UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x Annual Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2018
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
Commission file number 000-1658880
BARE METAL STANDARD, INC.
(Exact name of registrant as specified in its charter)
| IDAHO | 47-5572388 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
3604 S. Banner Street
Boise, Idaho
(Address of principal executive offices, including zip code.)
(208) 898-9379
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered |
| Common | OTC Markets |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ Nox
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer¨ | Accelerated filer¨ |
| Non-accelerated filerx | Smaller reporting companyx |
| Emerging Growth Companyx |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES¨ NOx
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $1,625,000 as of April 30, 2018
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 31,845,000 shares of common stock as of August 14, 2019.
Documents Incorporated By Reference: None
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BARE METAL STANDARD, INC.
OCTOBER 31, 2018
INDEX TO FORM 10-K
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Note about Forward-Looking Statements
Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including without limitation, the following sections: "Business," "Management's Discussion and Analysis," and "Risk Factors." These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
On November 12, 2015 Bare Metal Standard (“Bare Metal”, “BMS” or the “Company”) was incorporated under the laws of the State of Idaho as a corporation capitalizing on the current growth in commercial kitchens. With the core competency of servicing commercial kitchen grease exhaust systems the Company’s strategy is to leverage this required service to capture a national footprint of commercial kitchen customers through the franchise model of their Bare Metal Standard brand. The Company is focused exclusively on the restaurant industry and specifically the engine that drives this business the commercial kitchen. The Company seeks to develop synergistic services required by commercial kitchens to keep them Safe, Health and Efficient. The Company views the market in three customer categories; a. Healthcare, b. Institutional and c. Restaurants.
Bare Metal Standard provides franchise opportunities in the services of commercial kitchen grease exhaust systems (GES).
Bare Metal Standard supports all its franchises through a centralized workflow system named Shifts Software that the company created and owns. This application is capable of managing hundreds of franchisees and thousands of customer locations. The workflow system exists on redundant servers throughout the USA to ensure connectivity. The company purchases consumables to leverage its buying power and maintain its uniformity. Our franchisees will purchase, directly from us, to maintain the same quality products and uniformity in our cleaning process.
The Company’s business model comes from the traditional franchise model that has proven to be successful for many service focused offerings. The primary value of our business model is to leverage the knowledge, capital and passion, equipment and processes to build a national brand to deliver a consistent level of services throughout the United States and beyond. Once we are operational with clients the business model is secure with recurring revenue from the required service (by code NFPA 96) on a quarterly basis (quarterly is typical, some potential customers are monthly, every 2, 4, 6 months to a few who go annually). The NFPA (National Fire Protection Associations) guidelines are adopted by insurance companies and local fire departments for the safety of the public. It has become mandatory for industrial kitchens to maintain a monthly, quarterly or semiannual cleaning schedule depending on what they cook. A barbecue restaurant would be required to clean their hoods monthly compared to a nursing homes semiannual cleaning. Local authority departments monitor these schedules with onsite inspections. Our mission is to transform this business sector into a rationalized national brand that will have the strength to expand throughout the United States and beyond.
Our principal service is providing support and training for our franchisees helping them to become successful utilizing our proven track record. We do not own any patents or trademarks but we are licensed in the appropriate states that we offer under the franchising laws of that State.
We are registered in all the States in the United States to sell and operate our franchises except the following 10 States;
| California | Hawaii | Illinois |
| Maryland | Michigan | New York |
| North Dakota | South Dakota | Rhode Island |
| Wisconsin |
We intend to register in the remaining States as needed.
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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.
On March 1, 2017, we entered into a management agreement with Taylor Brothers Holdings Inc. “Taylor Brothers” or Taylor Brothers Holdings”, 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. For purposes of the following discussion, we compare the combined results of Bare Metal Standard for the 12 months ended October 31, 2018 to the combined results of Bare Metal Standard Inc. for the eight months ended October 31, 2017 and Taylor Brothers Holdings for the four months ended February 28, 2017.
We believe that our potential customers understand the financial and reputational risks associated with inadequate maintenance of their kitchen hoods and that our high-quality, professional services are low-cost expenditures when compared to the alternative of failing to perform essential maintenance. We strive to be the service provider of choice and believe the commercial kitchen industry of over 1million locations in the United States collectively have recognized the value proposition of complying with the required fire and insurance regulations. As evidenced by our long-standing customer relationships our management team has and the high rate at which our customers renew their contracts from year to year we are confident Bare Metal Standard possesses the tools required to develop a national brand with franchisees in every major market within the United States.
Our focus on attracting and retaining new customers as our franchisees begins with our associates in the field, who interact with commercial kitchen managers, fire departments, insurance companies and facility managers every day. Our associates bring a strong level of passion and commitment to the Bare Metal Standard brand. We have extensive experience to bring to our new company. Our field organization is supported by dedicated customer service and call center personnel. Our culture of continuous improvement drives an intense focus on the quality of the services delivered, which we believe produces high levels of customer satisfaction and, ultimately, customer retention and referrals.
Our expansion, both in existing markets of potential franchisees, where we have capacity to increase our local market position with franchises, and in new markets through detailed assessments of local economic conditions and demographics, we have identified target markets where we see opportunities. We intend to grow our presence through strategic franchise expansions and additional licensing agreements.
Competition
We may not have the resources to compete with our existing competitors or with any new competitors. We intend to compete with many other competitors who perform wheelchair repairs, all of which have significantly greater personnel, financial, and managerial resources than we do. This competition from other companies with greater resources and reputations may result in our failure to maintain or expand our business.
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Moreover, as the demand for the servicing of commercial kitchen grease exhaust systems increases, new companies may enter the market and the influx of added competition will pose an increased risk to our Company. Increased competition may lead to price wars, which would harm us since we would be unable to compete with companies with greater resources. In addition, increased competition and increased demand may create a stress on the wheelchair manufacturers, output capabilities, which may lead to increased prices, which would also harm our ability to compete in the wheelchair market.
Intellectual Property
We rely or plan to rely on a combination of trademark, copyright, trade secret and patent laws in the United States, as well as confidentiality procedures and contractual provisions to protect our commercial kitchen grease exhaust system maintenance methodologies and any new methodologies we might develop in the future. We currently have no pending patents nor trademarks.
From time to time, we expect that we may encounter disputes over rights and obligations concerning intellectual property. Also, the efforts management has taken to protect its proprietary rights may not be sufficient or effective. Any significant impairment of its intellectual property rights could harm the existing business, the brand and reputation, and the ability of the business to compete on a going forward basis. Also, protecting our intellectual property rights could be costly and time consuming.
Employees
We currently have six employees. Our CEO performs all duties related to the operations of this business. We also plan to utilize additional independent contractors on a part-time/as needed basis.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
Item 1B, Unresolved Staff Comments
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
Our corporate headquarters are located at: 3604 S. Banner Street, Boise, Idaho 83709. We do not own any real property. Management believes that its current facilities are adequate for its needs through the next twelve months, and that, should it be needed, suitable additional space will be available to accommodate expansion of the Company's operations on commercially reasonable terms, although there can be no assurance in this regard.
From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
Item 4, Mine Safety Disclosures
Not applicable.
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Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Common Stock is listed to trade in the over-the-counter securities market through the Financial Industry Regulatory Authority ("FINRA") Automated Quotation Bulletin Board System, under the symbol "BRMT".
The following table sets forth the quarterly high and low closing prices for our Common Stock during the last fiscal year, as reported by OTCMarkets. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
| Closing Price | |||||||||
| 2018 Fiscal Year | Hi | Low | |||||||
| January 31, 2018 | $ | 1.00 | 0.66 | ||||||
| April 30, 2018 | $ | n/a | n/a | ||||||
| July 31, 2018 | $ | 1.00 | 1.00 | ||||||
| October 31, 2018 | $ | 0.66 | 0.66 | ||||||
| 2017 Fiscal Year | ||||||||
| July 31, 2017 | $ | 0.01 | 0.01 | |||||
| October 31, 2017 | $ | 0.01 | 0.01 |
The Company became effective on January 18, 2017 and first listed its common stock for trading on June 22, 2017.
The most recently report trade of our common stock on OTC Markets was $0.97 on July 2, 2019.
Holders
As of October 31, 2018, we had 57 holders of record of our common stock.
Dividend Policy
We have not declared or paid any cash dividends on our common stock or other securities and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the board of directors deem relevant.
Equity Compensation Plan Information
None
Recent Sales of Unregistered Securities
Common Stock
On January 21, 2016, the Company issued 30,000,000 common shares, at a cost of $0.001 per share, to its three officers and directors and 1,000,000 common shares to a consultant to reimburse them for expenses incurred and for services provided.
Between February 8, 2016 and October 31, 2016, the Company sold 475,000 common shares units to third party investors at a cost of $0.50 per unit for total proceeds of $237,500. Each unit 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. During the eight months ended October 31, 2017, the Company issued 60,000 common shares at a cost of $0.50 per share for cash proceeds of $30,000 and 70,000 common shares issued for services and valued at $35,000 and accounted for as stock- based compensation. During the year ended October 31, 2018, the Company issued 200,000 common share units, which consist of one share of common stock and one warrants collateral for a note payable of $100,000, recognizing a $50,000 debt discount for the value of the warrants.
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Common Stock Warrants
Between February 8, 2016 and October 31, 2016, the Company sold 475,000 common share units for $0.50 per unit, for a total of $237,500. Each unit 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 vest upon grant date and expire between February 8, 2018 and October 31, 2018. On June 13, 2018 the Company borrowed $100,000 from a non-related investor. The note is not convertible, but, is collateralized by 200,000 units of the Company’s common stock, which have been issued. Each common stock unit includes the right, to purchase, for up to two years, at a cost of $2 per share, one common share of common stock.
Use of Proceeds from Registered Securities
The Company is using the proceeds from the sale of its units of common stock and warrants for general working capital purposes.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None
Item 6, Selected Financial Data
Not required for smaller reporting companies.
Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Successor and Predecessor Financial Presentation
The following discussion of the financial condition and results of operations should be read in conjunction with the consolidated financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.
For the years ended October 31, 2018 and 2017:
While, from a legal perspective, we did not acquire Taylor Brothers, the Company entered into a management agreement with Taylor Brothers, from an accounting perspective we are deemed to have acquired Taylor Brothers effective March 1, 2017. Thus, Taylor Brothers is viewed as predecessor entity for accounting purposes, and we are viewed as a successor entity. For purposes of the following discussion, we compare the results of Bare Metal Standard Inc. for the 12 months ended October 31, 2017 to the combined results of Bare Metal Standard Inc. for the eight months ended October 31, 2017 and Taylor Brothers for the four months ended February 28, 2017.
During the fiscal year ended October 31, 2018, the Company generated total revenues of $887,189, of which $368,293 is from related parties. During the eight months ended October 31, 2017, Bare Metal (Successor) generated franchise fee revenue, from non-related parties of $292,996 plus $87,925, generated by Taylor Brothers Holdings (Predecessor) for the four months ended February 28, 2017. The principal reason for the increase in revenues was increased activity generated by the franchisees.
For the fiscal year ending October 31, 2018, we experienced a net loss of $125,470, as compared to a net loss of $79,822 for the eight months ended October 31, 2017 and a net loss of $66,941 for the four months ended February 28, 2017. This primarily resulted from higher operating expenses in the 2018 period, which more than offset the increase in revenues. The higher level of operating expense is partly attributable to higher general and administrative expenses, which is likely to continue given the costs of maintaining the company as a public company.
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Revenue
The Company has generated total revenues of $887,189 for the fiscal year ended October 31, 2018, of which $368,293 is from related parties, which is an increase from the $494,425 of revenues during the eight months ended October 31, 2017 (Predecessor), including $201,429 from related parties, and $147,288 of revenue for the four months ended February 28, 2017 (Predecessor), including $59,363 from related parties. Nevertheless, as of October 31, 2018, the Company had an accumulated deficit of $434,608. There can be no assurances that the Company can achieve or sustain profitability or that the Company's operating losses will not increase in the future.
Liquidity and Capital Resources
The Company is authorized to issue 80,000,000 shares of its $0.001 par value common stock. As of October 31, 2018, the Company has 31,845,000 shares of common stock issued and outstanding. As of October 31, 2018, the Company had current assets of $106,095 and current liabilities of $106,493
The Company has limited financial resources available, which has had an adverse impact on the Company's liquidity, activities and operations. In order for the Company to remain a Going Concern it will need to find additional capital or generate revenues. Additional working capital may be sought through additional debt or equity private placements, additional notes payable to banks or related parties (officers, directors or stockholders),or from other available funding sources at market rates of interest, or a combination of these. The ability to raise necessary financing will depend on many factors, including the nature and prospects of any business to be acquired and the economic and market conditions prevailing at the time financing is sought. No assurances can be given that any necessary financing can be obtained on terms favorable to the Company, or at all.
Management believes the Company has sufficient cash assets, coupled with Managements’ ability to provide additional funds through the sale of equity securities, to fund its operations and keep the Company fully reporting for the next twelve (12) months.
Operating Activities
During the twelve months ended October 31, 2018, we utilized cash in the amount of $125,116 to pay for operating activities, compared to the $75,038 of cash used to pay for operating expenses for the eight months ended October 31, 2017 and $17,953 used in operations for the four months ended February 28, 2017. The difference was due, primarily, to the increase in the net loss during the period as a result of higher ongoing operating expense.
Investing Activities
We did not generate any funds from investing activities during the twelve month period ended October 31, 2018 and for the eight months ended October 31, 2017 or the four months ended February 28, 2017.
Financing Activities
During the twelve months ended October 31, 2018 we received a net amount of $130,250 of cash from financing activities, including proceeds from third party loans of $100,000. The Company also made total repayments on third party loans of $5,245 and repayments of $505 on related party notes payable. In the comparable 2017 period, we received $30,000 of cash from sale of common stock, none of which was sold in the 12 months ended October 31, 2018.During the four months ended February 28, 2017, the Predecessor received proceeds of $2,250 from related party notes payable, made repayments to related parties of $34,587 and repayments on third party loans of $2,839.
Plan of Operation
The Company’s plan of operation is to provide franchise opportunities in the services of commercial kitchen grease exhaust systems (GES). As of October 31, 2018, we had $11,643 cash on hand and accounts receivable of $33,705. Management believes, without any additional funding or revenues, the Company has to resume selling equity securities to finance its operations and continued growth. We will apply any proceeds from future revenues to help cover our expenditures. At this time, management anticipates it will be required to seek outside funding to keep its business operational for the next twelve months, and will continue its efforts to seek additional funding.
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Future funding could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company's business, results of operations and financial condition. Any future acquisitions of other businesses, technologies, services or product(s) might require the Company to obtain additional equity or debt financing, which might not be available on terms favorable to the Company, or at all, and such financing, if available, might be dilutive.
Going Concern
Our independent auditors included an explanatory paragraph in their report on the October 31, 2018 audited financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors. Our ability to continue as a going concern is contingent upon the successful completion of additional financing arrangements and our ability to achieve and maintain profitable operations.
Therefore, management plans to raise equity capital to finance the operating and capital requirements of the Company. While the Company is devoting its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds that will be available for operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
Summary of any product research and development that we will perform for the term of our plan of operation.
We do not anticipate performing any product research and development under our current plan of operation.
Expected purchase or sale of plant and significant equipment.
We do not anticipate the purchase or sale of any plant or significant equipment; as such items are not required by us at this time.
Significant changes in the number of employees.
As of October 31, 2018, we had four full time employees and two officers. We are dependent upon our two officers for our future business development. As our operations expand we anticipate the need to hire additional employees, consultants and professionals; however, the exact number is not quantifiable at this time.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
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.
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Summary of Significant Accounting Policies
Our consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our consolidated financial statements.
Our significant accounting policies are summarized in Note 2 of our consolidated financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the periods presented in this report.
New Accounting Standards
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.
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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.
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, 2020, and the Company is currently evaluating the potential impact on its financial statements.
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 8 Financial Statements and Supplementary Data
See F-1.
| 12 |
BARE METAL STANDARD, INC.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
AND
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
October 31, 2018 and 2017
| F-1 |
TABLE OF CONTENTS
| F-2 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Bare Metal Standard, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bare Metal Standard, Inc. (the “Company”) as of October 31, 2018 and 2017, and the consolidated related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year ended October 31, 2018 and for the for the eight months ended October 31, 2017, and the related notes and we have audited the accompanying statements of operations, changes in stockholders’ equity (deficit), and cash flows for the four months ended February 28, 2017, and the related notes (collectively referred to as the “financial statements”) of Taylor Brothers Holdings, Inc. (the “Predecessor”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2018 and 2017, and the results of its operations and its cash flows for the year ended October 31, 2018 and the eight months ended October 31, 2017 and of the Predecessor the four months ended February 28, 2017, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s and the Predecessor’s management. Our responsibility is to express an opinion on the Company’s and the Predecessor’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company and the Predecessor are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's or the Predecessor’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2016
Houston, Texas
August 14, 2019
| F-3 |
Bare Metal Standard, Inc.
| October 31 | ||||||||||||||
| 2018 | 2017 | |||||||||||||
| Assets | ||||||||||||||
| Current assets | ||||||||||||||
| Cash | $ | 11,643 | $ | 6,509 | ||||||||||
| Accounts receivable | 33,705 | 31,004 | ||||||||||||
| Accounts receivable - related parties | 51,538 | 16,355 | ||||||||||||
| Inventory | 9,209 | 31,971 | ||||||||||||
| Total current assets | 106,095 | 85,839 | ||||||||||||
| Total assets | $106,095 | $85,839 | ||||||||||||
| Liabilities and Stockholders' Equity (Deficit) | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable and accrued liabilities | 35,904 | $46,350 | ||||||||||||
| Accounts payable related party | 19,000 | - | ||||||||||||
| Bank line of credit | 32,520 | - | ||||||||||||
| Related party note payable - current portion | 1,853 | - | ||||||||||||
| Promissory note payable - current portion | 17,217 | - | ||||||||||||
| Total current liabilities | 106,494 | 46,350 | ||||||||||||
| Long term liabilities | ||||||||||||||
| Related party note payable | 2,642 | - | ||||||||||||
| Promissory note payable, net of discount | 32,941 | - | ||||||||||||
| Total long term liabilities | 35,583 | - | ||||||||||||
| Total liabilities | 142,077 | - | ||||||||||||
| Stockholders' equity (deficit) | ||||||||||||||
| Preferred stock, $0.001 par value; 20,000,000 shares authorized; | ||||||||||||||
| none issued and outstanding as of October 31 , 2018 and 2017 respectively | - | - | ||||||||||||
| Common stock, $0.001 par value; 80,000,000 shares authorized; | ||||||||||||||
| 31,845,000 shares issued and outstanding as of October 31, 2018 | ||||||||||||||
| and 31,645,000 as of October 31, 2017 respectively | 31,845 | 31,645 | ||||||||||||
| Additional paid-in capital | 371,705 | 321,905 | ||||||||||||
| Accumulated deficit | (439,532) | (314,061) | ||||||||||||
| Total stockholders' equity (deficit) | (35,982) | 39,489 | ||||||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 106,095 | $ | 85,839 | ||||||||||
(see accompanying notes to consolidated financial statements)
| F-4 |
Bare Metal Standard, Inc.
Consolidated Statements of Operations
| For the Year Ended | For the Eight Months Ended | For the Four Months Ended | ||||||||||
| October 31 | October 31, | February 28, | ||||||||||
| 2018 | 2017 | 2017 | ||||||||||
| (Successor) | (Successor) | (Predecessor) | ||||||||||
| Revenue | ||||||||||||
| Product sales and services | $ | 518,896 | $ | 292,996 | $ | 87,925 | ||||||
| Product sales and services - related parties | 368,293 | 201,429 | 59,363 | |||||||||
| Total revenue | 887,189 | 494,425 | 147,288 | |||||||||
| Cost of revenue | 253,842 | 86,366 | - | |||||||||
| Gross income | 633,347 | 408,059 | 147,288 | |||||||||
| Operating expenses | ||||||||||||
| General and administrative expenses | 285,401 | 178,783 | 76,905 | |||||||||
| Depreciation and amortization | - | - | 4,638 | |||||||||
| Administrative and officer compensation | 463,851 | 309,098 | 129,819 | |||||||||
| Total operating expenses | 749,252 | 487,881 | 211,362 | |||||||||
| Loss from operations | (115,905 | ) | (79,822 | ) | (64,074 | ) | ||||||
| Other expense | ||||||||||||
| Interest expense | (9,566 | ) | - | (2,867 | ) | |||||||
| Total other expense | (9,566 | ) | - | (2,867 | ) | |||||||
| Net loss | $ | (125,471 | ) | $ | (79,822 | ) | $ | (66,941 | ) | |||
| Basic and diluted net loss per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (55.78 | ) | |||
| Weighted average common shares outstanding Basic and diluted | 31,721,164 | 31,537,712 | 1,200 | |||||||||
(see accompanying notes to consolidated financial statements)
| F-5 |
Bare Metal Standard, Inc.
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended October 31, 2018 and Eight Months Ended October 31, 2017 (Successor) and Four Months Ended February 28, 2017 (Predecessor)
| Preferred | Common | Additional Paid | Accumulated | Stockholders' | ||||||||||||||||||||||||
| Shares | Par | Shares | Par | In Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balances as of October 31, 2016 | - | $ | - | 1,200 | $ | 1,200 | $ | - | $ | (86,940 | ) | $ | (85,740 | ) | ||||||||||||||
| Net loss for the four months ended February 28, 2017 | - | - | - | - | - | (66,941 | ) | (66,941 | ) | |||||||||||||||||||
| Balances as of October 31, 2017 | - | $ | - | 1,200 | $ | 1,200 | $ | - | $ | (153,881 | ) | $ | (152,681 | ) | ||||||||||||||
| SUCCESSOR | ||||||||||||||||||||||||||||
| Balances at March 1, 2017 | - | $ | - | 31,515,000 | $ | 31,515 | $ | 257,035 | $ | (234,239 | ) | $ | 54,311 | |||||||||||||||
| Common stock issued for cash | - | - | 60,000 | 60 | 29,940 | - | 30,000 | |||||||||||||||||||||
| Common shares issued for services | - | - | 70,000 | 70 | 34,930 | - | 35,000 | |||||||||||||||||||||
| Net loss for the eight months ended October 31, 2017 | - | - | - | - | - | (79,822 | ) | (79,822 | ) | |||||||||||||||||||
| Balances as of October 31, 2017 | - | - | 31,645,000 | 31,645 | 321,905 | (314,061 | ) | 39,489 | ||||||||||||||||||||
| Common shares issued as collateral for note payable | - | - | 200,000 | 200 | (200 | ) | - | - | ||||||||||||||||||||
Warrants issued in connetion with debt discount on note payable | - | - | - | - | 50,000 | - | 50,000 | |||||||||||||||||||||
| Net loss for the year | - | - | - | - | - | (125,471 | ) | (125,471 | ) | |||||||||||||||||||
| Balances as of October 31, 2018 | - | $ | - | $ | 31,845,000 | $ | 31,845 | $ | 371,705 | $ | (439,532 | ) | $ | (35,982 | ) | |||||||||||||
(See accompanying notes to consolidated financial statements)
| F-6 |
Bare Metal Standard, Inc.
| For the Year Ended | For the Eight Months Ended | For the Four Months Ended | ||||||||||
| October 31 | October 31, | February 28, | ||||||||||
| 2018 | 2017 | 2017 | ||||||||||
| (Successor) | (Successor) | (Predecessor) | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | (125,471 | ) | $ | (79,822 | ) | $ | (66,941 | ) | |||
| Adjustments to reconcile net loss to net cash used | ||||||||||||
| in operating activites | ||||||||||||
| Common stock issued for services | - | 35,000 | - | |||||||||
| Professional service fee paid by related party | 5,000 | - | - | |||||||||
| Amortization of debt discount | 1,923 | - | - | |||||||||
| Depreciation | - | - | 4,639 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| (Increase) decrease in accounts receivable | (2,701 | ) | (22,239 | ) | 14,580 | |||||||
| (Increase) decrease in accounts receivable - related parties | (35,183 | ) | (16,355 | ) | 177 | |||||||
| (Increase) decrease in inventory | 22,762 | (20,404 | ) | - | ||||||||
| Increase (decrease) in accounts payable | (10,446 | ) | 28,782 | 29,592 | ||||||||
| Increase (decrease) in accounts payable - related parties | 19,000 | - | - | |||||||||
| Net cash used in operating activities | (125,116 | ) | (75,038 | ) | (17,953 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from sale of common stock | - | 30,000 | - | |||||||||
| Proceeds received from notes payable - related party | - | - | 2,250 | |||||||||
| Repayment of note payable - related party | (505 | ) | - | (34,587 | ) | |||||||
| Note payable Proceeds from third party loans | 136,000 | - | - | |||||||||
| Repayment of third party loans | (5,245 | ) | - | (2,839 | ) | |||||||
| Net cash provided by (used in) financing activities | 130,250 | 30,000 | (35,176 | ) | ||||||||
| Net increase (decrease) in cash and cash equivalents | 5,134 | (45,038 | ) | (53,129 | ) | |||||||
| Cash, beginning balance | 6,509 | 51,547 | 55,456 | |||||||||
| Cash, ending balance | $ | 11,643 | $ | 6,509 | $ | 2,327 | ||||||
| Supplementary information | ||||||||||||
| Cash paid during the nine months: | ||||||||||||
| Interest | $ | 7,818 | $ | - | $ | 2,856 | ||||||
| Income taxes | $ | - | $ | - | $ | - | ||||||
| Non-cash investing and financing transactions | ||||||||||||
| Common stock issued as collateral on note payable | $ | 200 | $ | - | $ | - | ||||||
| Debt discount due to warrants issued with note payable | $ | 50,000 | $ | - | $ | - | ||||||
(see accompanying notes to consolidated financial statements)
| F-7 |
BARE METAL STANDARD, INC.
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The Company was incorporated, as Bare Metal Standard, Inc., (the Company) on November 12, 2015 under the laws of the State of Idaho. Bare Metal Standard provides management services for franchisees who perform fire prevention and mitigation services to commercial kitchens by cleaning their exhaust systems on a mandated schedule enforced by insurance and fire and safety prevention codes.
On March 1, 2017, Bare Metal Standard, Inc. entered into a Management Agreement with Taylor Brothers Holdings, Inc. which is an operating company and has common majority shareholders and directors. The officers and directors of Bare Metal Standard were officers and directors of Taylor Brothers. James Bedal and Mike Taylor have resigned their positions with Taylor Brothers and work full time for Bare Metal Standard. The agreement term has no expiration and can be terminated by the Company at any time with written notice to the other partner. As a result of the management agreement, Bare Metal is to provide, on behalf of Taylor Brothers, certain management services, having full authorization, on behalf of Taylor Brothers to provide all the services and all the activities, normally provided by Taylor Brothers, under the Taylor Brothers franchise agreements, previously entered into by Taylor Brothers and the franchisees Bare Metal became responsible for servicing franchisee agreements and receiving 100% of the revenues associated with those agreements assumed for the support and maintenance of the preexisting franchise agreements of Taylor Brothers Holdings franchisees as Taylor Brothers Holdings has ceased selling franchises. Bare Metal is due all collections from franchisees. Bare Metal Standard assumed the business operations of the existing franchise agreements while potential liabilities arising from said agreements will remain with Taylor Brothers. Additionally, on November 1, 2017 Bare Metal, entered into a royalty free license agreement with Taylor Brothers Holdings Inc. with the right to sublease, the use of the trade name Bare Metal Standard and related industry know-how including proprietary software in exchange for a monthly fee of $2,000 paid in arrears.
Bare Metal Standard is, currently, seeking the same management opportunities in other industries. The Company intends to sell franchises in the commercial kitchen fire prevention and mitigation services environment, but, in addition, is looking for the same opportunities in other disciplines.
Basis of Presentation
The accompanying audited financial statements and related footnotes have been presented on a comparative basis in accordance with accounting principles generally accepted in the United States of America (or U.S. GAAP) and with the Securities and Exchange Commission’s (or SEC) instructions for the Form 10-K.
On March 1, 2017, Bare Metal Standard, Inc. entered into a Management Agreement with Taylor Brothers Holdings, Inc. which is an operating company and has common majority shareholders and directors. The officers and directors of Bare Metal Standard were officers and directors of Taylor Brothers. James Bedal and Mike Taylor have resigned their positions with Taylor Brothers and work full time for Bare Metal Standard. The agreement term has no expiration and can be terminated by the Company, at any time, with written notice to the other partner. As a result of the management agreement, Bare Metal is to provide, on behalf of Taylor Brothers, certain management services, having full authorization, on behalf of Taylor Brothers to provide all the services and all the activities, normally provided by Taylor Brothers, under the Taylor Brothers franchise agreements, previously entered into by Taylor Brothers and the franchisees Bare Metal became responsible for servicing franchisee agreements and receiving 100% of the revenues associated with those agreements assumed for the support and maintenance of the preexisting franchise agreements of Taylor Brothers Holdings franchisees as Taylor Brothers Holdings has ceased selling franchises. Bare Metal is due all collections from franchisees. Bare Metal Standard assumed the business operations of the existing franchise agreements while potential liabilities arising from said agreements will remain with Taylor Brothers. Additionally, on November 1, 2017 Bare Metal, entered into a royalty free license agreement with Taylor Brothers Holdings Inc. with the right to sublease, the use of Trade Name Bare Metal Standard and related industry know-how including proprietary software in exchange for a monthly fee of $2,000 paid in arrears. As a result of the above transactions with Taylor Brothers Holdings Inc., under Regulation S-X for reporting purposes Taylor Brother Holdings, Inc. is considered a business. Thus, Taylor Brothers Holdings, Inc. is viewed as Predecessor entity for reporting purposes, and Bare Metal is viewed as a Successor entity.
| F-8 |
Principles of Consolidation
The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which have a fiscal year end of December 31. All intercompany accounts, balances and transactions have been eliminated in the consolidation. In March 2018, the Company formed BRMT Franchising, LLC, a Texas limited liability company that is a wholly-owned subsidiary of the Company.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit, and reoccurring net losses. These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern.
While the Company is attempting to increase sales and generate additional revenues, the Company's cash position may not be significant enough to support the Company's daily operations. If the Company is unable to obtain additional financing through the issuance of debt or equity, the Company may be unable to continue as a going concern. While the Company believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist the reader in understanding and evaluating the Company's financial statements. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The more significant estimates and assumptions made by management include allowance for doubtful accounts, inventory valuation, and provision for excess or expired inventory, depreciation of property and equipment, realization of long-lived assets and fair market value of equity instruments issued for goods or services.
| F-9 |
Cash and Cash Equivalents
Cash as of October 31, 2018 and October 31, 2017 included cash on-hand.
Accounts Receivable and Allowance for Doubtful Accounts
The Company's accounts receivable consists, of amounts owing by franchisees for monthly royalty commitments and for product sales to customers, including the cost of freight incurred to ship the product and other services provided by virtue of the management agreement with Taylor Brothers. Accounts receivable are stated at the amount management expects to collect from the outstanding balances. Accounts receivable as of October 31, 2018 consists of $33,705 and $51,538 due from non-related parties and related parties, respectively. As of October 31, 2018, four customers represented approximately 66.7% (22%, 19.7%, 16% and 10%) of non – related accounts receivable. On October 31, 2017, those amounts were $31,004 and 16,355.
An allowance for doubtful accounts will be provided for those accounts receivable considered to be uncollectable based on historical experience, and management's evaluation at October 31, 2018 and 2017. Bad debts are written off against the allowance when identified. Bare Metal determined that no allowance was necessary for the years ended October 31, 2018 and 2017.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivables. The Company places its cash with high credit quality financial institutions. At times such amounts may exceed federally insure limits.
Receivables arising from sales of the Company's products are not collateralized. As of October 31, 2018, total accounts receivable were $85,243 of which $51,538 or approximately 60.5% was owed by a related party. On October 31, 2017, total accounts receivable were $47,359, of which $16,355 or approximately 35% was owed by the same related party. As of October 31, 2018, one non - related customer represented approximately 16%, of the total accounts receivable. As of October 31, 2017, four customers represented approximately 91% (40%, 25%, 16%, and 11%) of non-related accounts receivable.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents, accounts payable and accrued expenses and shareholder loans. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Accounting for Derivative Liabilities
The Company evaluates stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity's Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date. The Company determined that it has no financial instruments that meet the criteria for derivative accounting as of October 31, 2018 nor as of October 31, 2017.
| F-10 |
Beneficial Conversion Features
The Company, may, from time to time issue convertible notes that may have conversion prices that create an embedded liability pursuant to accounting guidance. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of any attached equity instruments, if any related equity instruments were granted with the debt. In accordance with this guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method. The Company determined that it has no financial instruments that meet the criteria for beneficial conversion as of October 31, 2018 nor as of October 31, 2017.
Share-Based Compensation
The Company accounts for stock-based compensation to employees and non-employees in accordance with FASB ASC 718 Compensation—Stock Compensation. Stock-based compensation to employees is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite employee service period. Equity instruments issued to other than employees are valued at the earlier of a commitment date or upon completion of the services, based on the fair value of the equity instruments and is recognized as expense over the service period. The Company estimates the fair value of stock-based payments using the Black-Scholes option-pricing model for common stock options and warrants and the latest fair market price of the Company's common stock for common share issuances.
Inventories and Provision for Excess or Expired Inventory
Inventory consists of finished goods and consumables held for resale to franchisees, and is valued on an average cost basis. Provisions for excess inventory are included in cost of goods sold and have historically been immaterial but adequate to provide for losses. Inventory is reviewed, at least, quarterly. The Company has determined that there was no need to reserve for obsolescence as of October 31, 2018 and October 31, 2017.
Property and Equipment
The Company does not possess any property or equipment.
Long-lived Assets
The Company does not possess any long-lived assets.
| F-11 |
Revenue Recognition
The Company's revenue is derived from the sale of products, services and training to support the franchisees under its Management agreement with Taylor Brothers, as a percentage of franchisees’ revenue invoiced to their clients, plus specific charges for software usage, sale of consumables and consulting services. The Company recognizes revenue when it is realized or realizable and earned, and therefore only recognizes revenue when a franchise agreement has been entered into and the franchise fee received. The Company recognizes revenue from the sale of products, royalties, and services when the product has been shipped or the services have been provided in accordance with the contract entered into with the customer. Payments received in advance of satisfaction of the relevant criteria for revenue recognition are recorded as advances from customers. The Company has no responsibility for collections, of trade debt, owed to a franchisee by the franchisees’ clients and therefore will not create an allowance for potential uncollectable obligations owing to it by the franchisee, unless it is determined that the franchisee will default on its obligation the Company. In accordance with the guidance in FASB Topic ASC 605, Revenue Recognition , the Company recognizes revenue when (a) persuasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the fee is fixed or determinable, and (d) collectability is reasonable assured.
Cost of Goods Sold
The Company derives its revenue, primarily, from services and consulting. Therefore there are no direct costs, other than labor, associated with those activities. The cost of consumables, which are provided to promote consistency amongst franchisees consists of expendable materials and equipment, designed to provide consistency within operations. Costs are recognized when the related revenue is recorded. Shipping and handling costs for all sales transactions are billed to the franchisee and are included in cost of goods sold for all periods presented.
General and Administrative Expenses
General and administrative expenses which includes advertising, promotional and selling expenses, consists of rent and utility expenses, meals, travel and entertainment expenses, and other general and administrative overhead costs. Expenses are recognized when incurred.
Administrative and Officer Compensation
Administrative and officer compensation includes our officers, who are directly involved in management and our employees who provide daily supervision and management of operations. Expenses are recognized as incurred. Where necessary, unpaid compensation was accrued to coincide with reporting periods.
Income Taxes
Successor
The Company uses the liability method of accounting for income taxes under the asset and liability method prescribed under ASC 740, Income Taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities have been adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
The Company expects to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of October 31, 2018 and October 31, 2017, the Company had no uncertain tax positions. The Company recognizes interest and penalties, if any, related to uncertain tax positions as general and administrative expenses. The Company currently has no federal tax examinations nor has it had any federal income tax penalties since its inception.
| F-12 |
The New Tax Act, signed into law on December 22, 2017 made significant changes to the Internal Revenue Code. These changes include of corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. Additionally, the NOL carryforward period for new NOLs will change from 20 succeeding taxable years to an indefinite period. With the elimination of the alternative minimum tax, NOLs for taxable years beginning after December 31, 2017, can offset 80% of Federal taxable income. Since the Company is using the asset and liability method of accounting for income taxes and because deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which temporary differences are expected to reverse, the Company is revaluing the net deferred assets, fully offset by a valuation allowance, after December 31, 2017.
Predecessor
The Predecessor is a corporation; reports its own profits and losses, and has not had taxable income during the current reporting period. Accordingly, no provision for income taxes has been reflected in these financial statements.
Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted-average common shares outstanding. Diluted net income per share is calculated by dividing net income by the weighted-average common shares outstanding during the period using the treasury stock method. As the Company incurred net losses for the years ended October 31, 2018 and 2017, no potentially dilutive securities were included in the calculation of diluted earnings per share as the impact would have been anti-dilutive. Therefore, basic and dilutive net income (loss) per share were the same.
New Accounting Pronouncements
The Financial Accounting Standards Board, or FASB, has issued Accounting Standards Update No. 2014-09, Revenue from contracts with Customers (Topic 606), or ASU 606. ASU 606 provides guidance outlining a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers in an amount that supersedes most current revenue recognition guidance. This guidance requires us to recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We are required to adopt ASU 606 at the beginning of our first quarter of fiscal 2019. The new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The new guidance may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of the adoption. The Company adopted this guidance on November 1, 2018. The primary impact expected on the Company’s financial statements at adoption is that future franchise license fees received will initial be deferred and revenue recognized ratably over the expected license period. The Company expects to utilize the cumulative effect approach of adopting ASC 606, but does not expect a material impact to the Company’s financial statements due to the Company currently earning revenues from the products, services and training to support the franchisees under its Management agreement with Taylor Brothers, as a percentage of franchisees’ revenue invoiced to their clients, plus specific charges for software usage, sale of consumables and consulting services. These revenue streams are not expected to have a material change in accounting method from adopting ASC 606.
| F-13 |
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU No. 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments in this update simplify several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted the new guidance on November 1, 2017, with no material impact to the Company’s financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The Company adopted this standard on November 1, 2018 and there was no material impact to the Company’s financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. This standard will be effective for the Company on November 1, 2019, and the Company is currently evaluating the potential impact on its financial statements.
NOTE 3 – MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE
Bare Metal had four unrelated customer and one related party customer, whose revenue, during the year ended October 31, 2018 represented in excess of 10% of the total revenue for related party and total revenue non-related parties and four unrelated customers that represented in excess of 10% of total accounts receivable. Bare Metal had two unrelated customers and one related party customer, whose revenue, during the year ended October 31, 2017 represented in excess of 10% of the total revenue and two unrelated customers that represented in excess of 10% of total accounts receivable.
Concentration of revenue and related party revenue-
During the year ended October 31, 2018, the Company invoiced royalties and sold products and services, including freight totaling $368,293 or 41.5%, of total sales to one related company, Taylor Brothers, Inc., and $460,068 of non-related party revenue or (16%,16%,13% and 43%), respectively, to four non-related parties.. During the year ended October 31, 2017 Bare Metal invoiced royalties and sold product and services, including freight, totaling $201,429 or 39.7% of its total revenue, to one related company, Taylor Brothers Inc. and $207,456 of non-related party revenue or (21%,10%,9.6%), respectively, to three non-related parties.
| F-14 |
Concentration of accounts receivable and related party accounts receivable-
Receivables arising from sales of the Company's products are not collateralized. As of October 31, 2018, total accounts receivable were $85,243 of which $51,538 or 60.1% was owed by Taylor Brothers, Inc., a related party. As of October 31, 2018, four unrelated customers represented approximately 93% (41%, 20%, 22%, and 10%) of non-related accounts receivable As of October 31, 2017, total accounts receivable were $47,359 of which $16,355 or 35% was owed by a related party. As of October 31, 2018, one unrelated customer accounted for approximately 16% of total accounts receivable. As of October 31, 2017, four unrelated customers represented approximately 91% (40%, 25%, 16%, and 11%) of non-related accounts receivable.
NOTE 4 – INVENTORY
Inventories consist of finished goods consumables that are provided to franchisees as a vehicle to maintain consistency of operations. The items are recorded at cost and sold to the franchisees with a nominal mark-up. Provisions for excess inventory are included in cost of goods sold and have historically been immaterial. Inventories are stated at the lower of cost, determined by average cost, or net realizable value.
NOTE 5 – NOTES PAYABLE
On June 13, 2018, the Company borrowed $100,000 from a non-related investor. The note is repayable, in equal monthly instalments, over 120 months with payments of $1,438 at an interest cost of 12%. The note is not convertible, but, is collateralized by 200,000 units of the Company’s common stock, which have been issued. Each common stock unit includes one common share and the right, to purchase, for up to two years, at a cost of $2, one common share. $50,000 of debt discount was recognized in connection with the note related to the warrants and is being amortized in equal annual instalments over the life of the note. The $50,000 fair value of the warrants was determined based on the relative fair value of the warrants and debt, assuming a maximum value based on the most recent sale price of common stock for cash of $0.50 per share, due to the lack of active trading market for the Company’s common stock. On October 31, 2018 the note had been reduced by $1,765 and the cost of the discount had been reduced by $1,923 by a charge to the income statement.
On November 14, 2017, the Company opened a line of credit with a bank in the amount of $40,000 bearing interest at the bank prime rate plus 8.5%. During the year ended October 31, 2,018, the Company drew $36,000 against the line of credit and repaid $3,480. $32,520 remained outstanding on October 31, 2018.
NOTE 6 – RELATED PARTY DEBT AND TRANSACTIONS
On July 10, 2018, a related party paid $5,000, directly, to a provider of professional services. The Company issued, to the lender, an unsecured promissory note bears interest at 7% interest, is repayable by 36 equal monthly payments of $154.39 principal and interest. As of October 31, 2018, the balance was reduced by $505.
The Company has revenue transactions with related parties, and accounts receivable balances from those related parties. See Note 2 and 3. Additionally, the Company has no written employee agreement with its officers or directors. From time to time, the Company may award bonuses to those officers or directors for performance. During the year ended October 31, 2018, the Company paid $11,625 to one officer.
| F-15 |
We have entered into an agreement with Taylor Brothers Inc. (a Company with common officers and directors) to use their offices. The rent will be $5,000 per month, when Bare Metal Standard completes required funding to support ongoing operations.
As of October 31, 2018, the Company owes $19,000 to Taylor Brothers Holdings for fees due under the intellectual property license agreement between the companies.
The related party payable, in the amount of $1,924, Taylor Brothers Holdings, (Predecessor) resulted from the acquisition of supplies and products from two related companies. A total of $1,760 owing to Taylor Brothers Distributing, Inc. was repaid in two installments on November 11 and November 16, 2016. The remaining total, of $164, was repaid to a Taylor Brothers, Inc. a franchisee on November 14, 2016.
NOTE 7 – STOCKHOLDER'S EQUITY
Preferred Stock
The Company is authorized to issue 20,000,000 shares of preferred stock, par value of $0.001. There are none issued.
Common Stock
The Company is authorized to issue 80,000,000 shares of common stock, $0.001 par value. During the year ended October 31, 2018, the Company, other than reported in the following paragraph did not issue any common shares. During the eight months ended October 31, 2017, the Company sold, for cash, 60,000 of its common shares, at a cost of $0.50 per share for total proceeds of $30,000, and issued 70,000 common shares for services with a value $35,000 and accounted for as stock based compensation.
On July 13, 2018, the Company issued 200,000 common share units, which included 200,000 common shares and 200,000 warrants to be exercised within two years, as collateral for a $100,000 loan. Upon repayment of the loan in full, the 200,000 common shares will be returned to the Company. See note 5.
NOTE 8 – COMMON STOCK WARRANTS
Between March 1, 2017 and October 31, 2018 the Company did not sell any common stock units. Each unit outstanding as of October 31, 2018 consists of one share of our common stock, and one warrant to purchase one share of common stock within 24 months of issuance, for $2.00. The warrants vested upon grant date and will expire between February 8, 2018 and June 13, 2020. 475, 000 expired during the year ended October 31, 2018. On July 13, 2018, the Company issued 200,000 common share units, which included common shares and warrants to be exercised within two years, as collateral for a $100,000 loan.
| F-16 |
A summary of our stock warrant activity for the period from November 1, 2017 through October 31, 2018 is as follows:
| Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||||
| Outstanding at beginning of period - October 31, 2017 | 515,000 | 2.00 | 0.73 | |||||||||
| Expired during the year ended October 31, 2018 | (475,000 | ) | 2.00 | - | ||||||||
| Issued during the year ended October 31, 2018 | 200,000 | 2.00 | 2.00 | |||||||||
| Outstanding at end of period - October 31, 2018 | 240,000 | 2.00 | 1.37 | |||||||||
| Exercisable at end of period - October 31, 2018 | 240,000 | 2.00 | 1.37 | |||||||||
A summary of our stock warrant activity for the period from March 1, 2017 through October 31, 2017 is as follows:
| Warrants | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||||
| Outstanding at beginning of period - March 1, 2017 | 515,000 | 2.00 | 1.40 | |||||||||
| Outstanding at end of period - October 31, 2017 | 515,000 | 2.00 | 0.73 | |||||||||
| Exercisable at end of period - October 31, 2017 | 515,000 | 2.00 | 0.73 | |||||||||
The warrants outstanding and exercisable as of October 31, 2018 and 2017 had no intrinsic value.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Management agreement
On March 1, 2017, the Company entered into a management agreement with Taylor Brothers Holdings, Inc.(a Company with common officers and directors)to provide all of the services and to conduct all of the activities that were agreed to be undertaken by Taylor Brothers under the Franchise Agreements for providing certain administrative support, including Franchisee training, development of operations manuals and other materials for use by Taylor Brothers’ franchisees; and develop and establish support infrastructures that the Company determines are necessary and appropriate to satisfy Taylor Brothers obligations under the Franchise Agreements. In consideration of the services provided Bare Metal shall be responsible to invoice and collect, per the terms of the Franchise Agreements, under management. All fees so collected will constitute the fees owing under the management agreement. The Agreement does not have a termination date but may be cancelled by either party with appropriate notice.
NOTE 10 – INCOME TAXES
The Company’s net operating loss carryover of $408,531 as of October 31, 2018, will expire in 2038. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forward for Federal income tax reporting purposes are subject to annual limitations. If a change in ownership occurs, net operating loss carry forward may be limited as to its use in future years. The Company’s tax returns for the years ended October 31, 2016 through October 31, 2018 are open for IRS audit.
| F-17 |
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Act, we revalued our ending net deferred tax assets at October 31, 2018, which were fully offset by a valuation allowance.
Future tax benefits for these net operating loss carry-forwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future tax benefit, a valuation allowance is established. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
The cumulative tax effect at the expected rate of 21% as of October 31, 2018 and 2017 of significant items comprising our net deferred tax amount is as follows:
| October 31, | October 31, | |||||||
| 2018 | 2017 | |||||||
| Net operating loss carry forward | $ | 85,792 | $ | 52,932 | ||||
| Less: valuation allowance | (85,792 | ) | (52,932 | ) | ||||
| Net deferred tax asset | $ | - | - | |||||
Predecessor
Taylor Brothers Holdings, Inc., (Predecessor) is a corporation and is responsible for income tax purposes to report its own operations. Accordingly, no provision for income taxes has been reflected in these financial statements. Previous to its 2016 tax year the Predecessor was an S corporation for tax purposes and, therefore, did not require a valuation allowance. The Predecessor has no unrecognized tax benefits.
NOTE 11 – SUBSEQUENT EVENTS
On December 24, 2018, our chief executive officer loaned the Company $21,000. The loan has a maturity date of December 20, 2020, and bears interest at 7%, with monthly payments of $940. The Company has made payments of $4,117 against this note payable to date.
| F-18 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A Controls and Procedures
Management's Report on Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Rules 13a-15(b) and 15d-15(b) under the Exchange Act, requires us to carry out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2018. This evaluation was implemented under the supervision and with the participation of our officers and directors.
Based on this evaluation, management concluded that, as of October 31, 2018, our disclosure controls and procedures are ineffective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner and (2) accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Our officers and directors have concluded that our disclosure controls and procedures had the following material weaknesses:
We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function;
·
·We do not have an independent Board of Directors, nor do we have a board member designated as an independent financial expert. The Board of Directors is comprised of two members who also serve as executive officers. As a result, there is a lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by us; and documentation of all proper accounting procedures is not yet complete.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, the following:
· Engaging consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;
· Hiring additional qualified financial personnel;
· Expanding our current board of directors to include additional independent individuals willing to perform directorial functions; and
· Increasing our workforce in preparation for exiting the development stage and commencing revenue producing operations.
Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses may not be overcome in the near-term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the limited advice of outside professionals and consultants. These initiatives will be subject to our ability to obtain sufficient future financing and subject to our ability to start generating revenue.
| 13 |
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our officers have assessed the effectiveness of our internal controls over financial reporting as of October 31, 2018. In making this assessment, management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Based upon its assessment, management concluded that, as of October 31, 2018, our internal control over financial reporting was ineffective.
Management has identified a lack of sufficient personnel in the accounting function due to our limited resources with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles. We are in the process of developing and implementing remediation plans to address our material weaknesses in our internal controls.
Management has identified specific remedial actions to address the material weaknesses described above:
· Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issue by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations and/or have raised significant additional working capital; and
· Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
| 14 |
Changes in Internal Control over Financial Reporting
During the fourth quarter ended October 31, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None
Item 10. Directors, Executive Officers and Corporate Governance
Below are the names and certain information regarding our executive officers and directors during the year ended October 31, 2018.
| James Bedal | CEO, Director | |
| Michael Taylor | President, Director | |
| Jeffrey Taylor | Secretary, Director |
James Bedal - CEO
James Bedal, 56, has been involved in business development since 1991. He began his product and market development career by introducing products into Japan, Korea, Australia, Singapore and China. James has served as an international market manager for Trus Joist and Extended Systems both Idaho Companies. James shifted his focus from international to domestic in 2002 when he began consulting and working in on a variety of new start-ups. As the VP of Marketing James launched products for law enforcement in 2003, 2004, and began working in the Commercial Kitchen Exhaust industry in 2005.
Jeffrey Taylor - Secretary
Jeff Taylor, 61, is the brother of Mike Taylor and also grew up in the family business in 2004 and has since been developing his skills in both operations to include purchasing. Jeff’s personality and skills make him a great fit for the detailed requirements of supporting our franchisees.
Michael Taylor - President
Mike Taylor, 59, grew up in the family business of commercial kitchen exhaust service. Mike has never left the business and has been instrumental in creating and integrating his unique techniques and process that will Make Bare Metal Standard a leader in its category of commercial kitchen exhaust service companies. In 1989 Mike Taylor became founding members of International Kitchen Exhaust Cleaning Association, an organization that helped organize many small businesses performing kitchen exhaust cleaning in the United States of America. Mike has the experience required to train and maintain a level of quality Bare Metal Standard will build its brand around.
Directors
The authorized number of directors of the corporation shall be fixed from time to time by resolution adopted by the Board.
| 15 |
Term of Office
Directors shall be elected at the annual meeting of stockholders and each director shall hold office until his successor is elected and qualified or until his death, retirement, earlier resignation or removal.
Board of Director Committees
We do not have any board committees due to the limited size of the Board and the Company, and as such the board as a whole carries out the functions of audit, nominating and compensation committees.
Item 11. Executive Compensation
The following table sets forth the compensation paid to our officers and directors for the years ended October 31, 2016, 2017 and 2018:
Name & Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| James Bedal | 2016 2017 2018 | 91,800 93,832 102,760 | - - - | - - - | - - - | - - - | - - - | - - - | 91,800 93,832 102,760 |
| Michael Taylor | 2016 2017 2018 | 101,030 101,157 109,656 | - - - | - - - | - - - | - - - | - - - | - - - | 101,030 101,157 109,656 |
Jeffrey Taylor
| 2016 2017 2018 | - - - | - - 11,625 | - - - | - - - | - - - | - - - | - - - | - - 11,625 |
Employment Agreements
None
Director Compensation
None
| 16 |
Equity Compensation Plans
The following table set forth information regarding the outstanding equity awards as of October 31, 2018 for our officers and directors:
| Name | Number of Securities Underlying Unexercised options (#) | Equity Incentive Plan Awards: Number Securities Underlying Unexercised Unearned Options (#) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Vested | Market Value Shares or of That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights Have Not Vested | |||||||||||||||||||||||||||
| James Bedal | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Michael Taylor | ||||||||||||||||||||||||||||||||||||
| Jeffrey Taylor | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding beneficial ownership of our common stock as of October 31, 2018.
| · | By each person who is known by us to beneficially own more than 5% of our common stock; |
| · | By each of our officers and directors; and |
| · | By all of our officers and directors as a group. |
| 17 |
Title of Class | Name | Amount of beneficial ownership | Percent of class |
| Common | James Bedal CEO and Director 3604 S. Banner St Boise, ID 83709 | 10,000,000 | 31.8% |
Michael Taylor President and Director 3604 S. Banner St Boise, ID 83709 | 10,000,000 | 31.8% | |
Jeffrey Taylor Secretary and Director 3604 S. Banner St Boise, ID 83709 | 10,000,000 | 31.8% | |
| All officers and directors as a group | 30,000,00 | 95.4% | |
| Common | James Bedal 3604 S. Banner St Boise, ID 83709 | 10,000,000 | 31.8% |
Michael Taylor 3604 S. Banner St Boise, ID 83709 | 10,000,000 | 31.8% | |
Jeffrey Taylor 3604 S. Banner St Boise, ID 83709 | 10,000,000 | 31.8% | |
| Officers, Directors and 5% Shareholders as a group | 30,000,000 | 95.4% | |
As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security).
In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date.
Other than the shareholders listed above, we know of no other person who is the beneficial owner of more than five percent (5%) of our common stock.
The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We currently operate with three directors, James Bedal, Michael Taylor and Jeffrey Taylor. We have determined that none of our directors are "independent directors" as defined in NASDAQ Marketplace Rule 4200(a)(15).
| 18 |
Item 14. Principal Accounting Fees and Services
The fees billed for professional services rendered by our principal accountant are as follows:
| Fiscal | Audit- Related | |||||||||||||||
| Year | Audit Fees | Fees | Tax Fees | All Other Fees | ||||||||||||
| 2017 | $ | _____61,200_ | - | - | - | |||||||||||
| 2018 | $ | 48,000 | - | - | - | |||||||||||
Pre-Approval Policies and Procedures
The board of directors must pre-approve any use of our independent accountants for any non-audit services. All services of our auditors are approved by our whole board and are subject to review by our whole board.
Item 15 Exhibits, Financial Statement Schedules
| Number | Exhibit |
| 31.1 | Rule 13a-14(a) Certification of Principal Executive Officer |
| 32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Principal Executive Officer |
| 101.INS* | XBRL Instance Document |
| 101.SCH* | XBRL Taxonomy Extension Schema Document |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
| * | Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. |
| 19 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities on this 16th day of August, 2019.
| BARE METAL STANDARD INC. | ||
| BY: | James Bedal | |
| /s/ | James Bedal | |
| Principal Executive Officer | ||
| Principal Financial Officer and | ||
| Principal Accounting Officer | ||
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