Bare
Metal Standard, Inc.
Consolidated Statements of Changes in Stockholders'
Equity
For the Year Ended October 31, 2018 and
Eight Months Ended October 31, 2017 (Successor) and Four Months Ended February 28, 2017 (Predecessor)
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Preferred
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Common
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Additional Paid
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Accumulated
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Stockholders'
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Shares
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Par
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Shares
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Par
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In
Capital
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Deficit
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Deficit
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Balances as of October 31, 2016
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-
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$
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-
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1,200
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$
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1,200
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$
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-
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$
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(86,940
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)
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$
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(85,740
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)
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Net loss for the four months ended February
28, 2017
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-
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-
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-
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-
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-
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(66,941
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)
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(66,941
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)
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Balances as of October 31, 2017
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-
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$
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-
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1,200
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$
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1,200
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$
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-
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$
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(153,881
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)
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$
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(152,681
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)
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SUCCESSOR
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Balances at March 1, 2017
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-
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$
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-
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31,515,000
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$
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31,515
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$
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257,035
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$
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(234,239
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)
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$
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54,311
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Common stock issued for cash
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-
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-
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60,000
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60
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29,940
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-
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30,000
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Common shares issued for services
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-
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-
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70,000
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70
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34,930
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-
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35,000
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Net loss for the eight months ended October
31, 2017
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-
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-
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-
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-
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-
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(79,822
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)
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(79,822
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)
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Balances as of October 31, 2017
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-
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-
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31,645,000
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31,645
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321,905
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(314,061
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)
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39,489
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Common shares issued as collateral for note
payable
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-
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-
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200,000
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200
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(200
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)
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-
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-
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Warrants
issued in connection with debt discount on
note
payable
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-
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-
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-
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-
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50,000
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-
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50,000
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Net loss for the year
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-
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-
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-
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-
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-
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(125,471
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(125,471
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Balances as of October 31, 2018
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-
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$
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-
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$
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31,845,000
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$
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31,845
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$
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371,705
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$
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(439,532
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)
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$
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(35,982
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)
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BARE METAL STANDARD, INC.
Notes to Financial Statements
As of October 31, 2017 Bare Metal Standard,
Inc. (Successor) and October 31, 2016 (Predecessor) and for the eight months ended October 31, 2017, Bare Metal Standard, Inc.
(Successor) and four months ended February 28, 2017 (Predecessor) and the year ended October 31, 2016 (Predecessor)
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 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.
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 discipline
Basis of Presentation
The accompanying
audited financial statements and related footnotes have 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.
For
periods after the commencement of the Management Agreement (March 1, 2017), the Company is referred to as the Successor and its
results of operations includes, only, the results of operations from Bare Metal Standard for the eight months subsequent to March
1, 2017. For periods previous to the inception of the Management Agreement, the
Company is referred to as the Predecessor and its results of operations includes only Taylor Brothers Holdings Inc. operations.
A black line separates the Predecessor and Successor financial statements to highlight the lack of comparability between these
periods.
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 had an accumulated deficit of $314,061,
(Successor) as of October 31, 2017 and $86,940 as of as of October 31, 2016 (Predecessor), respectively, and had net losses of
$79,822 for the eight months ended October 31, 2017 (Successor); $66,941 for the four months ended February 28, 2017 (Predecessor);
and net income of $2,149 (Predecessor) for the year ended October 31, 2016. 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, 2017 (Successor)
and October 31, 2016 (Predecessor) 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, 2017, (Successor) consists of $31,004 due from non-related parties
and $16,355 due from Taylor Brothers, Inc. a related party. Receivables at October 31, 2016 (Predecessor) consists of $38,526 due
from non-related parties and $15,274 from Taylor Brothers, Inc. a related party.
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 the end of the period. Bad debts are written off against the allowance when identified. Bare Metal (Successor) determined
that no allowance was necessary for the eight months ended October 31, 2017 (Successor), nor the four months ended February 28,
2017, Taylor Brothers Holdings (Predecessor) nor the year ended October 31, 2016 by Taylor Brothers Holdings (Predecessor)
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, 2017 (Successor), total accounts receivable were $47,359 of which $16,355 was
owed by a related party. As of October 31, 2017 (Successor), four customers represented
approximately 91%(40%, 25%, 16%, 11%) of non-related accounts receivable. As of October 31, 2016 (Predecessor),
total accounts receivable were $53,800 of which $15,274 was owed by a related party. As of October 31, 2016 (Predecessor), four
customers represented approximately 96%% (40%, 30%, 16%, and 10%) of non-related accounts receivable. (See note 3)
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, 2017 (Successor) nor as of October 31, 2016 (Predecessor).
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, 2017 (Successor) nor as of October 31, 2016 (Predecessor).
Share-Based Compensation
The Company accounts for stock-based compensation
to 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. The Company accounts for stock-based compensation to other than employees in accordance with FASB ASC 505-50.
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. It is reviewed, at least,
quarterly and the Company has determined that there was no need to reserve for obsolescence as of October 31, 2017 (Successor)
and October 31, 2016 (Predecessor).
Property and Equipment
The Company (Successor) does not possess
any property or equipment. Property and equipment owned by Taylor Brothers (Predecessor) consists primarily of vehicles,
leasehold improvements and computer equipment and is stated at cost. Depreciation is computed using straight line accounting
amortized over the useful life of the underlying asset. Expenditures for repairs and maintenance are expensed as incurred
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, 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.
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. The Predecessor has no unrecognized tax benefits as of
October 31, 2016.
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 a net loss the eight months ended (Successor) and four months ended October 31, 2017 (Predecessor)) and
minimal net income for the year ended October 31, 2016 (Predecessor), 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.
We will apply the guidance when adopted, and provide the relevant disclosures in the first interim and annual periods in which
we adopt the guidance. We do not expect the adoption of this guidance to have a material impact on our financial statements within
any accounting period presented. Starting in the second quarter of 2014, the FASB issued guidance applicable to revenue recognition
that will be effective for the Company for the year ending January 31, 2019. The new guidance must be adopted using either a full
retrospective approach for all periods presented or a modified retrospective approach. The Company believes that there will not
be a material impact on its financial statements.
The FASB issued ASU No. 2014-15, Presentation
of Financial Statements—Going Concern, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern. The core principle of the new guidance is that management of public and private companies is required to evaluate
whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern
within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that
fact. Management will be required to make this evaluation.
In March 2016, the FASB issued ASU No.
2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The new standard
requires recognition of the income tax effects of vested or settled awards in the income statement and involves several other aspects
of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either
equity or liabilities and classification on the statement of cash flows. This new standard was effective for the Company on February
1, 2017. The adoption of this standard is not expected to have a material impact on its financial position, results of operations
or statements of cash flows upon adoption.
In August 2016, the FASB issued Accounting
Standards Update No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues
Task Force) (“ASU 201615”). The amendments in ASU 2016-15 address eight specific cash flow issues and apply
to all entities that are required to present a statement of cash flows under ASC Topic 230, Statement of Cash Flows.
The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company
has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements.
In October 2016, the FASB issued ASU No.
2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory. This new standard eliminates the exception
for an intra-entity transfer of an asset other than inventory. Under the new standard, entities should recognize the income tax
consequences on an intra-entity transfer of an asset other than inventory when the transfer occurs. This new standard will be effective
for the Company on February 1, 2018 and will be applied on a modified retrospective basis through a cumulative effect adjustment
directly to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the potential
impact this standard may have on its financial position and results of operations.
In November 2016, the FASB issued Accounting
Standards Update No. 201618, Restricted Cash (a consensus of the FASB Emerging Issue Task Force) (“ASU 2016-18”).
This new standard addresses the diversity that exists in the classification and presentation of changes in restricted cash on the
statement of cash flows. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period
in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore,
amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents
when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. This guidance is
effective for fiscal years beginning after December 15, 2017, including interim periods within the year of adoption, with early
adoption permitted. The Company does not expect that the adoption of ASU 2016-18 will have a material impact on its 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. This new standard will be effective for
the Company on February 1, 2018; however, early adoption is permitted with prospective application to any business development
transaction.
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 201704
simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical
purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after
December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a
material impact on its financial statements for both annual and interim reporting periods, if applicable. Management also is required
to evaluate and disclose whether its plans alleviate that doubt. The standard is effective for the Company on February 1, 2018
and will be implemented using the modified retrospective approach. The Company does not expect the adoption of this guidance to
have a material effect on the Company’s financial statements.
In November 2015, the FASB issued Accounting
Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). ASU
2015-17 requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating
deferred taxes into current and noncurrent amounts. The guidance is effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The guidance may
be adopted on either a prospective or retrospective basis. The Company does not expect the adoption of this guidance to have a
material effect on the Company’s financial statements
NOTE 3 –
MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
Bare Metal (Successor)
has unrelated customers and one related party customer, whose revenue, during the eight months ended October 31, 2017 represented
in excess of 10% of the total revenue and in excess of 10% of total accounts receivable.
Concentration
of revenue and related party revenue-
During the eight
months ended October 31, 2017 Bare Metal (Successor) invoiced royalties and sold product and services, including freight, totaling
$201,429 or 41% of its total revenue, to one related company, Taylor Brothers Inc. and $243,455 of non-related party revenue or
(35%,17%,16% and 12%), respectively, to four non-related parties. During the four months ended February 28, 2017, Taylor Brothers
Holdings (Predecessor) invoiced $58,741 of non-related party revenue, or (34%,21%,19% and 18%), respectively, to four unrelated
parties, and $59,363 or 41% to one related party. During the year ended October 31, 2016 Taylor Brothers Holdings (Predecessor)
invoiced $247,138 of non-related party revenue or (31%,28%,15% and 10%) respectively, to four unrelated company and $323,019 or
53% to one related party Company.
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, 2017 (Successor), total accounts receivable were
$47,359 of which $16,355 was owed by a related party. As of October 31, 2017 (Successor), four customers represented approximately
91% (40%, 25%, 16%, 11%) of non-related accounts receivable. As of October 31, 2016 (Predecessor), total accounts receivable
were $53,800 of which $15,274 was owed by a related party. As of October 31, 2016 (Predecessor), four customers represented approximately
96% (40%, 30%, 16%, and 10%) 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 market.
NOTE 5 – NOTES PAYABLE (PREDECESSOR)
Notes payable, by Taylor Brothers Holdings
(Predecessor) at October 31, 2016, consists of a working capital loan, in the amount of $156,026, secured by predecessor’s
assets and personally guaranteed by our directors. The loan originated on July 18, 2016, bears interest at the rate of 5.5% and
had a maturity date of March 5, 2018. The balance, including accrued interest, was due in a single payment on March 5, 2018. Interest,
only, was paid during the year ended October 31, 2016. The loan is presently in default and is being restructured.
Note payable, by Taylor Brothers Holdings,
(Predecessor) at October 31, 2016 in the amount of $29,479, consists of a vehicle loan, originated on January 30, 2015 with 59
equal monthly payments of $813, bearing interest at the rate of 4.34%, and collateralized by the vehicle and personally guaranteed
by our directors. $9,752 is due in monthly payments and is a current liability with the remainder of $19, 727 being disclosed as
long term debt. Principal was reduced by $8,252 during the year ended October 31, 2016 and $2,839 during the four months ended
February 28, 2017.
NOTE 6 – RELATED PARTY DEBT AND
TRANSACTIONS
Related party debt, in the amount of $24,387
at October 31, 2016 (Predecessor) consisted of unsecured non–interest bearing and due on demand working capital advances
from a related party – Taylor Brothers Distributing, Inc. (a Company with common officers and directors) During the eight
months ended October 31, 2017, Bare Metal (Successor) purchased $7,602 worth of inventory from Taylor Brothers Distributing.
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 instalments 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.
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.
NOTE 7 – STOCKHOLDER'S EQUITY
Predecessor
Common stock
Taylor Brothers Holdings (Predecessor)
is authorized to issue 12,000 shares of common stock, par value of $1.00. There are 1,200 issued.
Successor
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 eight months ended October 31, 2017, the Company (Successor) 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.
NOTE 8 – COMMON STOCK WARRANTS
Between March
1, 2017 and October 31, 2017 the Company (Successor) did not sell any commons stock units, each unit outstanding as of October
31, 2017 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 October 31, 2018. None
expired during the eight months ended October 31, 2017.
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
|
|
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period - October 31, 2017
|
|
|
515,000
|
|
|
$
|
2.00
|
|
|
|
-
|
|
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Management agreement
On March 1, 2017, the Company entered into
a management agreement with Taylor Brothers Holdings, Inc. 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
Successor
The Company’s
net operating loss carryover of $283,061 as of October 31, 2017, will expire in 2037. 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. Should a change in ownership occur, 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, 2015 through October 31, 2017 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, 2017, 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 34% of significant
items comprising our net deferred tax amount is as follows:
|
|
October 31, 2017
|
|
Net operating loss carry forward
|
|
$
|
52,932
|
|
|
|
|
|
|
Less: valuation allowance
|
|
|
(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 November 1, 2017 Bare Metal entered
into an Intellectual Property License Agreement with Taylor Brothers Holdings, Inc. to license certain intellectual property. The
agreement is for ninety-nine years at a cost of $2,000 per month.
On November 14, 2017 the Company opened
a $40,000 line of credit with Wells Fargo Bank. Interest is charged at the rate of Wells Fargo prime plus 8.5% plus an annual fee
of $175.
On June 13, 2018, the Company borrowed
$100,000 from an unrelated third party. The loan was collateralized by 200,000 units of Bare Metal equity consisting of one share
of common stock and the right to acquire, within twenty-four months, one additional share of common stock at a cost of $2.00 per
warrant. The note is to be repaid at the rate of $1,435 per month, commencing July 10, 2018, and has a maturity date of the earlier
of May 31, 2018 or a change of control. During periods in which there is no default, interest is calculated at the rate of 12%
per annum.
On July 10, 2018, the Company borrowed
$5,000 from the Company’s president. The note is to be repaid at the rate of $154 per month, commencing July 20, 2018, and
has a maturity date of the earlier of June 10, 2018 or a change of control. During periods in which there is no default, interest
is calculated at the rate of 7% per annum.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Bare Metal Standard, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Bare Metal Standard, Inc. (the “Company”) as of October 31, 2018 and 2017, and the consolidated related
statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year ended October 31, 2018 and
for the for the eight months ended October 31, 2017, and the related notes and we have audited the accompanying statements of operations,
changes in stockholders’ equity (deficit), and cash flows for the four months ended February 28, 2017, and the related notes
(collectively referred to as the “financial statements”) of Taylor Brothers Holdings, Inc. (the “Predecessor”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
October 31, 2018 and 2017, and the results of its operations and its cash flows for the year ended October 31, 2018 and the eight
months ended October 31, 2017 and of the Predecessor the four months ended February 28, 2017, in conformity with accounting principles
generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations which raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s and the Predecessor’s management. Our responsibility is to express an opinion on the Company’s
and the Predecessor’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company and the Predecessor are
not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our
audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company's or the Predecessor’s internal control over financial reporting. Accordingly,
we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor
since 2016
Houston, Texas
August 14, 2019
Bare Metal Standard, Inc.
Statements of Cash Flows
|
|
For the Year Ended
|
|
|
For the Eight Months Ended
|
|
|
For the Four Months Ended
|
|
|
|
October 31
|
|
|
October 31,
|
|
|
February 28,
|
|
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
(Predecessor)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(125,471
|
)
|
|
$
|
(79,822
|
)
|
|
$
|
(66,941
|
)
|
Adjustments to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
|
|
|
|
in operating activites
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
-
|
|
|
|
35,000
|
|
|
|
-
|
|
Professional service fee paid by related party
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of debt discount
|
|
|
1,923
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
|
|
4,639
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(2,701
|
)
|
|
|
(22,239
|
)
|
|
|
14,580
|
|
(Increase) decrease in accounts receivable - related parties
|
|
|
(35,183
|
)
|
|
|
(16,355
|
)
|
|
|
177
|
|
(Increase) decrease in inventory
|
|
|
22,762
|
|
|
|
(20,404
|
)
|
|
|
-
|
|
Increase (decrease) in accounts payable
|
|
|
(10,446
|
)
|
|
|
28,782
|
|
|
|
29,592
|
|
Increase (decrease) in accounts payable - related parties
|
|
|
19,000
|
|
|
|
-
|
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(125,116
|
)
|
|
|
(75,038
|
)
|
|
|
(17,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
-
|
|
|
|
30,000
|
|
|
|
-
|
|
Proceeds received from notes payable - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
2,250
|
|
Repayment of note payable - related party
|
|
|
(505
|
)
|
|
|
-
|
|
|
|
(34,587
|
)
|
Note payable Proceeds from third party loans
|
|
|
136,000
|
|
|
|
-
|
|
|
|
-
|
|
Repayment of third party loans
|
|
|
(5,245
|
)
|
|
|
-
|
|
|
|
(2,839
|
)
|
Net cash provided by (used in) financing activities
|
|
|
130,250
|
|
|
|
30,000
|
|
|
|
(35,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
5,134
|
|
|
|
(45,038
|
)
|
|
|
(53,129
|
)
|
Cash, beginning balance
|
|
|
6,509
|
|
|
|
51,547
|
|
|
|
55,456
|
|
Cash, ending balance
|
|
$
|
11,643
|
|
|
$
|
6,509
|
|
|
$
|
2,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the nine months:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,818
|
|
|
$
|
-
|
|
|
$
|
2,856
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued as collateral on note payable
|
|
$
|
200
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Debt discount due to warrants issued with note payable
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Bare Metal Standard, Inc.
Consolidated Balance Sheets for the fiscal
year ended October 31, 2019
|
|
October 31
|
|
|
October 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$
|
10,079
|
|
|
$
|
11,643
|
|
Accounts receivable
|
|
|
50,645
|
|
|
|
33,705
|
|
Accounts receivable - related parties
|
|
|
86,319
|
|
|
|
51,538
|
|
Inventory
|
|
|
14,337
|
|
|
|
9,209
|
|
Prepaid expense
|
|
|
16,972
|
|
|
|
-
|
|
Total current assets
|
|
|
178,352
|
|
|
|
106,095
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
178,352
|
|
|
$
|
106,095
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
23,764
|
|
|
$
|
35,904
|
|
Accounts payable related party
|
|
|
5,375
|
|
|
|
19,000
|
|
Bank line of credit
|
|
|
27,308
|
|
|
|
32,520
|
|
Related party note payable - current portion
|
|
|
12,444
|
|
|
|
1,853
|
|
Promissory note payable - current portion
|
|
|
11,822
|
|
|
|
17,217
|
|
Total current liabilities
|
|
|
80,713
|
|
|
|
106,494
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
4,000
|
|
|
|
-
|
|
Related party note payable, net of current portion
|
|
|
3,067
|
|
|
|
2,642
|
|
Promissory note payable, net of current portion and discount
|
|
|
42,970
|
|
|
|
32,941
|
|
Total long term liabilities
|
|
|
50,037
|
|
|
|
35,583
|
|
Total liabilities
|
|
|
130,750
|
|
|
|
142,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit)
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
none issued and outstanding as of October 31, 2019 and October 31, 2018 respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 80,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
31,845,000 shares issued and outstanding as of October 31, 2019 and
|
|
|
|
|
|
|
|
|
October 31, 2018, respectively
|
|
|
31,845
|
|
|
|
31,845
|
|
Additional paid-in capital
|
|
|
371,705
|
|
|
|
371,705
|
|
Accumulated deficit
|
|
|
(355,948
|
)
|
|
|
(439,532
|
)
|
Total stockholders' equity (deficit)
|
|
|
47,602
|
|
|
|
(35,982
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
178,352
|
|
|
$
|
106,095
|
|
Bare Metal Standard, Inc.
Consolidated Statements of Operations
For the years ended October 31, 2019 and 2018
|
|
October 31, 2019
|
|
|
October 31, 2018
|
|
Revenue
|
|
|
|
|
|
|
|
|
Product sales and services
|
|
$
|
496,477
|
|
|
$
|
518,896
|
|
Product sales and services - related parties
|
|
|
698,983
|
|
|
|
368,293
|
|
Total revenue
|
|
|
1,195,460
|
|
|
|
887,189
|
|
Cost of revenue
|
|
|
266,324
|
|
|
|
253,842
|
|
Gross income
|
|
|
929,136
|
|
|
|
633,347
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
346,396
|
|
|
|
285,401
|
|
Administrative and officer compensation
|
|
|
479,330
|
|
|
|
463,851
|
|
Total operating expenses
|
|
|
825,726
|
|
|
|
749,252
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
103,410
|
|
|
|
(115,905
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
2,500
|
|
|
|
-
|
|
Interest expense
|
|
|
(22,326
|
)
|
|
|
(9,566
|
)
|
Total other expense
|
|
|
(19,826
|
)
|
|
|
(9,566
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
83,584
|
|
|
$
|
(125,471
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and dilutive
|
|
|
31,845,000
|
|
|
|
31,721,164
|
|
Bare Metal Standard, Inc.
Consolidated Statements of Stockholders'
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Series A Preferred
Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,645,000
|
|
|
$
|
31,645
|
|
|
$
|
321,905
|
|
|
$
|
(314,061
|
)
|
|
$
|
39,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued as collateral for
note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
200
|
|
|
|
(200
|
)
|
|
|
-
|
|
|
|
-
|
|
Warrants issued in connection with
debt
discount on note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(125,471
|
)
|
|
|
(125,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
31,845,000
|
|
|
|
31,845
|
|
|
|
371,705
|
|
|
|
(439,532
|
)
|
|
|
(35,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,584
|
|
|
|
83,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31,
2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,845,000
|
|
|
$
|
31,845
|
|
|
$
|
371,705
|
|
|
$
|
(355,948
|
)
|
|
$
|
47,602
|
|
Bare Metal Standard, Inc.
Consolidated Statements of Cash Flows
|
|
Years Ended
|
|
|
|
October 31
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
83,584
|
|
|
$
|
(125,471
|
)
|
Adjustments to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
in operating activities
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
5,014
|
|
|
|
1,923
|
|
Professional service fee paid by related party
|
|
|
-
|
|
|
|
5,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(16,940
|
)
|
|
|
(2,701
|
)
|
Accounts receivable - related parties
|
|
|
(34,781
|
)
|
|
|
(35,183
|
)
|
Prepaid expenses
|
|
|
(6,160
|
)
|
|
|
-
|
|
Inventory
|
|
|
(5,128
|
)
|
|
|
22,762
|
|
Accounts payable and accrued liabilities
|
|
|
(12,140
|
)
|
|
|
(10,446
|
)
|
Accounts payable - related parties
|
|
|
(13,625
|
)
|
|
|
19,000
|
|
Deferred revenue
|
|
|
4,000
|
|
|
|
-
|
|
Net cash provided by (used in) operating activities
|
|
|
3,824
|
|
|
|
(125,116
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds received from notes payable - related party
|
|
|
21,000
|
|
|
|
-
|
|
Repayment of note payable - related party
|
|
|
(9,984
|
)
|
|
|
(505
|
)
|
Proceeds from bank line of credit
|
|
|
-
|
|
|
|
36,000
|
|
Repayment on bank line of credit
|
|
|
(5,212
|
)
|
|
|
(3,480
|
)
|
Proceeds from note payable
|
|
|
-
|
|
|
|
100,000
|
|
Repayment of note payable
|
|
|
(11,192
|
)
|
|
|
(1,765
|
)
|
Net cash provided by financing activities
|
|
|
(5,388
|
)
|
|
|
130,250
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(1,564
|
)
|
|
|
5,134
|
|
Cash, beginning balance
|
|
|
11,643
|
|
|
|
6,509
|
|
Cash, ending balance
|
|
$
|
10,079
|
|
|
$
|
11,643
|
|
|
|
|
|
|
|
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
Cash paid during the period:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
17,312
|
|
|
$
|
3,436
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Note payable issued for financed insurance
|
|
$
|
10,812
|
|
|
$
|
-
|
|
Debt discount from warrants issued with note payable
|
|
$
|
-
|
|
|
$
|
50,000
|
|
Common stock issued as collateral on note payable
|
|
$
|
-
|
|
|
$
|
200
|
|
BARE
METAL STANDARD, INC.
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 have 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:
Bare Metal Standard, Inc.
Consolidated Balance Sheets
(AS OF APRIL
30, 2020 UNAUDITED)
|
|
April 30,
|
|
|
October 31
|
|
|
|
2020
|
|
|
2019
|
|
Current Assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
23,743
|
|
|
$
|
10,079
|
|
Accounts receivable
|
|
|
33,422
|
|
|
|
50,645
|
|
Accounts receivable - related parties
|
|
|
57,471
|
|
|
|
86,319
|
|
Inventory
|
|
|
12,379
|
|
|
|
14,337
|
|
Prepaid expenses
|
|
|
14,603
|
|
|
|
16,972
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
141,618
|
|
|
|
178,352
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
141,618
|
|
|
$
|
178,352
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
25,956
|
|
|
$
|
23,764
|
|
Accounts payable related party
|
|
|
6,000
|
|
|
|
5,375
|
|
Deferred revenue
|
|
|
500
|
|
|
|
-
|
|
Bank line of credit
|
|
|
24,348
|
|
|
|
27,308
|
|
Related party note payable - current portion
|
|
|
9,092
|
|
|
|
12,444
|
|
Promissory note payable - current portion
|
|
|
6,862
|
|
|
|
11,822
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
72,758
|
|
|
|
80,713
|
|
Long term liabilities
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
3,750
|
|
|
|
4,000
|
|
Related party note payable
|
|
|
306
|
|
|
|
3,067
|
|
Promissory note payable, net of discount
|
|
|
41,937
|
|
|
|
42,970
|
|
|
|
|
|
|
|
|
|
|
Total long term liabilities
|
|
|
45,993
|
|
|
|
50,037
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
118,751
|
|
|
|
130,750
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
None issued and outstanding as of April 30, 2020 and October 31, 2019, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 80,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
31,195,000 and 31,845,000 shares issued and outstanding as of April 30, 2020 and October 31,
2019, respectively
|
|
|
31,195
|
|
|
|
31,845
|
|
Additional paid-in capital
|
|
|
372,355
|
|
|
|
371,705
|
|
Accumulated deficit
|
|
|
(380,683
|
)
|
|
|
(355,948
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
22,867
|
|
|
|
47,602
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
141,618
|
|
|
$
|
178,352
|
|
Bare Metal Standard, Inc.
Consolidated Statements of Operations
For the three and six months ended April 30, 2020 and 2019
(Unaudited)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
April 30, 2020
|
|
|
April 30, 2019
|
|
|
April 30, 2020
|
|
|
April 30, 2019
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales and services
|
|
$
|
88,104
|
|
|
$
|
101,497
|
|
|
$
|
203,580
|
|
|
$
|
246,283
|
|
Product sales and services - related parties
|
|
|
129,121
|
|
|
|
135,458
|
|
|
|
261,247
|
|
|
|
358,383
|
|
Total revenue
|
|
|
217,225
|
|
|
|
236,955
|
|
|
|
464,827
|
|
|
|
604,666
|
|
Cost of revenue
|
|
|
55,038
|
|
|
|
42,494
|
|
|
|
103,611
|
|
|
|
150,949
|
|
Gross income
|
|
|
162,187
|
|
|
|
194,461
|
|
|
|
361,216
|
|
|
|
453,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
67,584
|
|
|
|
92,895
|
|
|
|
139,335
|
|
|
|
141,830
|
|
Administrative and officer compensation
|
|
|
121,331
|
|
|
|
122,315
|
|
|
|
242,539
|
|
|
|
235,492
|
|
Total operating expenses
|
|
|
188,915
|
|
|
|
215,210
|
|
|
|
381,874
|
|
|
|
377,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(26,728
|
)
|
|
|
(20,749
|
)
|
|
|
(20,658
|
)
|
|
|
76,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
6,250
|
|
|
|
1,250
|
|
|
|
6,250
|
|
|
|
1,250
|
|
Interest expense
|
|
|
(4,982
|
)
|
|
|
(5,586
|
)
|
|
|
(10,327
|
)
|
|
|
(11,132
|
)
|
Total other income (expense)
|
|
|
1,268
|
|
|
|
(4,336
|
)
|
|
|
(4,077
|
)
|
|
|
(9,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(25,460
|
)
|
|
$
|
(25,085
|
)
|
|
$
|
(24,735
|
)
|
|
$
|
66,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and dilutive
|
|
|
31,195,000
|
|
|
|
31,845,000
|
|
|
|
31,441,429
|
|
|
|
31,845,000
|
|
Bare Metal Standard, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Series A Preferred Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,845,000
|
|
|
$
|
31,845
|
|
|
$
|
371,705
|
|
|
$
|
(355,948
|
)
|
|
$
|
47,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(650,000
|
)
|
|
|
(650
|
)
|
|
|
650
|
|
|
|
-
|
|
|
|
-
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
725
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,195,000
|
|
|
$
|
31,195
|
|
|
$
|
372,355
|
|
|
$
|
(355,223
|
)
|
|
$
|
48,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,460
|
)
|
|
|
(25,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,195,000
|
|
|
$
|
31,195
|
|
|
$
|
372,355
|
|
|
$
|
(380,683
|
)
|
|
$
|
22,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,845,000
|
|
|
$
|
31,845
|
|
|
$
|
371,705
|
|
|
$
|
(439,532
|
)
|
|
$
|
(35,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
91,598
|
|
|
|
91,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,845,000
|
|
|
$
|
31,845
|
|
|
$
|
371,705
|
|
|
$
|
(347,934
|
)
|
|
$
|
55,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,085
|
)
|
|
|
(25,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance April 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
31,845,000
|
|
|
$
|
31,845
|
|
|
$
|
371,705
|
|
|
$
|
(373,019
|
)
|
|
$
|
30,531
|
|
Bare Metal Standard, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
|
For the Six Months Ended
|
|
|
|
April 30
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(24,735
|
)
|
|
$
|
66,513
|
|
Adjustments to reconcile net income (loss) to net cash provided
|
|
|
|
|
|
|
|
|
by operating activites
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
2,500
|
|
|
|
2,486
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
17,223
|
|
|
|
(6,723
|
)
|
Accounts receivable - related parties
|
|
|
28,848
|
|
|
|
(29,351
|
)
|
Prepaid expenses
|
|
|
2,369
|
|
|
|
(12,860
|
)
|
Inventory
|
|
|
1,958
|
|
|
|
(1,952
|
)
|
Accounts payable and accrued liabilities
|
|
|
2,192
|
|
|
|
4,681
|
|
Accounts payable - related parties
|
|
|
625
|
|
|
|
(15,625
|
)
|
deferred revenue
|
|
|
250
|
|
|
|
4,250
|
|
Net cash provided by operating activities
|
|
|
31,230
|
|
|
|
11,419
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds received from notes payable - related party
|
|
|
-
|
|
|
|
21,000
|
|
Repayment of note payable - related party
|
|
|
(6,113
|
)
|
|
|
(4,080
|
)
|
Repayment of line of credit
|
|
|
(2,960
|
)
|
|
|
(2,454
|
)
|
Repayment of note payable
|
|
|
(8,493
|
)
|
|
|
(2,783
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(17,566
|
)
|
|
|
11,683
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
13,664
|
|
|
|
23,102
|
|
Cash, beginning balance
|
|
|
10,079
|
|
|
|
11,643
|
|
Cash, ending balance
|
|
$
|
23,743
|
|
|
$
|
34,745
|
|
|
|
|
|
|
|
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
Cash paid during the nine months:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,776
|
|
|
$
|
8,647
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Debt discount from warrants issued with note payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Common stock issued as collateral on note payable
|
|
$
|
-
|
|
|
$
|
-
|
|
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1 - ORGANIZATION AND OPERATIONS
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 fee 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.
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 discipline.
In March 2020, the COVID-19 outbreak was declared a national
public health emergency resulting in a significant reduction in activity at restaurants and related facilities, which are the Company’s
primary customer group, due to changes in consumer behavior as public health officials encouraged social distancing and state and
local governments mandated restrictions including suspension of dine-in operations, reduced restaurant seating capacity, table
spacing requirements, bar closures and additional physical barriers. As a result, the Company experienced a decline in revenues.
Further, the Company offered a 50% reduction in royalties to be paid to the Company to its customers for the period from April
1, 2020 through May 31, 2020, which resulted in an impact to revenue of approximately $15,000 during the three months ended April
30, 2020, and is expected to have a similar impact on revenues for the quarter ended July 31, 2020. As discussed in Note 10, the
Company received certain loan proceeds from the United States Small Business Administration (“U.S. SBA”) in May 2020.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited consolidated interim financial statements
of Bare Metal Standard, Inc. have been prepared in accordance with accounting principles generally accepted in the United States
of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial
statements and notes thereto for the year ended October 31, 2019 contained in the Company’s Form 10K originally filed with
the Securities and Exchange Commission on January 22, 2020. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period
presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results
to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained
in the audited financial statements for the period ended October 31, 2019, as reported in the Company’s Form 10K, have been
omitted.
Principles of Consolidation
The Company prepares its consolidated financial statements on
the accrual basis of accounting based on an October 31 fiscal year end. The accompanying consolidated financial statements include
the accounts of the Company and its single subsidiary which has 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.
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.
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 April 30, 2020 and October 31, 2019.
Revenue Recognition
The Company recognizes revenue in accordance with ASC Topic
606, Revenue from Contracts with Customers, which was adopted on November 1, 2018 using the modified retrospective method, with
no impact to the Company’s comparative financial statements.
Revenue is recognized in accordance with a five-step revenue
model, as follows: identifying the contract with the customer; identifying the performance obligations in the contract; determining
the transaction price; allocating the transaction price to the performance obligations; and recognizing revenue when (or as) the
entity satisfies a performance obligation.
A contract with commercial substance exists once the Company
executes a franchise agreement with the franchisee. The initial license fee is due at the execution of the agreement. If collectability
is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Net revenues comprise
gross revenues less customer discounts and allowances, actual and expected returns. Shipping charges billed to members are included
in net sales. Various taxes on the sale of products and enrollment packages to members are collected by the Company as an agent
and remitted to the respective taxing authority. These taxes are presented on a net basis and recorded as a liability until remitted
to the respective taxing authority.
The Company generates revenue from franchise fees and royalty
income, advertising fees and sales of supplies and other products as follows:
Franchise fees and royalty income
The Company sells individual franchises as well as territory
agreements in the form of franchise agreements that grant the right to develop the business in designated areas. The franchise
agreements typically require the franchisee to pay initial nonrefundable franchise fees prior to opening the business and continuing
fees, or royalty income, on a monthly basis based upon a percentage of franchisee gross sales. The initial term of domestic franchise
agreements is typically 10 years. Prior to the end of the franchise term or as otherwise provided by the Company, The Company may
offer a renewal term of a franchise agreement and, if approved, the franchisee will typically pay a renewal fee upon execution
of the renewal term. If approved, a franchisee may transfer a franchise agreement to a new or existing franchisee, at which point
a transfer fee is paid.
Generally, the franchise license granted for each individual
restaurant within an arrangement represents a single performance obligation. Therefore, initial franchise fees and market entry
fees for each arrangement are allocated to each individual business and recognized over the term of the respective franchise agreement
from the date of the restaurant opening. Royalty income is also recognized over the term of the respective franchise agreement
based on the royalties earned each period as the underlying sales occur. Renewal fees are generally recognized over the renewal
term for the respective restaurant from the start of the renewal period. Transfer fees are recognized over the remaining term of
the franchise agreement beginning at the time of transfer.
Advertising fees
Franchise agreements typically require the franchisee to pay
continuing advertising fees on a monthly basis based on a percentage of franchisee gross sales, which represents a portion of the
consideration received for the single performance obligation of the franchise license. Continuing advertising fees are recognized
over the term of the respective franchise agreement based on the fees earned each period as the underlying sales occur. Advertising
fees are included in Other Service Revenue in the presentation of disaggregated revenue data below.
Sales of supplies and other products
We distribute supplies and other products to franchisees and
licensees. Revenue from the sale of supplies and other products is recognized when title and risk of loss transfers to the buyer,
which is generally upon delivery. Payment for supplies and other products is generally due within a relatively short period of
time subsequent to delivery.
The following table presents disaggregated revenue for the
three and six months ended April 30, 2020:
|
|
Three months
ended
April 30, 2020
|
|
|
Three months
ended
April 30, 2019
|
|
|
Six months
ended
April 30, 2020
|
|
|
Six months
ended
April 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenue
|
|
$
|
101,305
|
|
|
$
|
134,742
|
|
|
$
|
244,534
|
|
|
$
|
285,062
|
|
Training and consulting
|
|
|
37,340
|
|
|
|
63,446
|
|
|
|
80,695
|
|
|
|
184,535
|
|
Equipment and truck sales
|
|
|
61,909
|
|
|
|
20,442
|
|
|
|
103,474
|
|
|
|
97,313
|
|
Other service revenue
|
|
|
16,671
|
|
|
|
18,325
|
|
|
|
36,124
|
|
|
|
37,756
|
|
Total revenue
|
|
$
|
217,225
|
|
|
$
|
236,955
|
|
|
$
|
464,827
|
|
|
$
|
604,666
|
|
Contract Costs
Costs incurred to obtain a customer contract are not material
to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with
a duration of one year or less, which are expensed and included within cost of goods and services.
Contract Liabilities
The Company receives payment up front for the sale of a franchise.
The franchise fee is considered to be a contract liability to provide support and services over the period of the license agreement,
and are recorded as deferred revenue, with the revenue being recognized ratably over the license period. Additionally, the Company
recognizes a contract liability related to any other unsatisfied performance obligations. As of April 30, 2020, the Company had
a total of $4,250 in deferred revenue, with $500 expected to be recognized in revenue over the next 12 months, and $3,750 expected
to be recognized beyond 12 months over the remaining license period of approximately nine years.
Cost of Revenues
Cost of sales includes all of the costs to service the franchise
agreements, and costs to purchase the supplies and products sold to franchisees. Additionally, shipping costs are included in Cost
of Revenues in the Unaudited Consolidated Statements of Operations.
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. No potentially dilutive
securities, consisting of 200,000 outstanding common stock warrants, were included in the calculation of diluted earnings per share
as the impact would have been anti-dilutive for the three and six months ended April 30, 2020 and 2019. Therefore, basic and dilutive
net income (loss) per share were the same.
Recently Issued Accounting Pronouncements
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. The Company adopted this guidance on November 1, 2019 with no effect to the Company’s
consolidated financial statements, due to the Company not being party to any lease agreements. The new standard provides a number
of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permitted
the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial
direct costs; and all of the new standard’s available transition practical expedients. The new standard also provides practical
expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases.
For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities. The Company
also made an accounting policy election to combine lease and non-lease components of operating leases for all asset classes.
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. The Company adopted this guidance on November 1, 2019 with no impact to its
consolidated financial statements.
The Company has implemented all new accounting pronouncements
that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements
that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – 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. 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 4 – MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
Bare Metal Standard has unrelated customers and one related
party customer, whose revenue, during the three and six months ended April 30, 2020 and 2019 represented in excess of 10% of the
total revenue and in excess of 10% of total accounts receivable.
Concentration of revenue and related party revenue
During the three months ended April 30, 2020, Bare Metal Standard
invoiced royalties and sold product and services, including freight, totaling $129,122 or 59% of total revenue to one related company,
Taylor Brothers, Inc. (a company with common officers and shareholders) and had five non-related parties that accounted for 40%,
16%, 14%, 13%, and 13% of non-related party revenue. One non-related party through the Taylor Brothers revenue represents approximately
37% of related party revenue for the three months ended April 30, 2020. During the six months ended April 30, 2020, Bare Metal
Standard invoiced royalties and sold product and services, including freight, totaling $261,247 or 56% of total revenue to one
related company, Taylor Brothers, Inc. and had five non-related parties that accounted for 40%, 16%, 14%, 14%, and 13% of non-related
party revenue. One non-related party through the Taylor Brothers revenue represents approximately 36% of related party revenue
for the six months ended April 30, 2020.
During the three months ended April 30, 2019, Bare Metal Standard
invoiced royalties and sold product and services, including freight, totaling $135,458 or 57% of total revenue to one related company,
Taylor Brothers, Inc. and had five non-related parties that accounted for 44%, 16%, 15%, 12%, and 10% of non-related party revenue.
One non-related party through the Taylor Brothers revenue represents approximately 55% of related party revenue for the three months
ended April 30, 2019. During the six months ended April 30, 2019, Bare Metal Standard invoiced royalties and sold product and services,
including freight, totaling $358,383 or 59% of total revenue to one related company, Taylor Brothers, Inc. and had four non-related
parties that accounted for 37%, 15%, 13% and 10% of non-related party revenue. One non-related party through the Taylor Brothers
revenue represents approximately 55% of related party revenue for the six months ended April 30, 2019.
Concentration of accounts receivable and related party accounts
receivable-
Receivables arising from sales of the Company's products are
not collateralized. As of April 30, 2020, total accounts receivable was $90,893 of which $57,471 or 63% was owed by a related party,
and five customers represented 31%, 30%, 11%, 10% and 10% of non-related party accounts receivable. As of October 31, 2019, total
accounts receivable was $136,964 of which $86,319 or 63% was owed by a related party, and five customers represented 37%, 20%,
14%, 11% and 10% of non-related party accounts receivable.
NOTE 5 – NOTES AND LOAN PAYABLE
The Company has the following notes payable outstanding as of
April 30, 2020 and October 31, 2019:
|
|
April 30,
2020
|
|
|
October 31,
2019
|
|
Note payable dated June 13, 2018 in the original principal amount of $100,000, maturing June 13, 2028, bearing interest at 12% per year, 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.
|
|
$
|
89,362
|
|
|
$
|
92,498
|
|
|
|
|
|
|
|
|
|
|
Note payable dated June 20, 2019 in the original principal amount of $10,812, maturing April 1, 2020, bearing interest at 16.24% per year, related to prepaid insurance premium, with monthly payments of $932.
|
|
|
-
|
|
|
|
5,357
|
|
|
|
|
|
|
|
|
|
|
Note payable with a related party dated July 10, 2018 in the original principal amount of $5,000, maturing July 10, 2021, bearing interest at 7% per year, unsecured, with monthly payments of principal and interest of $154.
|
|
|
2,070
|
|
|
|
2,906
|
|
|
|
|
|
|
|
|
|
|
Note payable with a related party dated December 24, 2018 in the original principal amount of $21,000, maturing December 20, 2020, bearing interest at 7% per year, unsecured, with monthly payments of principal and interest of $940.
|
|
|
7,328
|
|
|
|
12,605
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
98,760
|
|
|
|
113,366
|
|
Less: current portion
|
|
|
(15,954
|
)
|
|
|
(24,266
|
)
|
Less: unamortized discount
|
|
|
(40,563
|
)
|
|
|
(43,063
|
)
|
Total notes payable, net of discount and current portion
|
|
$
|
42,243
|
|
|
$
|
46,037
|
|
On November 14, 2017, the Company opened an unsecured line of
credit with a bank in the amount of $40,000 bearing interest at the bank prime rate plus 8.5%. The Company is required to make
monthly minimum payments based on the current balance outstanding on the line of credit. On April 30, 2020 and October 31, 2019,
there was $24,348 and $27,308 outstanding, respectively.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company follows ASC 850, Related Party Disclosures, for
the identification of related parties and disclosure of related party transactions.
The Company has revenue transactions with related parties, and
accounts receivable balances from those related parties, and notes payable with related parties. See Notes 4 and 5. 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.
We entered into an agreement with Taylor Brothers Inc. (a company
with common officers and shareholders) to use three of their offices. The rent will be $5,000 per month, when Bare Metal Standard
completes required funding to support ongoing operations.
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. None were issued during the six months ended April 30, 2020. On July 13, 2018, the Company issued 200,000
non-convertible common share units, which included warrants, as collateral, to be exercised upon uncured default of the note payable
described in Note 5.
On January 8, 2020, 650,000 shares of common stock of the Company
were returned to the Company and cancelled for no consideration from one shareholder.
NOTE 8 – COMMON STOCK WARRANTS
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 six months ended
April 30, 2020 is as follows:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period – October 31, 2019
|
|
|
200,000
|
|
|
$
|
2.00
|
|
|
|
0.62
|
|
Expired during the six months ended April 30, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at end of period – April 30, 2020
|
|
|
200,000
|
|
|
$
|
2.00
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period – April 30, 2020
|
|
|
200,000
|
|
|
$
|
2.00
|
|
|
|
0.12
|
|
The warrants outstanding and exercisable as of April 30, 2020
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. (“Taylor Brothers”) 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 – SUBSEQUENT EVENTS
In May 2020, the Company received $92,500 under the Small Business
Administration’s Payroll Protection Program. The loan bears interest at a fixed rate of 1%, and matures in May 2022, payable
monthly with payments beginning six months after issuance. In accordance with the terms of the Payroll Protection Program, a portion
of this loan may be forgiven if the loan proceeds are used for payroll, mortgage, rent and utility costs, but no more than 25%
of the forgiveness amount can be related to nonpayroll costs.
In May 2020, the Company received $150,000 under the Small Business
Administration’s Economic Injury Disaster Loan. The loan bears interest at a fixed rate of 3.75%, and matures on May 21,
2050, payable monthly with payments of $731 beginning twelve months after issuance. The loan gives the Small Business Administration
a security interest in all assets of the Company.
In July 2020, the Board of Directors unanimously adopted a resolution
approving the proposed sale of the Company’s assets to Code 96 LLC, a Nevada limited liability company controlled by James
Bedal. Code 96 LLC would receive all of the Company’s operating assets in exchange for the assumption of all of the Company’s
liabilities. The sale of the Company’s assets is subject to a shareholder vote which will take place at a Special Meeting
of stockholders on August 17, 2020.
The Company’s CEO James Bedal has entered into an agreement
to sell American-Swiss Capital, Inc. 28,500,000 of his shares of the Company’s Common Stock for $300,000 and to sell one
or more other buyers 1,700,000 of his shares of our Common Stock for $50,000. It is anticipated that Mr. Bedal’s sales of
30,200,000 of common stock will occur shortly after the special meeting of shareholders.