The accompanying notes are an integral part of these consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019 AND 2018
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Corporate History
Metwood, Inc. ("The Company", “we”, “us”) 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. 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.
The Company provided construction-related products and engineering services to residential customers and contractors, commercial contractors, developers and retail enterprises, primarily in southwestern Virginia.
On June 28, 2019, Metwood, Inc. entered into an Definitive Agreement with Emerge Nutraceuticals, Inc.(ENI), a Florida Corporation. Pursuant to the agreement, 100% of ENI’s common stock (500 shares) was to be transferred and a wire transfer within 60 days of $300,000 was to be paid to Metwood, Inc. In consideration, fifteen million (15,000,000) shares of Metwood common stock was issued which were valued at one million two hundred fifty thousand $1,250,000) dollars. This purchase excluded the formulas for the products produced by ENI, which were spun out of ENI prior to the acquisition. Upon closing, two the Company’s manager’s, officers and board of director members, Robert M. Callahan and Shawn A. Callahan, resigned after appointing Mr. Keith Thomas, Shawn Phillips and Raffaela Thomas to the Board of Directors.
Emerge Nutraceuticals, Inc. (ENI) was organized under the law of the State of Flrorida on July 31, 2018. Emerge is a full-service custom GMP contract manufacturer. The Company currently offers a variety of services that include custom manufacturing of nutritional and dietary supplements as follows:
|
·
|
Capsule Manufacturing
|
|
·
|
Softgel Manufacturing
|
|
·
|
Powder Manufacturing
|
|
·
|
Liquid Manufacturing
|
|
·
|
Liquid & Cream Manufacturing
|
|
·
|
Flavor System development
|
|
·
|
Vitamin Manufacturing
|
|
·
|
Body Building Supplement Manufacturing
|
|
·
|
Sports Nutrition Manufacturing
|
|
·
|
Protein Manufacturing
|
Sale of Wholly Owned Subsidiary
On June 29, 2019, the Company, entered into a stock purchase agreement with Cahas Mountain Properties, LLC, a Virginia limited liability company, (“Cahas”) a majority shareholder of the Company. Pursuant to the agreement, Cahas agreed to purchase from the Company the wholly owned subsidiary, Metwood of Virginia, Inc., a Virginia corporation, for nine million four hundred thousand (9,400,000) common shares of the Company’s common stock which it held at a value of seven hundred fifty-two thousand ($752,000) dollars. As part of this agreement, Cahas purchased all assets and liabilities of Metwood of Virginia except, the convertible note payable to Cahas of $50,000 which remained an obligation of the Company.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its fully owned subsidiary, Emerge Nutraceuticals as of June 30, 2019 and June 30, 2018, (with the accounts of Metwood, Inc. “MTWDVA”), a former subsidiary dissolved June 29, 2019). All significant intercompany transactions have been eliminated in consolidation.
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. Actual results could differ
from those estimates.
Fair Value of Financial Instruments .For certain ones 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.
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 cash in bank deposit accounts, which, at times, may exceed the federally insured limit of $250,000. The Company has not experienced any losses in such accounts and believe we are not exposed to any significant credit risk on cash and cash equivalents.
Accounts Receivable.The Company grants credit in the form of unsecured accounts receivable to its customers based on an evaluation of their financial condition. We perform ongoing credit evaluations of 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, 2019 and 2018 the allowance for doubtful accounts was $0 and $8,362 respectively, 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, 2019 and 2018, the bad debt expense was $0 and $ 0, respectively.
Inventory. The Company is not recording any inventory in this filing due to the discontinued operations of Metwood, Inc. a Virginia Corporation Future inventory will be
Property and Equipment. Property and equipment are stated at cost less accumulated depreciation and are depreciated over their estimated useful lives using the straight-line method. Recovery periods range from three to thirty-nine years. Upon retirement or sale, the cost and related accumulated depreciation are removed from the consolidatedbalance sheet, and the resulting gain or loss is reflected in other income and expense. Maintenance and repairs are charged to operations as incurred.
|
|
Useful Life
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
|
3
|
|
|
|
9,750
|
|
|
|
0
|
|
Total property and equipment
|
|
|
|
|
|
|
9,750
|
|
|
|
0
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
Total property and equipment
|
|
|
|
|
|
$
|
9,750
|
|
|
$
|
0
|
|
Impairment of Long-lived Assets. The Company evaluates its 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 fair value of the asset. Should an impairment exist, the impairment would be measured by the amount by which the carrying amount of the asset exceeds the projected discounted future cash flows arising from the asset. Based on the terms and conditions of the Definitive Agreement and the sale of the Wholly owned Subsidiary, impairments of long-lived assets were recorded in the financials through June 30, 2019 and 2018.
Revenue Recognition. It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 606 “Revenue from Contracts with Customers”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the new revenue recognition model to contracts with customers, an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determines the transaction price; (4) allocates the transaction price to the performance obligations in the contract(s); and (5) recognizes revenue when (or as) the entity satisfies a performance obligation. The accounting standards update applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification.
The Company incurs costs associated with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities and recognizes these costs at the same time that it recognizes the underlying product revenue. As this policy election is in line with the Company’s previous accounting practices, the treatment of shipping and handling activities under Topic 606 did not have any impact on the Company’s results of operations, financial condition and/or financial statement disclosures. In accordance with the new guidance, the Company recognizes revenue at an amount that reflects the consideration that the Company expects to be entitled to receive in exchange for transferring goods or services to its customers. The Company’s policy is to record revenue when control of the goods transfers to the customer.
Income Taxes. Income taxes are accounted for in accordance with FASB ASC 740, Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and for net operating loss carryforwards, where applicable. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.
Research and Development. The Company performs research and development on our nutraceutical products, new product lines, and new formulations of existing products. Costs, if any, are expensed as they are incurred. For the year ended June 30, 2019, expenses were $2,235,593 and for the year ended June 30, 2018, expenses were $0.
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.
During the future fiscal years, the company may be required to issued up to five million shares of common stock to satisfy a convertible note entered into in August 2017. This note expires on June 30, 2022 and 10,000,000 shares of common stock can be issued in any year.
Share-Based Payments. FASB ASC 718, Stock Compensation, requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized.
Going Concern. The financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2019, the Company has yet to achieve profitable operations and is dependent on its ability to raise capital from stockholders or other sources to sustain operations and to ultimately achieve viable operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue in existence is dependent on the Company’s ability to develop the Company’s businesses and to achieve profitable operations. Since the Company does not anticipate achieving profitable operations and/or adequate cash flows in the near term, management will continue to pursue additional equity financing through private placements of the Company’s common stock.
Recent Accounting Pronouncements –
In February 2017 the FASB issued ASU 20 16-0 2, “Leases (Topic 842)” requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The adoption of this standard is not expected have a material impact on the Company’s consolidated financial statements.
Accounting Standard Update No. 2014-09, (“ASU 2014-09’) Revenue from Customers (Topic 606), became effective for us in the period ending June 30, 2019. No significant adjustment was required as a result of adopting the new revenue standard. The comparative information has not been restated and continues to be reported under the historic accounting standards in effect for those periods. The impact of the adoption of the new revenue standard will be immaterial to the Company’s net income on an ongoing basis.
NOTE 3 - RELATED-PARTY TRANSACTIONS
The Company had executed a demand note with its previous controlling shareholder, Cahas Mountain, LLC, that Cahas Mountain will make available cash advances from time to time to bridge cash flow shortfalls. These advances are repaid to Cahas Mountain as cash flow allows. Advances totaled $0 and $77,400 at June 30, 2019 and 2018, respectively. The unpaid balance due to Cahas Mountain at the end of each month is subject to an interest rate of 6% per year. As part of the sale of Metwood, Inc. (Virginia) the note was transferred along with all accrued interest. The Company recognized interest expense of approximately $5,000 and $5,000 for the years ended June 30, 2019 and 2018, respectively. Sales to Cahas Mountain, LLC was approximately $ 8,800 and $12,000 . As of June 30, 2018 and 2017, the related accounts receivable totaled approximately $0 and $8,800, respectively.
On August 18, 2016, the Company entered into a convertible note with Cahas Mountain in the amount of $50,000 with an interest rate of 8% per year, this note expires on June 30, 2020. This note has been amended and the expiration date has been extended to June 30, 2022. The note is convertible into common shares of Metwood, Inc. at par value of $.0001 and if converted in its entirety will dilute the current shareholders by a maximum of 50,000,000 shares of common stock. The maximum conversion in any year is 10,000,000 shares of common stock. A debt discount of $50,000 was recorded at issuance and $17,647 was amortized and included in interest expense during the year ended June 30, 2019. During the year ended June 30, 2019, $17,647 was included in the interest expense. Interest Expense totaled $21,647 and $21,647 for years ended June 30, 2019 and 2018, respectively.
On June 29, 2019, the company entered into a note payable to Metwood, Inc. (Virginia). In the amount of $300,000 and the note is to expire on December 29, 2021. The note has a compounding monthly interest rate of .875%. See Note 1 regarding sale of subsidiary.
On June 29, 2019, Emerge entered into a note payable to Paul Thomas in the amount of $65,000 and the note is to expire on June 29, 2024. The note is interest free for the first 36 months and 5% APR thereafter.
NOTE 4 – COMMITMENT AND CONTINGENCIES
The Emerge incurred no lease expense for the fiscal year ended June 30, 2019. Future lease commitments are as follows:
Lease Commitment Years Ending
|
|
|
|
2020
|
|
$
|
16,800
|
|
2021
|
|
$
|
14,000
|
|
NOTE 5 - EQUITY
As of the year ended June 30, 2019, there are 100,000,000 shares of common stock authorized and 23,366,647 shares issued and outstanding. The authorized preferred stock is 40,000,000 shares and there are -0- shares of preferred stock issued and outstanding.
The company issued 15,000,000 shares in acquisition of assets. See Note 1 regarding purchase of assets.
NOTE 6 - INCOME TAXES
The Company determined that the future use of a Deferred Tax Asset was no longer appropriate and therefore the Deferred Tax Asset previously shown on the Balance Sheet has been expensed during this year as a line item on the Statement of Operations. The decision was made that the earnings in the near term would not be sufficient to allow the utilization of the deferred tax asset.
The difference between the expected income tax expense (benefit) and the actual tax expense (benefit) computed by using the
Federal statutory rate of 21% is as follows:
|
|
|
|
|
Tax
|
|
|
|
|
|
Tax
|
|
|
|
2018
|
|
|
Rate
|
|
|
2018
|
|
|
Rate
|
|
Expected income tax benefit at statutory rate of 39%
|
|
$
|
566,000
|
|
|
|
21
|
%
|
|
$
|
101,009
|
|
|
|
21
|
%
|
Permanent differences
|
|
|
(132,000
|
)
|
|
|
5
|
%
|
|
|
(67,000
|
)
|
|
|
(14
|
)%
|
Change in estimate
|
|
|
(11,000
|
)
|
|
|
0
|
%
|
|
|
0
|
|
|
|
0
|
%
|
Change in valuation allowance
|
|
|
(432,000
|
|
|
|
16
|
%
|
|
|
(34,000
|
)
|
|
|
(7
|
)%
|
Income tax expense (benefit)
|
|
$
|
0
|
|
|
$
|
-0-
|
|
|
|
|
|
|
$
|
-0-
|
|
Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset, are as follows:
Deferred tax assets:
|
|
2019
|
|
|
2018
|
|
Tax benefit of net operating loss carry-forward
|
|
$
|
569,000
|
|
|
$
|
265,000
|
|
Book and tax difference
|
|
|
0
|
|
|
|
49,000
|
|
Less: valuation allowance
|
|
|
(569,000
|
)
|
|
|
(314,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
The Company had a federal net operating tax loss carry-forward of approximately $1,260,000 as of June 30, 2018. The loss carry-forwards are available to offset future taxable income with the federal carry-forwards beginning to expire in 2020.
NOTE 7: LEGAL PROCEEDINGS
There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our companies or our subsidiaries' officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
NOTE 8.- RECONCILIATION OF ASSETS AND LIABILITIES HELD FOR SALE
In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the component of an entity meets the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations.
The Company disposed of a component of its business pursuant to the terms of the Definitive Agreement entered on June 28, 2019 resulting in the Company no longer controlling the subsidiary, which met the definition of a discontinued operation. Accordingly, the operating results of the business disposed are reported as income (loss) from discontinued operations in the accompanying condensed consolidated statements of operations for the three and twelve months ended June 30, 2019, and 2018, and its assets and liabilities are categorized as held for disposal on the condensed consolidated balance sheet as of March 30, 2019. The following summarize assets and liabilities held for disposal on the accompanying condensed consolidated balance sheets and statements of operations:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Carrying amounts of current assets held or disposal:
|
|
|
|
|
|
|
Cash
|
|
$
|
|
|
|
$
|
61,872
|
|
Accounts Receivable
|
|
$
|
|
|
|
$
|
225,414
|
|
Inventory
|
|
$
|
|
|
|
$
|
439,649
|
|
Prepaid Expenses
|
|
$
|
|
|
|
$
|
18,436
|
|
|
|
|
|
|
|
|
|
|
Total current assets held for disposal
|
|
$
|
|
|
|
$
|
745,371
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Carrying non-current assets held or disposal:
|
|
|
|
|
|
|
Property and Equipment, Net
|
|
$
|
|
|
|
$
|
421,451
|
|
Total non-current assets held for disposal
|
|
$
|
|
|
|
$
|
421,451
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Carrying amounts of current liabiities held or disposal:
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
$
|
|
|
|
$
|
258,327
|
|
Advances from Affiliate
|
|
$
|
|
|
|
$
|
77,460
|
|
Total current liabilities held for disposal
|
|
$
|
|
|
|
$
|
335,787
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Carrying non-current liabilities held or disposal:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
Right-of-Use Obligation
|
|
|
|
|
|
|
|
|
Total non-current liabilities held for disposal
|
|
$
|
|
|
|
$
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Twelve Months Ended June 30,
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
(2,325,843
|
)
|
|
$
|
(1,942,392
|
)
|
Total Expense
|
|
$
|
3,788,633
|
|
|
$
|
2,424,525
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) from discontinued operations
|
|
$
|
1,462,790
|
|
|
$
|
482,133
|
|
NOTE 9- SUBSEQUENT EVENTS
On June 18, 2019 the convertible note for $50,000 was amended to extend the due date to June 30, 2020. On June 20, 2020 the $50,000 note was extended to June 30, 2022. All other terms remained the same.
On June 29, 2019, the Company entered into a note payable to Metwood, Inc. (Virginia) in the amount of $300,000 and the note was amended to extend December 29, 2021. The note has a compounding monthly interest rate of .875%.
On June 29, 2019, Emerge entered into a note payable to Paul Thomas in the amount of $65,000 and the note is to expire on June 29, 2024. The note is interest free for the first 36 months and 5% APR thereafter.
On June 1, 2021 Emerge entered into a 36 Month Lease Agreement with MEGA LLC for office space at a monthly lease rate of $2,000.
NOTE 10 – ACQUISITION OF EMERGE
Metwood was presented the opportunity to acquire Emerge Nutraceuticals and reviewed the opportunity and was able to work out the Definitive Agreement. For additional information regarding the Acquisition see Definitive Agreement in a previous filing.