Notes to 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. 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.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited 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 period ended October 31, 2017 contained in the Company’s Form 10K originally filed with
the Securities and Exchange Commission on September 26, 2018. 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, 2017, as reported in the Company’s
Form 10K, have been omitted.
BARE METAL STANDARD, INC.
Notes to Financial Statements
(unaudited)
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, the results of operations from Bare Metal Standard for the three months subsequent to October 31,
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 three months ended January 31, 2018 successor results from the three months predecessor for the comparable
three month period ended January 31, 2017, to highlight the lack of comparability between these periods.
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.
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 January 31, 2018, (successor) consists of $30,168 due from non-related parties
and $20,046 due from Taylor Brothers, Inc. a related party. Receivables at October 31, 2017 successor consists of $31,004 due from
non-related parties and $16,335 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 three months ended January 31, 2018 (successor), nor the year ended October 31, 2017.
Restatement
During the year ended October 31, 2018,
the Company determined that 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. Therefore, the previously reported results of operations
and cash flows for the three months ended January 31, 2017 must be separated between Successor and Predecessor periods. The table
below summarizes previously reported amounts and the restated presentation of the statement of operations and statement of cash
flows:
BARE METAL STANDARD, INC.
Notes to Financial Statements
(unaudited)
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
Statement of Operations
|
|
January 31, 2017
|
|
|
January 31, 2017
|
|
|
|
|
|
|
Predecessor
|
|
Revenue
|
|
|
|
|
|
|
Product sales and services
|
|
$
|
2,661
|
|
|
$
|
63,979
|
|
Product sales and services - related parties
|
|
|
6,078
|
|
|
|
44,266
|
|
Total revenue
|
|
|
8,739
|
|
|
|
108,245
|
|
Cost of revenue
|
|
|
7,225
|
|
|
|
-
|
|
Gross income
|
|
|
1,514
|
|
|
|
108,245
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
26,522
|
|
|
|
53,148
|
|
Administrative and officer compensation
|
|
|
-
|
|
|
|
102,511
|
|
Total operating expenses
|
|
|
26,522
|
|
|
|
155,659
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(25,008
|
)
|
|
|
(47,414
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
(2,136
|
)
|
Total other expense
|
|
|
-
|
|
|
|
(2,136
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(25,008
|
)
|
|
$
|
(49,550
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(41.29
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
31,497,174
|
|
|
|
1,200
|
|
BARE METAL STANDARD, INC.
Notes to Financial Statements
(unaudited)
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
January 31, 2017
|
|
|
January 31, 2017
|
|
|
|
|
|
|
Predecessor
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(25,008
|
)
|
|
$
|
(49,550
|
)
|
Adjustments to reconcile net loss to net cash (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
|
10,773
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(2,662
|
)
|
|
|
20,932
|
|
(Increase) decrease in accounts receivable - related parties
|
|
|
(6,077
|
)
|
|
|
(7,700
|
)
|
Decrease in inventory
|
|
|
(5,250
|
)
|
|
|
-
|
|
(Decrease) in accounts payable
|
|
|
(8,884
|
)
|
|
|
(18,800
|
)
|
(Decrease) in accounts payable - related parties
|
|
|
-
|
|
|
|
(1,924
|
)
|
Net cash used in operating activities
|
|
|
(47,881
|
)
|
|
|
(46,269
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Cash received from sale of common stock
|
|
|
20,000
|
|
|
|
-
|
|
Repayment of line of credit
|
|
|
-
|
|
|
|
(2,119
|
)
|
Net cash provided by financing activities
|
|
|
20,000
|
|
|
|
(2,119
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(27,881
|
)
|
|
|
(48,388
|
)
|
Cash, beginning balance
|
|
|
87,488
|
|
|
|
55,456
|
|
Cash, ending balance
|
|
$
|
59,607
|
|
|
$
|
7,068
|
|
|
|
|
|
|
|
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
237
|
|
|
$
|
2,136
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
BARE METAL STANDARD, INC.
Notes to Financial Statements
(unaudited)
Recently Adopted 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.
BARE METAL STANDARD, INC.
Notes to Financial Statements
(unaudited)
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, with early adoption permitted and the Company is currently evaluating the potential impact on its 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 reoccurring losses and negative cash flows
used in operations These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include
any adjustment relating to the recoverability and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
The Company is taking appropriate action
to provide the necessary capital to continue its operations. These steps include, but are not limited to: 1) implementation of
new business plan 2) focus on sales to minimize the need for capital at this stage; 3) raising equity financing; 4) continuous
focus on reductions in cost, where possible.
NOTE 4 – MAJOR CUSTOMERS
AND ACCOUNTS RECEIVABLE
Bare Metal Standard
has unrelated customers and one related party customer, whose revenue, during the three months ended January 31, 2018 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 January 31, 2018 Bare Metal Standard invoiced royalties and sold product and services, including freight,
totaling $66,996 or 26% of its total revenue, to one related company, Taylor Brothers Inc. and $79,848 of non-related party revenue
or 30 % to one non-related parties. During the three months ended January 31, 2017, Bare Metal invoiced $37,714 of non-related
party revenue, or 14%, and 11%, respectively, to two unrelated parties, and $44,266 or 41% to one related party.
BARE METAL STANDARD, INC.
Notes to Financial Statements
(unaudited)
Concentration
of accounts receivable and related party accounts receivable-
Receivables
arising from sales of the Company's products are not collateralized. As of January 31, 2018, total accounts receivable were $50,214
of which $20,046 was owed by a related party. As of January 31, 2018, four customers represented approximately 44%, 22%, 14% and
12% of non-related accounts receivable. As of October 31, 2017, total accounts receivable were $47,359 of which $16,355 was
owed by a related party.
NOTE 5 – LOAN PAYABLE
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%. The Company is required
to make monthly minimum payments based on the current balance outstanding on the line of credit. On January 31, 2018 there was
$22,697 outstanding.
NOTE 6 - RELATED PARTY TRANSACTIONS
We consider all who own more than 5% shares
to be related parties and record any transactions between them and the Company to be related party transactions and disclose such
transactions on notes to the Financial Statements.
The Company has revenue transactions with
related parties, and accounts receivable balances from those related parties. See Note 2 and 4. 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 have 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.
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 8 – 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 three months ended January 31, 2018.
BARE METAL STANDARD, INC.
Notes to Financial Statements
(unaudited)
NOTE 9 – COMMON STOCK WARRANTS
Between March
1, 2017 and October 31, 2017 the Company 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
three months ended January 31, 2018.
A summary of our stock warrant activity
for the period from November 30, 2017 through January 31, 2018 is as follows:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period - November 1, 2017
|
|
515,000
|
|
|
$ 2.00
|
|
|
0.65
|
|
Outstanding at end of period -January 31, 2018
|
|
515,000
|
|
|
$ 2.00
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period - January 31, 2018
|
|
515,000
|
|
|
$ 2.00
|
|
|
0.41
|
|
The warrants outstanding and exercisable as of January 31, 2018
had no intrinsic value.
NOTE 8 – 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
(unaudited)
NOTE 9 – SUBSEQUENT EVENTS
In March 2018, the Company formed BRMT
Franchising, LLC, a Texas limited liability company that is a wholly-owned subsidiary of the Company.
On June 13, 2018 the Company borrowed $100,000
from a non-related investor. The note is repayable over ten years with payments of $1,434 at an interest cost of 12%. The note
is collateralized by 200,000 units of the Company’s common stock, which consist of one share of common stock and one warrant
to purchase a share of common stock at $2 per share with a term of two years. On July 31, 2018 the note had been reduced by $435.
On July 10, 2018 the Company borrowed $5,000
from a related party. The note is unsecured, bears interest at 7%, and is repayable by 36 equal monthly payments of $154 principal
and interest. On July 31, 2018 the balance was reduced by $125.
On December 24, 2018, our chief executive
officer loaned the Company $21,000. The loan has a maturity date of December 20, 2020, and bears interest at 7%, with monthly
payments of $940. The Company has made payments of $4,117 against this note payable to date.