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 ha
ve been presented
on a comparative basis
in accordance with accounting principles generally accepted in the United States of America (or U.S.
GAAP) and with the Securities and Exchange Commission’s (or SEC) instructions for the Form 10-K.
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.
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)
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.
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)
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.
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)
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).
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)
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.
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)
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.
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)
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.
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)
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.
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)
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.
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 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.
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)
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.
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 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
|
|
$
|
-
|
|
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)
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.