Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND RESTATEMENT
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
unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the
United States Securities and Exchange Commission. Accordingly, they do not contain all information and footnotes required by accounting
principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s
management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring
adjustments) to present the financial position of the Company as of July 31, 2018 and the results of operations and cash flows
for the periods presented. The results of operations for the three and nine months ended July 31, 2019 are not necessarily indicative
of the operating results for the full fiscal year. These financial statements should be read in conjunction with the financial
statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31,
2018. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements
for the most recent year ended October 31, 2017 have been omitted.
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 nine 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 nine months ended July 31, 2018 successor results and the five months successor from the four months
(predecessor) for the comparable four months ended period ended February 28, 2017, to highlight the lack of comparability between
these periods.
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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 accumulated losses and shareholders’
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.
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 nine months ended July 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 Consolidated Financial Statements
(Unaudited)
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
|
|
|
As Restated
|
|
|
|
Nine Months
|
|
|
Five Months
|
|
|
|
|
|
Four Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
Statements of Operations
|
|
July 31, 2017
|
|
|
July 31, 2017
|
|
|
|
|
|
February 28, 2017
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
(Predecessor)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales and services
|
|
$
|
220,282
|
|
|
$
|
155,866
|
|
|
|
|
|
$
|
87,925
|
|
Product sales and services - related parties
|
|
|
148,418
|
|
|
|
124,295
|
|
|
|
|
|
|
59,363
|
|
Total revenue
|
|
|
368,700
|
|
|
|
280,161
|
|
|
|
|
|
|
147,288
|
|
Cost of revenue
|
|
|
80,756
|
|
|
|
31,904
|
|
|
|
|
|
|
-
|
|
Gross income
|
|
|
287,944
|
|
|
|
248,257
|
|
|
|
|
|
|
147,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
319,581
|
|
|
|
80,505
|
|
|
|
|
|
|
76,905
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
4,638
|
|
Administrative and officer compensation
|
|
|
-
|
|
|
|
198,043
|
|
|
|
|
|
|
129,819
|
|
Total operating expenses
|
|
|
319,581
|
|
|
|
278,548
|
|
|
|
|
|
|
211,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
(31,637
|
)
|
|
|
(30,291
|
)
|
|
|
|
|
|
(64,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
(2,867
|
)
|
Total other expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
(2,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
|
$
|
(31,637
|
)
|
|
$
|
(30,291
|
)
|
|
|
|
|
$
|
(66,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
$
|
(55.78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
31,515,000
|
|
|
|
31,515,000
|
|
|
|
|
|
|
1,200
|
|
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
As Restated
|
|
|
|
Nine Months
|
|
|
Five Months
|
|
|
Four Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
July 31, 2017
|
|
|
July 31, 2017
|
|
|
February 28, 2017
|
|
Statements of Cash Flows
|
|
Successor
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,637
|
)
|
|
$
|
(30,291
|
)
|
|
$
|
(66,941
|
)
|
Adjustments to reconcile net loss to net cash (used
|
|
|
|
|
|
|
|
|
|
|
|
|
in) operating activites
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
|
|
4,639
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(39,465
|
)
|
|
|
(29,786
|
)
|
|
|
14,580
|
|
(Increase) decrease in accounts receivable - related parties
|
|
|
(49,765
|
)
|
|
|
(15,097
|
)
|
|
|
177
|
|
(Increase) decrease in inventory
|
|
|
(12,876
|
)
|
|
|
(1,309
|
)
|
|
|
-
|
|
Increase (decrease) in accounts payable
|
|
|
29,459
|
|
|
|
28,140
|
|
|
|
29,592
|
|
Net cash used in operating activities
|
|
|
(104,284
|
)
|
|
|
(48,343
|
)
|
|
|
(17,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received from note payable - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
2,250
|
|
Repayment of note payable - related party
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,587
|
)
|
Repayment of note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,839
|
)
|
Cash received from sale of common stock
|
|
|
20,000
|
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
20,000
|
|
|
|
-
|
|
|
|
(35,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
(84,284
|
)
|
|
|
(48,343
|
)
|
|
|
(53,129
|
)
|
Cash, beginning balance
|
|
|
87,488
|
|
|
|
51,547
|
|
|
|
55,456
|
|
Cash, ending balance
|
|
$
|
3,204
|
|
|
$
|
3,204
|
|
|
$
|
2,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the nine months:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,436
|
|
|
$
|
-
|
|
|
$
|
2,856
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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 July 31, 2018, (successor), consists of $39,254 due from non-related parties and
$82,265 due from Taylor Brothers, Inc. a related party. Receivables at October 31, 2017 successor consists of $31,004 due from
non-related parties and $16,355 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 as of July 31, 2018 or October 31, 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 July 31, 2018 successor, total accounts receivable were $121,519 of which $82,265 was owed
by a related party.
Four unrelated customers represented approximately 90% (43%, 18%,
18%, and 11%) of non-related accounts receivable.
As of October 31, 2017 successor, total accounts receivable
were $47,359 of which $16,355 was owed by a related party. Four unrelated customers represented approximately 96% (40%, 25%, 16%,
and 11%) 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 July 31, 2018 successor nor as of October 31, 2017 successor.
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 July 31, 2018 and October 31, 2017.
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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.
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.
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 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 the Company on November 1, 2018. 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 Consolidated Financial Statements
(Unaudited)
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 November 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 has adopted this guidance.
In November 2016, the FASB issued Accounting
Standards Update No. 2016-18,
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 after the Company on November 1, 2018. 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 November 1, 2018 and is not expected to have a material impact
In January 2017, the FASB issued Accounting
Standards Update No. 2017-04,
Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”). ASU 2017-04
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 and has been adopted by the Company for annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. 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 November 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 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.
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 – MAJOR CUSTOMERS
Bare Metal Standard
(successor) has unrelated customers and one related party customer, whose revenue, during the nine months ended July 31, 2018 represented
in excess of 10% of the total revenue and in excess of 10% of total accounts receivable.
During the three
months ended July 31, 2018 Bare Metal Standard (successor) invoiced royalties and sold product and services, including freight,
totaling $102,760 or 43% of its total revenue, to one related company, Taylor Brothers Inc. and $138,479 of non-related party revenue
or (33%, 13%, and 12%), respectively, to three non-related parties. During the three months ended July 31, 2017 Bare Metal Standard
(successor) invoiced royalties and sold product and services, including freight, totaling $89,592 or 47% of its total revenue,
to one related company, Taylor Brothers Inc. and $100,420 of non-related party revenue or (38%, 21%, and 20%), respectively, to
three non-related parties.
During the nine
months ended July 31, 2018 Bare Metal Standard (successor) invoiced royalties and sold product and services, including freight,
totaling $221,299 or 32% of its total revenue, to one related company, Taylor Brothers Inc. and $461,190 of non-related party revenue
or (39%,15%,14% and 11%), respectively, to four non-related parties. During the five months ended July 31, 2017, Bare Metal invoiced
$191,866 of non-related party revenue, or (32%, 19%, 16% and 15%), respectively, to four unrelated parties, and $124,295 or 40%
to one related party. During the four months ended February 28, 2017, Taylor Brothers Inc. (predecessor) invoiced $87,925 non-related
party revenue, or (14%, 11%, and 10%), respectively, to three unrelated parties, and $59,363 or 41% to one related party.
NOTE 4 – NOTES PAYABLE
On June 13, 2018 the Company borrowed $100,000
from a non-related investor. The note is repayable over 120 months with payments of $1,434 at an interest cost of 12%. The note
is not convertible, but, is collateralized by 200,000 issued units of the Company’s common stock, which consist of one share
of common stock and one warrant to purchase common stock for $2 per share for a period of two years. The estimated value of the
warrants of $50,000 was recorded as debt discount and is being amortized over the maturity period of the debt. On July 31, 2018
the note had been reduced by $435.
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%. On July 31, 2018 there was $33,707 outstanding.
During the nine months ended July 31, 2018 the Company borrowed $36,000 and repaid $2,293.
NOTE 5 – RELATED PARTY DEBT AND TRANSACTIONS
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.
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 6 – STOCKHOLDER'S EQUITY
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 year 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.
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.
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 – COMMON STOCK WARRANTS
Between March
1, 2017 and October 31, 2017 the Company (successor) did not sell any common stock units. On July 13, 2018, the Company issued
200,000 common stock units as collateral for a 10 year note payable. Each unit outstanding as of July 31, 2018 consists of one
share of our common stock, and one warrant to purchase, for $2.00 and within 24 months of issuance, one share of common stock.
The warrants vested upon grant date and will expire between February 8, 2018 and August 1, 2020. None expired during the eight
months ended October 31, 2017. 240,000 expired between November 1, 2017 and July 31, 2018.
The estimated value of the 200,000 warrants
issued in connection with the note payable was $50,000 and was recorded as debt discount and is being amortized over the maturity
period of the debt. This value was estimated using a Black Scholes model with the following inputs: dividend yield 0%; expected
term of two years’ risk-free rate, and a stock price of $0.50 based on the most recent cash sale price due to the lack of
public trading of the Company’s stock. This resulted in a maximum value of the warrants of $50,000.
A summary of our stock warrant activity
for the period from November 1, 2017 through July 31, 2018 is as follows:
|
|
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period - October 31, 2017
|
|
515,000
|
|
|
2.00
|
|
|
0.73
|
|
Expired during the nine months ended July 31, 2018
|
|
(240,000)
|
|
|
2.00
|
|
|
-
|
|
Issued during the nine months ended July 31, 2018
|
|
200,000
|
|
|
2.00
|
|
|
2.00
|
|
Outstanding at end of period - July 31, 2018
|
|
475,000
|
|
|
2.00
|
|
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period - July 31, 2018
|
|
475,000
|
|
|
2.00
|
|
|
0.90
|
|
The warrants outstanding and exercisable as of July 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.
NOTE 9 – SUBSEQUENT EVENTS
On December 24, 2018, our chief executive
officer loaned the Company $21,000. The loan has a maturity date of December 20, 2020, and bears interest at 7%, with monthly payments
of $940. The Company has made payments of $4,117 against this note payable to date