For the Year Ended October 31, 2018 and
Eight Months Ended October 31, 2017 (Successor) and Four Months Ended February 28, 2017 (Predecessor)
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Company was incorporated, as Bare Metal
Standard, Inc., (the Company) on November 12, 2015 under the laws of the State of Idaho. Bare Metal Standard provides management
services for franchisees who perform fire prevention and mitigation services to commercial kitchens by cleaning their exhaust systems
on a mandated schedule enforced by insurance and fire and safety prevention codes.
On March 1, 2017, Bare Metal Standard,
Inc. entered into a Management Agreement with Taylor Brothers Holdings, Inc. which is an operating company and has common
majority shareholders and directors. The officers and directors of Bare Metal Standard were officers and directors of Taylor Brothers.
James Bedal and Mike Taylor have resigned their positions with Taylor Brothers and work full time for Bare Metal Standard. The
agreement term has no expiration and can be terminated by the Company at any time with written notice to the other partner. As
a result of the management agreement, Bare Metal is to provide, on behalf of Taylor Brothers, certain management services, having
full authorization, on behalf of Taylor Brothers to provide all the services and all the activities, normally provided by Taylor
Brothers, under the Taylor Brothers franchise agreements, previously entered into by Taylor Brothers and the franchisees Bare Metal
became responsible for servicing franchisee agreements and receiving 100% of the revenues associated with those agreements assumed
for the support and maintenance of the preexisting franchise agreements of Taylor Brothers Holdings franchisees as Taylor
Brothers Holdings has ceased selling franchises. Bare Metal is due all collections from franchisees. Bare Metal Standard assumed
the business operations of the existing franchise agreements while potential liabilities arising from said agreements will remain
with Taylor Brothers. Additionally, on November 1, 2017 Bare Metal, entered into a royalty free license agreement with Taylor Brothers
Holdings Inc. with the right to sublease, the use of the trade name Bare Metal Standard and related industry know-how including
proprietary software in exchange for a monthly fee of $2,000 paid in arrears.
Bare Metal Standard is, currently, seeking
the same management opportunities in other industries. The Company intends to sell franchises in the commercial kitchen fire prevention
and mitigation services environment, but, in addition, is looking for the same opportunities in other disciplines.
Basis of Presentation
The
accompanying
audited financial statements and related footnotes ha
ve been presented on a comparative basis
in
accordance with accounting principles generally accepted in the United States of America (or U.S. GAAP) and with the Securities
and Exchange Commission’s (or SEC) instructions for the Form 10-K.
On March 1, 2017, Bare Metal Standard,
Inc. entered into a Management Agreement with Taylor Brothers Holdings, Inc. which is an operating company and has common
majority shareholders and directors. The officers and directors of Bare Metal Standard were officers and directors of Taylor Brothers.
James Bedal and Mike Taylor have resigned their positions with Taylor Brothers and work full time for Bare Metal Standard. The
agreement term has no expiration and can be terminated by the Company, at any time, with written notice to the other partner. As
a result of the management agreement, Bare Metal is to provide, on behalf of Taylor Brothers, certain management services, having
full authorization, on behalf of Taylor Brothers to provide all the services and all the activities, normally provided by Taylor
Brothers, under the Taylor Brothers franchise agreements, previously entered into by Taylor Brothers and the franchisees Bare Metal
became responsible for servicing franchisee agreements and receiving 100% of the revenues associated with those agreements assumed
for the support and maintenance of the preexisting franchise agreements of Taylor Brothers Holdings franchisees as Taylor
Brothers Holdings has ceased selling franchises. Bare Metal is due all collections from franchisees. Bare Metal Standard assumed
the business operations of the existing franchise agreements while potential liabilities arising from said agreements will remain
with Taylor Brothers. Additionally, on November 1, 2017 Bare Metal, entered into a royalty free license agreement with Taylor Brothers
Holdings Inc. with the right to sublease, the use of Trade Name Bare Metal Standard and related industry know-how including proprietary
software in exchange for a monthly fee of $2,000 paid in arrears. As a result of the above transactions with Taylor Brothers Holdings
Inc., under Regulation S-X for reporting purposes Taylor Brother Holdings, Inc. is considered a business. Thus, Taylor Brothers
Holdings, Inc. is viewed as Predecessor entity for reporting purposes, and Bare Metal is viewed as a Successor entity.
Principles of Consolidation
The Company prepares its consolidated financial
statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which have a fiscal year end of December 31. All intercompany accounts, balances and transactions
have been eliminated in the consolidation. In March 2018, the Company formed BRMT Franchising, LLC, a Texas limited liability company
that is a wholly-owned subsidiary of the Company.
Going Concern
The accompanying financial statements have
been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of
assets and satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit, and reoccurring
net losses. These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern.
While the Company is attempting to increase
sales and generate additional revenues, the Company's cash position may not be significant enough to support the Company's daily
operations. If the Company is unable to obtain additional financing through the issuance of debt or equity, the Company may
be unable to continue as a going concern. While the Company believes in the viability of its strategy to generate additional
revenues and in its ability to raise additional funds, there can be no assurances to that effect. The financial statements
do not include any adjustments relating to the recoverability and classification of assets or the amounts and classifications of
liabilities that may result should the Company be unable to continue as a going concern.
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES
This summary of significant accounting
policies is presented to assist the reader in understanding and evaluating the Company's financial statements. These accounting
policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial
statements.
Use of Estimates
The preparation of the financial statements
in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from
those estimates. The more significant estimates and assumptions made by management include allowance for doubtful accounts,
inventory valuation, and provision for excess or expired inventory, depreciation of property and equipment, realization of long-lived
assets and fair market value of equity instruments issued for goods or services.
Cash and Cash Equivalents
Cash as of October 31, 2018 and October
31, 2017 included cash on-hand.
Accounts Receivable and Allowance
for Doubtful Accounts
The Company's accounts receivable consists,
of amounts
owing by franchisees for monthly royalty commitments and for product sales
to customers, including the cost of freight incurred to ship the product and other services provided by virtue of the management
agreement with Taylor Brothers. Accounts receivable are stated at the amount
management expects to collect from the
outstanding balances. Accounts receivable as of October 31, 2018 consists of $33,705 and $51,538 due from non-related parties and
related parties, respectively. As of October 31, 2018, four customers represented approximately 66.7% (22%, 19.7%, 16% and 10%)
of non – related accounts receivable. On October 31, 2017, those amounts were $31,004 and 16,355.
An allowance for doubtful accounts will
be provided for those accounts receivable considered to be uncollectable based on historical experience, and management's evaluation
at October 31, 2018 and 2017. Bad debts are written off against the allowance when identified. Bare Metal determined that
no allowance was necessary for the years ended October 31, 2018 and 2017.
Concentrations of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company places
its cash with high credit quality financial institutions. At times such amounts may exceed federally insure limits.
Receivables arising from sales of the Company's
products are not collateralized. As of October 31, 2018, total accounts receivable were $85,243 of which $51,538 or approximately
60.5% was owed by a related party. On October 31, 2017, total accounts receivable were $47,359, of which $16,355 or approximately
35% was owed by the same related party. As of October 31, 2018, one non - related customer represented approximately
16%, of the total accounts receivable.
As of October 31, 2017, four customers
represented approximately 91% (40%, 25%, 16%, and 11%) of non-related accounts receivable.
Fair Value of Financial Instruments
The Company's financial instruments consist
of cash and cash equivalents, accounts payable and accrued expenses and shareholder loans. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates
unless otherwise disclosed in these financial statements.
Accounting for Derivative Liabilities
The Company evaluates stock options, stock
warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to
be separately accounted for under the relevant sections of ASC Topic 815-40,
Derivative Instruments and Hedging: Contracts
in Entity's Own Equity.
The result of this accounting treatment could be that the fair value of a financial instrument
is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability.
In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations
as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair
value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially
classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at
the fair value of the instrument on the reclassification date. The Company determined that it has no financial instruments
that meet the criteria for derivative accounting as of October 31, 2018 nor as of October 31, 2017.
Beneficial Conversion Features
The Company, may, from time to time issue
convertible notes that may have conversion prices that create an embedded liability pursuant to accounting guidance. A beneficial
conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which
the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation
of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were
granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as
a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense
over the life of the note using the effective interest method. The Company determined that it has no financial instruments that
meet the criteria for beneficial conversion as of October 31, 2018 nor as of October 31, 2017.
Share-Based Compensation
The Company accounts for stock-based compensation
to employees and non-employees in accordance with FASB ASC 718 Compensation—Stock Compensation. Stock-based compensation
to employees is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite
employee service period. Equity instruments issued to other than employees are valued at the earlier of a commitment
date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the
service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model
for common stock options and warrants and the latest fair market price of the Company's common stock for common share issuances.
Inventories and Provision for Excess
or Expired Inventory
Inventory consists of finished goods and
consumables held for resale to franchisees, and is valued on an average cost basis. Provisions for excess inventory are included
in cost of goods sold and have historically been immaterial but adequate to provide for losses. Inventory is reviewed, at
least, quarterly. The Company has determined that there was no need to reserve for obsolescence as of October 31, 2018 and October
31, 2017.
Property and Equipment
The Company does not possess any property
or equipment.
Long-lived Assets
The Company does not possess any long-lived
assets.
Revenue Recognition
The Company's revenue is derived from the
sale of products, services and training to support the franchisees under its Management agreement with Taylor Brothers, as a percentage
of franchisees’ revenue invoiced to their clients, plus specific charges for software usage, sale of consumables and consulting
services. The Company recognizes revenue when it is realized or realizable and earned, and therefore only recognizes revenue
when a franchise agreement has been entered into and the franchise fee received. The Company recognizes revenue from the sale of
products, royalties, and services when the product has been shipped or the services have been provided in accordance with the contract
entered into with the customer. Payments received in advance of satisfaction of the relevant criteria for revenue recognition are
recorded as advances from customers. The Company has no responsibility for collections, of trade debt, owed to a franchisee by
the franchisees’ clients and therefore will not create an allowance for potential uncollectable obligations owing to it by
the franchisee, unless it is determined that the franchisee will default on its obligation the Company. In accordance with the
guidance in FASB Topic ASC 605,
Revenue Recognition
, the Company recognizes revenue when (a) persuasive evidence
of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the fee is fixed or determinable, and (d)
collectability is reasonable assured.
Cost of Goods Sold
The Company derives its revenue, primarily,
from services and consulting. Therefore there are no direct costs, other than labor, associated with those activities. The cost
of consumables, which are provided to promote consistency amongst franchisees consists of expendable materials and equipment, designed
to provide consistency within operations. Costs are recognized when the related revenue is recorded. Shipping and handling
costs for all sales transactions are billed to the franchisee and are included in cost of goods sold for all periods presented.
General and Administrative Expenses
General and administrative expenses which
includes advertising, promotional and selling expenses, consists of rent and utility expenses, meals, travel and entertainment
expenses, and other general and administrative overhead costs. Expenses are recognized when incurred.
Administrative and Officer Compensation
Administrative and officer compensation
includes our officers, who are directly involved in management and our employees who provide daily supervision and management of
operations. Expenses are recognized as incurred. Where necessary, unpaid compensation was accrued to coincide with reporting periods.
Income Taxes
Successor
The Company uses the liability method of
accounting for income taxes under the asset and liability method prescribed under
ASC 740, Income Taxes.
The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to
the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The
resulting deferred tax assets or liabilities have been adjusted to reflect changes in tax laws as they occur. A valuation
allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
The Company expects to recognize the financial
statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position
in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount to be recognized in
the financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions
not meeting the threshold, no financial statement benefit is recognized. As of October 31, 2018 and October 31, 2017, the
Company had no uncertain tax positions. The Company recognizes interest and penalties, if any, related to uncertain tax positions
as general and administrative expenses. The Company currently has no federal tax examinations nor has it had any federal
income tax penalties since its inception.
The New Tax Act, signed into law on December
22, 2017 made significant changes to the Internal Revenue Code. These changes include of corporate tax rate decrease from 35% to
21% effective for tax years beginning after December 31, 2017. Additionally, the NOL carryforward period for new NOLs will change
from 20 succeeding taxable years to an indefinite period. With the elimination of the alternative minimum tax, NOLs for taxable
years beginning after December 31, 2017, can offset 80% of Federal taxable income. Since the Company is using the asset and liability
method of accounting for income taxes and because deferred tax assets and liabilities are measured using enacted tax rates applied
to taxable income in the years in which temporary differences are expected to reverse, the Company is revaluing the net deferred
assets, fully offset by a valuation allowance, after December 31, 2017.
Predecessor
The Predecessor is a corporation; reports
its own profits and losses, and has not had taxable income during the current reporting period. Accordingly, no provision for income
taxes has been reflected in these financial statements.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated
by dividing net income (loss) by the weighted-average common shares outstanding. Diluted net income per share is calculated
by dividing net income by the weighted-average common shares outstanding during the period using the treasury stock method.
As the Company incurred net losses for the years ended October 31, 2018 and 2017, no potentially dilutive securities were included
in the calculation of diluted earnings per share as the impact would have been anti-dilutive. Therefore, basic and dilutive
net income (loss) per share were the same.
New Accounting Pronouncements
The Financial Accounting Standards Board,
or FASB, has issued Accounting Standards Update No. 2014-09,
Revenue from contracts with Customers (Topic 606),
or
ASU 606. ASU 606 provides guidance outlining a single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers in an amount that supersedes most current revenue recognition guidance. This guidance requires us
to recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. We are required to adopt ASU 606 at the beginning of
our first quarter of fiscal 2019. The new guidance requires enhanced disclosures, including revenue recognition policies to identify
performance obligations to customers and significant judgments in measurement and recognition. The new guidance may be applied
retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of the adoption.
The Company adopted this guidance on November 1, 2018. The primary impact expected on the Company’s financial statements
at adoption is that future franchise license fees received will initial be deferred and revenue recognized ratably over the expected
license period. The Company expects to utilize the cumulative effect approach of adopting ASC 606, but does not expect a material
impact to the Company’s financial statements due to the Company currently earning revenues from the products, services and
training to support the franchisees under its Management agreement with Taylor Brothers, as a percentage of franchisees’
revenue invoiced to their clients, plus specific charges for software usage, sale of consumables and consulting services. These
revenue streams are not expected to have a material change in accounting method from adopting ASC 606.
In February 2016, the FASB issued ASU No.
2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity will be required to recognize right-of-use assets and
lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific
accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative
and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing
and uncertainty of cash flows arising from leases. For public companies, ASU No. 2016-02 is effective for annual reporting periods
beginning after December 15, 2018, including interim reporting periods within that reporting period, and requires a modified retrospective
adoption, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on
the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
“Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments
in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting
for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows.
The Company adopted the new guidance on November 1, 2017, with no material impact to the Company’s financial statements.
In January 2017, the FASB issued ASU No.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition
of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen
requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single
identifiable asset or a group of similar identifiable assets, the set is not a business. The Company adopted this standard on November
1, 2018 and there was no material impact to the Company’s financial statements.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the
accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance
will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the
exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to
be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used
in lieu of an expected term in the option-pricing model for nonemployee awards. This standard will be effective for the Company
on November 1, 2019, and the Company is currently evaluating the potential impact on its financial statements.
NOTE 3 –
MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
Bare Metal had four unrelated customer and one related party
customer, whose revenue, during the year ended October 31, 2018 represented in excess of 10% of the total revenue for related
party and total revenue non-related parties and four unrelated customers that represented in excess of 10% of total accounts receivable.
Bare Metal had two unrelated customers and one related party customer, whose revenue, during the year ended October 31, 2017 represented
in excess of 10% of the total revenue and two unrelated customers that represented in excess of 10% of total accounts receivable.
Concentration
of revenue and related party revenue-
During the year
ended October 31, 2018, the Company invoiced royalties and sold products and services, including freight totaling $368,293 or 41.5%,
of total sales to one related company, Taylor Brothers, Inc., and $460,068 of non-related party revenue or (16%,16%,13% and 43%),
respectively, to four non-related parties.. During the year ended October 31, 2017 Bare Metal invoiced royalties and sold product
and services, including freight, totaling $201,429 or 39.7% of its total revenue, to one related company, Taylor Brothers Inc.
and $207,456 of non-related party revenue or (21%,10%,9.6%), respectively, to three non-related parties.
Concentration
of accounts receivable and related party accounts receivable-
Receivables arising
from sales of the Company's products are not collateralized. As of October 31, 2018, total accounts receivable were $85,243 of
which $51,538 or 60.1% was owed by Taylor Brothers, Inc., a related party. As of October 31, 2018, four unrelated customers represented
approximately 93% (41%, 20%, 22%, and 10%) of non-related accounts receivable As of October 31, 2017, total accounts receivable
were $47,359 of which $16,355 or 35% was owed by a related party. As of October 31, 2018, one unrelated customer accounted for
approximately 16% of total accounts receivable. As of October 31, 2017, four unrelated customers represented approximately 91%
(40%, 25%, 16%, and 11%) of non-related accounts receivable.
NOTE 4 – INVENTORY
Inventories consist of finished goods
consumables that are provided to franchisees as a vehicle to maintain consistency of operations. The items are recorded
at cost and sold to the franchisees with a nominal mark-up. Provisions for excess inventory are included in cost of goods
sold and have historically been immaterial. Inventories are stated at the lower of cost, determined by average cost, or
net realizable value.
NOTE 5 – NOTES PAYABLE
On June 13, 2018, the Company borrowed
$100,000 from a non-related investor. The note is repayable, in equal monthly instalments, over 120 months with payments of $1,438
at an interest cost of 12%. The note is not convertible, but, is collateralized by 200,000 units of the Company’s common
stock, which have been issued. Each common stock unit includes one common share and the right, to purchase, for up to two years,
at a cost of $2, one common share. $50,000 of debt discount was recognized in connection with the note related to the warrants
and is being amortized in equal annual instalments over the life of the note. The $50,000 fair value of the warrants was determined
based on the relative fair value of the warrants and debt, assuming a maximum value based on the most recent sale price of common
stock for cash of $0.50 per share, due to the lack of active trading market for the Company’s common stock. On October 31,
2018 the note had been reduced by $1,765 and the cost of the discount had been reduced by $1,923 by a charge to the income statement.
On November 14, 2017, the Company opened a line of credit with
a bank in the amount of $40,000 bearing interest at the bank prime rate plus 8.5%. During the year ended October 31, 2,018, the
Company drew $36,000 against the line of credit and repaid $3,480. $32,520 remained outstanding on October 31, 2018.
NOTE
6 – RELATED PARTY DEBT AND TRANSACTIONS
On July 10, 2018, a related party paid
$5,000, directly, to a provider of professional services. The Company issued, to the lender, an unsecured promissory note bears
interest at 7% interest, is repayable by 36 equal monthly payments of $154.39 principal and interest. As of October 31, 2018, the
balance was reduced by $505.
The Company has revenue transactions with
related parties, and accounts receivable balances from those related parties. See Note 2 and 3. Additionally, the Company has no
written employee agreement with its officers or directors. From time to time, the Company may award bonuses to those officers or
directors for performance. During the year ended October 31, 2018, the Company paid $11,625 to one officer.
We
have entered into an agreement with Taylor Brothers Inc. (a Company with common officers and directors) to use their offices. The
rent will be $5,000 per month, when Bare Metal Standard completes required funding to support ongoing operations.
As
of October 31, 2018, the Company owes $19,000 to Taylor Brothers Holdings for fees due under the intellectual property license
agreement between the companies.
The
related party payable, in the amount of $1,924, Taylor Brothers Holdings, (Predecessor) resulted from the acquisition of supplies
and products from two related companies. A total of $1,760 owing to Taylor Brothers Distributing, Inc. was repaid in two installments
on November 11 and November 16, 2016. The remaining total, of $164, was repaid to a Taylor Brothers, Inc. a franchisee on November
14, 2016.
NOTE 7 – STOCKHOLDER'S EQUITY
Preferred Stock
The Company is authorized to issue 20,000,000
shares of preferred stock, par value of $0.001. There are none issued
.
Common Stock
The Company is authorized to issue 80,000,000
shares of common stock, $0.001 par value. During the year ended October 31, 2018, the Company, other than reported in the following
paragraph did not issue any common shares. During the eight months ended October 31, 2017, the Company sold, for cash, 60,000 of
its common shares, at a cost of $0.50 per share for total proceeds of $30,000, and issued 70,000 common shares for services with
a value $35,000 and accounted for as stock based compensation.
On July 13, 2018, the Company issued 200,000
common share units, which included 200,000 common shares and 200,000 warrants to be exercised within two years, as collateral for
a $100,000 loan. Upon repayment of the loan in full, the 200,000 common shares will be returned to the Company. See note 5.
NOTE 8 – COMMON STOCK WARRANTS
Between March
1, 2017 and October 31, 2018 the Company did not sell any common stock units. Each unit outstanding as of October 31, 2018 consists
of one share of our common stock, and one warrant to purchase one share of common stock within 24 months of issuance, for
$2.00. The warrants vested upon grant date and will expire between February 8, 2018 and June 13, 2020. 475, 000 expired during
the year ended October 31, 2018. On July 13, 2018, the Company issued 200,000 common share units, which included common shares
and warrants to be exercised within two years, as collateral for a $100,000 loan.
A summary of our stock warrant activity
for the period from November 1, 2017 through October 31, 2018 is as follows:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period - October 31, 2017
|
|
|
515,000
|
|
|
|
2.00
|
|
|
|
0.73
|
|
Expired during the year ended October 31, 2018
|
|
|
(475,000
|
)
|
|
|
2.00
|
|
|
|
-
|
|
Issued during the year ended October 31, 2018
|
|
|
200,000
|
|
|
|
2.00
|
|
|
|
2.00
|
|
Outstanding at end of period - October 31, 2018
|
|
|
240,000
|
|
|
|
2.00
|
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period - October 31, 2018
|
|
|
240,000
|
|
|
|
2.00
|
|
|
|
1.37
|
|
A summary of our stock warrant activity for the period
from March 1, 2017 through October 31, 2017 is as follows
:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period - March 1, 2017
|
|
|
515,000
|
|
|
|
2.00
|
|
|
|
1.40
|
|
Outstanding at end of period - October 31, 2017
|
|
|
515,000
|
|
|
|
2.00
|
|
|
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period - October 31, 2017
|
|
|
515,000
|
|
|
|
2.00
|
|
|
|
0.73
|
|
The warrants
outstanding and exercisable as of October 31, 2018 and 2017 had no intrinsic value.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Management agreement
On March 1, 2017, the Company entered into
a management agreement with Taylor Brothers Holdings, Inc.
(a Company with common officers
and directors)
to provide all of the services and to conduct all of the activities that were agreed to be undertaken by
Taylor Brothers under the Franchise Agreements for providing certain administrative support, including Franchisee training, development
of operations manuals and other materials for use by Taylor Brothers’ franchisees; and develop and establish support infrastructures
that the Company determines are necessary and appropriate to satisfy Taylor Brothers obligations under the Franchise Agreements.
In consideration of the services provided Bare Metal shall be responsible to invoice and collect, per the terms of the Franchise
Agreements, under management. All fees so collected will constitute the fees owing under the management agreement. The Agreement
does not have a termination date but may be cancelled by either party with appropriate notice.
NOTE 10 – INCOME TAXES
The Company’s
net operating loss carryover of $408,531 as of October 31, 2018, will expire in 2038. Due to the change in ownership provisions
of the Tax Reform Act of 1986, net operating loss carry forward for Federal income tax reporting purposes are subject to annual
limitations. If a change in ownership occurs, net operating loss carry forward may be limited as to its use in future years. The
Company’s tax returns for the years ended October 31, 2016 through October 31, 2018 are open for IRS audit.
On December 22, 2017, the Tax Act was
signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate
tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017. We use the asset and liability method
of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income
tax rate from 35% to 21% under the Tax Act, we revalued our ending net deferred tax assets at October 31, 2018, which were fully
offset by a valuation allowance.
Future tax benefits for these net operating
loss carry-forwards are recognized to the extent that realization of these benefits is considered more likely than not. To
the extent that we will not realize a future tax benefit, a valuation allowance is established. The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
The cumulative tax effect at the expected rate of 21% as of
October 31, 2018 and 2017 of significant items comprising our net deferred tax amount is as follows:
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net operating loss carry forward
|
|
$
|
85,792
|
|
|
$
|
52,932
|
|
Less: valuation allowance
|
|
|
(85,792
|
)
|
|
|
(52,932
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
|
-
|
|
Predecessor
Taylor Brothers
Holdings, Inc., (Predecessor) is a corporation and is responsible for income tax purposes to report its own operations. Accordingly,
no provision for income taxes has been reflected in these financial statements. Previous to its 2016 tax year the Predecessor
was an S corporation for tax purposes and, therefore, did not require a valuation allowance. The Predecessor has no unrecognized
tax benefits.
NOTE 11 – SUBSEQUENT EVENTS
On December 24, 2018, our chief executive
officer loaned the Company $21,000. The loan has a maturity date of December 20, 2020, and bears interest at 7%, with monthly payments
of $940. The Company has made payments of $4,117 against this note payable to date.