Item 1. Business
Overview
RMI’s predecessor entity was incorporated in August, 2012 as a Nevada corporation. We are an exploration stage company dedicated to operating industrial assets in the United States (U.S.) including minerals, materials and services. Our strategy is to become a key provider of industrial materials and services in the Rocky Mountain region. We utilize differentiated operational capabilities, which we believe will allow us to outperform conventional operators through diverse markets.
We have a strategy to own, operate, develop, acquire and vertically integrate complementary industrial businesses. The experienced management team of RMR has a multi-cycle track record of operating industrial resource businesses.
We operate the Mid-Continent Quarry in Garfield County, Colorado, producing chemical-grade calcium carbonate that currently services local and regional customers in a variety of end markets, including but not limited to mining, manufacturing, construction, and agriculture. The Mid-Continent Quarry, which is located outside the city of Glenwood Springs, consists of 44 unpatented mining claims owned by the Bureau of Land Management and controlled by RMR. The operation currently serves Arch Coal, local construction firms, and various city and county government construction projects. The quarry is currently undergoing an expansion and modernization effort. For the years ended March 31, 2020 and 2019, we produced and sold 25,474 and 34,060 tons of high-calcium limestone, respectively, from the Mid-Continent Quarry. Please reference “Cautionary Note Regarding Exploration Stage Status and Use of Certain Mining Terms” for disclosure concerning the current stage of our mineral explorations.
We are also actively developing Rocky Mountain Rail Park (the “Rail Park”), a dedicated rail-served industrial business park serving the greater Denver market. In February 2018, we acquired approximately 470 acres of land in Bennett, Colorado which serves as the foundation for the Rail Park. In July 2018 we exercised our option to acquire an additional approximately 150 acres for a total of 620 acres. The Company’s development of the Rail Park is intended to expand the customer base for our products by utilizing rail freight capabilities to reach customers in the greater Denver area and by expanding our business to include rail transportation solutions and services. We intend to be the permanent owner and operator of the Rail Park and once operational, the facility will seek to establish a new industrial hub for rail transportation and related services serving Adams County, Colorado and the greater Denver metropolitan area. The Rail Park sold an 83 acre lot in January of 2021 and we expect this to positively impact the of the property’s southern lots. Tenant interest has been strong after the unanimous approval by the Adams County Board of County Commissioners of the Final Development Plan and Final Plat in September of 2020.
Rail freight capabilities allow the Mid-Continent Quarry’s products to access the Denver market, where demand for calcium carbonate is currently strong and supply is relatively limited. The market opportunity is primarily centered on front range infrastructure demands, but also includes fertilizer, animal feed, and multiple other industrial applications. According to the USGS Natural Aggregates Statistics and information Colorado demand in 2019 for construction aggregate was approximately 47.4 million metric tons per year, comprised of 31.2 million metric tons of sand and gravel and 16.2 million metric tons of crushed stone. The area experiences supply shortages in peak seasons, creating a natural market for our products. We believe we are well-positioned to benefit from this market environment.
In addition to developing and expanding our existing assets, we expect to supplement our growth with strategic acquisitions of related business and the integration these businesses to achieve economies of scale and synergies. We target companies in various sectors directed towards industrial and/or infrastructure applications, including but not limited to construction materials, industrial minerals, industrial resources, logistics solutions, and transportation.
Competitive Strengths
Our management team has extensive experience in investing in and operating natural resource assets. We believe our potential competitive strengths to be the following:
Application of Management Expertise. Our team has expertise in engineering, operations, finance and general management within the industrials resource sector.
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. The management team has applied its deep understanding of historical precedents in the natural resource markets to the development of our business and strategy. Some of our management team members have been working together for the last ten years, and over that time have assembled a team of industrial resources and investment professionals to pursue investments across the industry.
Revenues and Customers
For the year ended March 31, 2020, 55% of our consolidated revenue was from one customer. At March 31, 2020, approximately 44% of our accounts receivable were due from the same customer.
Industry and Competition
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, and agriculture. Regional competitors include Pete Lien & Sons, Inc., and United States Lime & Minerals, Inc.
Construction 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 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 2019 U.S. Geological Survey, the U.S. market for these products was estimated at approximately 2.47 billion tons in 2019, an increase of 5% vs. 2018. 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 in each local market because of constraints around the availability of natural resources and transportation. Regional competitors for construction aggregates in Colorado include Martin Marietta Materials, Inc., Albert Frei & Sons, Inc., Aggregate Industries, Brannan Sand & Gravel Co., LLC, L.G. Everist, Inc., and BURNCO.
Environmental and Government Regulation
Our operations are and 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 “potentially responsible parties” 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.
Clean Water Act. The federal Clean Water Act imposes restrictions and strict controls regarding the discharge of pollutants, including dredged 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 pollutants, 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 in 2014 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 EPA may not treat GHGs as an air pollutant for purposes of determining whether a source is a major source that is required to obtain a Prevention of Significant Deterioration or Title V permit. 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. Specifically, in June 2019, the EPA issued the final Affordable Clean Energy (“ACE”) rule, which, among other things, establishes emission guidelines for states to develop plans to address GHG emissions from existing coal-fired power plants. The ACE rule replaces the Clean Power Plan that the EPA had issued in 2015. 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.
Health and Safety. Our operations are also governed by laws and regulations relating to workplace safety and worker health, principally regulations and requirements from the Occupational Safety and Health Administration (OSHA) and Mine Safety and Health Administration (“MSHA”). 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. Failure to comply with requirements from these laws and regulations can result in sanctions such as fines and penalties and claims for personal injury and property damage. These requirements may also result in increased operating and capital costs in the future. We believe that we are in substantial compliance with these requirements to extent applicable.
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.
Available Information
We maintain a website at http://rockymountainindustrials.com/ that contains additional information about our Company.
Employees
We currently have 15 full-time employees.
Item 1A.
Item 1A. Risk Factors
Risks Relating to Our Business
We have incurred losses in prior periods and may incur losses in the future.
We may not 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 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.
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.
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, or that we will not assume unanticipated liabilities.
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.
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 competitive position. 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.
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 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, environment, and to compete 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.
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 business operations may also give rise to market risk exposure related to changes in interest rates, commodity prices and other market factors such as equity prices.
Disruptions in production at our processing facilities, both planned and unplanned, may have a material impact on our business, results of operations and/or financial condition.
Manufacturing and mining facilities in our industry are subject to planned and unplanned production shutdowns 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 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, among other things, 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 intended 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 are changes to applicable 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 the risk of lawsuits and regulatory actions in connection with current and former operations (including divested businesses) for breaches of environmental laws or regulations or in connection with clean-up obligations. Lawsuits and investigations may be initiated by public or private parties under various environmental laws, 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, or similar laws.
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 a 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 could lead 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.
Our ability to operate and/or expand our mining operations may be affected by our ability to secure proper permits.
Environmental and zoning regulations have made it increasingly difficult for the aggregates industry to expand existing quarries and to develop new quarry operations. Our mining operations could be materially impacted from being unable to maintain existing permits to operate the quarry or being unable to secure new permits to support the expansion of the quarry.
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 reporting company 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 directors and executive officers have voting control over the Company.
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. This gives them the ability to control most, if not all, Company decisions.
Our directors and executive officers as a group own, directly or indirectly, approximately 57% of the Company Class A Common Stock (the Company’s voting capital stock), effectively giving them voting control on most, if not all, decisions submitted to a shareholder vote, including the election of our directors and mergers and other major transactions. 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, other 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.
Indemnification rights held by 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 resulting costs may also discourage us 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 us and our shareholders. We may also provide indemnification rights to our employees with similar results.
Trading in our stock is subject to regulatory restrictions that limit a shareholder’s ability to buy and sell our stock.
There is currently no active trading market for our stock, and applicable SEC and other rules may prevent such a market from developing. For example:
· Our stock is categorized as a “penny stock” under applicable SEC rules. SEC rules impose certain sales practice requirements on broker-dealers who sell penny stocks that do not apply to other securities, including a requirement that a broker-dealer deliver a standardized risk disclosure document prior to completing a transaction in a penny stock. Similarly, FINRA places certain restrictions on transactions involving low-priced securities, including our common stock. Our common stock is not listed on any national securities exchange, and it does not currently qualify for listing on any major exchange, including the New York Stock Exchange or Nasdaq.
· We have not timely filed all reports required to be filed by the rules of the SEC, which limits the ability of shareholders to sell our common stock in unregistered transactions in reliance on SEC Rule 144.
Each of these factors limits liquidity in the market for our common stock and may therefore make it more difficult for our shareholders to sell their stock. The lack of trading in our stock may in turn make it more difficult for us to raise capital through issuances of stock, as potential investors may be reluctant to invest given the difficulties they may face if they later choose to sell the stock they purchase.
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, of which 2,000,000,000 are shares of Class A Common Stock, par value $0.001 per share, 100,000,000 are shares of Class B Common Stock, par value $0.001 per share, and 50,000,000 are shares of 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 Company.
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.
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable
Item 2.
Item 2. Properties - Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations
Our principal executive offices are located in Denver, Colorado where we lease approximately 4,648 square feet under an arrangement that expires in February 2022. In Beverly Hills, California we lease approximately 2,238 square feet of office space for management, sales and support staff under an arrangement that expires in January 2022. The Company feels that this space is sufficient until the Company significantly expands operations. The Company through its subsidiary Rail Land Company owns an approximate 620-acre parcel of real property located in Bennett, Colorado. The Company’s development of the Rail Park is intended to expand the customer base for our products by utilizing rail freight capabilities to reach customers in the greater Denver area and by expanding our business to include rail transportation solutions and services
Please reference “Cautionary Note Regarding Exploration Stage Status and Use of Certain Mining Terms” in Item 1 related to stage of our mineral explorations, all of which are without reserves, as defined by Guide 7.
Background
RMR, through its subsidiary, RMR Aggregates, Inc., owns 44 mining claims on Bureau of Land Management (BLM) property in Garfield County, Colorado. The mining claims encompass 880 acres (20 acres each) and are for chemical grade limestone found within the Leadville Limestone formation. RMR purchased the mining claims and the associated mining facilities and equipment from CalX Minerals in October of 2016.
The mineral rights are controlled through unpatented mining claims, the extents of which are shown on Figure 1. RMR has the legal right to enter through the provisions of the 1872 Mining Law. The claims grant RMR the right to remove the minerals within each claim under a Plan of Operations which must be approved by the BLM. RMR does not have any surface rights or surface ownership with the claims. However, RMR may conduct surface activities and install structures on the surface so long as the approved Plan of Operations allows. There is no set duration or term to the mining claims. RMR retains the rights to the mining claims through the payment of claim renewal fees, to the BLM, in September of each year. Each of the 44 claims requires a renewal fee payment of $165 per claim. RMR is responsible for paying these claim renewal fees each year. All claims are listed below in Table 1.
There are no active plans for future exploration.
Table 1 - RMR mining claims
RMR operates the Mid-Continent Quarry on 6 of the 44 BLM mining claims it owns. RMR is permitted by the BLM and Colorado Division of Reclamation Mining and Safety (the “DRMS”) to operate and extract limestone from the six claims in which the Mid-Continent Quarry is located. The six claims cover a total of 120 acres. RMR operates the quarry within a 38-acre boundary stipulated by its CO DRMS permit.
Additionally, RMR has additional exploration property consisting of the remaining 38 mining claims (760 acres) not currently included with the Mid-Continent Quarry. This property surrounds the Mid-Continent Quarry property with the majority of the acreage existing to the north and east of the Mid-Continent Limestone Quarry property (see Figure 1).
The boundaries of the Mid-Continent Quarry and the exploration property follow the boundaries of the mining claims on which they are located.
Figure 1 - Mid-Continent Quarry area map with mining claims
Location and Access
The Mid-Continent Quarry is located about 1 mile north of the city of Glenwood Springs in Garfield County, Colorado. Access to the quarry is provided by a BLM dirt road called Transfer Trail.
The terrain of the location is dominated by a hillside with a slope that ranges between 2H:1V and 3H:1V. Vegetation is mostly composed of sparse grasses, shrubs, and evergreen trees.
Geology and Mineralization
The quarry area is located in the Leadville Limestone formation and is bound by an unnamed fault to the north and the West Glenwood Fault to the south. The limestone outcrops to the east and to the west creating a natural boundary for the edges of the deposit. The deposit is roughly tabular in nature, with a west-northwest to east-southeast strike and 10-30° dip to the south-southwest. The Leadville Limestone formation ranges from approximately 150-175 feet thick in the quarry area.
Facilities
RMR owns a limestone milling facility located within the 38-acre mining boundary. Additionally, RMR owns and operates various pieces of crushing, screening, and heavy mobile equipment used for extracting and sizing the limestone in the quarry.
Current Status
Shortly after RMR purchased the property, extensive site cleanup was performed. RMR performs daily activities related to the production of limestone. This work includes blasting rock, transporting rock with excavators and front-end loaders and crushing and screening rock into usable sized pieces. To perform these activities, RMR has incurred costs, and will continue to incur costs. These costs include payment for supplies, equipment, labor, and other associated expenses related to the extraction of limestone.
The power at the site is provided by Glenwood Springs Utilities. RMR does not have a direct water connect and utilizes water transported to the site and purchased from nearby locations for all water needs. The quarry is currently in excellent working condition.
Exploration of Property
RMR has not performed any exploration drilling of its own on the property outside of the quarry. RMR has performed surface sampling of the limestone on sections of this property. Testing results from the surface sampling have shown the limestone in this property to be nearly identical in nature to the chemical grade limestone found in the quarry.
Historical exploration drilling, occurring between 1958-1976, took place over large sections of the property outside of the quarry. Testing results from this drilling show the existence of chemical grade limestone like the limestone found in the quarry. There are no active plans for future exploration.
The costs associated with our properties can be found in Note F to our consolidated financial statements.
Item 3.
Item 3. Legal Proceedings
Rocky Mountain Industrials, Inc. and RMR Aggregates, Inc. (collectively “RMI”) has a filed a lawsuit pending in the District Court of Garfield County, Colorado. The defendants include Garfield County and also the City of Glenwood Springs which voluntarily intervened. The claims include a request for judicial review of two Notices of Violation issued by Garfield County in 2019 and 2020 and the related decision of the Board of County Commissioners (“BOCC”) at a public meeting on April 22, 2019. RMI had also asserted related claims in federal court for violation of its Constitutional rights to procedural and substantive due process under 42 U.S.C. Sec. 1983 and for declaratory and injunctive relief due to preemption under federal law (the “Federal Claims”). By stipulation of the parties, the federal court lawsuit was dismissed, and all of the Federal Claims were added to the state lawsuit in Garfield County District Court. RMR is not presently seeking monetary damages because Garfield County has thus far not sought to enforce its Notices of Violation, but RMR has reserved the right to seek monetary damages in the future.
Item 4.
Item 4. Mine Safety Disclosures
The operation of the Mid-Continent Quarry is subject to regulation by MSHA under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects the quarry on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Whenever MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation. Citations or orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Company is required to present information regarding certain mining safety and health citations which MSHA has issued with respect to its aggregates mining operations in its periodic reports filed with the SEC. In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the quarry or mine and type of operations (underground or surface), (ii) the number of citations issued will vary from inspector to inspector and location to location, and (iii) citations and orders can be contested and appealed, and in that process, may be reduced in severity and amount, and are sometimes dismissed.
The Company presents the following items regarding certain mining safety and health matters for the fiscal year ended March 31, 2020:
•
Total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under section 104 of the Mine Act for which the Company received a citation from MSHA ( a “Section 104 S&S Citations”). If MSHA determines that a violation of a mandatory health or safety standard is reasonably likely to result in a reasonably serious injury or illness under the unique circumstance contributed to by the violation, MSHA will classify the violation as a “significant and substantial” violation (commonly referred to as a “S&S” violation).
•
Total number of orders issued under section 104(b) of the Mine Act (“Section 104(b) Orders”). These orders are issued for situations in which MSHA determines a previous violation covered by a Section 104(a) citation has not been totally abated within the prescribed time period, so a further order is needed to require the mine operator to immediately withdraw all persons (except certain authorized persons) from the affected area of a quarry or mine.
•
Total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under Section 104(d) of the Mine Act (“Section 104(d) Citations and Orders”). These violations are similar to those described above, but the standard is that the violation could significantly and substantially contribute to the cause and effect of a safety or health hazard, but the conditions do not cause imminent danger, and the MSHA inspector finds that the violation is caused by an unwarranted failure of the operator to comply with the health and safety standards.
•
Total number of flagrant violations under section 110(b)(2) of the Mine Act (“Section 110(b)(2) Violations”). These violations are penalty violations issued if MSHA determines that violations are “flagrant”, for which civil penalties may be assessed. A “flagrant” violation means a reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety standard that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury.
•
Total number of imminent danger orders issued under section 107(a) of the Mine Act (“Section 107(a) Orders”). These orders are issued for situations in which MSHA determines an imminent danger exists in the quarry or mine and results in orders of immediate withdrawal of all persons (except certain authorized persons) from the area of the quarry or mine affected by its condition until the imminent danger and the underlying conditions causing the imminent danger no longer exist.
•
Total dollar value of MSHA assessments proposed. These are the amounts of proposed assessments issued by MSHA with each citation or order for the time period covered by the report. Penalties are assessed by MSHA according to a formula that considers a number of factors, including the mine operator’s history, size, negligence, gravity of the violation, good faith in trying to correct the violation promptly, and the effect of the penalty on the operator’s ability to continue in business.
•
Total number of mining-related fatalities. Mines subject to the Mine Act are required to report all fatalities occurring at their facilities unless the fatality is determined to be “non-chargeable” to the mining industry.
•
Receipt of written notice from MSHA of a pattern (or a potential to have such a pattern) of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of other mine health or safety hazards under section 104(e) of the Mine Act. If MHSA determines that a mine has a “pattern” of these types of violations, or the potential to have such a pattern, MSHA is required to notify the mine operator of the existence of that fact.
•
Legal actions pending as of the last day of the reporting period, initiated during the reporting period and resolved during the reporting period.
•
The Federal Mine Safety and Health Review Commission (the “Commission”) is an independent adjudicative agency that provides administrative trial and appellate review of legal disputes arising under the Mine Act. The cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under Section 105 of the Mine Act. The table below shows as of March 31, 2020, the number of legal actions pending before the Commission, and the number of legal actions initiated before the Commission during the year as well as the number of such actions resolved during the year.
PART II
Item 5.
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.
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, 2020:
· We issued 175,000 shares of Class B Common Stock
·
We granted 492,000 shares of Class B Common Stock to employees.
We issued 43.27 share of Preferred Stock
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.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
All statements in this report other than statements of historical fact are “forward-looking statements”. Such forward-looking statements include, but are not limited to, those relating to the following: our ability to secure necessary financing; fluctuations in interest rates; our ability to continue to grow and implement growth strategies, and future cash needs and operations and our business plans.
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 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 in August, 2012 under the name “Online Yearbook” with the principal business objective of developing and marketing online yearbooks for schools, companies and government agencies.
In November, 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 then issued and outstanding shares, 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.
In December 2014, we changed our name to “RMR Industrials, Inc.” in connection with the change in our business plan.
In February, 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.
In July, 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.
In October, 2016, pursuant to an Asset Purchase Agreement with CalX Minerals, LLC, a Colorado limited liability company (“CalX”), RMR Aggregates completed the purchase of substantially all of the assets associated with the Mid-Continent 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.
In January 2018, the Company formed Rail Land Company, LLC (“Rail Land Company”) as a wholly-owned subsidiary to acquire and develop a rail terminal and services facility (the “Rail Park”). Rail Land Company purchased an approximately 470-acre parcel of real property located in Bennett, Colorado in February, 2018. In July 2018 we exercised our option to acquire an additional approximately 150 acres for a total of 620 acres. The Company’s development of the Rail Park is intended to expand the customer base for our products by utilizing rail freight capabilities to reach customers in the greater Denver area and by expanding our business to include rail transportation solutions and services.
On April 26, 2019, RMR Logistics entered into an asset purchase agreement with H2K, LLC, a Colorado limited liability company (“the Seller”) pursuant to which RMR Logistics acquired the Seller’s trucking assets.
On January 1, 2020, the Company changed its name from RMR Industrials, Inc. to Rocky Mountain Industrials, Inc.
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. As of December 31, 2019, the Company views its operations and manages its business as three operating segments, Aggregates mining, Logistics and Rail Park.
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, 2020, the Company had cash of $59,040 and no cash equivalents. The Company may occasionally maintain cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation. 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 its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. Any impairment losses are measured and recorded based on discounted estimated future cash flows and are charged to income on the Company’s consolidated statements of operations. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions, including expected commodity prices, production levels, capital requirements and estimated salvage values. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable material, future commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties. As of March 31, 2020, the Company’s mineral resources do not meet the definition of proven or probable reserves or value beyond proven or probable reserves and any potential revenue has been excluded from the cash flow assumptions. Accordingly, recoverability of the long-lived assets’ capitalized cost is based primarily on estimated salvage values or alternative future uses.
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 as follows:
- 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
As of January 1,2018, we adopted ASU NO. 2014-09, “Revenue from Contracts with Customers” Topic 606. The Company recognizes revenue upon delivery of goods to the customer at which time the Company’s performance obligation is satisfied at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five step analysis outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied.
Revenue includes product sales of limestone, aggregate materials and other transportation charges to customers net of discounts, allowance or taxes, as applicable.
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, 2020, the Company’s undiscounted reclamation obligations totaled approximately $222,081, 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 of 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, 2020 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
Refer to Note B - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements (Part IV, Item 15 of this Form 10-K) for further discussion.
Results of Operations for the Fiscal Year Ended March 31, 2020 compared to the Fiscal Year Ended March 31, 2019
Revenues
Revenues for the year ended March 31, 2020 were, 2,090,791, compared to sales of $1,430,338 for the same period in the prior year. The increase of $660,453 was due to an increase in trucking sales.
Cost of Goods Sold
Cost of goods sold for the year ended March 31, 2020, was $ 1,878,156, compared to $1,304,256 for the year ended March 31, 2019.The increase in cost of goods sold is largely due to the increase in labor, repairs and fuel.
Selling, general and administrative
Operating expenses for the year ended March 31, 2020 were $12,337,492, compared to operating expenses for the year ended March 31, 2019 of $8,835,445. Selling, general and administrative expenses consisted of overhead costs related to mining operations, consulting services from related parties, public company costs and amortization of intangible assets. The main increases consist of $1,400,000 increase in legal fees, including legal fees relating to the Company’s mine expansion project and the development of the Company’s Rail Park project. Salaries and wages increased $750,000 due to the Company increasing staffing largely in relation to the Company’s Rail Park project.
Other income
The Other income in fiscal 2019 is related to $1,000,000 in income received on the sale of an easement on the Company's Rail Park property.
Interest expense, net
Interest decreased as a result of the extinguishment of debt and repayment of notes payable during the year.
Liquidity and Capital Resources
As of March 31, 2020, we had current assets of $800,480, total current liabilities of $6,492,172 and working capital deficit of $5,691,692. We have incurred an accumulated loss of $48,572,143 since inception. Our independent auditors have issued an audit opinion for our financial statements for the year ended March 31, 2020 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 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 contemplates future acquisitions, development of the Company’s Rail Park asset and expansion of the Company’s mining operations. We anticipate generating losses through fiscal 2020 and into fiscal 2021. 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, although this cannot be guaranteed. In addition, our Rail Park project is currently under construction and fully platted and entitled, giving us the ability to sell land enhancing our own internal revenue generating platform. In January 2021, we sold an 83-acre lot for $9.1 million.
.
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 prospects are 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 achieve and maintain compliance with SEC reporting obligations and to 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 favorable terms, in a timely manner or at all. 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, 2020 totaling $48,572,143 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, 2020 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.
The Company is currently working through a number of opportunities to ensure the business will continue as a going concern. These include:
1.Rail Park FDP and Final Plat were unanimously approved by the Adams County Board of County Commissioners on September 1, 2020, paving the way for lot sales and construction. On January 14th, 2021, we sold an 83-acre lot to a Fortune 500 company. This user was the first of twelve available lots in the property. Lot sales will be a primary revenue driver for us with significant interest from many potential light and heavy industrial tenants. Construction will begin in April 2020 and will follow a phased approach from the south parcels to the rail served north parcels.
2.Construction commencement will include certain public infrastructure costs that will be reimbursed through the establishment of the Rocky Mountain Rail Park Metropolitan District. Reimbursement will be phased as specific infrastructure components are completed and worked through the process.. The RMRP Metro District bond offering closed on April 15th, 2021 raising total proceeds of $65,209,784, of which, $51,234,881 (project fund) will be directly used for public infrastructure construction at the Rail Park.
3.Potential expansion of the Mid-Continent Quarry, following the proper BLM process will allow for increased production volumes. Current operations are additionally being enhanced to provide for short term revenue and operational sustainability.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 8.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to the material weakness 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 that are designed to ensure that information required to be disclosed in the Company's SEC reports is recorded, processed, summarized and reported within the time periods specified in the 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.
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 that, as of March 31, 2020, our internal controls over financial reporting were not effective at the reasonable assurance level due to the material weakness 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 rules of the SEC that permit us to provide only management’s report in this report.
Material Weakness and Related Remediation Initiatives
Our principal executive officer and principal financial officer concluded that as of March 31, 2020, 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 untimely financial statement filings.
It is reasonably possible that, if not remediated, this material weakness could result in a material misstatement in our reported financial statements in a future annual or interim period. We are developing an action plan for this material weakness, which involves hiring qualified accounting personnel and establishing a formal audit committee. We are uncertain at this time of the costs required to remediate the material weakness.
Because the remedial actions will require the hiring of additional personnel, and extensive reliance on manual review and approval, the successful operation of the controls for at least several quarters may be required before management is able to conclude that the material weakness has 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 effective internal control over our financial reporting, 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.
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.
Changes in Internal Control over Financial Reporting
The following change in our internal control over financial reporting will materially affect, or is reasonably likely to materially affect, our internal control over financial reporting. The Company subsequently employed a dedicated Chief Financial Officer in March 2021. Part of the role of the Chief Financial Officer is to address the Company’s compliance with new accounting pronouncements and to work to implement and establish applicable controls and processes within the organization.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our directors and executive officers are as follows:
Name
Age
Position
Chad Brownstein
Chairman
Gregory Dangler
Executive Vice Chairman
Adrian Fairbourn
Director
Barry Munitz
Director
Brandon Pilot
Brian Fallin
Brian Aratani
Heidi Kelly
Director
Chief Operating Officer
Chief Financial Officer
Executive Vice President
Chad Brownstein is our Chairman of the Board of Directors. He is responsible for board oversight of the RMI corporate strategy . Mr. Brownstein has been Director of the Company since 2014. Since 2008, Mr. Brownstein has been a partner at Rocky Mountain Resource Holdings, a natural resource operating and investment company, and/or its predecessors or affiliates. Previously, from 2009 to 2017, Mr. Brownstein was a board member of the Banc of California. Mr. Brownstein is either a current or past member of the Cedars Sinai Board of Governors, Los Angeles Conservation Corps, 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 Mr. Dangler serves as Director of the Company since 2014. Mr. Dangler is responsible for the day-to-day operations and corporate financial strategy of the Company. Since 2008, Mr. Dangler has been a partner at Rocky Mountain Resource Holdings and/or its predecessors or affiliates. Previously, from 2012-2014, Mr. Dangler held multiple positions, including Chief Restructuring Officer at 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 of that company, he raised institutional capital and expanded the company’s 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 B.S. in Mechanical Engineering from the United States Air Force Academy and an M.B.A. from the University of Southern California’s Marshall School of Business. We believe Mr. Dangler’s knowledge and experience in the industrial resources industry and with emerging growth companies will help to further the Company’s goals and business efforts.
Adrian Fairbourn has served as a director on our Board since January 2021 having already been a major early investor in the business. Adrian began his career as an investment analyst at Parson Penny and Co in Edinburgh in 1995 and Quilter Goodison in London before moving in 1998 to build and manage the highly successful alternative investments operation at Bank of Bermuda. For the 5 years up to 2007 he managed a multi-family office in London, responsible for hedge fund investments, and direct investments and also asset-raising for co-investment opportunities. He started Exception Capital in 2007 and has developed the business into a multi-family office managing European and American families. The focus is on finding exceptional investment opportunities for high net worth families. Since September 2012 he has been managing the multi award-winning Family Fund, which is anchored by a Milan based family. Exception Capital has previously won the ‘Excellence in Investment Management’ award at the Alternative Investment Awards and Adrian was named ‘Gamechanger of the Year (Investment Management)’ in the ACQ Global Awards 2015. He has successfully completed over $1billion of structuring, capital and fund- raising projects for several private companies and alternative funds. In addition, he sits on a number of public and private company boards in the U.S and U.K. and has lived and worked in Asia, Europe, the U.K and is now based in Los Angeles. Adrian was educated in the UK and the US as an English Speaking Union Schoolboy Scholar. An undergraduate degree from Hull University was followed by an MSc from Heriot-Watt University in Edinburgh. He is a Member of the U.K Securities Institute and accredited by the UK’s Financial Services Authority and FINRA in the U.S.
Barry Munitz was nominated and appointed as a director on our Board in March 2018. Dr. Munitz is Chancellor Emeritus of the California State University System, President of the Cotsen Foundations for the Art of Teaching and for Academic Research, Vice Chair of the Broad Family Education Foundation, and Senior Advisor to the Milken Institute. Previously, Dr. Munitz served as President and CEO of the J. Paul Getty Trust, overseeing the Trust’s two museums, its Foundation and its Research and Conservation Institutes, and managing its endowment portfolio. At California State University, he supervised the system’s expansion from 18 to 23 campuses. The system now has student enrollment in excess of one half million and more than 50,000 employees. As a corporate executive for a decade, he was President of Federated Development, and vice chairman of the publicly held Maxxam Corporation, a natural resources, finance, and real estate holding company. Dr. Munitz was the founding (and the only) chair of California’s P-16 Council, a group of education, business, and community leaders charged with developing strategies to improve education from preschool through post-graduate, while also chairing the California Education Roundtable. He was a Trustee of the Courtauld Institute in London, is a founding board member of Sherry Lansing’s EnCorps board, and was a 20-year director at Navient (formerly Sallie Mae), was a public director of the Sun America Corporation, Kaufman & Broad, and LeapFrog Incorporated, and chaired the board of trustees at Sierra Nevada College and the American Council of Education. Dr. Munitz is a member of the American Academy of Arts and Sciences, and held the White House seat on the Congressional Higher Education Cost Commission. He was Chancellor of the University of Houston and academic vice president of the University of Illinois system. He received a Ph.D. in comparative literature from Princeton University, a Baccalaureate degree at Brooklyn College, and holds honorary degrees from Whittier College, Claremont Graduate University, the California State University, the University of Southern California, Notre Dame, Pepperdine, and the University of Edinburgh. We believe that Dr. Munitz’s education and management experience make him a valuable member of the Company’s board of directors.
Brandon Pilot was nominated and appointed as a director on our Board in March 2018. Mr. Pilot is a Partner at Bienville Capital, a New York based investment firm. He serves on the investment team focused on the firm’s private capital opportunities and works closely with several of Bienville’s family office relationships. Prior to Bienville, Mr. Pilot worked on the investment team for a single family office. Prior to that, Mr. Pilot worked as an Analyst at Founders Investment Banking, a middle-market investment bank focused on the industrial services sector. Mr. Pilot earned a Master’s Degree in Business Administration with a concentration in Finance, and a Bachelor’s Degree in Business Management, from The University of Alabama. Mr. Pilot is on the Board of Outback America and is a Co-founder of the Believe UA Mentoring Program. We believe that Mr. Pilot’s education and investing experience make him a valuable member of the Company’s board of directors.
Brian Fallin Mr. Fallin serves as Chief Executive Officer at RMI. He has 22 years of sales and operational experience within the construction materials industry. Mr. Fallin is responsible for overseeing the field sales effort, sales strategy and process, and overall revenue generation. Most recently, he spent 17 years with PrimeSource Building Products, a 1.4 billion-dollar private equity owned building materials distribution company. With PrimeSource, Mr. Fallin held several senior level roles such as Region Vice President and Vice President of Field Sales. Mr. Fallin began his career working for Georgia Pacific Corp. in Supply Chain and Sales and holds a Bachelor’s degree in Marketing from the University of Colorado in Boulder, Colorado.
Brian Aratani Mr. Aratani joined the Company in March of 2021 and serves as Chief Financial Officer. Prior to joining the Company Mr. Aratani was with Resources Global Professionals (RGP), a global consulting firm. While at RGP, Mr. Aratani provided financial reporting and accounting policy consultation services to public and private entities in a variety of industries, Mr. Aratani has over 25 years of financial and operational leadership experience with a wide range of companies including Fortune 50 multinationals. As CFO and a C-level executive, Mr. Aratani has managed and been responsible for financial activities of companies, including financial reporting, financial planning and analysis, treasury and cash management. Mr. Aratani began his career with Deloitte & Touche encompassing over 15 years including 3 years as an audit partner. He is a member of the American Institute of CPAs and Colorado Society of CPAs., and received a Bachelor’s degree in Accounting from Colorado State University and is a Certified Public Accountant.
Heidi Kelly Ms. Kelly serves as Executive Vice President at RMI. She has 20+ years of vast financial experience ranging from Fortune 500 public companies to private equity. Ms. Kelly oversees operations, financial reporting, internal controls, and accounting policies. Previously, she served as Chief Financial Officer for a privately held infrastructure company where she led the team to recording a double digit increase in overall revenue and margin expansion. Prior to that, Ms. Kelly was with CH2M Hill and American Health Properties, where she was responsible for all Financial reporting and SEC filings. She began her career with Arthur Andersen LLP. Ms. Kelly is a Certified Public Accountant (inactive status) and holds a Bachelor’s degree in Accounting from Colorado State University.
Family Relationships
There are no family relationships among our directors or executive officers. Brownstein Hyatt Farber Schreck, LLP, whose Chairman of the Board, Norman Brownstein, is the father of our Chairman of the Board, provides services to the Company. Legal fees paid by the Company to Brownstein Hyatt Farber Schreck, LLP in the year ended March 31, 2020 were $313,256.
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. Officers 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 each officer 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 and will continue to do so until such time as a separate audit committee is 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., 4601 DTC Blvd., Suite 130, Denver, Colorado, 80237.
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 Board of Directors as a whole. 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.
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.
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 Rocky Mountain Industrials, Inc., 4601 DTC Blvd., Suite 130, Denver, Colorado.
During the year ended March 31, 2020, 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
Chad Brownstein, Gregory Dangler, Adrian Fairbourn, Barry Munitz and Brandon Pilot comprise our Board of Directors, with Mr. Brownstein serving as our Chairman of the Board of Directors. We have determined this leadership structure is appropriate for us based on our existing operations. The Board of Directors will continue to evaluate our leadership structure and modify as appropriate based on our size, resources and operations.
Our Board of Directors has formed a Mergers and Acquisition Risk Committee and a Financial Risk Committee comprised of several board members and officers of RMI. These committees meet quarterly.
Item 11.
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, 2020 and 2019:
SUMMARY COMPENSATION TABLE
(1) Mr Brownstein was CEO during the fiscal Year ended March 31,2019 and 2020
(2)Mr Dangler was President during the fiscal Year ended March 31, 2019 and 2020
On October 15, 2014, RMR IP (now known as RMR Logistics, Inc. (RMRL)), 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 $1,315,000 for unpaid officers’ compensation expense in accordance with such consulting agreements through March 31, 2020. 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, RMRL 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 January 31, 2020 the consulting agreement October 15, 2014 between Chad Brownstein and the Company was terminated. On January 31, 2020 the board resolved to pay Chad Brownstein monthly compensation of $35,000 a month for his services as Non-Executive Board Chairman.
On January 31, 2020 On February 1, 2020 the Company entered into an employment agreement with Chad Brownstein for his Non-Executive services provided to the Company. The employment contract made be terminated at any time.
On February 1, 2015, RMRL entered into a management services agreement with Industrial Management LLC (“IM”), to provide services to RMRL 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, RMRL 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 RMRL equal to 2% of total project costs. In addition, IM has the option to be assigned all available royalties from RMRL’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 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, RMRL 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 agreement provides for both demand and piggy back registration rights, and requires that IM not transfer any shares of RMRL 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 January 30, 2018, the Company entered into an Asset Purchase Agreement with IM and consummated the purchase of all the assets of IM, including any accrued payments payable to IM, for a total consideration of 882,352 shares of the Company’s Class B Common Stock. The share consideration represents an estimated fair value of $15,000,000. Following the closing of the transaction, the Company had no remaining liabilities or accrued payments owed to IM.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
(1) No options or other equity awards have been issued to Mr Brownstein or Mr Dangler.
Director Compensation
The following table sets forth with the compensation paid to our non-management directors in the fiscal year ended March 31, 2020.
1)
Represents the estimated grant date fair value of the 8,000 restricted shares granted to each of the directors named in the table during the year ended March 31, 2020.
2) Andrew Peltz retired as Board Director in December 2020.
We have no pension, 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.
Outstanding Equity Awards
As of March 31, 2020, there were 162,324 shares of stock awards outstanding for our directors and officers.
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.
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 March 31, 2020, 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 Rocky Mountain Industrials, Inc., 4601 DTC Blvd., Suite 130, Denver, Colorado, 80237.
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.
(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 have the right to vote on all matters on which stockholders have the right to vote. The holders of Class B Common Stock 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. The class A shares convert to class B shares on a 20:1 basis upon the finalization of the Company up-listing on an applicable stock exchange.
(3) Based on 35,785,858 shares of Class A Common Stock and 4,840,919 shares of Class B Common Stock outstanding as of March 31, 2020.
(4) Mr. Gregory M. Dangler is the indirect owner of 9,499,657 shares of Class A Common Stock and 368,823 shares of Class B Common Stock, which are directly held by Principio Management LLC (“Principio”). The business address of Principio is 4601 DTC Blvd., Suite 130, Denver, CO 80237. The principal business of Principio is to provide 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. Principio and 77727111, LLC (see note (5) below) have agreed to vote together 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. The beneficial ownership of Mr. Dangler as shown in the “Directors and Officers” table above includes the shares owned by Principio as shown in the “5% Shareholders” table above.
(5) Mr. Chad Brownstein is the indirect owner of 10,791,701 shares of Class A Common Stock and 531,176 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 to provide 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. Principio and 77727111, LLC have agreed to vote together 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. The beneficial ownership of Mr. Brownstein as shown in the “Directors and Officers” table above includes the shares owned by 77727111, LLC as shown in the “5% Shareholders” table above.
(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 to act as 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.
The Company is not aware of any arrangement, including any pledge by any person of the Company’s securities, the operation of which may at a subsequent date result in a change in control of the Company.
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 2,550,558 shares as of March 31, 2020. Our Board of Directors currently serves as the administrator of the Plan. As of March 31, 2020 1,293,618 have been issued under the plan.
Restricted Stock Awards
During the twelve months ended March 31, 2020, the Company granted 548,000 shares of restricted stock under the 2015 Plan and 93,500 shares of restricted stock have been forfeited. The shares vest over a period between two and four- years from the grant date provided that the award recipient continues to be employed by us through each of those vesting dates.
Stock Options
The Company grants non-qualified 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 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. During the twelve months ended March 31, 2020, the Company did not grant any stock options. As of March 31, 2020, 200,000 stock options remain outstanding and are fully vested.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Brownstein Hyatt Farber Schreck, LLP, whose Chairman of the Board, Norman Brownstein, is the father of our Chairman of the Board, provides services to the Company. Legal fees paid by the Company to Brownstein Hyatt Farber Schreck, LLP in the year ended March 31, 2019 and 2020 were $438,576 and $313,256, respectively.
Other than as set forth above, during the last two completed fiscal years, 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.
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 address conflicts of interest. Our Board reviews a transaction in light of the affiliation of the relevant director, officer or employee and 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. 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, 2020, we had three 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. 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.
Item 14. Principal Accounting Fees and Services
The following table sets forth all fees we incurred in connection with professional services rendered by our independent registered public accounting firm, BF Borgers CPA PC during the fiscal year ended March 31, 2020 and 2019:
PART IV
Item 15.
Item 15. Exhibits Financial Statement Schedules 	
(a) Financial Statements and Financial Statement Schedule
See Index to Consolidated Financial Statements
(b) Exhibits:
Exhibit
Number
Description
2.1
Agreement and Plan of Merger, dated February 27, 2015, between RMR Industrials, Inc., OLYB Acquisition Corporation and RMR IP, Inc. (incorporated by reference to our Current Report on Form 8-K/A filed on April 14, 2015)
3.1
Amended and Restated Articles of Incorporation (incorporated by reference to our Current Report on Form 8-K/A filed on April 14, 2015)
3.2
Certificate of Change to Articles of Incorporation (incorporated by reference to our Current Report on Form 8-K filed on September 4, 2015).
3.3
Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed on February 27, 2015).
3.4
Terms and conditions of equity instruments (filed herewith)
10.1
Certification of Designations, Preferences and Rights of Series A Preferred Stock Dated April 15, 2021
10.2
Consulting Agreement, dated October 15, 2014, between RMR IP, Inc. and Gregory Dangler (incorporated by reference to our Current Report on Form 8-K/A filed on April 14, 2015)
10.3
Consulting Agreement, dated October 15, 2014, between RMR IP, Inc. and Chad Brownstein (incorporated by reference to our Current Report on Form 8-K/A filed on April 14, 2015)
10.4
Consulting Agreement, dated October 15, 2014, between RMR IP, Inc. and Principio Management LLC (incorporated by reference to our Current Report on Form 8-K/A filed on April 14, 2015)
10.5
Consulting Agreement, dated October 15, 2014, between RMR IP, Inc. and 77727111, LLC (incorporated by reference to our Current Report on Form 8-K/A filed on April 14, 2015)
10.6
Employment Agreement dated 2-1-2020 Between Chad Brownstein and Rocky Mountain Industrials, Inc.
10.7
Voting Agreement, dated February 27, 2015, between Principio Management LLC and 77727111, LLC (incorporated by reference to our Amendment No. 2 to the Current Report on Form 8-K/A filed on May 8, 2015).
10.8
Assignment Agreement, dated October 15, 2014, between RMR Holdings, Inc. and RMR IP, Inc. (incorporated by reference to our Amendment No. 2 to the Current Report on Form 8-K/A filed on May 8, 2015).
10.9
2015 Equity Incentive Plan (incorporated by reference to our Current Report on Form 8-K filed on February 27, 2015)
21.1
List of Subsidiaries (filed herewith)
31.1
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Filed herewith)
31.2
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (Filed herewith)
32.1
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.2
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
101.INS
XBRL Instance Document (Filed herewith)
101.SCH
XBRL Taxonomy Extension Schema (Filed herewith)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase (Filed herewith)
101.DEF
XBRL Taxonomy Extension Definition Linkbase (Filed herewith)
101.LAB
XBRL Taxonomy Extension Label Linkbase (Filed herewith)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase (Filed herewith)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this A report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: April 30, 2021 By: /s/ Brian Fallin
Brian Fallin, Chief Executive Officer
Dated:April 30, 2021 By: /s/ Chad Brownstein
Chad Brownstein, Non-Executive Board Chairman
Dated: April 30, 2021 By: /s/ Gregory Dangler
Gregory Dangler, Executive Vice-Chairman
Dated: April 30, 2021 By: /s/ Adrian Fairbourn
Adrian Fairbourn, Director
Dated: April 30, 2021 By: /s/ Barry Munitz
Barry Munitz, Director
Dated: April 30, 2021 By: /s/ Brandon Pilot
Brandon Pilot, Director
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of RMR Industrials, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of RMR Industrials, Inc. as of March 31, 2020 and 2019, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
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 and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note C. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company's auditor since
Lakewood, CO
April 30,
Rocky Mountain Industrials, Inc.
Consolidated Balance Sheets
The accompanying notes are an integral part of these financial statements.
ROCKY MOUNTAIN INDUSTRIALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
ROCKY MOUNTAIN INDUSTRIALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
ROCKY MOUNTAIN INDUSTRIALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
ROCKY MOUNTAIN INDUSTRIALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED MARCH 31, 2020 AND
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 Inc., a Nevada Corporation (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 “RMR”) seeks to acquire and consolidate complimentary industrial assets. RMR’s consolidation strategy is to assemble a portfolio of mature and value-add industrial commodities businesses to generate scalable enterprises with a broad 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 complementary 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.
For financial reporting purposes, the Merger represented a “reverse merger” rather than a business combination and RMR IP was deemed to be the accounting acquirer in the transaction. Consequently, the assets and liabilities and the historical operations reflected in the Company’s financial statements post-Merger are those of RMR IP. The Company’s assets, liabilities and results of operations have been 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 were replaced with the historical financial statements of RMR IP before the Merger in all post-Merger filings with the SEC.
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.
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 Mid-Continent 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.
On January 3, 2017, we amended the Articles of Incorporation of RMR IP, Inc. to rename the corporation to RMR Logistics, Inc. (“RMR Logistics”). RMR Logistics operates as a wholly-owned subsidiary of the Company to provide transportation and logistics services.
During January 2018, the Company formed Rail Land Company, LLC (“Rail Land Company”) as a wholly-owned subsidiary to acquire and develop a rail terminal and services facility (the “Rail Park”). Rail Land Company purchased an approximately 470-acre parcel of real property located in Bennett, Colorado on February 1, 2018. In July of 2018 we exercised our option to acquire an additional approximately 150 acres for a total of 620 acres.
On April 26, 2019 RMR Logistics entered into an asset purchase agreement with H2K, LLC a Colorado Limited Liability Company pursuant to which RMR Logistics acquired the sellers trucking assets.
On January 1, 2020 the company changed its name from RMR Industrials, Inc. to Rocky Mountain Industrials, Inc.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements for the fiscal year ended March 31, 2020 and 2019 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. Business Acquisitions
When the Company acquires businesses where substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets it is not considered a business. As such, the Company accounts for these types of acquisitions as asset acquisitions. When substantially all of the fair value of the gross assets acquired is not concentrated in a single identifiable asset or a group of similar assets and contains acquired inputs and processes which have the ability to contribute to the creation of outputs, these acquisitions are accounted for as business combinations.
The Company considers single identifiable assets as tangible assets that are attached to and cannot be physically removed and used separately from another tangible asset without incurring significant cost or significant diminution in utility or fair value. The Company considers similar assets as assets that have a similar nature and risk characteristics.
Whether an acquisition is treated as an asset acquisition under ASC 360 or a business combination under ASC 805, the fair value of the purchase price is allocated among the assets acquired and any liabilities assumed by valuing the property as if it was vacant. The “as-if-vacant” value is allocated to land, buildings, improvements, and any liabilities, based on management’s determination of the relative fair values of such assets and liabilities as of the date of acquisition.
Upon acquisition, the Company allocates the purchase price based upon the fair value of the assets and liabilities acquired. The Company allocates the purchase price to the fair value of the tangible assets. The Company values improvements at replacement cost, adjusted for depreciation.
Management’s estimates of value are made using a comparable sales analysis of similar businesses. Factors considered by management in its analysis of include equipment types and the sales prices of comparable assets. The Company includes an estimate of property taxes in the purchase price allocation of acquisitions to account for the expected liability that was assumed.
When above or below market leases are acquired, the Company values the intangible assets based on the present value of the difference between prevailing market rates and the in-place rates measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the term of any below market fixed rate renewal options for below market leases that are considered bargain renewal options. The above market lease values are amortized as a reduction of rental income over the remaining term of the respective leases. The fair value of acquired below market leases, included in deferred revenue on the accompanying consolidated balance sheets, is amortized as an increase to rental income on a straight-line basis over the remaining non-cancelable terms of the respective leases, plus the terms of any below market fixed rate renewal options that are considered bargain renewal options of the respective leases.
The Company capitalizes acquisition costs and due diligence costs if the asset is expected to qualify as an asset acquisition. If the asset acquisition is abandoned, the capitalized asset acquisition costs are expensed to acquisition and due diligence costs in the period of abandonment. Costs associated with a business combination are expensed to acquisition and due diligence costs as incurred.
In the event of a business combination, using information available at the time of business combination, the Company allocates the total consideration to tangible assets and liabilities and identified intangible assets and liabilities. During the measurement period, which may be up to one year from the acquisition date, the Company may adjust the preliminary purchase price allocations after obtaining more information about assets acquired and liabilities assumed at the date of acquisition.
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
As of January 1, 2018, we adopted ASU NO. 2014-09, “Revenue from Contracts with Customers” Topic 606. The Company recognizes revenue upon delivery of goods to the customer at which time the Company’s performance obligation is satisfied at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five step analysis outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied.
Revenue includes product sales of limestone, aggregate materials and other transportation charges to customers net of discounts, allowance 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. As of March 31, 2020, the Company views its operations and manages its business as three operating segments, Aggregates Mining, Logistics and Rail Park development.
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, 2020, the Company had cash of $59,040 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.
Restricted Cash
As of March 31, 2020 the Company has $217,500 in restricted cash that is contractually obligated to be held on behalf of the Bureau of Land Management to be held for the rehabilitation costs of the Mid-Continent Quarry and conclusion of the mining at this location.
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, 2020, the Company had one large customer that accounted for approximately 44% of our accounts receivable balance and 55% of our revenue. 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 take 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 weighted average 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 acquired mineral properties is determined pursuant to a unit-of-extraction method which provides for depletion of such costs over the productive life of the mineral properties. The unit-of-extraction rate is determined by computing the production for the period as a percentage of total estimated and recoverable limestone as of that period. Significant judgement is involved in the determination of the estimate of total recoverable limestone in the unit-of-extraction method. Our internal engineering estimates of total estimated and recoverable limestone is a key component in determination of the unit-of-extraction rate. Our estimates of the recoverable limestone may change, possibly in the near term, resulting in changes to depletion rates in future periods. During the years ended March 31, 2020 and 2019, depletion of mineral properties was approximately $6,735 and $_9,000, respectively.
We are considered an “exploration stage” company under the U.S. Securities and Exchange Commission (“SEC”) Industry Guide 7 as such the Company expenses any development costs as incurred.
Land Under Development
Land under development is recorded at cost. Significant improvements are capitalized, while maintenance and repair expenses are charged to operations as incurred. These costs relate to the ongoing development of the Rail Park.
Lease Obligations
On April 1, 2019, we adopted FASB ASU 2016-02, Leases: (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.
For leases in which the Company is the lessee, the Company determined that the guidance has a material impact as the Company has three operating leases for office space. Two of these leases have greater than 12 months remaining on the term of these leases at the date of the adoption of this guidance and as such the Company recorded a right of use asset and a lease liability of $491,111 at the date of adoption. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The Company also is committed to a lease for a portable office space and for the use of a bull dozer within the Company’s aggregates operation. On adoption of the new lease accounting standard the Company recorded a right of use asset and lease liability of $35,625 for these leases.
Equipment loan
The Company has bought certain specialized mining and trucking equipment under finance terms. The financed equipment is recorded at cost at acquisition date. The straight-line method of depreciation is used for financial reporting 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 various office leases.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset. Any impairment losses are measured and recorded based on discounted estimated future cash flows and are charged to income on the Company’s consolidated statements of operations. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions, including expected commodity prices, production levels, capital requirements and estimated salvage values. It is possible that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable material, future commodity prices, production levels and costs and capital are each subject to significant risks and uncertainties. As of March 31, 2020, the Company’s mineral resources do not meet the definition of proven or probable reserves or value beyond proven or probable reserves and any potential revenue has been excluded from the cash flow assumptions. Accordingly, recoverability of the long-lived assets’ capitalized cost is based primarily on estimated salvage values or alternative future uses.
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, 2020, the Company’s undiscounted reclamation obligations totaled approximately $222,081. This obligation 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 selling, general and administrative costs, inclusive of depreciation, depletion and amortization. The fair value is based on our estimate of the cost required 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 in which 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:
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
The fair value of notes payable was $2,763,613 and $0 as at March 31, 2020 and March 31, 2019, respectively.
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, 2020 and 2019 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.
Non-controlling Interests
The Company’s non-controlling interests are interests in RMR Aggregates, Inc not owned by the Company. The Company evaluates whether non-controlling interests are subject to redemption features outside of its control. The amounts reported for non-controlling interests on the Company’s Consolidated Statements of Operations represent the portion of income or losses not attributable to the Company. On December 3, 2019, an accredited investor owning 5,263 shares of RMR Aggregates common stock elected to convert its common stock of RMR Aggregates in to 166,667 shares of RMRI Class B common stock, pursuant to an Equity Conversion Agreement between the accredited investor, RMR Aggregates and RMRI. Upon conversion, RMR Aggregates became a wholly owned subsidiary of RMRI.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date. The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company may use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for "smaller reporting companies" (as defined by the Securities and Exchange Commission) for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach. Entities may adopt ASU 2016-13 earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those years. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU 2018-15”). The ASU aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. ASU 2018- 15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company is currently evaluating the impact of the adoption of ASU 2018-15 on its consolidated financial statements in order to adopt the new standard in the first quarter of 2020.
In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses” (“ASU 2019-11”). In May 2019, the FASB issued ASU 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief.” In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.” These updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance on certain aspects of the previously issued ASU 2016-13 and have the same effective date and transition requirements as ASU 2016-13. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the date of adoption. ASU 2016-13 is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the effects the adoption of ASU 2019-11 will have on its consolidated financial statements and disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The amendments in ASU 2019-12 simplify various aspects related to accounting for income taxes by removing certain exceptions contained in Topic 740 and also clarifies and amends existing guidance in Topic 740 to improve consistent application. ASU 2019-12 is effective for public business entities beginning after December 15, 2020, including interim periods within those years, and early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.
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. 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 applicable laws and 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. However, the Company does not have sufficient cash or other current assets, nor does it have an established and adequate source of revenues, 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, 2020.
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. 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, the Company 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 its operations as stated above.
The Company is currently working through a number of opportunities to ensure the business will continue as a going concern. These include:
1.Rail Park FDP and Final Plat were unanimously approved by the Adams County Board of County Commissioners on September 1, 2020, paving the way for lot sales and construction. On January 14th, 2021, we sold an 83-acre lot to a Fortune 500 company. This user was the first of twelve available lots in the property. Lot sales will be a primary revenue driver for us with significant interest from many potential light and heavy industrial tenants. Construction will begin in April 2020 and will follow a phased approach from the south parcels to the rail served north parcels.
2.Construction commencement will include certain public infrastructure costs that will be reimbursed through the establishment of the Rocky Mountain Rail Park Metropolitan District. Reimbursement will be phased as specific infrastructure components are completed and worked through the process. The RMRP Metro District bond offering closed on April 15th, 2021 raising total proceeds of $65,209,784, of which, $51,234,881 (project fund) will be directly used for public infrastructure construction at the Rail Park.
3.Potential expansion of the Mid-Continent Quarry, following the proper BLM process will allow for increased production volumes. Current operations are additionally being enhanced to provide for short term revenue and operational sustainability.
NOTE D - ACCOUNTS RECEIVABLE
Accounts Receivable at March 31, 2020 were $129,252 compared to $102,870 at March 31, 2019. The increase is due to an increase in production and product demand. No allowance has been recorded at this time as the Company remains confident of collection.
NOTE E - INVENTORY
Inventory, which primarily represents finished goods, packaging and fuel are valued at the lower of cost (average) or market.
NOTE F - PROPERTY, PLANT AND EQUIPMENT
The following summarizes the Company’s assets at March 31, 2020 and March 31, 2019 respectively:
NOTE G - NOTE PAYABLE
On April 4, 2019 RMI entered into a Senior Unsecured Promissory Note with Bienville Capital Partners, LP, a New York based investment firm for $1,000,000. The note accrued to $1,250,000 at maturity on April 4, 2020. Subsequent to the date of this filing, the note was paid off with proceeds from an issuance of preferred stock.
On April 26, 2019 RMR Logistics entered into an asset purchase agreement with H2K, LLC, a Colorado Limited liability company (“the seller”). Pursuant to the agreement which RMR Logistics acquired the sellers trucking assets. As a result of this acquisition RMR Logistics entered into a Term loan for $1,800,000. The loan matures on April 26th, 2026 and accrues interest of 5.64% and is classified under long term liabilities, Note Payable, net of discount. Subsequent to the date of this filing, certain assets acquired in the sale were sold and used to pay down the term loan.
NOTE I - TRANSACTIONS WITH RELATED PARTIES
On October 15, 2014, RMR IP (now known as RMR Logistics, Inc. (RMRL)), 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 $1,315,000 for unpaid officers’ compensation expense in accordance with such consulting agreements through March 31, 2020. 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, RMRL 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 January 31, 2020 the consulting agreement October 15, 2014 between Chad Brownstein and the Company was terminated. On January 31, 2020 the board resolved to pay Chad Brownstein monthly compensation of $35,000 a month for his services as Non-Executive Board Chairman.
On January 31, 2020 On February 1, 2020 the Company entered into an employment agreement with Chad Brownstein for his Non-Executive services provided to the Company. The employment contract made be terminated at any time.
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, CEO of the Company, was 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 January 30, 2018, the Company entered into an Asset Purchase Agreement with IM and consummated the purchase of all the assets of IM, including any accrued payments payable to IM, for a total consideration of 882,352 shares of the Company’s Class B Common Stock. The share consideration represents an estimated fair value of $15,000,000. Following the closing of the transaction, the Company had no remaining liabilities or accrued payments owed to IM.
NOTE J - 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.
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock for issuance. At March 31, 2020, 43.27 shares of preferred stock were issued and outstanding.
During the fiscal year ended March 31, 2020 the Company entered into subscription agreements with accredited investors to sell 37.77 shares of preferred stock for which the Company received $3,777,000 in gross proceeds. Pursuant to Warrant Exchange Agreement, the Company issued 5.50 share of preferred stock in exchange for terminating warrants to purchase up to 75,000 shares of Class B common stock at an exercise price between $12.50 - $15.00 per share.
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, 2020 and March 31, 2019, the Company had 35,785,858 and 4,840,919 shares issued, and 35,785,858 and 4,032,752 shares outstanding of Class A Common Stock and Class B Common Stock, respectively.
The holders of Class A Common Stock have the right to vote on all matters on which stockholders have the right to vote. The holders of Class B Common Stock 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 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 are entitled to receive identical per-share consideration upon a merger, conversion or exchange of the Company with another entity, and have equal rights upon a dissolution, liquidation or winding-up of the Company.
During the fiscal year ended March 31, 2020, accredited investors exercised warrants to purchase 175,000 shares of Class B Common Stock for which the Company received $3,125,000 in gross proceeds.
NOTE K - SHARE-BASED COMPENSATION
The RMR Industrials, Inc. 2015 Equity Incentive Plan (the "2015 Plan"), authorizes the issuance of up to 30% of the outstanding shares of Common Stock at any time pursuant to awards made by the Company’s Board of Directors. As of March 31, 2020, there were 1,215,940 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 $0 and $44,468 during the year ended March 31, 2020 and March 31, 2019, respectively. As of March 31, 2020, unamortized stock-based compensation was $0 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:
· 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 Awards
On February 26, 2015, our Board of Directors and our stockholders approved and adopted the “2015 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 2015 Plan to employees, directors and/or consultants in such awards is 2,550,558 shares as of March 31, 2020. Our Board of Directors currently serves as the administrator of the 2015 Plan. As of March 31, 2020, 1,367,118 shares have been issued under the 2015 Plan.
During fiscal 2020 the Company granted 548,000 restricted shares of Class B Common Stock, with an aggregate grant date fair value of $11,125,006, to employees, directors and contractors. The restricted shares vest ratably over a three or four-year vesting period, subject to continued service. During fiscal 2020, 93,500 restricted shares of common stock were forfeited by employees.
NOTE L - 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 its deferred tax asset. At March 31, 2020 and 2019 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:
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:
The Company has accumulated federal net operating loss carryovers of approximately $46,243,056 and state accumulated net operating loss carryover of approximately $45,831,156 as of March 31, 2020 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 M - COMMITMENTS AND CONTINGENCIES
The Company has certain non-cancelable operating leases for office locations that are accounted for as liabilities under FASB ASU 2016-02, Leases: (Topic 842). Upon adoption on April 1, 2019 the Company determined that the guidance has a material impact as the Company has three operating leases for office space. Two of these leases have greater than 12 months remaining on the term of these leases at the date of the adoption of this guidance and as such the Company recorded a right of use asset and a lease liability of $491,111 at the date of adoption. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The Company also is committed to a lease for a portable office space and for the use of a Dozer within the Company’s aggregates operation. On adoption of the new lease accounting standard the Company recorded a right of use asset and lease liability of $35,625 for these leases.
Future minimum lease commitments under these non-cancelable operating leases at March 31, 2020 are as follows:
NOTE N-SELLING GENERAL AND ADMINISTRATIVE COSTS
Selling general and administrative costs for the year ended March 31, 2020 period were $12,337,492 compared to $8,835,442 in the prior year.
NOTE O- INTEREST EXPENSE
The interest expense for the year ended March 31, 2020 was $368,212 compared to the prior year of $516,036 the decrease is the result of a note payable of $2,250,000 that was repaid on October 1, 2018.
NOTE P- SUBSEQUENT EVENTS
Effective January 29, 2021 Matthew Brown, Chief Financial Officer of Rocky Mountain Industrials, Inc., resigned from the Company. He does so without disagreement with the Company. Effective March 8, 2021, Brian Aratani was appointed as Chief Financial Officer (“CFO”) of Rocky Mountain Industrials, Inc. Refer to item 10 for Mr. Aratani’s Bio.