.00 per share. One of the shareholders of Providence was also an officer and existing shareholder of Metwood prior to the acquisition. The transaction was accounted for under the purchase method of accounting. Liabilities assumed at the date of acquisition were identified, paid and added to goodwill.

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

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

In the opinion of management, the unaudited condensed consolidated financial statements contain all the adjustments necessary in order to make the financial statements not misleading. The results for the period ended September 30, 2010 are not necessarily indicative of the results to be expected for the entire fiscal year ending June 30, 2011.

Fair Value of Financial Instruments - For certain of the Company's financial instruments, none of which are held for trading, including cash, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.

Management's Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable - We grant credit in the form of unsecured accounts receivable to our customers based on an evaluation of their financial condition. We perform ongoing credit evaluations of our customers. The estimate of the allowance for doubtful accounts, which is charged off to bad debt expense, is based on management’s assessment of current economic conditions and historical collection experience with each customer. At September 30, 2010, the allowance for doubtful accounts was $5,000. Specific customer receivables are considered past due when they are outstanding beyond their contractual terms and are charged off to bad debt expense when determined uncollectible. For the three months ended September 30, 2010, the amount of bad debts charged off was $34,157. For the three months ended September 30, 2009, the amount of bad debts charged off was $-0-.

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

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

Goodwill - We account for goodwill and intangibles under SFAS No. 142, “Goodwill and Other Intangible Assets.” As such, goodwill is not amortized, but is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be an impairment. We performed our required annual goodwill impairment test as of June 30, 2010 using discounted cash flow estimates and found that there was no impairment of goodwill.

Impairment of Long-lived Assets - We evaluate our long-lived assets for indications of possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing the carrying amounts to the future net undiscounted cash flows which the assets are expected to generate. Should an impairment exist, the impairment would be measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset. There have been no such impairments of long-lived assets through September 30, 2010.

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

In December 2009, the FASB issued Accounting Standards Update 2009-16 (ASU 2009-16), Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets, which improves financial reporting by eliminating the exceptions for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The pending content that links to this paragraph is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, and for interim periods within that first annual reporting period and interim and annualreporting periods thereafter. This Update is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. This guidance requires new disclosures and clarifies certain existing disclosure requirements about fair value measurements. It requires a reporting entity to disclose significant transfers in and out of Level 1 and Level 2 fair value measurements, to describe the reasons for the transfers and to present separately information about purchases, sales, issuances and settlements for fair value measurements using significant unobservable inputs. This Update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which is effective for interim and annual reporting periods beginning after December 15, 2010; early adoption is permitted. The adoption did not have a material effect on our consolidated financial statements.

In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC’s requirements. ASU 2010-09 is effective for interim and annual periods ending after June 15, 2010. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its results of operations or financial position.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

NOTE 3 - EARNINGS PER SHARE

Net loss and earnings per share for the three months ending September 30, 2010 and 2009 are as follows:

	For the Three Months Ended
	September 30,
	2010			2009
Net loss	$	(16,568	)	$	(37,539	)
Earnings per share - basic and fully diluted	$		**	$		**
Weighted average number of shares		12,231,797			12,231,797

**Less than $0.01

NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the three September 30, 2010 and 2009 are summarized as follows:
	For the Three Months Ended
	September 30,
		2010			2009
Cash paid for:
Income taxes	$	--		$	--
Interest	$	--		$	--

NOTE 5 - RELATED-PARTY TRANSACTIONS

From time to time, we contract with a company related through common ownership for building and grounds-related maintenance services. There were no fees paid to the related company for the three months ended September 30, 2010 and 2009. For the three months ended September 30, 2010 and 2009, the Company had sales of $8,440 and $32,020, respectively, to the company referred to above. As of September 30, 2010 and 2009, the related receivables were $-0- and $2,916, respectively. Additionally, the balance owed at September 30, 2010 to the related company on a loan obtained in a previous period was $166,029. See also Note 8.

NOTE 6 - BANK CREDIT LINE

The Company has available a $600,000 revolving line of credit with a local bank. The balance outstanding at September 30, 2010 and 2009 was $-0-.

NOTE 7 - SEGMENT INFORMATION

We operate in two principal business segments: (1) construction-related products and (2) engineering services. Performance of each segment is evaluated based on profit or loss from operations before income taxes. These reportable segments are strategic business units that offer different products and services. Summarized revenue and expense information by segment for the three months ended September 30, 2010 and 2009, as excerpted from internal management reports, is as follows:


	For the Three Months Ended
	September 30,
Construction:	2010			2009
Sales	$	680,791		$	557,716
Intersegment expenses		(5,505	)		(12,540	)
Cost of sales		(447,796	)		(350,908	)
Corporate and other expenses		(250,764	)		(234,424	)
Segment income	$	(23,274	)	$	(40,156	)

Engineering:
Sales	$	57,629		$	44,411
Intersegment revenues		5,505			12,540
Cost of sales		(39,011	)		(41,260	)
Corporate and other expenses		(17,417	)		(13,074	)
Segment income (loss)	$	6,706		$	2,617

NOTE 8 - OPERATING LEASE COMMITMENTS

On January 3, 2005, the Company entered into a ten-year commercial operating lease with a company related through common ownership. The lease covers various buildings and property which house our manufacturing plant, executive offices and other buildings with a current monthly rental of $6,600. The lease expires on December 31, 2014. For the three months ended September 30, 2010 and 2009, we recognized rental expense for these spaces of $19,800.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

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

Description of Business

Background

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

Principal Products/Services and Markets

Metwood
Residential builders are aware of the superiority of steel framing vs. wood framing, insofar as steel framing is lighter; stronger; termite, pest, rot and fire resistant; and dimensionally more stable in withstanding induced loads. Although use of steel framing in residential construction has generally increased each year since 1980, many residential builders have been hesitant to utilize steel due to the need to retrain framers and subcontractors who are accustomed to a "stick-built" construction method where components are laid out and assembled with nails and screws. The Company's founders, Robert ("Mike") Callahan and Ronald Shiflett, saw the need to combine the strength and durability of steel with the convenience and familiarity of wood and wood fasteners.

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

Metwood's primary products and services are:
	· Girders and headers	· Garage, deck and porch concrete pour-over systems
	· Floor joists	· Garage and post-and-beam buildings
	· Floor joist reinforcers	· Engineering, design and custom building services
	· Roof and floor trusses

Providence

Providence is extensively involved in ongoing product research and development for Metwood. Additionally, Providence offers its customers civil engineering capabilities which include rezoning and special use submissions; erosion and sediment control and storm-water management design; residential, commercial, and religious facility site development design; and utility design, including water, sewer and onsite treatment systems. Providence's staff is familiar with construction practices and has been actively involved in construction administration and inspection on multiple projects.

Providence also performs a variety of structural design and analysis work, successfully providing solutions for many projects, including retaining walls, residential framing, commercial building framing, light-gage steel fabrication drawings, metal building retrofits and additions, mezzanines, and seismic anchors and restraints.

Providence has designed numerous foundations for a variety of structures. Its foundation design expertise includes metal building foundations, traditional building construction foundations, atypical foundations for residential structures, tower foundations, and sign foundations for a variety of uses and applications.

Providence has also designed and drafted full building plans for several applications. When subcontracting with local professional firms, Providence has the ability to provide basic architectural, mechanical, electrical, and detailed civil and structural design services for these facilities.

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

Distribution Methods of Products and Services

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

Status of Publicly Announced New Products or Services

We 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.

In October 2010, Metwood signed a letter of intent with Nuconsteel ("Nucon"), a Nucor company, to team with Nucon to increase our sales of the TUFFBEAM, TUFFJOIST, and RIMBEAM ("products"). We will provide, among other things, an unrestricted, exclusive license (except for defined Metwood territory) to Nucon to sell and manufacture all current and future products. Nucon will pay us a royalty for all products manufactured by Nucon and their sub-licensees and will sell us Nucon's complete line of NUJOIST product at the most favorable pricing. Nucon will also integrate Metwood into the Nucon Fabrication Network. Nucon will provide us with certain equipment in exchange for the exclusive rights granted in the agreement. The agreement will be in effect for two years with renewals for additional periods of one year.

Seasonality of Market

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

Competition

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

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

All of the raw materials we use are readily available on the market from numerous suppliers. The light-gage metal used by the Company is supplied primarily by Nuconsteel, Clark Western, and Wheeling Corrugating. Our main source of lumber is BlueLinx. Nucor Bar Mill provides the majority of our rebar. Because of the number of suppliers available to us, our decisions in purchasing materials are dictated primarily by price and secondarily by availability. We do not anticipate a lack of supply to affect our production; however, a shortage might cause us to pass on higher materials prices to our customers.

Dependence on One or a Few Major Customers

For the three months ending September 30, 2010, sales to 84 Lumber, Craftsman Construction, Davenport Development, and ProBuild Company, LLC each had sales of from 6% to 13% of total sales. For the three months ending September 30, 2009, sales to Price Buildings and Probuild East, LLC each accounted for approximately 9% of total sales; no other customer accounted for more than 5% of sales.

Patents

The Company has nine U.S. Patents:

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

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

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

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

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

Need for Government Approval of Principal Products

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

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

Approximately fifteen percent of our time and resources has been spent during the last two fiscal years researching and developing 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. We are an environmentally friendly business in that our products are fabricated from recycled steel.

Number of Total Employees and Number of Full-Time Employees

The Company had twenty-two employees at September 30, 2010, all of whom were full time.

Results of Operations

Net Loss

We had a net loss of $16,568 for the three months ended September 30, 2010, compared to a net loss of $37,539 for the three months ended September 30, 2009, a decrease of $20,971. The decrease in net loss for the three months ended September 30, 2010 compared to 2009 resulted from a 23% growth in total sales comparing the two periods. Construction sales increased 22% comparing 2010 to 2009, and engineering sales increased 30% comparing 2010 to 2009. Overall gross profit increased 20% comparing the three months ended September 30, 2010 and September 30, 2009. Administrative expenses increased 3% comparing the three months ended September 30, 2010 to the same period in 2009.

Management is currently discussing the possibility of taking the Company private as a means of rasing capital, improving the bottom line, and removing the high compliance costs incurred as a public company. The present economic environment may make privatization the best option as the Company goes forward.

Sales

Revenues were $738,420 for the three months ended September 30, 2010 compared to $602,127 for the same period in 2009, an increase of of $136,293, or 23%. The sales increase for the three-month period in 2010 versus 2009 was in part a result of a large project in the Cayman Islands. Although we have sold product in over thirty states, our local market remains down more than 30% compared to the construction industry boom-year peak in 2006. According to the closely watched McGraw-Hill Construction forecast, however, the value of new projects that start construction is expected to climb in 2011, an 8% rise from this year when that figure hit a post-recession low. The potential for increased sales volume as we go forward is enhanced by the fact that we are now an authorized fabricator for the NUTRUSS light-gauge steel truss system, begun in January 2010.

Expenses

Total administrative expenses were $291,491 for the three months ended September 30, 2010, versus $284,112 for the three months ended September 30, 2009, an increase of $7,379, or 3%.

Liquidity and Capital Reserves

On September 30, 2010, we had cash of $383,518 and working capital of $1,585,113. Net cash used for operating activities was $17,539 for the three months ended September 30, 2010 compared to net cash used for operating activities of $18,930 for the three months ended September 30, 2009.

Cash provided from investing activities was $6,543 for the three months ended September 30, 2010, compared to cash used of $4,076 during the same period in the prior year. Cash flows used in investing activities for the current period were for shop equipment ($700) and vehicles ($1,857), less disposals of $9,100.

Cash used in financing activities was $8,998 for the three months ended September 30, 2010 compared to cash used of $-0- for the period ended September 30, 2009. The cash used in 2010 was to pay down the Company's related-party debt.

ITEM 4 - CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

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

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

(b) Changes in internal control over financial reporting.

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

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

PART II - OTHER INFORMATION

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

See index to exhibits.

(b) Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter ended September 30, 2010.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 31, 2010 /s/ Robert M. Callahan
Robert M. Callahan
Chief Executive Officer

Date: October 31, 2010 /s/ Shawn A. Callahan
Shawn A. Callahan
Chief Financial Officer

INDEX TO EXHIBITS

NUMBER	DESCRIPTION OF EXHIBIT

3(i)*	Articles of Incorporation

3(ii)**	By-Laws

31.1	Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18U.S.C. 1350)

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

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

Attached files

EMERGE HEALTH INTERNATIONAL INC Reports

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