Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Rocky Mountain Industrials, Inc. | tv479303_ex99-1.htm |
| EX-32.2 - EXHIBIT 32.2 - Rocky Mountain Industrials, Inc. | tv479303_ex32-2.htm |
| EX-32.1 - EXHIBIT 32.1 - Rocky Mountain Industrials, Inc. | tv479303_ex32-1.htm |
| EX-31.2 - EXHIBIT 31.2 - Rocky Mountain Industrials, Inc. | tv479303_ex31-2.htm |
| EX-31.1 - EXHIBIT 31.1 - Rocky Mountain Industrials, Inc. | tv479303_ex31-1.htm |
| EX-23.2 - EXHIBIT 23.2 - Rocky Mountain Industrials, Inc. | tv479303_ex23-2.htm |
| EX-23.1 - EXHIBIT 23.1 - Rocky Mountain Industrials, Inc. | tv479303_ex23-1.htm |
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 March 31, 2017
Or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 333-185046
RMR Industrials, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 46-0750094 |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 9301 Wilshire Blvd., Suite 312 Beverly Hills, California |
90210 |
| (Address of principal executive office) | (Zip Code) |
(310) 492-5010
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
(Name of exchange on which listed)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of each 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 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 preceding 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 ¨ No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files. Yes ¨ No x
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K Section 229.405 is not contained herein, and will not be contained, to the best of 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
Emerging growth company |
¨ |
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 Act). Yes ¨ No x
The aggregate market value of the voting common stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on September 30, 2015 was N/A.
As of November 27, 2017, the Company had 35,785,858 Shares of Class A Common Stock and 1,327,289 Shares of Class B Common Stock outstanding.
Table of Contents
i
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K that are not historical facts are "forward-looking statements." Forward-looking statements may include our statements regarding our goals, beliefs, strategies, objectives, plan, including product and service developments, future financial conditions, results or projections or current expectations. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "estimates," "intends," "plan" "expects," "may," "will," "should," "predicts," "anticipates," "continues," or "potential," or the negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements appear in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as elsewhere in this Transition Report.
Our management has included projections and estimates in this Form 10-K, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Unless otherwise specified or required by context, as used in this Report, the terms "we," "our," "us" and the "Company" refer collectively to RMR Industrials, Inc. and its wholly-owned subsidiaries, RMR IP, Inc. and United States Talc and Minerals Inc. Unless otherwise indicated, the term "common stock" refers to shares of our Class A Common Stock and Class B Common Stock.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP).
ii
| Item 1. | Business |
Overview
RMR Industrials, Inc. was incorporated on October 15, 2014 as a Nevada corporation. We are dedicated to acquiring and operating industrial assets in the United States (U.S.) which include minerals, materials and services. Our vision is to become America’s most innovative provider of industrial materials and services. We utilize differentiated operational capabilities, which we believe will allow us to outperform conventional operators through diverse markets.
On October 7, 2016, we entered into an Asset Purchase Agreement with CalX Minerals, LLC, a Colorado limited liability company (“CalX”) to purchase substantially all of the assets associated with the business of operating the Mid-Continent Limestone Quarry on 41 BLM unpatented placer mining claims in Garfield County, Colorado. CalX assets include the mining claims, improvements, access rights, water rights, equipment, inventory, contracts, permits, certain intellectual property rights, and other tangible and intangible assets associated with the limestone mining operation. The acquisition of these CalX assets will promote the development and implementation of the Company’s limestone mining operations in Colorado.
We have a strategy to own, operate, produce and distribute certain industrial minerals, including but are not limited to: feldspar, talc, mica, bentonite, vermiculite, frac sand, aggregates, antimony, barite, silica, ball clays, graphite, sulfur and zeolite. In addition, we also plan to own, operate, produce and distribute certain chemicals, including but not limited to: glycols, ethanolamines, methanol, antifreeze, biocides, corrosion inhibitors, demulsifiers, desalting compounds and dispersants. The experienced management team of RMR Industrials Inc. brings a multi-cycle successful track record of developing and licensing key intellectual property rights and discovering, financing and operating off-market natural resource businesses.
Strategy
When implementing our asset acquisition strategy, our due diligence process begins with outlining a framework for each prospective asset’s position within the vision of our consolidation strategy. In defining this framework, we seek to identify the key drivers of the business and industry, as well as the risks associated with each transaction. With our team of management and finance professionals, its board of advisors, and leading industry consultants, our due diligence process includes a full examination of each target’s managerial, operational, financial, legal, and environmental components in relation to how each facet impacts our broader strategy. Our process, while instrumental in identifying the risk level of each transaction, seeks to also identify hidden value-add opportunities within each business and for our broader portfolio.
We believe that the cash flows generated by the diverse business segments that we operate will provide us with the ability to pursue further development and growth acquisitions in order to build on our existing segments, or to establish a new business platform for future growth. To further supplement our capital requirements for future potential acquisitions, we intend to utilize a combination of debt and equity financings, including traditional loans from financial institutions. We will utilize a disciplined approach to identify and evaluate potential acquisitions, only pursuing those that meet our financial and strategic criteria. Our primary criteria focus on accretive assets with positive cash flow in the industrial commodities sectors. These assets should generate annual cash flow of $500,000 to $15,000,000 or annual revenues greater than $10,000,000. For consolidating businesses within the same sector and business plan, our criteria will be focused on not only acquiring historical cash flows but also incremental products, services, proprietary technology, regional access, new customers or unique advantages.
Other than the CalX transaction described above, we are not currently entered into any types of asset purchase agreements, however, we are engaged in advanced negotiations with multiple companies for which we established a preliminary purchase price and key terms. We believe the target audience has been receptive due to adverse global economic factors in the energy sector, which lead us to anticipate closing on several acquisitions within the next 12 months. With macroeconomic uncertainty and the recent volatility in commodity prices, we believe many companies will be seeking an exit strategy at attractive pricing. These favorable valuations may offer increased flexibility to finance potential acquisition targets through debt or equity securities based on stable historical asset values and expectation of long-term cyclical appreciation of industrial commodity prices.
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Potential Competitive Strengths
We believe our process to discover, finance, develop and operate unique natural resource, intellectual property and industrial assets provides us a competitive advantage to achieve critical mass through development and acquisition of under-performing assets. Our principals have extensive experience and also collaborated in investing in and operating natural resource assets for many years. We believe our potential competitive strengths to be the following:
Application of Intellectual Property. We have a background in engineering, operations, finance and general management all within the natural resource sectors.
Proprietary Acquisition Sources. We have a long-standing track record of discovering unique assets pertinent to our current business strategy. We will seek to capitalize on the global network and investing and operating experience of our management team to identify, acquire and operate one or more businesses or assets in the industrial minerals mining and processing industry, although we may pursue a business combination in complementary industries, such as specialty chemicals and agriculture.
Status as a Public Company. Our status as a public company will make us an attractive business partner to other natural resource related companies, and will provide greater access to capital and an increased company profile.
Management Operating and Investing Experience. Over the course of their careers, the members of our management team have developed a broad international network of contacts and corporate relationships which we believe will serve as a useful source of investment opportunities. Our executive officers are officers of our sponsor Rocky Mountain Resource Holdings, Inc., a privately held natural resources operating company. The management team has applied their deep understanding of historical precedents to the natural resources markets and established a reputation as one of the thought leaders within the natural resources sector. The Management team has been working together for the last ten years, over such time they have assembled a team of natural resources and investment professionals to pursue investments across the industry.
Revenues and Customers
For the year ended March 31, 2017, 96% of our revenue was from one customer. At March 31, 2017, approximately 85% of our account receivable was due from the same customer.
Industry and Competition
Industrial Minerals: The industrial minerals sector encompasses a large variety of minerals including: limestone, chamottes, ball clay, feldspar, graphite, ground silica, kaolin, pegmatite, quartz, mica, bauxite, bentonite, metakaolins, zeolite, frac sand, aggregates and dolomite. Industrial minerals are used in a variety of end projects for a variety of purposes. These minerals are used in ceramics, paints, plastics, paper, rubber, food, cosmetics, and many other products.
There are significant barriers to entry into industrial mineral production due to the scarcity of economically viable resources from which to extract the minerals. Geographical location of the resource drives a large portion of the competitive advantages or disadvantages of an operation. Large companies in this sector include Imerys, W.R. Grace, and Minerals Technologies.
Limestone
Limestone, or calcium carbonate is used in a variety of applications including coal mining, coal fired power plants, construction aggregates, glass bottle and steel manufacturing, agriculture and animal feed.
Aggregates
Aggregates are key material components used in the production of cement, ready-mixed concrete and asphalt paving mixes for the residential, nonresidential and public infrastructure markets and are also widely used for various applications and products, such as road and building foundations, railroad ballast, erosion control, filtration, roofing granules and in solutions for snow and ice control. Generally extracted from the earth using surface or underground mining and products, such methods, aggregates are produced from natural deposits of various materials such as limestone, sand and gravel, granite and trap rock.
Markets are typically local due to high transport costs and are generally fragmented, with numerous participants operating in localized markets. According to the March 2014 U.S. Geological Survey, the U.S. market for these products was estimated at approximately 2.1 billion tons in 2013, at a total market value of $18.6 billion. Relative to other construction materials, such as cement, aggregates consumption is more heavily weighted towards public infrastructure and maintenance repair. However, the mix of end uses can vary widely by geographic location, based on the nature of construction activity in each market. Typically, three to six competitors comprise the majority market share of each local market because of the constraints around the availability of natural resources and transportation.
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Industrial Chemicals: Chemical distribution is a cyclical business dependent on industrial demand. The profitability of individual companies depends on an efficient distribution system. Larger companies can offer more products and services. Local and regional distributors can compete effectively through superior service or geographic focus.
Chemical products in the oil and gas field segment includes iron sulfide, demulsifiers, corrosion inhibitor, emulsion breaker, paraffin solvent, biocides, methanol, dispersant and scale inhibitor. Companies create proprietary blends of these chemicals based on regional production research to solve and prevent production problems.
Other chemical products used in the manufacturing, peroxide stabilization, surface refinishing and as catalysts include inorganic, organometallic, metal and acid chemicals. This industry produces basic inorganic chemicals including titanium dioxide, chlor-alkali products and carbon black. Inorganic chemicals are mineral based, while organic chemicals are carbon based. Inorganic chemicals are mainly used as inputs in manufacturing and industrial processes. Inorganic chemicals used as pigments and dyes. Distribution networks are the primary channel through which these chemicals are sold to manufacturers.
The U.S. industry is concentrated: the largest 50 companies generate more than half of the revenue. Imports to the US of industrial chemicals and plastic resins, largely from Canada, Germany, Japan, and China, are substantial. Many of these imports move through chemical distributors. Canada, Mexico, China, Belgium, and Japan are the top recipients of US chemical exports. Major players in the global chemical market include: DuPont, PPG, BASF, Dow, Bayer, and DSM.
Government Regulation
Our operations will be subject to extensive federal, state and local laws, regulations and ordinances in the United States and abroad relating to the protection of the environment and human health and to safety, including those pertaining to chemical manufacture and distribution, waste generation, storage and disposal, discharges to waterways, and air emissions and various other health and safety matters. Governmental authorities have the power to enforce compliance with their regulations, and violators may be subject to civil, criminal and administrative penalties, injunctions or both. We will devote significant financial resources to ensure compliance. We believe that we are in substantial compliance with all the applicable laws and regulations.
We anticipate that the regulation of our business operations under federal, state and local environmental laws in the United States and abroad will increase and become more stringent over time. We cannot estimate the impact of increased and more stringent regulation on our operations, future capital expenditure requirements or the cost of compliance.
United States Regulation. Statutory programs relating to protection of the environment and human health and to safety in the United States include, among others, the following.
CERCLA. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, also known as “CERCLA” and “Superfund”, and comparable state laws generally impose joint and several liability for costs of investigation and remediation and for natural resource damages, without regard to fault or the legality of the original conduct, on certain classes of persons with respect to the release into the environment of specified substances, including under CERCLA those designated as “hazardous substances.” These persons include the present and certain former owners or operators of the site where the release occurred and those that disposed or arranged for the disposal of the hazardous substance at the site. These liabilities can arise in association with the properties where operations were conducted, as well as disposal facilities where wastes were sent. Many states have adopted comparable or more stringent state statutes. In the course of our operations, we generated materials that fall within CERCLA’s definition of hazardous substances. We may be the owner or operator of sites on which hazardous substances have been released and may have generated hazardous substances that have been transported to or otherwise released upon offsite facilities. We may be responsible under CERCLA for all or part of the costs to clean up facilities at which such substances have been released by previous owners or operators and offsite facilities to which our wastes were transported and for associated damages to natural resources.
Resource Conservation and Recovery Act. The federal Resource Conservation and Recovery Act, as amended (“RCRA”) and comparable state laws regulate the treatment, storage, disposal, remediation and transportation of wastes, specifically under RCRA those designated as “hazardous wastes.” The EPA and various state agencies have limited the disposal options for these wastes and impose numerous regulations upon the treatment, storage, disposal, remediation and transportation of them. Our operations generate wastes that are subject to RCRA and comparable state statutes. Furthermore, wastes generated by our operations that are currently exempt from treatment as hazardous wastes may be designated in the future as hazardous wastes under RCRA or other applicable statutes and, therefore, may be subject to more rigorous and costly treatment, storage and disposal requirements. Governmental agencies (and in the case of civil suits, private parties in certain circumstances) can bring actions for failure to comply with RCRA requirements, seeking administrative, civil, or criminal penalties and injunctive relief, to compel us to abate a solid or hazardous waste situation that presents an imminent or substantial endangerment to health or the environment.
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Clean Water Act. The federal Clean Water Act imposes restrictions and strict controls regarding the discharge of wastes and fill materials into waters of the United States. Under the Clean Water Act, and comparable state laws, the government (and in the case of civil suits, private parties in certain circumstances) can bring actions for failure to comply with Clean Water Act requirements and enforce compliance through civil, criminal and administrative penalties for unauthorized discharges of hazardous substances and of other pollutants. In the event of an unauthorized discharge of wastes, we may be liable for penalties and subject to injunctive relief.
Clean Air Act. The federal Clean Air Act (CAA), as amended and comparable state and local laws restrict the emission of air pollutants from many sources and also impose various monitoring and reporting requirements. These laws may require us to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with air permit requirements or utilize specific equipment or technologies to control emissions. Governmental agencies (and in the case of civil suits, private parties in certain circumstances) can bring actions for failure to strictly comply with air pollution regulations or permits and generally enforce compliance through administrative, civil or criminal enforcement actions, resulting in fines, injunctive relief (which could include requiring us to forego construction, modification or operation of sources of air pollutants) and imprisonment. While we may be required to incur certain capital expenditures for air pollution control equipment or other air emissions-related issues, we do not believe that such requirements will have a material adverse effect on our operations.
Greenhouse Gas Regulation. More stringent laws and regulations relating to climate change and greenhouse gases (GHGs) may be adopted in the future and could cause us to incur material expenses in complying with them. The EPA has begun to regulate GHGs as pollutants under the CAA. The EPA adopted rules to permit GHG emissions from stationary sources under the Prevention of Significant Deterioration and Title V permitting programs including the “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule,” requiring that the largest sources first obtain permits for GHG emissions. The United States Supreme Court, however, ruled that the EPA did not have the authority to require permits for GHG emissions and also did not have the authority to adopt that rule. The Court did hold that if a source required a permit under the program because of other pollutants, the EPA had the authority to require that the source demonstrate that it would use the best available control technology to minimize GHG emissions that exceeded a minimal amount.
Because of the lack of any comprehensive legislation program addressing GHGs, the EPA is using its existing regulatory authority to promulgate regulations requiring reduction in GHG emissions from various categories of sources, starting with fossil fuel-fired power plants. There is a great deal of uncertainty as to how and when additional federal regulation of GHGs might take place. Some members of Congress have expressed the intention to promote legislation to curb the EPA’s authority to regulate GHGs. In addition to federal regulation, a number of states, individually and regionally, and localities also are considering implementing or have implemented GHG regulatory programs. These regional and state initiatives may result in so–called cap–and–trade programs, under which overall GHG emissions are limited and GHG emission “allowances” are then allocated and sold to and between persons subject to the program. These and possibly other regulatory requirements could result in our incurring material expenses to comply, for example by being required to purchase or to surrender allowances for GHGs resulting from other operations or otherwise being required to control or reduce emissions.
Occupational Safety. Our operations are also governed by laws and regulations relating to workplace safety and worker health, principally the Occupational Safety and Health Act (OSHA) and its regulations. The OSHA hazard communication standard, the EPA’s community right-to-know regulations and similar state programs may require us to organize and/or disclose information about hazardous materials used or produced in our operations. We believe that we are in substantial compliance with these applicable requirements.
Foreign Regulation. We are subject to various laws, regulations and ordinances to protect the environment, human health and safety promulgated by the governmental authorities in Mexico, Europe, Singapore, and in other countries where we do business. Each country has laws and regulations concerning waste treatment, storage and disposal, discharges to waterways, air emissions and workplace safety and worker health. Their respective regulatory authorities are given broad authority to enforce compliance with environmental, health and safety laws and regulations, and can require that operations be suspended pending completion of required remedial action.
Licenses, Permits and Product Registrations. Certain licenses, permits and product registrations are required for our products and operations in the United States, and in other countries where we do business. The licenses, permits and product registrations are subject to revocation, modification and renewal by governmental authorities. In the United States in particular, producers and distributors of chemicals such as penta and creosote are subject to registration and notification requirements under federal law (including under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”) and the Toxic Substances Control Act, and comparable state law) in order to sell those products in the United States. Compliance with these laws has had, and in the future will continue to have, a material effect on our business, financial condition and results of operations. Under FIFRA, the law’s registration system requires an ongoing submission to the EPA of substantial scientific research and testing data regarding the chemistry and toxicology of pesticide products by manufacturers.
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Employees
We currently have 11 full-time employees.
| Item 1A. | Risk Factors |
Risks Relating to Our Business
We have incurred losses in prior periods and may incur losses in the future.
We cannot be assured that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.
Our future is dependent upon our ability to obtain financing. If we do not obtain such financing, we may have to cease our activities and investors could lose their entire investment.
There is no assurance that we will operate profitably or generate positive cash flow in the future. We will require additional financing in order to proceed with our business plan and acquire existing businesses that manufacture and distribute chemicals and minerals. We will also require additional financing to sustain our business operations if we are not successful in earning revenues. We may not be able to obtain financing on commercially reasonable terms or terms that are acceptable to us when it is required. Our future is dependent upon our ability to obtain financing. If we do not obtain such financing, our business could fail and investors could lose their entire investment.
Our business may fail and investors may lose all of their investment in our Company.
We are a company with a limited operating history and our future profitability is uncertain. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. If our business plan is not successful and we are not able to operate profitably, then our stock may become worthless and investors may lose all of their investment in our Company.
Prior to obtaining a large market share for our products, we anticipate that we will incur increased operating expenses prior to realizing significant revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that, if we are unable to generate significant revenues from the sale of our products in the future, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our Company.
Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment.
Our limited operating history may not provide a meaningful basis on which to evaluate our business. We will continue to encounter risks and difficulties frequently experienced by companies at a similar stage of development, including our potential failure to:
| • | expand our product offerings and maintain the high quality of products offered; |
| • | manage our expanding operations, including the integration of any future acquisitions; |
| • | obtain sufficient working capital to support our expansion and to fill customers’ orders on time; |
| • | maintain adequate control of our expenses; |
| • | implement our product development, marketing, sales, and acquisition strategies and adapt and modify them as needed; and |
| • | anticipate and adapt to changing conditions in the markets in which we operate as well as the impact of any changes in government regulation, mergers and acquisitions involving our competitors, technological developments, and other significant competitive and market dynamics. |
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If we are not successful in addressing any or all of these risks, then our business may be materially and adversely affected.
If we are unable to identify, fund and execute new acquisitions, we will not be able to execute a key element of our business strategy.
Our strategy is to grow primarily by acquiring additional businesses and product lines. We cannot give any assurance that we will be able to identify, acquire or profitably manage additional businesses and product lines. Financing for acquisitions may not be available, or may be available only at a cost or on terms and conditions that are unacceptable to us. Further, acquisitions may involve a number of special risks or effects, including diversion of management’s attention, failure to retain key acquired personnel, unanticipated events or circumstances, legal liabilities, impairment of acquired intangible assets and other one-time or ongoing acquisition-related expenses. Some or all of these special risks or effects could have a material adverse effect on our financial and operating results. In addition, we cannot assure you that acquired businesses or product lines, if any, will achieve anticipated revenues and earnings.
In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage our newly acquired operations or their employees. We may not be able to maintain uniform standards, controls, procedures and policies, which may lead to operational inefficiencies.
Loss of key members of our management team could disrupt our business.
We depend on the continued employment and performance of our senior executives and other key members of our management team. If any of these individuals resigns or becomes unable to continue in his or her present role and is not adequately replaced, our business operations and our ability to implement our growth strategies could be materially disrupted. We generally do not have employment agreements with, and we do not maintain any "key person" life insurance for, any of our executive officers.
The industries in which we compete are highly competitive, and we may not be able to compete effectively with our competitors that have greater financial resources, which could have a material adverse effect on our business, results of operations and financial condition.
The industries in which we operate are highly competitive. Among our competitors are some of the world's largest chemical companies that have their own raw material resources. Changes in the competitive landscape could make it difficult for us to retain our leadership position in various products and markets throughout the world. In addition, some of the companies with whom we compete may be able to produce products more economically than we can. Furthermore, most of our competitors have greater financial resources, which may enable them to invest significant capital into their businesses, including expenditures for research and development. Some of our competitors are owned or partially owned by foreign governments which may provide a competitive advantage to those competitors.
Increases in the price of our primary raw materials may decrease our profitability and adversely affect our liquidity, cash flow, financial condition and results of operations.
The prices we pay for raw materials in our businesses may increase significantly, and we may not always be able to pass those increases through to our customers fully and timely. In the future, we may be unable to pass on increases in our raw material costs, and raw material price increases may erode the profitability of our products by reducing our gross profit. Price increases for raw materials may also increase our working capital needs, which could adversely affect our liquidity and cash flow. For these reasons, we cannot assure you that raw material cost increases in our businesses would not have a material adverse effect on our financial condition and results of operations.
The Company will operate in a global, competitive environment which gives rise to operating and market risk exposure.
The Company expects to sell a broad range of products and services in a competitive, global environment, and to compete worldwide for sales on the basis of product quality, price, technology and customer service. Increased levels of competition could result in lower prices or lower sales volume, which could have a negative impact on the Company's results of operations.
Economic conditions around the world, and in certain industries in which the Company does business also impact sales prices and volume. As a result, market uncertainty or an economic downturn in the geographic areas or industries in which we sell our products could reduce demand for these products and result in decreased sales volume, which could have a negative impact on our results of operations.
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In addition, volatility and disruption of financial markets could limit customers' ability to obtain adequate financing to maintain operations, which could result in a decrease in sales volume and have a negative impact on our results of operations. The Company's global business operations may also give rise to market risk exposure related to changes in foreign exchange rates, interest rates, commodity prices and other market factors such as equity prices.
Disruptions in production at our manufacturing facilities, both planned and unplanned, may have a material impact on our business, results of operations and/or financial condition.
Manufacturing facilities in our industry are subject to planned and unplanned production shutdowns, turnarounds and outages. Unplanned production disruptions may occur for external reasons including natural disasters, weather, disease, strikes, transportation interruption, government regulation, political unrest or terrorism, or internal reasons, such as fire, unplanned maintenance or other manufacturing problems. Alternative facilities with sufficient capacity may not be available, may cost substantially more or may take a significant time to increase production or qualify with our customers, each of which could negatively impact our business, results of operations and/or financial condition. Long-term production disruptions may cause our customers to seek alternative supply which could further adversely affect our profitability.
We will expend large amounts of money for environmental compliance in connection with our operations.
We are subject to stringent regulations under numerous U.S. federal, state, local and foreign environmental, health and safety laws and regulations relating to the generation, storage, handling, discharge, disposition and stewardship of hazardous wastes and other materials. We will expend substantial funds to comply with such laws and regulations and have established a policy to minimize our emissions to the environment. Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential laws and regulations pertaining to climate change) make it difficult for us to project future spending for these purposes and if there is an acceleration in new regulatory requirements, we may be required to expend substantial additional funds to remain in compliance.
We are subject to environmental clean-up costs, fines, penalties and damage claims that have been and continue to be costly.
We are subject to lawsuits and regulatory actions, in connection with current and former operations (including divested businesses), for breaches of environmental laws that seek clean-up or other remedies. We are also subject to lawsuits and investigations by public and private parties under various environmental laws in connection with our current and former operations in various states, including with respect to off-site disposal at facilities where we have been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, commonly referred to as CERCLA. We are also subject to similar risks outside of the U.S.
Increased concerns regarding the safe use of chemicals in commerce and their potential impact on the environment have resulted in more restrictive regulations from local, state and federal governments and could lead to new regulations.
Concerns regarding the safe use of chemicals in commerce and their potential impact on health and the environment reflect a growing trend in societal demands for increasing levels of product safety and environmental protection. These concerns could manifest themselves in stockholder proposals, preferred purchasing and continued pressure for more stringent regulatory intervention. These concerns could also influence public perceptions, the viability of the Company's products, the Company's reputation and the cost to comply with regulations. In addition, terrorist attacks and natural disasters have increased concerns about the security and safety of chemical production and distribution. These concerns could have a negative impact on the Company's results of operations.
Local, state and federal governments continue to propose new regulations related to the security of chemical plant locations and the transportation of hazardous chemicals, which could result in higher operating costs.
We work with dangerous materials that can injure our employees, damage our facilities and disrupt our operations.
Some of our operations involve the handling of hazardous materials that may pose the risk of fire, explosion, or the release of hazardous substances. Such events could result from terrorist attacks, natural disasters, or operational failures, and might cause injury or loss of life to our employees and others, environmental contamination, and property damage. These events might cause a temporary shutdown of an affected plant, or portion thereof, and we could be subject to penalties or claims as a result. A disruption of our operations caused by these or other events could have a material adverse effect on our results of operations.
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We may be subject to claims of infringement of the intellectual property rights of others, which could hurt our business.
From time to time, we expect to face infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technologies. Any claims that our products or processes infringe the intellectual property rights of others, regardless of the merit or resolution of the claims, could cause us to incur significant costs in responding to, defending and resolving the claims, and may divert the efforts and attention of our management and technical personnel from our business. If we are found to be infringing on the proprietary technology of others, we may be liable for damages, and we may be required to change our processes, redesign our products, pay others to use the technology or stop using the technology or producing the infringing product. Even if we ultimately prevail, the existence of the lawsuit could prompt our customers to switch to products that are not the subject of infringement suits.
Risks Related to Our Common Stock and Our Status as a Public Company
We will be required to incur significant costs and require significant management resources to evaluate our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from such evaluation may have an adverse effect on our stock price.
As a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404 requires us to include an internal control report with the Annual Report on Form 10-K. This report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our equity securities.
Achieving continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources. We cannot assure you that we will be able to fully comply with Section 404. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as well as subject us to civil or criminal investigations and penalties.
Our founders, who also comprise a majority of the Company’s management team, have significant ownership of the Company, including a majority of our voting stock giving them the ability to control most, if not all, Company decisions.
Our directors and executive officers own, directly or indirectly, approximately 42.2% of the Company’s aggregate outstanding capital stock and approximately 57% of the Company Class A Common Stock (the Company’s voting capital stock) on their own, effectively giving them voting control on most, if not all, decisions. The voting rights represented by these share holdings provide our management with a sufficient number of voting rights for all practical purposes to effectively control the election of our directors, cause us to engage in transactions with affiliated entities, cause or restrict the sale or merger of the Company, and effect such other matters as may be presented for a vote of our shareholders. Such concentration of ownership and control could have the effect of delaying, deferring or preventing a change in control of the Company even when such a change of control would be in the best interests of the Company’s other shareholders. Accordingly, investors will have little voice in our management decisions and will exercise very little control over us. In addition, the applicable sections of the Nevada Revised Statutes provide that certain actions must be approved by a specified percentage of shareholders. In the event that the requisite approval of shareholders is obtained, dissenting shareholders would be bound by such vote. Accordingly, no persons should purchase any shares unless they are willing to entrust all aspects of control to our management.
The existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.
The indemnification obligations provided in our articles of incorporation and our bylaws to our directors and officers could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
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Our stock is categorized as a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our stock.
Our stock is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than US$ 5.00 per share or an exercise price of less than US$ 5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
To date, we have not paid any cash dividends and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We presently intend to retain all earnings for our operations.
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up 2,150,000,000 shares, 2,000,000,000 shares of which are Class A Common Stock, par value $0.001 per share, 100,000,000 shares of which are Class B Common Stock, par value $0.001 per share, and 50,000,000 shares of which are Preferred Stock, par value $0.001 per share. Our Board of Directors may choose to issue some or all of such shares to acquire one or more companies or properties and to fund our overhead and general operating requirements. The issuance of any such shares may reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
We may not qualify to meet listing standards to list our stock on an exchange.
The SEC approved listing standards for companies using reverse acquisitions to list on an exchange may limit our ability to become listed on an exchange. We would be considered a reverse acquisition company (i.e., an operating company that becomes an Exchange Act reporting company by combining with a shell Exchange Act reporting company) that cannot apply to list on NYSE, NYSE Amex or Nasdaq until our stock has traded for at least one year on the U.S. OTC market, a regulated foreign exchange or another U.S. national securities market following the filing with the SEC or other regulatory authority of all required information about the merger, including audited financial statements. We would be required to maintain a minimum $4 share price ($2 or $3 for Amex) for at least thirty (30) of the sixty (60) trading days before our application and the exchange’s decision to list. We would be required to have timely filed all required reports with the SEC (or other regulatory authority), including at least one annual report with audited financials for a full fiscal year commencing after filing of the above information. Although there is an exception for a firm underwritten IPO with proceeds of at least $40 million, we do not anticipate being in a position to conduct an IPO in the foreseeable future. To the extent that we cannot qualify for a listing on an exchange, our ability to raise capital will be diminished.
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We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates.
We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any May 30.
Our status as an “emerging growth company” under the JOBS Act of 2012 may make it more difficult to raise capital as and when we need it.
Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.
| Item 1B. | Unresolved Staff Comments |
Not applicable
| Item 2. | Properties |
Our principal executive offices are located in Beverly Hills, California where we lease approximately 2,238 square feet under an arrangement that expires in January 2020. In Denver, Colorado we lease approximately 2,808 square feet of office space for management, sales and support staff under an arrangement that expires in November 2018. The Company feels that this space is sufficient until the Company significantly expands operations.
Our Mid-Continent Quarry is located in Glenwood Springs, Colorado, residing in Garfield County. The property is represented by 41 Bureau of Land Management unpatented placer mining claims relating to (i) the development and exploration of calcium carbonate and dolomite deposits and (ii) the mining, processing, pulverizing, preparation, packaging, marketing, selling and shipping of limestone.
| Item 3. | Legal Proceedings |
There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
| 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 |
Market Information
Our Class B Common Stock is currently quoted on the Over the Counter Market under the symbol “RMRI”. No shares of Class B Common Stock have traded on the Over the Counter Market to date.
Holders
As of November 27, 2017, there were 83 holders of record of our Class B Common Stock, not including any shareholders holding shares in nominee or “street name” and 3 holders of record of our Class A Common Stock.
Dividends
We plan to retain any earnings for the foreseeable future for our operations. We have never paid any dividends on our common stock 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 our board of directors and will depend on our financial condition, operating results, capital requirements and such other factors as our board of directors deems relevant.
Recent Issuance of Unregistered Securities
We issued the following unregistered securities during the fiscal year ended March 31, 2017:
| • | On March 10, 2017, we issued 15,000 shares of common stock valued at $95,100 for services. |
We relied on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) of the Securities Act with respect to the foregoing issuance.
Securities Authorized for Issuance Under Equity Compensation Plans
On February 26, 2015, our Board of Directors and our stockholders approved and adopted the RMR Industrials Inc. 2015 Equity Incentive Plan (the “Plan”).
The Plan permits us to grant a variety of forms of awards, including stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock based awards, to allow us to adapt our incentive compensation program to meet our needs. The number of shares of our common stock that may be issued under the Plan to employees, directors and/or consultants in such awards is currently 1,307,823 shares. Our Board of Directors currently serves as the administrator of the Plan. As of March 31, 2017, 400,000 shares have been issued under the Plan.
| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity Compensation Plans Approved by Security Holders | 400,000 | $ | 6.34 | 1,070,108 | ||||||||
| Equity Compensation Plans Not Approved by Security Holders | - | - | - | |||||||||
| Total | 400,000 | $ | 6.34 | 1,070,108 | ||||||||
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| Item 6. | Selected Financial Data |
Not applicable.
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Forward-Looking Statements
The statements contained in all parts of this document that are not historical facts are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those relating to the following: our ability to secure necessary financing; expected growth; future operating expenses; future margins; fluctuations in interest rates; ability to continue to grow and implement growth, and regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
When used in this document, the words “anticipate,” “estimate,” “expect,” “may,” “plans,” “project,” and similar expressions are intended to be among the statements that identify forward-looking statements. Our results may differ significantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to our dependence on our ability to attract and retain skilled managers and other personnel; the intense competition within our industry; the uncertainty of our ability to manage and continue our growth and implement our business strategy; our vulnerability to general economic conditions; accuracy of accounting and other estimates; our future financial and operating results, cash needs and demand for services; and our ability to maintain and comply with permits and licenses; as well as other risk factors described in this Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected.
Overview
We were incorporated in the State of Nevada on August 6, 2012 under the name “Online Yearbook” with the principal business objective of developing and marketing online yearbooks for schools, companies and government agencies.
On November 17, 2014, Rocky Mountain Resource Holdings, Inc. (“RMRH”) became our majority shareholder by acquiring 5,200,000 shares of our common stock (the “Shares”), or 69.06% of the issued and outstanding shares of our common stock, pursuant to stock purchase agreements with Messrs. El Maraana and Salah Blal, our former officers and directors. The Shares were acquired for an aggregate purchase price of $357,670.
On December 8, 2014, we changed our name to “RMR Industrials, Inc.” in connection with the change in our business plan.
On February 27, 2015 (the “Closing Date”), we entered into and consummated a merger transaction pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, OLYB Acquisition Corporation, a Nevada corporation and wholly owned subsidiary of the Company (“Merger Sub”) and RMR IP, Inc., a Nevada corporation (“RMR IP”). In accordance with the terms of Merger Agreement, on the Closing Date, Merger Sub merged with and into RMR IP (the “Merger”), with RMR IP surviving the Merger as our wholly owned subsidiary. Chad Brownstein and Gregory M. Dangler are directors of the Company and co-owners of RMRH which was the majority shareholder of the Company prior to the Merger. Additionally, Messrs. Brownstein and Dangler were indirect controlling shareholders and directors of RMR IP prior to the Merger. As such, the Merger was among entities under the common control of Messrs. Brownstein and Dangler.
On October 12, 2016, pursuant to an Asset Purchase Agreement with CalX Minerals, LLC, a Colorado limited liability company (“CalX”), we completed the purchase of substantially all of the assets associated with the business of operating the Mid-Continent Limestone Quarry on 41 BLM unpatented placer mining claims in Garfield County, Colorado. CalX assets include the mining claims, improvements, access rights, water rights, equipment, inventory, contracts, permits, certain intellectual property rights, and other tangible and intangible assets associated with the limestone mining operation. The acquisition of these CalX assets will promote the development and implementation of the Company’s limestone mining operations in Colorado.
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Critical Accounting Policies and Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that impact the reported amounts of assets, liabilities, and expenses, and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from those estimated amounts and assumptions used in the preparation of the financial statements.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.
Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities of three months or less at the date of purchase to be cash equivalents. As of March 31, 2017, the Company had cash of $1,608,094 and no cash equivalents. The Company may occasionally maintain cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation (“FDIC”). The amounts are held with major financial institutions and are monitored by management to mitigate credit risk.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors considered include:
| • | Significant changes in the operational performance or manner of use of acquired assets or the strategy for our overall business, |
| • | Significant negative market conditions or economic trends, and |
| • | Significant technological changes or legal factors which may render the asset obsolete. |
Impairment losses are recorded on long-lived assets used in operations when an indicator of impairment is present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
- Level 1: Quoted market prices in active markets for identical assets or liabilities
- Level 2: Observable market-based inputs or inputs that are corroborated by market data
- Level 3: Unobservable inputs that are not corroborated by market data
Revenue Recognition
The Company earns revenue from the sale of products and services, which primarily include limestone, aggregates material and freight and delivery of customer products.
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Revenue for product sales is recognized when evidence of an arrangement exists, the fee is fixed or determinable, title passes, which generally is when the product is shipped, and collection is reasonably assured. Product revenue generally includes sales of limestone and aggregates, net of discounts or allowances, if any, and freight and delivery charges billed to customers. Freight and delivery charges associated with cement sales are recorded on a net basis together with freight costs within cost of sales.
Accrued Reclamation Liability
The Company incurs reclamation liabilities as part of its mining activities. Quarry activities require the removal and relocation of significant levels of overburden to access materials of usable quantity and quality. The same overburden material is used to reclaim depleted mine areas, which must be sloped to a certain gradient and seeded to prevent erosion in the future. Reclamation methods and requirements can differ depending on the quarry and state rules and regulations in existence for certain locations. As of March 31, 2017, the Company’s undiscounted reclamation obligations totaled approximately $196,000, which is expected to be settled within the next 20 years.
Reclamation costs resulting from the normal use of long-lived assets, either owned or leased, are recognized over the period the asset is in use. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. The fair value is based on our estimate for a third party to perform the legally required reclamation tasks including a reasonable profit margin. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset.
The mining reclamation reserve is based on management’s estimate of future cost requirements to reclaim property at its operating quarry site. Costs are estimated in current dollars and inflated until the expected time of payment using a future estimated inflation rate and then discounted back to present value using a credit-adjusted, risk-free rate on obligations of similar maturity adjusted to reflect our credit rating. The Company will review reclamation liabilities at least every three years for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation liabilities are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment to an existing mineral lease. Examples of events that would cause a change in the estimated settlement date include the acquisition of additional reserves or early or delayed closure of a site. Any affect to earnings from cost revisions is included in cost of revenue.
Net Loss per Common Share
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for the potentially dilutive effects of converting stock options or restricted stock purchase rights outstanding. Diluted net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period and the potential dilutive effects of stock options or restricted stock purchase rights outstanding during the period determined using the treasury stock method. There are no such anti-dilutive common share equivalents outstanding as March 31, 2017 which were excluded from the calculation of diluted loss per common share.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax bases of the Company's assets and liabilities and their financial statement reported amounts. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded by the Company when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Additionally, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. Accordingly, the Company establishes reserves for uncertain tax positions. The Company has not recognized interest or penalties in its statement of operations and comprehensive loss since inception.
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Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The Company has adopted this ASU and did not have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the definition of a business. This ASU provides a screen to determine whether a group of assets constitute 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 screen reduces the number of transactions that need to be further evaluated as acquisitions. If the screen is not met, this ASU (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output and (2) removes the evaluation of whether a market participant could replace missing elements. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs. The ASU is effective for public companies for annual periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which will result in lessees recognizing most leases on the balance sheet. Lessees are required to disclose more quantitative and qualitative information about their leases than current U.S. GAAP requires. The ASU is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are beginning to compile all operating and capital leases to assess the impact of adopting this standard.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which prescribes a five-step model for revenue recognition that will replace most existing revenue recognition guidance in U.S. GAAP. The ASU will supersede nearly all existing revenue recognition guidance under U.S. GAAP and provides that an entity recognize revenue when it transfers 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. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB postponed the effective date of the new revenue standard by one year to the first quarter of 2018. In applying these ASUs, an entity is permitted to use either the full retrospective or cumulative effect transition approach. We plan to adopt these ASU’s using the cumulative effect transition approach. While we are currently evaluating the impact of adoption of these standards on our consolidated financial statements, we expect to identify similar performance obligations compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we do not expect the adoption of these ASU’s to have a material impact on our consolidated statements of operations.
Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
Results of Operations for the Fiscal Year Ended March 31, 2017 compared to the Fiscal Year Ended March 31, 2016
Revenues
Revenue for the year ended March 31, 2017 were $418,981, compared to no sales for the same period in the prior year. New sales were attributable to limestone sales from our acquisition of CalX.
Cost of Goods Sold
Cost of goods sold for the year ended March 31, 2017 were $384,834, compared to no cost of goods sold for the same period in the prior year, which is attributed to new operations acquired from CalX.
Operating Expenses
Operating expenses for the year ended March 31, 2017 were $5,544,220, compared to $3,170,709 for the same period in the prior year. Operating expenses consisted of overhead costs related to mining operations, consulting services from related parties, public company costs and amortization of intangible assets.
The increase in our operating expenses was due to incremental overhead contributed from our acquisition of CalX and legal fees and professional services related to mergers and acquisition-related activities.
Net Loss Attributable to RMR Industrials
Net loss attributable to RMR Industrials was $5,671,832, compared to $3,170,096 for the same period in the prior year.
The increase in net loss was due to higher operating expenses as described above.
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Liquidity and Capital Resources
As of March 31, 2017, we had current assets of $1,741,308, total current liabilities of $7,190,668 and working capital deficit of $5,449,360. We have incurred an accumulated loss of $9,460,492 since inception. Our independent auditors have issued an audit opinion for our financial statements for the six month period ended March 31, 2016, which includes a statement expressing substantial doubt as to our ability to continue as a going concern due to our limited liquidity and our lack of revenues.
We will be seeking additional capital to execute our business plan and reach positive cash flow from operations. Our base monthly expenses are $100,000 per month. In order to successfully execute our business plan, the net proceeds of a $10-20 million offering will be required to finance our planned acquisition and for general working capital purposes.
We do not generate adequate cash flows to support our existing operations. Moreover, the historical and existing capital structure is not adequate to fund our planned growth. Our current cash requirements are significant due to our business plan which will depend on future acquisitions. We anticipate generating losses through 2017. We anticipate that we will be able to raise sufficient amounts of working capital in the near term through debt or equity offerings as may be required to meet short-term obligations.
Other than as stated above, we currently do not have any arrangements for additional financing and we may not be able to obtain financing when required. Our future is dependent upon our ability to obtain financing, a successful marketing and promotion program and, further in the future, achieving a profitable level of operations. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We will require additional funds to maintain our reporting status with the SEC and remain in good standing with the state of Nevada. There are no assurances that we will be able to raise the required working capital on terms favorable, or that such working capital will be available on any terms when needed. Any failure to secure additional financing may force us to modify our business plan. In addition, we cannot be assured of profitability in the future.
Going Concern
We have incurred net losses since our inception on October 15, 2014 through March 31, 2017 totaling $9,460,492 and have completed the preliminary stages of our business plan. We anticipate incurring additional losses and will depend on additional financing in order to meet our continuing obligations and ultimately, to attain profitability. Our ability to obtain additional financing, whether through the issuance of additional equity or through the assumption of debt, is uncertain. Accordingly, our independent auditors’ report on our financial statements for the fiscal year ended March 31, 2017 includes an explanatory paragraph regarding concerns about our ability to continue as a going concern, including additional information contained in the notes to our financial statements describing the circumstances leading to this disclosure. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue our business.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Not applicable.
| Item 8. | Financial Statements and Supplementary Data |
The financial statements required by this item are included after the signature page of this filing.
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Effective November 27, 2017, as a result of Hein and Associates LLP being acquired by Moss Adams LLP, Moss Adams LLP is declining to stand for re-election.
| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures to provide reasonable assurance of achieving the control objectives, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation as of March 31, 2017, the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective due to the material weaknesses described below.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company maintains internal controls over financial reporting to include those policies and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's ("SEC's") rules and forms, and that such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the internal controls over financial reporting, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
| 16 |
Under the supervision and with the participation of management, including the Company's principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this evaluation, our principal executive officer and principal financial officer concluded as of March 31, 2017, our internal controls over financial reporting were not effective at the reasonable assurance level due to the material weaknesses discussed below.
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure that our consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Report.
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Material Weakness and Related Remediation Initiatives
Set forth below is a summary of the various significant deficiencies that caused management to conclude that we had the material weakness in our disclosure controls and procedures. Through the efforts of management, external consultants, and our directors, we have developed a specific action plan to remediate the material weaknesses. We expect to implement these various action plans during 2018. If we are able to complete these action plans in a timely manner, we anticipate that all control deficiencies and material weaknesses will be remediated by March 31, 2018.
Our principal executive officer and principal financial officer concluded that as of March 31, 2017, the following material weaknesses existed:
| 1. | Due to the Company’s budget constraints, the Company’s accounting department does not maintain the number of accounting personnel (either in-house or external) necessary to ensure more complete and effective financial reporting controls. Due to this situation, we did not perform timely and sufficient internal or external review of our current fiscal year financial reporting which resulted in several audit adjustments and untimely financial statement filings. |
Remediation of Internal Control Deficiencies and Expenditures
It is reasonably possible that, if not remediated, one or more of the material weaknesses described above could result in a material misstatement in our reported financial statements that might result in a material misstatement in a future annual or interim period. We are developing specific action plans for this material weakness, which include hiring qualified accounting personnel and establishing a formal audit committee. We are uncertain at this time of the costs to remediate all of the above listed material weakness.
Through these steps, we believe that we are addressing the deficiencies that affected our internal control over financial reporting as of March 31, 2017. Because the remedial actions may require hiring of additional personnel, and relying extensively on manual review and approval, the successful operation of these controls for at least several quarters may be required before management may be able to conclude that the material weaknesses have been remediated. We intend to continue to evaluate and strengthen our internal control over financial reporting systems. These efforts require significant time and resources. If we are unable to establish adequate internal control over financial reporting systems, we may encounter difficulties in the audit or review of our financial statements by our independent registered public accounting firm, which in turn may have a material adverse effect on our ability to prepare financial statements in accordance with GAAP and to comply with our SEC reporting obligations.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information |
None.
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| Item 10. | Directors, Executive Officer and Corporate Governance |
Our directors and executive officers are as follows:
| Name | Age | Position | ||
| Chad Brownstein | 44 | Chief Executive Officer and Director | ||
| Gregory Dangler | 35 | President, Secretary and Director | ||
| Michael Okada | 49 | Chief Financial Officer | ||
| Andrew Peltz | 52 | Director |
Chad Brownstein is our Chief Executive Officer and he is responsible for the corporate strategy and board oversight for all investments. Mr. Brownstein has been the Chief Executive Officer and Director of the Company since 2014. Mr. Brownstein is responsible for assisting the corporate strategy and board oversight for all acquisition opportunities at RMRI. Since 2008, Mr. Brownstein has been a partner at Rocky Mountain Resource Holdings and/or its predecessor affiliates, a natural resources operating and investment company. Mr. Brownstein has been a member of the board of directors beginning in 2009, and is currently lead independent director and the Vice Chairman of the Banc of California. Previously, from 2009 to 2012, Mr. Brownstein was a principal member of Crescent Capital Group, an investment firm (formerly Trust Company of the West Leveraged Finance Group) focused on special situations. During 2008, Mr. Brownstein was a Senior Advisor at Knowledge Universe Ltd., a global education company, where he focused on turnaround operations. From 2000 to 2007, he was a Partner at ITU Ventures, a venture capital firm, making venture and growth investments with a specialization in corporate strategy. Mr. Brownstein began his career in 1996 at Donaldson Lufkin & Jenrette in the Merchant and Investment Banking divisions. Mr. Brownstein is either a current or past member of the Cedars Sinai Board of Governors, Los Angeles Conservation Corps, Prospect Global Resources, and The Palisades Group LLC, a Banc of California Company. Mr. Brownstein attended Columbia Business School and received his B.A. from Tulane University. We believe Mr. Brownstein’s extensive experience with investments and acquisitions will bring value to the Company as we seek to grow our business.
Gregory Dangler is our President and he is responsible for the day-to-day operations of all business units. Mr. Dangler has been the President, and Director of the Company since 2014. Mr. Dangler is responsible for the day-to-day operations and corporate financial strategy of RMRI. Since 2008, Mr. Dangler has been a partner at Rocky Mountain Resource Holdings and/or its predecessor affiliates, a natural resources operating and investment company. Previously, from 2012-present, Mr. Dangler has served in multiple capacities, including Chief Restructuring Officer of Prospect Global Resources, a natural resource development company. Prior to that, in 2009, Mr. Dangler founded a venture-backed technology company. As the Chief Executive, he raised institutional capital and expanded its global presence with operating interests in Africa and South America. From 2006 to 2007, Mr. Dangler was an associate with ITU Ventures, a venture capital firm, making venture and growth investments. While with ITU, Mr. Dangler executed private and public equity transactions, directed M&A activity, and provided strategic support to portfolio companies. In 2000, Mr. Dangler began his career in the U.S. Air Force and by 2004 was managing complex infrastructure projects. Mr. Dangler received a BS in Mechanical Engineering from the United States Air Force Academy and an MBA from the University of Southern California’s Marshall School of Business. We believe Mr. Dangler’s knowledge and experience in the natural resources industry and with emerging growth companies will help to further the Company’s goals and business efforts.
Michael Okada is our Chief Financial Officer and is responsible for financial reporting and corporate administration. Mr. Okada has served as the Corporate Controller of the Company and its affiliates since January 2015. Mr. Okada has over 25 years of executive financial management experience in high growth public industrial companies. Mr. Okada previously held senior management roles with NASDAQ and NYSE companies in a broad range of industries, including manufacturing, technology, semiconductors, professional services, pharmaceuticals, medical devices and health care services. Mr. Okada has expertise in SEC financial reporting, board and investor relations for portfolio companies, and establishing infrastructure for growing organizations. Prior to joining the Company, Mr. Okada served as Senior Vice President and Chief Financial Officer of Cereplast, Inc., a publicly-traded bio-plastic resin manufacturer. Prior to Cereplast, Mr. Okada served as Vice President of Finance and Corporate Controller of Mindspeed Technologies, a publicly-traded fabless semiconductor company which provides technology solutions for the wireless network infrastructure industry. Prior to his corporate management positions, Mr. Okada began his career with Coopers & Lybrand (PricewaterhouseCoopers). Mr. Okada received a B.S. in Accounting from Santa Clara University and is a Certified Public Accountant (inactive) in the State of California. We believe Mr. Okada’s knowledge and experience with publicly-traded emerging growth companies will help to further the Company’s goals and business efforts.
Andrew Peltz serves as a director on our Board. Mr. Peltz is a Partner at Peltz Capital Management (“PCM”). Prior to forming PCM in 2003, Mr. Peltz worked at Triarc Companies, Inc. from 1999 to 2003 where he held the titles of Vice President, Investment Services and as an Associate of Corporate Development. He was primarily responsible for the day-to-day oversight of Triarc’s $650 million plus investment portfolio. Prior to Triarc, Mr. Peltz was Senior Investment Banker at Credit Agricole Lazard Financial Products Bank from 1997 to 1998, which is a joint venture between Lazard Freres & Co. and Credit Agricole, specializing in structured finance transactions. From 1996 to 1997, Mr. Peltz also served as a marketing associate for Lazard Asset Management, a division of Lazard Freres & Co., where he marketed their vast array of fixed income, equity and alternative investment products. Mr. Peltz holds a BFA from New York University.
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We believe that Mr. Peltz’s education and management and accounting experience make him a valuable member to the Company’s board of directors.
Family Relationships
There are no family relationships among our directors or executive officers.
Board Composition
Our By-Laws provide that the Board of Directors shall consist of not less than one (1) nor more than fifteen (15) directors. Each director of the Company serves until his successor is elected and qualified, subject to removal by the Company's majority shareholders. Each officer shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board of Directors, and shall hold his office until his successor is elected and qualified, or until his earlier resignation or removal.
Audit Committee
Our Board of Directors has not established a separate audit committee within the meaning of Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Instead, the entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the Exchange Act and will continue to do so until such time as a separate audit committee has been established.
Code of Ethics
The Company has adopted a Code of Ethics applicable to all Company directors, officers and employees which is available upon written request to the Company at c/o RMR Industrials, Inc., 9301 Wilshire Blvd, Suite 312, Beverly Hills, CA 90210.
Potential Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or directors.
Involvement in Certain Legal Proceedings
No director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Compliance with Section 16(a) Of the Exchange Act
Section 16(a) of the Exchange Act requires our directors, executive officers, and shareholders holding more than 10% of our outstanding Class B Common Stock to file with the SEC initial reports of ownership and reports of changes in beneficial ownership of our Class B Common Stock. Executive officers, directors, and persons who own more than 10% of our Class B Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file.
Chad Brownstein, our Chief Executive Officer and a director, was required to report his indirect ownership interest in the disposition of 260,000 shares and the acquisition of 80,000 shares of our Class B Common Stock on November 6, 2015. Mr. Brownstein was required to file a Form 4 no later than November 10, 2015. Mr. Brownstein filed the Form 4 on November 19, 2015.
Gregory Dangler, our President and a director, was required to report his indirect ownership interest in the disposition of 260,000 shares and the acquisition of 60,000 shares of our Class B Common Stock on November 6, 2015. Mr. Dangler was required to file a Form 4 no later than November 10, 2015. Mr. Dangler filed the Form 4 on November 19, 2015.
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Legado Del Rey, LLC, a significant shareholder of the Company, was required to report its ownership interest of 15,494,500 shares of Class A Common Stock promptly after March 17, 2015. Legado Del Rey, LLC filed the Form 3 on May 19, 2016.
Except as set forth above, based solely upon a review of Forms 3, 4, and 5 delivered to us as filed with the SEC during the transition period ended March 31, 2017, none of our executive officers and directors, and persons who own more than 10% of our Class B Common Stock failed to timely file the reports required pursuant to Section 16(a) of the Exchange Act.
Nominations to the Board of Directors
Our directors play a critical role in guiding our strategic direction and oversee the management of the Company. Board candidates are considered based upon various criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for the long-term interests of the shareholders, diversity, and personal integrity and judgment
In addition, directors must have time available to devote to Board activities and to enhance their knowledge in the growing business. Accordingly, we seek to attract and retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities to the Company.
In carrying out its responsibilities, the Board will consider candidates suggested by shareholders. If a shareholder wishes to formally place a candidate’s name in nomination, however, he or she must do so in accordance with the provisions of the Company’s Bylaws. Suggestions for candidates to be evaluated by the directors must be sent to the Board of Directors, c/o RMR Industrials, Inc., 9301 Wilshire Blvd, Suite 312, Beverly Hills, CA 90210.
As of March 31, 2017, we did not effect any material changes to the procedures by which our shareholders may recommend nominees to our Board of Directors.
Board Leadership Structure and Role on Risk Oversight
Gregory Dangler, Chad Brownstein and Andrew Peltz comprise our Board of Directors, with Mr. Brownstein serving as our Chief Executive Officer. We have determined this leadership structure is appropriate for us due to our small size and limited operations and resources. The Board of Directors will continue to evaluate our leadership structure and modify as appropriate based on our size, resources and operations.
Currently, our Board of Directors is establishing procedures to determine an appropriate role for the Board of Directors in the Company’s risk oversight function.
| Item 11. | Executive Compensation |
The following table sets forth information concerning the annual and long-term compensation awarded to, earned by, or paid to the named executive officers and directors for all services rendered in all capacities to our Company for the fiscal years ended March 31, 2017 and 2016:
| Name & Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Non- Qualified Deferred Compensation Earnings ($) | All Other Compensation ($)(2) | Total ($) | |||||||||||||||||||||||||||
| Chad Brownstein | 2017 | 75,000 | — | — | — | — | — | — | 75,000 | |||||||||||||||||||||||||||
| CEO and Director | 2016 | 228,750 | — | — | — | — | — | — | 228,750 | |||||||||||||||||||||||||||
| Gregory Dangler | 2017 | 75,000 | — | — | — | — | — | — | 75,000 | |||||||||||||||||||||||||||
| President and Director | 2016 | 228,750 | — | — | — | — | — | — | 228,750 | |||||||||||||||||||||||||||
| Michael Okada | 2017 | 22,500 | — | — | — | — | — | — | 22,500 | |||||||||||||||||||||||||||
| CFO | 2016 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 20 |
Director Compensation
The following table sets forth with respect to the named director, compensation information inclusive of equity awards and payments made in the fiscal year ended March 31, 2017.
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Chad Brownstein | - | - | - | - | - | - | - | |||||||||||||||||||||
| Gregory Dangler | - | - | - | - | - | - | - | |||||||||||||||||||||
| Andrew Peltz | - | - | - | - | - | - | - | |||||||||||||||||||||
We have no pension, health, annuity, bonus, insurance, stock options, profit sharing, or similar benefit plans. No stock options or stock appreciation rights have been granted to any of our directors or executive officers; none of our directors or executive officers exercised any stock options or stock appreciation rights; and none of them hold unexercised stock options. We have no long-term incentive plans.
Outstanding Equity Awards
Our directors and officers do not have unexercised options, stock that has not vested, or equity incentive plan awards.
Compensation of Directors
Other than as disclosed in the compensation table above, our directors do not receive compensation for their services as directors.
Potential Payments Upon Termination or Change-in-Control
None.
Employment Agreements
None.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters. |
The following table sets forth certain information with respect to the beneficial ownership of our Class A Common Stock and Class B Common Stock (on a post reverse-split basis) as of November 27, 2017, for (i) each director and officer, (ii) all of our directors and officers as a group, and (iii) each person known to us to own beneficially five percent (5%) or more of the outstanding shares of our Class A Common Stock or Class B Common Stock. Unless otherwise specified below, the address of each of the persons listed in the table below is c/o RMR Industrials, Inc., 9301 Wilshire Blvd. #312, Beverly Hills, CA 90210.
To our knowledge, except as indicated in the footnotes to this table or pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to the shares of common stock indicated.
| 21 |
| Name and Address of Beneficial Owner(1) | Class of Common | Shares Beneficially Owned | Percentage Beneficially Owned(3) | |||||||
| Directors and Executive Officers | ||||||||||
| Gregory M. Dangler | Class A | 9,499,657 | (4) | 26.55 | % | |||||
| President, Chief Financial Officer, Secretary and Director | Class B | 60,000 | (4) | 6.05 | % | |||||
| Chad Brownstein | Class A | 10,791,701 | (5) | 30.16 | % | |||||
| Chief Executive Officer, Director | Class B | 90,000 | (5) | 9.08 | % | |||||
| Andrew Peltz | Class B | 15,000 | 1.51 | % | ||||||
| Director | ||||||||||
| All Officers and Directors as a Group | Class A | 20,291,358 | 56.70 | % | ||||||
| Class B | 165,000 | 16.65 | % | |||||||
| 5% Shareholders | ||||||||||
| Legado Del Rey, LLC | Class A | 15,494,500 | (6) | 43.30 | % | |||||
| 121 South Beverly Drive | ||||||||||
| Beverly Hills, CA 90212 | ||||||||||
| Principio Management LLC | Class A | 9,499,657 | 26.55 | % | ||||||
| Class B | 60,000 | 6.05 | % | |||||||
| 77727111, LLC | Class A | 10,791,701 | 30.16 | % | ||||||
| Class B | 90,000 | 9.08 | % | |||||||
| The Munitz Family Trust | Class B | 159,000 | (7) | 16.05 | % | |||||
| 9301 Wilshire Blvd. #312 | ||||||||||
| Beverly Hills, CA 90210 | ||||||||||
| (1) | Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Pursuant to the rules of the SEC, shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be beneficially owned and outstanding for the purpose of computing the percentage ownership of any other person shown in the table. |
| (2) | The Company has Class A Common Stock and Class B Common Stock. The holders of Class A Common Stock will have the right to vote on all matters on which stockholders have the right to vote. The holders of Class B Common Stock will have the right to vote solely on matters where the vote of such holders is explicitly required under Nevada law, such as an approval of a plan of merger, exchange or conversion, an increase or decrease in the number of authorized shares of a class or series of stock in certain circumstances, and other situations as required by Nevada law where the rights, preferences or limitations of such holders are adversely impacted. On matters which the applicable class of stockholders have the right to vote, each Class A Common Stock and Class B Common Stock shall be entitled to one vote per share. |
| (3) | Based on 35,785,858 shares of Class A Common Stock and 833,459 shares of Class B Common Stock outstanding as of November 27, 2017. |
| (4) | Mr. Gregory M. Dangler is the indirect owner of 9,499,657 shares of Class A Common Stock and 60,000 shares of Class B Common Stock, which are directly held by Principio Management LLC (“Principio”). The business address of Principio is 9301 Wilshire Blvd, Suite 312, Beverly Hills, CA 90210. The principal business of Principio is a provider of management consulting services. Mr. Dangler is the managing member owner of Principio and has sole voting and dispositive power over the shares held by Principio. Mr. Gregory M. Dangler is also the indirect owner of 260,000 shares of Class B Common Stock, which are directly held by RMRH, and has shared voting and dispositive power over the shares held by RMRH. Principio and 77727111 have agreed to vote unanimously on all matters requiring the vote of shares of Class Common Stock pursuant to a voting agreement. Upon conversion of the Class A Common Stock held by Principio, it would be entitled to 474,983 shares of Class B Common Stock, on a post-reverse-split basis. |
| (5) | Mr. Chad Brownstein is the indirect owner of 10,791,701 shares of Class A Common Stock and 90,000 shares of Class B Common Stock, which are directly held by 77727111, LLC. The business address of 77727111, LLC is 9301 Wilshire Blvd, Suite 312, Beverly Hills, CA 90210. The principal business of 77727111, LLC is a provider of management consulting services. Mr. Brownstein is the managing member of 77727111 LLC and has sole voting and dispositive power over the shares held by 77727111 LLC. Mr. Chad Brownstein is also the indirect owner of 260,000 shares of Class B Common Stock, which are directly held by RMRH, and has shared voting and dispositive power over the shares held by RMRH. Principio and 77727111 have agreed to vote unanimously on all matters requiring the vote of shares of Class Common Stock pursuant to a voting agreement. Upon conversion of the Class A Common Stock held by 77727111, LLC, it would be entitled to 539,585 shares of Class B Common Stock, on a post-reverse-split basis. |
| (6) | The business address of Legado Del Rey, LLC is 121 South Beverly Dr., Beverly Hills, CA 90212. The principal business of Legado Del Rey, LLC is a family office. Edward Czuker is the manager of Legado Del Rey, LLC and has sole voting and dispositive power over the shares held by this entity. |
| (7) | Barry Munitz is the trustee of The Munitz Family Trust and has sole voting and dispositive power over the shares held by this entity. |
| 22 |
| Item 13. | Certain Relationships and Related Transactions and Director Independence Certain Relationships and Transactions |
Since inception, the Company accrued $2,368,233 in amounts owed to related parties for services performed or reimbursement of costs on behalf of the Company.
On October 15, 2014, RMR, IP, the Company’s subsidiary, entered into consulting agreements with each of Gregory Dangler, who is our current President, and Chad Brownstein, who is our current Chief Executive Officer, pursuant to which each of Mr. Dangler and Brownstein would provide services related to their roles as executive officers of the Company. The Company has accrued $1,805,000 for unpaid officers’ compensation expense in accordance with such consulting agreements. Under the terms of each consulting agreement, each consultant shall serve as an executive officer to the Company and receive monthly compensation of $35,000. The consulting agreements may be terminated by either party for breach or upon thirty days prior written notice.
On October 15, 2014, RMR, IP entered into consulting agreements with each of Principio Management LLC, which holds 9,499,657 shares of Class A Common Stock of the Company (26.55%), and 77727111, LLC, is the owner of 10,791,701 shares of Class A Common Stock of the Company (30.16%), relating to certain services provided by each of these entities. Mr. Dangler is the sole owner of Principio Management LLC and Mr. Brownstein is the sole owner of 77727111, LLC.
On November 17, 2014, RMRH became the majority shareholder of the Company by acquiring 5,200,000 shares of common stock of the Company (the “Shares”), or 69.06% of the issued and outstanding shares of common stock, pursuant to certain stock purchase agreements with former stockholders of the Company. The Shares were acquired for an aggregate purchase price of $357,670. RMRH was the source of the funds used to acquire the Shares. Mr. Brownstein is the owner of 50% of the outstanding capital stock of RMRH and is the Chief Executive Officer and a director of RMRH. Mr. Dangler is the owner of 33.5% of the outstanding capital stock of RMRH and is the President, Chief Financial Officer and a director of RMRH.
On February 1, 2015, RMR, IP entered into a management services agreement with Industrial Management LLC (“IM”), to provide services to RMR, IP and affiliated entities, which include assistance in operational and administrative matters, identifying, analyzing, and structuring growth initiatives, and potential strategic acquisitions. Chad Brownstein is a Manager of IM. As compensation for these services, RMR, IP will pay to IM an annual cash management fee in an amount equal to the greater of 2% of the Company’s annual gross revenues or $1,000,000, and a development fee with respect to any capital project incurred by RMR IP equal to 2% of total project costs. In addition, IM has the option to be assigned all available royalties from RMR IP’s mineral holdings, leases or interests greater than 75% of net revenue interests for all mineral rights or production of minerals. At IM’s sole discretion, it may choose to accept a preferred convertible security with a 15% dividend accruing quarterly in lieu of cash for some or all of the annual management fee, development fee and royalty assignments. Such preferred convertible securities shall be convertible into either Class A Common Stock or Class B Common Stock (as applicable) at a conversion price equal to fifty percent of the market price of the applicable Class B Common Stock on the day prior to the date of issuance. In addition, these preferred convertible securities are callable for a cash, for a period of six months following the date of issuance; provided, however, that if called, IM shall have the option to convert the called preferred stock into either Class A Common Stock or Class B Common Stock (as applicable) at a conversion price equal to sixty-six and two thirds percent of the market price of the applicable Class B Common Stock on the business day immediately preceding the issuance date of preferred stock, and will include a blocker provision. In connection with the management services agreement with IM, RMR IP entered into a registration rights agreement which requires RMR IP to register for resale any securities issued as consideration under the management services agreement. The registration rights agreements provide for both demand and piggy back registration rights, and requires that IM not transfer any shares of RMR IP during a 90 day period following the effective date of a registration statement. The registration rights agreement terminates when the shares held by IM become eligible for resale pursuant to Rule 144.
On March 28, 2016, we entered into a Loan Settlement Agreement and Release agreement with 77727111, LLC whereby we issued 10,000 shares of our Class B common stock valued at $100,000 to repay outstanding liabilities owed.
Other than as set forth above, none of our current officers or directors have been involved in any material proceeding adverse to the Company or any transactions with the Company or any of its directors, executive officers, affiliates or associates that are required to be disclosed pursuant to the rules and regulations of the SEC.
| 23 |
Review, Approval or Ratification of Transactions with Related Persons
Although we have adopted a Code of Ethics, we also rely on our Board to review related party transactions on an ongoing basis to prevent conflicts of interest. Our Board reviews a transaction in light of the affiliations of the director, officer or employee and the affiliations of such person’s immediate family. Transactions are presented to our Board for approval before they are entered into or, if this is not possible, for ratification after the transaction has occurred. If our Board finds that a conflict of interest exists, then it will determine the appropriate remedial action, if any. Our Board approves or ratifies a transaction if it determines that the transaction is consistent with the best interests of the Company.
Director Independence
During the fiscal year ended March 31, 2017, we had no independent directors on our board. We evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc., the NASDAQ National Market, and the Securities and Exchange Commission.
Subject to some exceptions, these standards generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company’s consolidated gross revenues.
| Item 14. | Principal Accountant Fees and Services |
The following table sets forth all fees we incurred in connection with professional services rendered by Hein & Associates, LLP during the fiscal year ended March 31, 2017:
| Fee Type | 2017 | |||
| Audit Fees | $ | 137,444 | ||
| Tax Fees | 13,000 | |||
| All Other Fees | 5,308 | |||
| $ | 155,752 | |||
| 24 |
| Item 15. | Exhibits Financial Statement Schedules |
(a) Financial Statements and Financial Statement Schedule
See Index to Consolidated Financial Statements
(b) Exhibits:
| 25 |
| 26 |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned on November 28, 2017, thereunto duly authorized.
| RMR INDUSTRIALS, INC. | |||
| Dated: November 28, 2017 | By: | /s/ Chad Brownstein | |
| Chad Brownstein | |||
| Chief Executive Officer and Director | |||
| (Principal Executive Officer) | |||
| Dated: November 28, 2017 | By: | /s/ Michael Okada | |
| Michael Okada | |||
| Chief Financial Officer | |||
| (Principal Financial Officer and Principal Accounting Officer) | |||
| 27 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Transition Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Dated: November 28, 2017 | By: | /s/ Chad Brownstein |
| Chad Brownstein, Chief Executive Officer and Director | ||
| (Principal Executive Officer) | ||
| Dated: November 28, 2017 | By: | /s/ Michael Okada |
| Michael Okada, Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
| Dated: November 28, 2017 | By: | /s/ Gregory Dangler |
| Gregory Dangler, President and Director | ||
| Dated: November 28, 2017 | By: | /s/ Andrew Peltz |
| Andrew Peltz, Director |
| 28 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors
RMR Industrials, Inc.
We have audited the accompanying consolidated balance sheets of RMR Industrials, Inc. and subsidiaries as of March 31, 2017 and 2016, and the related consolidated statements of operations, stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RMR Industrials, Inc. and subsidiaries as of March 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note C to the financial statements, the Company has suffered recurring losses from operations, its total liabilities exceed its total assets, and has negative cash flows from operations. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note C. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Hein & Associates LLP
Irvine, California
November 28, 2017
| F-1 |
RMR Industrials, Inc.
Consolidated Balance Sheets
| March 31, 2017 | March 31, 2016 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 1,608,094 | $ | 356,287 | ||||
| Accounts receivable | 56,835 | - | ||||||
| Inventory | 23,706 | - | ||||||
| Prepaid expenses | 52,673 | - | ||||||
| Total current assets | 1,741,308 | 356,287 | ||||||
| Property, plant and equipment, less accumulated depreciation | 3,679,069 | - | ||||||
| Goodwill | 41,000 | - | ||||||
| Asset retirement obligation, net | 43,515 | - | ||||||
| Deposits and other assets | 37,203 | 7,500 | ||||||
| Total assets | $ | 5,542,095 | $ | 363,787 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 946,866 | $ | 531,491 | ||||
| Accounts payable, related party | 2,368,233 | 1,368,233 | ||||||
| Accrued liabilities | 423,942 | - | ||||||
| Accrued liabilities, related party | 1,805,743 | 1,075,743 | ||||||
| Shareholder deposit | 1,400,000 | - | ||||||
| Capital lease payable, current | 40,115 | - | ||||||
| Equipment loan payable, current | 205,769 | - | ||||||
| Total current liabilities | 7,190,668 | 2,975,467 | ||||||
| Note payable, net of unamortized discount | 1,516,615 | - | ||||||
| Capital lease payable, noncurrent | 65,206 | - | ||||||
| Equipment loan payable, noncurrent | 426,957 | - | ||||||
| Accrued reclamation liability | 46,736 | - | ||||||
| Total liabilities | 9,246,182 | 2,975,467 | ||||||
| Commitments and Contingencies (Note L) | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred Stock, $0.001 par value, 50,000,000 shares authorized; none issued and outstanding | - | - | ||||||
| Class A Common Stock, $0.001 par value; 2,000,000,000 shares authorized; 35,785,858 shares issued and outstanding | 35,786 | 35,786 | ||||||
| Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 1,202,623 and 990,957 shares issued and outstanding on March 31, 2017 and March 31, 2016, respectively | 1,203 | 991 | ||||||
| Additional paid-in capital | 5,664,378 | 1,370,103 | ||||||
| Accumulated deficit | (9,460,492 | ) | (4,018,560 | ) | ||||
| Total RMR Industrials stockholders’ deficit | (3,759,125 | ) | (2,611,680 | ) | ||||
| Non-controlling interest | 55,038 | - | ||||||
| Total stockholders’ deficit | $ | (3,704,087 | ) | $ | (2,611,680 | ) | ||
| Total liabilities and stockholders’ deficit | $ | 5,542,095 | $ | 363,787 | ||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
RMR INDUSTRIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the | For the | |||||||
| year ended | year ended | |||||||
| March 31, 2017 | March 31, 2016 | |||||||
| Revenue | $ | 418,981 | $ | - | ||||
| Cost of goods sold | 384,834 | - | ||||||
| Gross profit | 34,147 | - | ||||||
| Selling, general and administrative | 5,314,321 | 3,170,709 | ||||||
| Loss from operations | (5,280,174 | ) | (3,170,709 | ) | ||||
| Interest expense (income), net | 270,313 | (613 | ) | |||||
| Loss before income tax provision | (5,550,487 | ) | (3,170,096 | ) | ||||
| Income tax expense | 1,850 | - | ||||||
| Net loss | (5,552,337 | ) | (3,170,096 | ) | ||||
| Add: Net loss attributed to noncontrolling interest | 110,405 | - | ||||||
| Net loss attributable to RMR Industrials, Inc. | $ | (5,441,932 | ) | $ | (3,170,096 | ) | ||
| Basic and diluted loss attributable to RMR Industrials, Inc. per common share | $ | (1.90 | ) | $ | (1.19 | ) | ||
| Weighted average shares outstanding | 2,858,585 | 2,671,038 | ||||||
See accompanying notes to consolidated financial statements.
| F-3 |
RMR INDUSTRIALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
| Common Stock Class A | Common Stock Class B | Common Stock | Additional Paid-In | Accumulated | Noncontrolling | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Subscribed | Capital | Deficit | Interest | Total | ||||||||||||||||||||||||||||
| Balance, March 31, 2015 | 35,785,858 | $ | 35,786 | 807,207 | $ | 807 | $ | (65 | ) | $ | (32,538 | ) | $ | (848,464 | ) | $ | — | $ | (844,474 | ) | ||||||||||||||||
| Issuance of common stock under subscription agreement | — | — | 173,750 | 174 | 65 | 1,614,476 | — | — | 1,614,715 | |||||||||||||||||||||||||||
| Issuance of common stock for loan settlement | — | — | 10,000 | 10 | — | 99,990 | — | — | 100,000 | |||||||||||||||||||||||||||
| Issuance costs | — | — | — | — | — | (311,825 | ) | — | — | (311,825 | ) | |||||||||||||||||||||||||
| Net loss for the period ended March 31, 2016 | — | — | — | — | — | — | (3,170,096 | ) | — | (3,170,096 | ) | |||||||||||||||||||||||||
| Balance, March 31, 2016 | 35,785,858 | 35,786 | 990,957 | 991 | — | 1,370,103 | (4,018,560 | ) | — | (2,611,680 | ) | |||||||||||||||||||||||||
| Issuance of common stock under subscription agreement | — | — | 221,666 | 222 | — | 3,124,569 | — | — | 3,124,791 | |||||||||||||||||||||||||||
| Issuance of common stock for services | — | — | 15,000 | 15 | — | 95,085 | — | — | 95,100 | |||||||||||||||||||||||||||
| Cancellation of common stock | — | — | (25,000 | ) | (25 | ) | — | 25 | — | — | — | |||||||||||||||||||||||||
| Valuation of equity conversion rights | — | — | — | — | — | 769,000 | — | 165,443 | 934,443 | |||||||||||||||||||||||||||
| Amortization of stock-based compensation | — | — | — | — | — | 305,596 | — | — | 305,596 | |||||||||||||||||||||||||||
| Net loss for the period ended March 31, 2017 | — | — | — | — | — | — | (5,441,932 | ) | (110,405 | ) | (5,552,337 | ) | ||||||||||||||||||||||||
| Balance, March 31, 2017 | 35,785,858 | $ | 35,786 | 1,202,623 | $ | 1,203 | $ | — | $ | 5,664,378 | $ | (9,460,492 | ) | $ | 55,038 | $ | (3,704,087 | ) | ||||||||||||||||||
See accompanying notes to consolidated financial statements.
| F-4 |
RMR INDUSTRIALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year ended March 31, 2017 | Year ended March 31, 2016 | |||||||
| Cash flow from operating activities | ||||||||
| Net loss | $ | (5,552,337 | ) | $ | (3,170,096 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation, amortization and accretion expense | 117,105 | 5,956 | ||||||
| Impairment of intangible asset | 10,000 | - | ||||||
| Stock-based compensation | 400,697 | 139,126 | ||||||
| Amortization of debt discount | 153,141 | - | ||||||
| Paid-In-Kind interest | 112,916 | - | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (56,835 | ) | - | |||||
| Prepaid expenses | (52,673 | ) | - | |||||
| Inventory | (23,706 | ) | - | |||||
| Deposits and other assets | (37,203 | ) | - | |||||
| Accounts payable | 415,375 | 403,721 | ||||||
| Accounts payable, related parties | 1,000,000 | 1,126,582 | ||||||
| Accrued liabilities | 423,942 | - | ||||||
| Accrued liabilities, related parties | 730,000 | 690,000 | ||||||
| Net cash used in operating activities | (2,359,578 | ) | (804,711 | ) | ||||
| Acquisition of business, net of cash | (2,827,624 | ) | - | |||||
| Purchase of property, plant and equipment | (205,909 | ) | - | |||||
| Purchase of intangibles and other assets | (2,500 | ) | (7,500 | ) | ||||
| Net cash used in investing activities | (3,036,033 | ) | (7,500 | ) | ||||
| Payments on equipment loan | (39,420 | ) | - | |||||
| Payments on capital lease | (22,952 | ) | - | |||||
| Proceeds from loan payable | 2,250,000 | - | ||||||
| Proceeds from shareholder deposit | 1,400,000 | - | ||||||
| Payments on debt issuance costs | (65,000 | ) | - | |||||
| Proceeds from issuance of common stock | 3,124,790 | 1,475,590 | ||||||
| Payments on offering costs toward issuance of common stock | - | (311,825 | ) | |||||
| Net cash provided by financing activities | 6,647,418 | 1,163,765 | ||||||
| Net increase in cash | 1,251,807 | 351,554 | ||||||
| Cash at beginning of period | 356,287 | 4,733 | ||||||
| Cash at end of period | $ | 1,608,094 | $ | 356,287 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | 402 | $ | - | ||||
| Cash paid for income taxes | $ | 1,850 | $ | - | ||||
Supplemental disclosure of non-cash transactions
During the year ended March 31, 2017, the Company valued conversion rights related to a note purchase agreement of $769,000 as a debt discount. The Company assumed $531,872 of equipment loan payable and $128,273 of capital lease payable in connection with an acquisition of a business, as well as $140,274 in acquisition of a property, plant and equipment with a new equipment loan.
See accompanying notes to consolidated financial statements.
| F-5 |
RMR INDUSTRIALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED MARCH 31, 2017
NOTE A – FORMATION, CORPORATE CHANGES AND MATERIAL MERGERS AND ACQUISITIONS
Online Yearbook was incorporated in the State of Nevada on August 6, 2012. Online Yearbook was a development stage company with the principal business objective of developing and marketing an online yearbook.
On November 17, 2014, Rocky Mountain Resource Holdings LLC, a Nevada limited liability company (the “Purchaser”) became the majority shareholder of Online Yearbook, by acquiring 5,200,000 shares of common stock of Online Yearbook (the “Shares”), or 69.06% of the issued and outstanding shares of common stock, pursuant to stock purchase agreements with Messrs. El Maraana and Salah Blal. The Shares were acquired for an aggregate purchase price of $357,670. The Purchaser was the source of the funds used to acquire the Shares. In connection with Online Yearbook’s receipt of approval from the Financial Industry Regulatory Authority (“FINRA”), effective December 8, 2014, Online Yearbook amended its Articles of Incorporation to change its name from “Online Yearbook” to “RMR Industrials, Inc.”
RMR Industrials, Inc. (the “Company” or “RMRI”) seeks to acquire and consolidate complimentary industrial assets. Typically these small to mid-sized assets are the core manufacturer and supplier of specific bulk commodity minerals and chemicals distributed to the global manufacturer industry. RMRI’s consolidation strategy is to assemble a portfolio of mature and value-add industrial commodities businesses to generate scalable enterprises with a vast portfolio of products and services addressing a common and stable customer base.
On February 27, 2015 (the “Closing Date”), the Company entered into and consummated a merger transaction pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, OLYB Acquisition Corporation, a Nevada corporation and wholly owned subsidiary of the Company (“Merger Sub”) and RMR IP, Inc., a Nevada corporation (“RMR IP”). In accordance with the terms of Merger Agreement, on the Closing Date, Merger Sub merged with and into RMR IP (the “Merger”), with RMR IP surviving the Merger as our wholly owned subsidiary.
RMR IP was formed to acquire and consolidate complimentary industrial commodity assets through capitalizing on the volatile oil markets, down cycles in commodity markets, and other ancillary opportunities. RMR IP is focused on managing the supply chain in order to offer a large and diverse set of products and services.
The Merger Agreement includes customary representations, warranties and covenants made by the Company, Merger Sub and RMR IP as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the Merger Agreement and are not intended to provide factual, business, or financial information about the Company, Merger Sub and RMR IP. Moreover, some of those representations and warranties (i) may not be accurate or complete as of any specified date, (ii) may be subject to a contractual standard of materiality different from those generally applicable to shareholders or different from what a shareholder might view as material, (iii) may have been used for purposes of allocating risk among the Company, Merger Sub and RMR IP, rather than establishing matters as facts, and/or (iv) may have been qualified by certain disclosures not reflected in the Merger Agreement that were made to the other party in connection with the negotiation of the Merger Agreement and generally were solely for the benefit of the parties to the Merger Agreement.
For financial reporting purposes, the Merger represents a “reverse merger” rather than a business combination and RMR IP is deemed to be the accounting acquirer in the transaction. Consequently, the assets and liabilities and the historical operations that will be reflected in the Company’s future financial statements will be those of RMR IP. The Company’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of RMR IP after consummation of the Merger, and the historical financial statements of the Company before the Merger will be replaced with the historical financial statements of RMR IP before the Merger in all future filings with the SEC.
On March 10, 2015, we formed United States Talc and Minerals Inc. (“US Talc and Minerals”), incorporated in the State of Nevada as a wholly-owned subsidiary of the Company for the purpose of facilitating future acquisitions.
On July 28, 2016, we formed RMR Aggregates, Inc., a Colorado corporation (“RMR Aggregates”), as our wholly owned subsidiary. RMR Aggregates was formed to hold assets whose primary focus is the mining and processing of industrial minerals for the manufacturing, construction and agriculture sectors. These minerals include limestone, aggregates, marble, silica, barite and sand.
| F-6 |
On October 12, 2016, RMR Aggregates acquired substantially all of the assets from CalX Minerals, LLC, a Colorado limited liability company (“CalX”) through an Asset Purchase Agreement. Pursuant to the terms of the Asset Purchase Agreement, RMR Aggregates agreed to purchase, and CalX agreed to sell, substantially all of the assets associated with the business of operating the Mid-Continent Limestone Quarry on 41 BLM unpatented placer mining claims in Garfield County, Colorado, including the mining claims, improvements, access rights, water rights, equipment, inventory, contracts, permits, certain intellectual property rights, and other tangible and intangible assets associated with the limestone mining operation.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements for the fiscal year ended March 31, 2017 have been prepared in accordance with accounting principles generally accepted in the United States for annual financial information in accordance with Securities and Exchange Commission (SEC) Regulations.
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The accounting policies presented in these footnotes conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the accompanying consolidated financial statements. These consolidated financial statements and notes are representations of the Company’s management who are responsible for their integrity and objectivity.
Consolidation
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The audited consolidated financial statements include the financial condition and results of operations of our wholly-owned subsidiaries, where intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that impact the reported amounts of assets, liabilities, and expenses, and disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from those estimated amounts and assumptions used in the preparation of the financial statements.
Revenue Recognition
Revenue for product sales are recognized when evidence of an arrangement exists, the fee is fixed or determinable, title passes, which is generally when the product is shipped, and collection is reasonably assured. Revenue includes product sales of limestone, aggregate materials and other transportation charges to customers, net of discounts, allowances or taxes, as applicable.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.
Cash and Cash Equivalents
The Company considers all highly liquid securities with original maturities of three months or less at the date of purchase to be cash equivalents. As of March 31, 2017, the Company had cash of $1,608,094 and no cash equivalents. The Company may occasionally maintain cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation (“FDIC”). The amounts are held with major financial institutions and are monitored by management to mitigate credit risk.
| F-7 |
Accounts Receivable
Accounts receivables are recorded at the invoiced amount and do not bear interest. The Company analyzes collectability based on historical payment patterns and macroeconomic factors which may affect the customers’ industry. Past due balances over 90 days based on payment terms are reviewed individually for collectability. The Company does not have any off-balance sheet credit exposure related to its customers. Concentration of credit risk is limited to certain customers to whom we make substantial sales. As of March 31, 2017, the Company had one large customer that accounted for approximately 85% of our accounts receivable balance. To reduce risk, we routinely assess the financial strength of our most significant customers, using standard credit risk evaluation methods with reference to publicly available and customer supplied information, and monitor the amounts owed and taking appropriate action when necessary. As a result, we believe that accounts receivable credit risk exposure is limited.
Inventory
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Significant improvements are capitalized, while maintenance and repair expenses are charged to operations as incurred. The straight-line method of depreciation is used for substantially all of the assets for financial reporting purposes.
Depletion of mineral properties determined on a unit-of-extraction basis for financial reporting purposes, based upon estimated and recoverable limestone, and on a percentage depletion basis for tax purposes.
Goodwill
Goodwill represents the excess of a purchase price over the fair value of net tangible and identifiable intangible assets of the businesses acquired by the Company. Goodwill is tested for impairment annually or more often if impairment indicators are present at the reporting unit level. The Company has elected January 1st as its annual goodwill impairment assessment date. If the existence of events or circumstances indicates that it is more likely than not that fair values of the reporting units are below their carrying values, the Company performs additional impairment tests during interim periods to evaluate goodwill for impairment.
Deposits
Deposits consist of a security deposit in connection with an office lease.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors considered include:
| • | Significant changes in the operational performance or manner of use of acquired assets or the strategy for our overall business, |
| • | Significant negative market conditions or economic trends, and |
| • | Significant technological changes or legal factors which may render the asset obsolete. |
Impairment losses are recorded on long-lived assets used in operations when an indicator of impairment is present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount.
Accrued Reclamation Liability
The Company incurs reclamation liabilities as part of its mining activities. Quarry activities require the removal and relocation of significant levels of overburden to access materials of usable quantity and quality. The same overburden material is used to reclaim depleted mine areas, which must be sloped to a certain gradient and seeded to prevent erosion in the future. Reclamation methods and requirements can differ depending on the quarry and state rules and regulations in existence for certain locations. As of March 31, 2017, the Company’s undiscounted reclamation obligations totaled approximately $196,000, which is expected to be settled within the next 20 years.
Reclamation costs resulting from the normal use of long-lived assets, either owned or leased, are recognized over the period the asset is in use. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. The fair value is based on our estimate for a third party to perform the legally required reclamation tasks including a reasonable profit margin. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset.
The mining reclamation reserve is based on management’s estimate of future cost requirements to reclaim property at its operating quarry site. Costs are estimated in current dollars and inflated until the expected time of payment using a future estimated inflation rate and then discounted back to present value using a credit-adjusted, risk-free rate on obligations of similar maturity adjusted to reflect our credit rating. The Company will review reclamation liabilities at least every three years for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation liabilities are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment to an existing mineral lease. Examples of events that would cause a change in the estimated settlement date include the acquisition of additional reserves or early or delayed closure of a site. Any affect to earnings from cost revisions is included in cost of revenue.
A reconciliation of the carrying amount of our accrued reclamation liabilities is as follows:
| Balance at April 1, 2016 | $ | - | ||
| Liabilities incurred | 44,630 | |||
| Accretion expense | 2,106 | |||
| Balance at March 31, 2017 | $ | 46,736 |
Shareholder Deposit
The Company received proceeds of $1,400,000 from an existing shareholder to purchase additional shares of Class B common stock in connection with the acquisition of an industrial minerals company. This investment was contingent upon completion of this pending acquisition and subject to refund if this transaction is not completed. See Note M – Subsequent Events.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
- Level 1: Quoted market prices in active markets for identical assets or liabilities
- Level 2: Observable market-based inputs or inputs that are corroborated by market data
| F-8 |
- Level 3: Unobservable inputs that are not corroborated by market data
Net Loss per Common Share
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for the potentially dilutive effects of converting stock options or restricted stock purchase rights outstanding. Diluted net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period and the potential dilutive effects of stock options or restricted stock purchase rights outstanding during the period determined using the treasury stock method. There are no such anti-dilutive common share equivalents outstanding as March 31, 2017 which were excluded from the calculation of diluted loss per common share.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax bases of the Company's assets and liabilities and their financial statement reported amounts. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded by the Company when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Additionally, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. Accordingly, the Company establishes reserves for uncertain tax positions. The Company has not recognized interest or penalties in its statement of operations and comprehensive loss since inception.
Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The Company has adopted this ASU and did not have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the definition of a business. This ASU provides a screen to determine whether a group of assets constitute 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 screen reduces the number of transactions that need to be further evaluated as acquisitions. If the screen is not met, this ASU (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output and (2) removes the evaluation of whether a market participant could replace missing elements. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs. The ASU is effective for public companies for annual periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which will result in lessees recognizing most leases on the balance sheet. Lessees are required to disclose more quantitative and qualitative information about their leases than current U.S. GAAP requires. The ASU is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are beginning to compile all operating and capital leases to assess the impact of adopting this standard.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which prescribes a five-step model for revenue recognition that will replace most existing revenue recognition guidance in U.S. GAAP. The ASU will supersede nearly all existing revenue recognition guidance under U.S. GAAP and provides that an entity recognize revenue when it transfers 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. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB postponed the effective date of the new revenue standard by one year to the first quarter of 2018. In applying these ASUs, an entity is permitted to use either the full retrospective or cumulative effect transition approach. We plan to adopt these ASU’s using the cumulative effect transition approach. While we are currently evaluating the impact of adoption of these standards on our consolidated financial statements, we expect to identify similar performance obligations compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we do not expect the adoption of these ASU’s to have a material impact on our consolidated statements of operations.
| F-9 |
Management believes recently issued accounting pronouncements will have no impact on the financial statements of the Company.
NOTE C – GOING CONCERN
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have sufficient cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. As a result, the Company’s auditors issued a going concern opinion for the financial statements at March 31, 2016.
The Company’s net loss and working capital deficit raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements for the fiscal year ended March 31, 2017 do not include any adjustments to reflect the possible future effects of the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. The Company may never become profitable, or if it does, it may not be able to sustain profitability on a recurring basis.
Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the business plan and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
During the next year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon funds from the sale of shares of stock and from acquiring loans to finance its operations and growth. Management may raise additional capital through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
In the past year, the Company funded operations by using cash proceeds received through the issuance of common stock and proceeds from related party debt. For the coming year, the Company plans to continue to fund the Company through debt and securities sales and issuances until the company generates enough revenues through the operations as stated above.
NOTE D – BUSINESS COMBINATION
On October 12, 2016, pursuant to an Asset Purchase Agreement dated October 7, 2016, the Company acquired substantially all of the assets of CalX Minerals, LLC, a Colorado limited liability company (“CalX”). Pursuant to the terms of the Asset Purchase Agreement, the Company agreed to purchase substantially all of the assets associated with the business of operating the Mid-Continent Limestone Quarry on 41 BLM unpatented placer mining claims in Garfield County, Colorado, including the mining claims, improvements, access rights, water rights, equipment, inventory, contracts, permits, certain intellectual property rights, and other tangible and intangible assets associated with the limestone mining operation. The acquisition of the CalX assets will promote the development and implementation of the Company’s limestone mining operations in Colorado.
The aggregate purchase price for the CalX assets was $2,827,624, including the assumption by the Company of certain assumed liabilities specified in the Asset Purchase Agreement. The Asset Purchase Agreement contains customary representations, warranties, covenants and indemnification provisions. The closing of the transactions contemplated by the Asset Purchase Agreement was subject to the satisfaction of customary closing conditions. The Company incurred approximately $100,000 in transaction expenses related to CalX, which have been recorded as selling, general and administrative expense in the Consolidated Statements of Operations.
In connection with the acquisition of CalX, the Company entered into a $2,250,000 Note Purchase Agreement, the net proceeds of which, together with the Company’s cash on hand, were used as cash consideration for the acquisition of CalX and to pay fees and expenses in connection with the foregoing. See Note F.
| F-10 |
The fair value of the total consideration transferred, net of cash acquired was $2,827,624. The acquisition of CalX has been accounted for using the acquisition method of accounting, which requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date.
The following table summarizes the Company’s purchase price allocation for the CalX acquisition:
| Property, plant and equipment | $ | 1,969,300 | ||
| Mineral properties | 1,477,469 | |||
| Asset retirement obligation | 44,630 | |||
| Intangible assets | 41,000 | |||
| Total assets acquired | 3,532,399 | |||
| Equipment loan payable | 531,872 | |||
| Capital lease payable | 128,273 | |||
| Accrued reclamation liability | 44,630 | |||
| Total liabilities assumed | 704,775 | |||
| Net assets acquired | $ | 2,827,624 |
The Company used the income, market, or cost approach (or a combination thereof) for the preliminary valuation, and used valuation inputs and analyses that were based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. The Company’s estimates related to this valuation are considered to be critical accounting estimates because they are susceptible to change from period to period based on our judgments about a variety of factors and due to the uncontrollable variability of market factors underlying them. For example, in performing assessments of the fair value of these assets, the Company makes judgments about the future performance business of the acquired business, economic, regulatory, and political conditions affecting the net assets acquired, appropriate risk-related rates for discounting estimated future cash flows, reasonable estimates of disposal values, and market royalty rate.
Pro Forma Results of Operations (unaudited)
The following consolidated pro forma results of operations presents the financial results as if the CalX assets had been acquired on the first day of the 2016 fiscal year. This information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made on the first day of the preceding fiscal year, nor is it indicative of any future results.
| Year ended March 31, 2017 | Year ended March 31, 2016 | |||||||
| Revenue | $ | 1,442,643 | $ | 1,793,514 | ||||
| Net loss | $ | (5,898,373 | ) | $ | (4,169,329 | ) | ||
NOTE E – Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following as of March 31, 2017 and 2016:
| Estimated life (years) | March 31, 2017 | March 31, 2016 | ||||||||
| Land (mineral bearing) and asset retirement costs | 20 | $ | 1,477,469 | $ | - | |||||
| Mill equipment | 3-15 | 1,044,673 | - | |||||||
| Mobile equipment | 5-12 | 702,757 | - | |||||||
| Mining equipment | 2-15 | 271,907 | - | |||||||
| Truck and trailer | 3-5 | 147,856 | - | |||||||
| Office equipment and furniture | 2-3 | 1,630 | - | |||||||
| Construction in progress | 3-5 | 144,249 | - | |||||||
| Property, plant and equipment | 3,790,541 | - | ||||||||
| Less accumulated depreciation, depletion and amortization | (111,472 | ) | - | |||||||
| Property, plant and equipment, net | $ | 3,679,069 | $ | - | ||||||
Depreciation, depletion and amortization expense of property, plant and equipment was $111,472 and $0 in the years ended March 31, 2017 and 2016, respectively.
NOTE F – NOTE PAYABLE
On October 3, 2016, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with RMR Aggregates, Inc., and Central Valley Administrators Inc., a Nevada corporation (“CVA”). Pursuant to the terms of the Note Purchase Agreement, RMR Aggregates sold to CVA, and CVA purchased from RMR Aggregates, a 10% promissory note in an aggregate principal amount of $2,250,000 (the “Note”). The Note has a maturity date of October 3, 2018, and accrues interest at a rate of 10% per annum.
Under the terms of the Note Purchase Agreement, RMR Aggregates also agreed to issue 20,000 shares of common stock of RMR Aggregates (the “RMRA Shares”) to CVA, which represents 20% of RMR Aggregates’ total issued and outstanding common stock. CVA shall have the right, at any time, to convert the RMRA Shares into shares of Class B common stock of the Company, at a ratio of 1 share of RMRA Shares being converted into 7.5 shares of the Company’s Class B common stock. RMR Aggregates will also have the right, at any time after October 3, 2017 and after the Note is no longer outstanding, to call the RMRA Shares in exchange for shares of Class B common stock of the Company using the same ratio; provided, however, that the amount of RMRA Shares that may be called in exchange for shares of the Company’s Class B common stock shall be limited to the extent necessary to ensure that, following such exercise, CVA and its affiliates will not beneficially own in excess of 4.99% of the Company’s total issued and outstanding common stock.
The Note Purchase Agreement provides, among other things, that CVA shall have a liquidation right upon an event of default arising from the failure by RMR Aggregates to repay the outstanding principal amount of the Note on the maturity date, meaning CVA can cause RMR Aggregates to sell its assets until it repays the outstanding amount due under the Note. RMR Aggregates shall have the right to call the Note at any time at par plus accrued interest thereunder.
| F-11 |
The conversion feature in the Note Purchase Agreement was valued at $769,000 and recorded as a discount to the CVA Note. The carrying value of the CVA Note at March 31, 2017:
| Principal value | $ | 2,250,000 | ||
| Accrued interest | 112,916 | |||
| Unamortized debt discount | (846,301 | ) | ||
| Note payable, net | $ | 1,516,615 |
NOTE G – EQUIPMENT LOAN AND CAPITAL LEASE PAYABLE
The Company has entered into various equipment loans with an equipment manufacturer in connection with the CalX acquisition, pursuant to which we acquired equipment with an aggregate principal value of approximately $528,593. The equipment loans require payments over 12 months at a fixed interest rate from 1.99% to 5.75%. The Company’s obligations under these contracts are collateralized by the equipment purchased.
The Company also has a capital lease agreement, which was assumed in connection with the CalX acquisition. The capital lease has a remaining term of 33 months for mining equipment, which is included as part of property, plant and equipment. Depreciation related to capital lease assets is included in depreciation expense.
Future payments on capital lease obligations are as follows:
| Fiscal year ended March 31: | ||||
| 2018 | $ | 40,115 | ||
| 2019 | 38,602 | |||
| 2020 | 26,604 | |||
| 2021 | - | |||
| Total future minimum lease payments | $ | 105,321 | ||
NOTE H – TRANSACTIONS WITH RELATED PARTIES
Since inception, the Company accrued $2,368,233 in amounts owed to related parties for services performed or reimbursement of costs on behalf of the Company. In addition, the Company has accrued $1,805,000 for unpaid officers’ compensation expense in accordance with consulting agreements with our Chief Executive Officer and President. Under the terms of each consulting agreement, each consultant shall serve as an executive officer to the Company and receive monthly compensation of $35,000. The consulting agreements may be terminated by either party for breach or upon thirty days prior written notice.
On February 1, 2015, RMR, IP entered into a management services agreement with Industrial Management LLC (“IM”), to provide services to RMR, IP and affiliated entities, which include assistance in operational and administrative matters, identifying, analyzing, and structuring growth initiatives, and potential strategic acquisitions. As compensation for these services, RMR, IP will pay to IM an annual cash management fee in an amount equal to the greater of 2% of the Company’s annual gross revenues or $1,000,000, and a development fee with respect to any capital project incurred by RMR IP equal to 2% of total project costs. In addition, IM has the option to be assigned all available royalties from RMR IP’s mineral holdings, leases or interests greater than 75% of net revenue interests for all mineral rights or production of minerals. At IM’s sole discretion, it may choose to accept a preferred convertible security with a 15% dividend accruing quarterly in lieu of cash for some or all of the annual management fee, development fee and royalty assignments. Such preferred convertible securities shall be convertible into either Class A Common Stock or Class B Common Stock (as applicable) at a conversion price equal to fifty percent of the market price of the applicable Class B Common Stock on the day prior to the date of issuance. In addition, these preferred convertible securities are callable for a cash, for a period of six months following the date of issuance; provided, however, that if called, IM shall have the option to convert the called preferred stock into either Class A Common Stock or Class B Common Stock (as applicable) at a conversion price equal to sixty-six and two thirds percent of the market price of the applicable Class B Common Stock on the business day immediately preceding the issuance date of preferred stock, and will include a blocker provision. In connection with the management services agreement with IM, RMR IP entered into a registration rights agreement which requires RMR IP to register for resale any securities issued as consideration under the management services agreement. The registration rights agreements provide for both demand and piggy back registration rights, and requires that IM not transfer any shares of RMR IP during a 90 day period following the effective date of a registration statement. The registration rights agreement terminates when the shares held by IM become eligible for resale pursuant to Rule 144.
NOTE I – SHAREHOLDERS’ DEFICIT
Reverse Stock Split
On September 4, 2015, the Company implemented a reverse stock split of all of its authorized and issued and outstanding shares of Class B Common Stock in ratio of one-for-twenty. All historical and per share amounts have been adjusted to reflect the reverse stock split.
| F-12 |
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock for issuance. At March 31, 2017, no preferred stock was issued and outstanding.
Common Stock
The Company has authorized 2,100,000,000 shares of common stock for issuance, including 2,000,000,000 shares of Class A Common Stock, 100,000,000 shares of Class B Common Stock. At March 31, 2017, the Company had 35,785,858 and 1,202,623 shares issued and outstanding of Class A Common Stock and Class B Common Stock, respectively.
The holders of Class A Common Stock will have the right to vote on all matters on which stockholders have the right to vote. The holders of Class B Common Stock will have the right to vote solely on matters where the vote of such holders is explicitly required under Nevada law. The holders of Class A Common Stock and Class B Common stock will have equal distribution rights, provided that distributions in securities shall be made in either identical securities or securities with similar voting characteristics. The holders of Class A Common Stock and Class B Common Stock will be entitled to receive identical per-share consideration upon a merger, conversion or exchange of the Company with another entity, and will have equal rights upon dissolutions, liquidation or winding-up.
During the fiscal year ended March 31, 2017, the Company entered into subscription agreements with accredited investors (the "Purchasers") to offer and sell 221,666 units of the Company’s securities (the “Units”) at $10.00 - $15.00 per Unit for which the Company received $3,124,790 in proceeds. Each Unit entitles the Purchaser to one share of Class B Common Stock of the Company and a warrant to purchase one half to one and a half shares of Class B Common Stock at an exercise price of $10.00 - $15.00 with a term of one or two years. The Units issued by the Company for the fiscal year ended March 31, 2017:
| Shares of | ||||||||||||||||||||
| Units Sold | Proceeds | Common Stock | Warrants | Warrant Price | Warrant Term | |||||||||||||||
| 40,000 | $ | 400,000 | 40,000 | 80,000 | $ | 10.00 | 2 years | |||||||||||||
| 91,666 | 1,374,995 | 91,666 | 137,500 | $ | 15.00 | 1 year | ||||||||||||||
| 56,667 | 850,000 | 56,667 | 85,000 | $ | 15.00 | 1 year | ||||||||||||||
| 33,333 | 499,995 | 33,333 | 16,667 | $ | 15.00 | 1 year | ||||||||||||||
NOTE J – SHARE-BASED COMPENSATION
The RMR Industrials, Inc. 2015 Equity Incentive Plan (the "2015 Plan"), authorizes up to 30% of the outstanding shares of Class B Common Stock at any time during the 2015 Plan, for issuance of options, shares or rights to acquire our Class B common stock by the Company’s board of directors. As of March 31, 2017, there were 1,070,108 shares still available for future issuance under the 2015 Plan.
Stock Options
The Company grants stock options to certain employees that give them the right to acquire our Class B common stock under the 2015 Plan. The exercise price of options granted is equal to the closing price per share of our stock at the date of grant. The nonqualified options vest at a rate of 33% on each of the first three anniversaries of the grant date provided that the award recipient continues to be employed by us through each of those vesting dates, and expire ten years from the date of grant.
Valuation Assumptions for Stock Options
During the three months ended December 31, 2016, the Company granted options to our employees to purchase an aggregate of 400,000 shares of our common stock, with estimated total grant-date fair values of $828,800. The Company recorded stock-based compensation related to stock options of $305,596 during the year ended March 31, 2017. As of March 31, 2017, unamortized stock-based compensation was $523,204 related to unvested stock options. The grant date fair value was estimated at the date of grant using the Black-Scholes option pricing model, assuming no dividends and the following assumptions:
| November 21, 2016 | ||||
| Average risk-free interest rate | 1.79 | % | ||
| Average expected life (in years) | 5.0 | |||
| Volatility | 33.85 | % | ||
| Dividend yield | 0.0 | % | ||
| · | Risk-Free Interest Rate: The risk-free interest rate is determined using the rate on treasury securities with the same term as the expected life of the stock option as of the grant date. |
| · | Expected Term: We have limited historical information regarding expected option term. Accordingly, we determine the expected option term of the awards using the latest historical data available from comparable public companies and management’s expectation of exercise behavior. |
| · | Expected Volatility: Stock volatility for each grant is measured using the weighted average of historical daily price changes of our competitors’ common stock over the most recent period equal to the expected option term of the awards. |
| · | Expected Dividend: We have not paid any dividends and do not anticipate paying dividends in the foreseeable future. |
Stock Option Activity
Stock Options | Grant Date Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (in Years) | Aggregate Intrinsic Value (1) | |||||||||||||
| Outstanding at April 1, 2016 | - | $ | - | |||||||||||||
| Granted | 400,000 | $ | 6.34 | |||||||||||||
| Exercised | - | $ | - | |||||||||||||
| Forfeited | - | $ | - | |||||||||||||
| Expired | - | $ | - | |||||||||||||
| Outstanding at March 31, 2017 | 400,000 | $ | 6.34 | 9.9 | $ | - | ||||||||||
| Vested and expected to vest March 31, 2017 | 99,999 | $ | 6.34 | 9.9 | $ | - | ||||||||||
| Exercisable at March 31, 2017 | 99,999 | $ | 6.34 | 9.9 | $ | - | ||||||||||
NOTE K – INCOME TAXES
There is no provision for income taxes because the Company has incurred operating losses since inception and has a full valuation allowance on it deferred tax asset. At March 31, 2017 and 2016 the Company has concluded that it is more likely than not that the Company may not realize the benefit of its deferred tax assets due to losses generated and uncertainties surrounding its ability to generate future taxable income. Accordingly, the net deferred tax assets have been fully reserved.
Net deferred tax assets consist of the following components:
| March 31, 2017 | March 31, 2016 | |||||||
| Deferred tax asset: | ||||||||
| Net operating loss carryforwards | $ | 3,008,204 | $ | 1,565,124 | ||||
| Stock compensation | 181,206 | 56,811 | ||||||
| Fixed assets | 799,726 | - | ||||||
| Intangible assets | 25,524 | 9,953 | ||||||
| Accrued liabilities | 650,201 | - | ||||||
| Charitable contributions | 1,019 | - | ||||||
| State taxes - current | 1,120 | 560 | ||||||
| Deferred tax liabilities: | ||||||||
| State taxes - deferred | (169,157 | ) | (123,689 | ) | ||||
| Valuation allowance | (4,497,843 | ) | (1,508,759 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
| F-13 |
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income statutory tax rates to pretax loss from continuing operations as follows:
| March 31, 2017 | ||||
| Tax computed at federal statutory rate | $ | (1,904,676 | ) | |
| State tax, net of federal tax benefit | (417,027 | ) | ||
| Meals and entertainment | 13,597 | |||
| Debt discount amortization | 53,600 | |||
| Change in valuation allowance | 2,256,356 | |||
| Net provision for income taxes | $ | 1,850 | ||
The Company has accumulated federal net operating loss carryovers of approximately $ 7,477,470 and state accumulated net operating loss carryover of approximately $7,480,670 as of March 31, 2017 which are available to reduce future taxable income. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes may be subject to annual limitations. A change in ownership may limit the utilization of the net operating loss carry forwards in future years. The federal and state tax losses begin to expire in 2033.
NOTE L – COMMITMENTS AND CONTINGENCIES
The Company has certain non-cancelable operating leases for office locations that are not accounted for as liabilities under GAAP. Future minimum lease commitments under these non-cancelable operating leases at March 31, 2017 are as follows:
| Lease Commitment | ||||
| 2018 | $ | 154,930 | ||
| 2019 | 48,438 | |||
| Total minimum lease payments | $ | 203,368 | ||
NOTE M – SUBSEQUENT EVENTS
On April 4, 2017, the Company refunded a shareholder deposit of $1,400,000 to an investor following the termination of a proposed acquisition.
The Company sold 173,333 shares of Class B common stock and 316,667 warrants of Class B common stock for proceeds of $2,400,000 through November 27, 2017.
| F-14 |
EXHIBIT INDEX