The accompanying notes are an integral part
of these consolidated financial statements.
During the nine months ended December 31, 2016, the
Company valued conversion rights related to a note purchase agreement of $769,000 as a debt discount. The Company also
recognized $237,476 of stock-based compensation expense related to issuance of stock options and assumed $531,872 of
equipment loan payable and $128,273 of capital lease payable in connection with an acquisition of a business.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
NOTE A – FORMATION, CORPORATE CHANGES AND MATERIAL
MERGERS AND ACQUISITIONS
Online Yearbook was incorporated in the State of Nevada on August
6, 2012. Online Yearbook was a development stage company with the principal business objective of developing and marketing an online
yearbook.
On November 17, 2014, Rocky Mountain Resource Holdings LLC,
a Nevada limited liability company (the “Purchaser”) became the majority shareholder of Online Yearbook, by acquiring
5,200,000 shares of common stock of Online Yearbook (the “Shares”), or 69.06% of the issued and outstanding shares
of common stock, pursuant to stock purchase agreements with Messrs. El Maraana and Salah Blal. The Shares were acquired for an
aggregate purchase price of $357,670. The Purchaser was the source of the funds used to acquire the Shares. In connection with
Online Yearbook’s receipt of approval from the Financial Industry Regulatory Authority (“FINRA”), effective December
8, 2014, Online Yearbook amended its Articles of Incorporation to change its name from “Online Yearbook” to “RMR
Industrials, Inc.”
RMR Industrials, Inc. (the “Company” or “RMRI”)
seeks to acquire and consolidate complimentary industrial assets. Typically these small to mid-sized assets are the core manufacturer
and supplier of specific bulk commodity minerals and chemicals distributed to the global manufacturer industry. RMRI’s consolidation
strategy is to assemble a portfolio of mature and value-add industrial commodities businesses to generate scalable enterprises
with a vast portfolio of products and services addressing a common and stable customer base.
On February 27, 2015 (the “Closing Date”), the Company
entered into and consummated a merger transaction pursuant to an Agreement and Plan of Merger (the “Merger Agreement”)
by and among the Company, OLYB Acquisition Corporation, a Nevada corporation and wholly owned subsidiary of the Company (“Merger
Sub”) and RMR IP, Inc., a Nevada corporation (“RMR IP”). In accordance with the terms of Merger Agreement, on
the Closing Date, Merger Sub merged with and into RMR IP (the “Merger”), with RMR IP surviving the Merger as our wholly
owned subsidiary.
RMR IP was formed to acquire and consolidate complimentary industrial
commodity assets through capitalizing on the volatile oil markets, down cycles in commodity markets, and other ancillary opportunities.
RMR IP is focused on managing the supply chain in order to offer a large and diverse set of products and services.
The Merger Agreement includes customary representations, warranties
and covenants made by the Company, Merger Sub and RMR IP as of specific dates. The assertions embodied in those representations
and warranties were made solely for purposes of the Merger Agreement and are not intended to provide factual, business, or financial
information about the Company, Merger Sub and RMR IP. Moreover, some of those representations and warranties (i) may not be accurate
or complete as of any specified date, (ii) may be subject to a contractual standard of materiality different from those generally
applicable to shareholders or different from what a shareholder might view as material, (iii) may have been used for purposes of
allocating risk among the Company, Merger Sub and RMR IP, rather than establishing matters as facts, and/or (iv) may have been
qualified by certain disclosures not reflected in the Merger Agreement that were made to the other party in connection with the
negotiation of the Merger Agreement and generally were solely for the benefit of the parties to the Merger Agreement.
For financial reporting purposes, the Merger represents a “reverse
merger” rather than a business combination and RMR IP is deemed to be the accounting acquirer in the transaction. Consequently,
the assets and liabilities and the historical operations that will be reflected in the Company’s future financial statements
will be those of RMR IP. The Company’s assets, liabilities and results of operations will be consolidated with the assets,
liabilities and results of operations of RMR IP after consummation of the Merger, and the historical financial statements of the
Company before the Merger will be replaced with the historical financial statements of RMR IP before the Merger in all future filings
with the SEC.
On March 10, 2015, we formed United States Talc and Minerals
Inc. (“US Talc and Minerals”), incorporated in the State of Nevada as a wholly-owned subsidiary of the Company for
the purpose of facilitating future acquisitions.
On July 28, 2016, we formed RMR Aggregates, Inc., a Colorado
corporation (“RMR Aggregates”), as our wholly owned subsidiary. RMR Aggregates was formed to hold assets whose primary
focus is the mining and processing of industrial minerals for the manufacturing, construction and agriculture sectors. These
minerals include limestone, aggregates, marble, silica, barite and sand.
On October 12, 2016, RMR Aggregates acquired substantially all
of the assets from CalX Minerals, LLC, a Colorado limited liability company (“CalX”) through an Asset Purchase Agreement.
Pursuant to the terms of the Asset Purchase Agreement, RMR Aggregates agreed to purchase, and CalX agreed to sell, substantially
all of the assets associated with the business of operating the Mid-Continent Limestone Quarry on 41 BLM unpatented placer mining
claims in Garfield County, Colorado, including the mining claims, improvements, access rights, water rights, equipment, inventory,
contracts, permits, certain intellectual property rights, and other tangible and intangible assets associated with the limestone
mining operation.
Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial statements
for the period ended December 31, 2016 have been prepared in accordance with accounting principles generally accepted in the United
States for interim financial information in accordance with Securities and Exchange Commission (SEC) Regulation S-X rule 8-03.
The unaudited consolidated financial statements include the financial condition and results of operations of our wholly-owned subsidiary,
US Talc and Minerals, as well as our majority-owned subsidiary RMR Aggregates, where intercompany balances and transactions have
been eliminated in consolidation. In the opinion of management, the unaudited consolidated financial statements have been prepared
on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments,
necessary to present fairly the financial position as of December 31, 2016 and the results of operations and cash flows for the
periods then ended. The financial data and other information disclosed in these notes to the interim consolidated financial statements
related to the period are unaudited.
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.
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.
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 December 31, 2016, the Company had cash
of $25,868 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.
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 December 31, 2016, the Company had one large customer that accounted
for approximately 92% of our accounts receivable balance. To reduce risk, we routinely assess the financial strength of our most
significant customers, using standard credit risk evaluation methods with reference to publicly available and customer supplied
information, and monitor the amounts owed and taking appropriate action when necessary. As a result, we believe that accounts receivable
credit risk exposure is limited.
Inventory
Inventories are valued at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Significant
improvements are capitalized, while maintenance and repair expenses are charged to operations as incurred. The straight-line method
of depreciation is used for substantially all of the assets for financial reporting purposes.
Depletion of mineral reserves is determined on a unit-of-extraction
basis for financial reporting purposes, based upon proven and probable reserves, and on a percentage depletion basis for tax purposes.
Depletion was immaterial for the period ended December 31, 2016.
Intangible assets
Intangible assets with estimable useful lives are amortized
on a straight-line basis over their respective estimated lives and reviewed annually for impairment.
Deposits
Deposits consist of a security deposit in connection with an
office lease.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate the carrying value may not be recoverable. Factors considered include:
|
•
|
Significant changes in the operational performance or manner of use of acquired assets or the strategy for our overall business,
|
|
•
|
Significant negative market conditions or economic trends, and
|
|
•
|
Significant technological changes or legal factors which may render the asset obsolete.
|
The Company evaluated long-lived assets based upon an estimate
of future undiscounted cash flows. Recoverability of these assets is measured by comparing the carrying value to the future net
undiscounted cash flows expected to be generated by the asset. An impairment loss is recognized when the carrying value exceeds
the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset. Future net undiscounted
cash flows include estimates of future revenues and expenses which are based on projected growth rates. The Company continually
uses judgment when applying these impairment rules to determine the timing of the impairment tests, the undiscounted cash flows
used to assess impairments and the fair value of a potentially impaired asset.
Accounting for Asset Retirement Obligations and Accrued Reclamation
Liability
The Company provides for obligations associated with the retirement
of long-lived assets and the associated asset retirement costs. The fair value of a liability for an asset retirement obligation
is recognized in the period in which it is identified, if a reasonable estimate of fair value can be made. The associated fair
value of asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. Costs are estimated in
current dollars, inflated until the expected time of payment, using an inflation rate of 2.15%, and then discounted back to present
value using a credit-adjusted rate to reflect the Company’s credit rating.
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
Level
2 inputs are used to estimate the fair value of share-based compensation.
Level
3 inputs are used to estimate the fair value of accrued reclamation liabilities.
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 December 31, 2016 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
In February 2016, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU"), No. 2016-02,
Leases
(ASC 842). 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. 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 standard is effective
for us in the first quarter of fiscal 2019, with early adoption permitted. We currently do not expect the adoption of this update
to have a material effect on our consolidated results of operations and financial position.
In March 2016, the FASB issued ASU No. 2016-09,
Improvements
to Employee Share-Based Payment Accounting
, which simplifies the accounting and reporting for share-based compensation, including
the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement
of cash flows. The standard is effective for us in the first quarter of fiscal 2017, with early adoption permitted. We currently
do not expect the adoption of this update to have a material effect on our consolidated results of operations and financial position.
In April 2015, the FASB issued a new accounting standard to
simplify the presentation of debt issuance costs. ASU No. 2015-03,
Simplifying the Presentation of Debt Issuance Costs
,
changes the presentation of debt issuance costs in financial statements. Under the ASU, an entity will present such costs in the
balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue
to be reported as interest expense. The ASU is effective for public entities for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2015. We currently do not expect the adoption of this update to have a material
effect on our consolidated results of operations and financial position.
In May 2014, the FASB issued a new accounting standard to
improve and converge the financial reporting requirements for revenue from contracts with customers. ASU No. 2014-09,
Revenue
from Contracts with Customers
, prescribes a five-step model for revenue recognition that will replace most existing
revenue recognition guidance in U.S. GAAP. The ASU will supersede nearly all existing revenue recognition guidance under U.S.
GAAP and provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This
update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred
to obtain or fulfill a contract. ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption. In
July 2015, the FASB postponed the effective date of the new revenue standard by one year to the first quarter of 2018. Early
adoption is permitted, but no earlier than 2017. Management is currently assessing the effect that the adoption of this
standard will have on the consolidated financial statements.
NOTE C – GOING CONCERN
The Company's financial statements are prepared using accounting
principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization
of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash
or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow
it to continue as a going concern.
The Company’s net
loss and working capital deficit raise substantial doubt about the Company’s ability to continue as a going concern. The
accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. The financial statements for the three months ended December
31, 2016 do not include any adjustments to reflect the possible future effects of the recoverability and classification of assets
or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue
as a going concern. The Company may never become profitable, or if it does, it may not be able to sustain profitability on a recurring
basis.
Under the going concern assumption, an entity is ordinarily
viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing
trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded
on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish the business plan and eventually attain profitable operations. The accompanying
financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
During the next year, the Company’s foreseeable cash requirements
will relate to continual development of the operations of its business, maintaining its good standing and making the requisite
filings with the Securities and Exchange Commission, and the payment of expenses associated with research and development. The
Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon funds from the sale
of shares of stock and from acquiring loans to finance its operations and growth. Management may raise additional capital through
future public or private offerings of the Company’s stock or through loans from private investors, although there can be
no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse
effect upon it and its shareholders.
In the past year, the Company funded operations by using cash
proceeds received through the issuance of common stock and proceeds from related party debt. For the coming year, the Company plans
to continue to fund the Company through debt and securities sales and issuances until the company generates enough revenues through
the operations as stated above.
NOTE D – BUSINESS COMBINATION
On October 12, 2016, pursuant to an Asset Purchase Agreement
dated October 7, 2016, the Company acquired substantially all of the assets of CalX Minerals, LLC, a Colorado limited liability
company (“CalX”). Pursuant to the terms of the Asset Purchase Agreement, the Company agreed to purchase substantially
all of the assets associated with the business of operating the Mid-Continent Limestone Quarry on 41 BLM unpatented placer mining
claims in Garfield County, Colorado, including the mining claims, improvements, access rights, water rights, equipment, inventory,
contracts, permits, certain intellectual property rights, and other tangible and intangible assets associated with the limestone
mining operation. The acquisition of the CalX assets will promote the development and implementation of the Company’s limestone
mining operations in Colorado.
The aggregate purchase price for the CalX assets was $2,827,624,
including the assumption by the Company of certain assumed liabilities specified in the Asset Purchase Agreement. The Asset Purchase
Agreement contains customary representations, warranties, covenants and indemnification provisions. The closing of the transactions
contemplated by the Asset Purchase Agreement was subject to the satisfaction of customary closing conditions.
In connection with the acquisition of CalX, the Company entered
into a $2,250,000 Note Purchase Agreement, the net proceeds of which, together with the Company’s cash on hand, were used
as cash consideration for the acquisition of CalX and to pay fees and expenses in connection with the foregoing. See Note E.
The fair value of the total consideration transferred, net of
cash acquired, was $2,827,624. The acquisition of CalX has been accounted for using the acquisition method of accounting, which
requires the assets acquired and liabilities assumed be recognized at their respective fair values as of the acquisition date.
As of March 8, 2017, the purchase price allocation remains preliminary as the Company completes its assessment of property and
certain reserves, and reviews CalX’s existing accounting policies.
The following table summarizes the Company’s preliminary
purchase price allocation for the CalX acquisition:
|
|
Preliminary Allocation
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
$
|
3,491,399
|
|
Intangible assets
|
|
|
41,000
|
|
Total assets acquired
|
|
|
3,532,399
|
|
|
|
|
|
|
Equipment loan payable
|
|
|
531,872
|
|
Capital lease payable
|
|
|
128,273
|
|
Accrued reclamation liability
|
|
|
44,630
|
|
Total liabilities assumed
|
|
|
704,775
|
|
Net assets acquired
|
|
$
|
2,827,624
|
|
The Company used the income, market, or cost approach (or a
combination thereof) for the preliminary valuation, and used valuation inputs and analyses that were based on market participant
assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous
market for the asset or liability. The Company’s estimates related to this valuation are considered to be critical accounting
estimates because they are susceptible to change from period to period based on our judgments about a variety of factors and due
to the uncontrollable variability of market factors underlying them. For example, in performing assessments of the fair value
of these assets, the Company makes judgments about the future performance business of the acquired business, economic, regulatory,
and political conditions affecting the net assets acquired, appropriate risk-related rates for discounting estimated future cash
flows, reasonable estimates of disposal values, and market royalty rate.
Pro Forma Financial Information (unaudited)
The following unaudited supplemental pro forma information presents
the financial results as if the CalX assets had been acquired on the first day of the 2015 fiscal year. This information has been
prepared for comparative purposes and does not purport to be indicative of what would have occurred had the acquisition been made
on the first day of the preceding fiscal year, nor is it indicative of any future results.
|
|
Year ended March 31, 2016
|
|
|
Year ended March 31, 2015
|
|
Revenue
|
|
$
|
2,374,573
|
|
|
$
|
1,776,957
|
|
Net loss
|
|
$
|
(2,966,958
|
)
|
|
$
|
(1,049,516
|
)
|
NOTE E – NOTE PAYABLE
On October 3, 2016, the Company entered into a Note Purchase
Agreement (the “Note Purchase Agreement”) with RMR Aggregates, Inc., and Central Valley Administrators Inc., a Nevada
corporation (“CVA”). Pursuant to the terms of the Note Purchase Agreement, RMR Aggregates sold to CVA, and CVA purchased
from RMR Aggregates, a 10% promissory note in an aggregate principal amount of $2,250,000 (the “Note”). The Note has
a maturity date of October 3, 2018, and accrues interest at a rate of 10% per annum.
Under the terms of the Note Purchase Agreement, RMR Aggregates
also agreed to issue 20,000 shares of common stock of RMR Aggregates (the “RMRA Shares”) to CVA, which represents 20%
of RMR Aggregates’ total issued and outstanding common stock. CVA shall have the right, at any time, to convert the RMRA
Shares into shares of Class B common stock of the Company, at a ratio of 1 share of RMRA Shares being converted into 7.5 shares
of the Company’s Class B common stock. RMR Aggregates will also have the right, at any time after October 3, 2017 and after
the Note is no longer outstanding, to call the RMRA Shares in exchange for shares of Class B common stock of the Company using
the same ratio; provided, however, that the amount of RMRA Shares that may be called in exchange for shares of the Company’s
Class B common stock shall be limited to the extent necessary to ensure that, following such exercise, CVA and its affiliates will
not beneficially own in excess of 4.99% of the Company’s total issued and outstanding common stock.
The Note Purchase Agreement provides, among other things, that
CVA shall have a liquidation right upon an event of default arising from the failure by RMR Aggregates to repay the outstanding
principal amount of the Note on the maturity date, meaning CVA can cause RMR Aggregates to sell its assets until it repays the
outstanding amount due under the Note. RMR Aggregates shall have the right to call the Note at any time at par plus accrued interest
thereunder.
The conversion feature in the Note Purchase Agreement was valued
at $769,000 and recorded as a discount to the CVA Note.
NOTE F – EQUIPMENT LOAN AND CAPITAL LEASE PAYABLE
The Company has entered into various installment sales contracts
with an equipment manufacturer in connection with the CalX acquisition, pursuant to which we acquired equipment with an aggregate
principal value of approximately $531,872. The installment sales contracts require payments over 42-60 months at a fixed interest
rate from 1.99% to 4.78%. The Company’s obligations under these contracts are collateralized by the equipment purchased.
The Company also has a capital lease agreement, which was assumed
in connection with the CalX acquisition. The capital lease has a remaining term of 38 months for mining equipment, which is included
as part of property, plant and equipment. Depreciation related to capital lease assets is included in depreciation expense.
Future payments on capital lease obligations are
as follows:
Fiscal year ended March 31:
|
|
|
|
2017
|
|
$
|
21,449
|
|
2018
|
|
|
42,897
|
|
2019
|
|
|
42,897
|
|
2020
|
|
|
28,598
|
|
2021
|
|
|
-
|
|
Total future minimum lease payments
|
|
$
|
135,841
|
|
NOTE G – TRANSACTIONS WITH RELATED PARTIES
Since inception, the Company accrued $2,118,233 in amounts owed
to related parties for services performed or reimbursement of costs on behalf of the Company. In addition, the Company has accrued
$1,620,000 for unpaid officers’ compensation expense in accordance with consulting agreements with our Chief Executive Officer
and President. Under the terms of each consulting agreement, each consultant shall serve as an executive officer to the Company
and receive monthly compensation of $35,000. The consulting agreements may be terminated by either party for breach or upon thirty
days’ prior written notice.
On February 1, 2015, RMR IP entered into a management services
agreement with Industrial Management LLC (“IM”), to provide services to RMR IP and affiliated entities, which include
assistance in operational and administrative matters, identifying, analyzing, and structuring growth initiatives, and potential
strategic acquisitions. As compensation for these services, RMR IP will pay to IM an annual cash management fee in an amount equal
to the greater of 2% of the Company’s annual gross revenues or $1,000,000, and a development fee with respect to any capital
project incurred by RMR IP equal to 2% of total project costs. In addition, IM has the option to be assigned all available royalties
from RMR IP’s mineral holdings, leases or interests greater than 75% of net revenue interests for all mineral rights or production
of minerals. At IM’s sole discretion, it may choose to accept a preferred convertible security with a 15% dividend accruing
quarterly in lieu of cash for some or all of the annual management fee, development fee and royalty assignments. Such preferred
convertible securities shall be convertible into either Class A Common Stock or Class B Common Stock (as applicable) at a conversion
price equal to fifty percent of the market price of the applicable Class B Common Stock on the day prior to the date of issuance.
In addition, these preferred convertible securities are callable for a cash, for a period of six months following the date of issuance;
provided, however, that if called, IM shall have the option to convert the called preferred stock into either Class A Common Stock
or Class B Common Stock (as applicable) at a conversion price equal to sixty-six and two thirds percent of the market price of
the applicable Class B Common Stock on the business day immediately preceding the issuance date of preferred stock, and will include
a blocker provision. In connection with the management services agreement with IM, RMR IP entered into a registration rights agreement
which requires RMR IP to register for resale any securities issued as consideration under the management services agreement. The
registration rights agreements provide for both demand and piggy back registration rights, and requires that IM not transfer any
shares of RMR IP during a 90 day period following the effective date of a registration statement. The registration rights agreement
terminates when the shares held by IM become eligible for resale pursuant to Rule 144.
NOTE H – STOCKHOLDERS’ 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 December 31, 2016, no preferred stock was issued and outstanding.
Common Stock
The Company has authorized 2,100,000,000 shares of common stock
for issuance, including 2,000,000,000 shares of Class A Common Stock, 100,000,000 shares of Class B Common Stock. At December 31,
2016, the Company had 35,785,858 and 1,112,623 shares issued and outstanding of Class A Common Stock and Class B Common Stock,
respectively.
The holders of Class A Common Stock will have the right to vote
on all matters on which stockholders have the right to vote. The holders of Class B Common Stock will have the right to vote solely
on matters where the vote of such holders is explicitly required under Nevada law. The holders of Class A Common Stock and
Class B Common stock will have equal distribution rights, provided that distributions in securities shall be made in either identical
securities or securities with similar voting characteristics. The holders of Class A Common Stock and Class B Common Stock
will be entitled to receive identical per-share consideration upon a merger, conversion or exchange of the Company with another
entity, and will have equal rights upon dissolutions, liquidation or winding-up.
During the nine months ended December 31, 2016, the Company
entered into subscription agreements with accredited investors (the "Purchasers") to offer and sell 146,666 units of
the Company’s securities (the “Units”) at $10.00 - $15.00 per Unit for which the Company received $1,700,000
in initial proceeds and $300,000 in common stock subscribed. Each Unit entitles the Purchaser to one share of Class B Common Stock
of the Company and a warrant to purchase one or one and a half shares of Class B Common Stock at an exercise price of $10.00 -
$15.00 with a term of one or two years. The Units issued by the Company for the nine months ended December 31, 2016:
Shares of
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Units Sold
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Proceeds
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Common Stock
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Warrants
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Warrant Price
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Warrant Term
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40,000
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$
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400,000
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40,000
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80,000
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$
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10.00
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2 years
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50,000
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750,000
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50,000
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50,000
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$
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15.00
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1 year
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56,666
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850,000
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56,666
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85,000
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$
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15.00
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1 year
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NOTE I – SHARE-BASED COMPENSATION
The RMR Industrials, Inc. 2015 Equity Incentive Plan (the "2015
Plan"), authorizes up to 30% of the outstanding shares of Class B Common Stock at any time during the 2015 Plan, for issuance
of options, shares or rights to acquire our Class B common stock by the Company’s board of directors. As of December 31,
2016, there were 470,575 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 $237,476 during the three and
nine months ended December 31, 2016. 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:
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November 21, 2016
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Average risk-free interest rate
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1.79
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%
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Average expected life (in years)
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5.0
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Volatility
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33.85
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%
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Dividend yield
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0.0
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%
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·
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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.
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·
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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.
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·
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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.
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·
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Expected Dividend
: We have not paid any dividends and do not anticipate paying dividends in the foreseeable future.
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Stock Option Activity
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Stock
Options
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Grant Date
Weighted
Average
Exercise Price
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Weighted
Average
Remaining
Contractual
Life (in Years)
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Aggregate
Intrinsic
Value
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Outstanding at April 1, 2016
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-
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$
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-
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Granted
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400,000
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$
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6.34
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Exercised
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-
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$
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-
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Forfeited
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-
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$
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-
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Expired
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-
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$
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-
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Outstanding at December 31, 2016
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400,000
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$
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6.34
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9.9
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$
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-
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Vested and expected to vest December 31, 2016
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99,999
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$
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6.34
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9.9
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$
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-
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Exercisable at December 31, 2016
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99,999
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$
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6.34
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9.9
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$
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-
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NOTE J – SUBSEQUENT EVENTS
On January 3, 2017, RMR IP amended its Articles of Incorporation
to change its name from “RMR IP, Inc.” to “RMR Logistics, Inc.”
In January 2017, the Company entered into subscription agreements
with accredited investors to offer and sell 21,667 Units of the Company’s securities at $15.00 per Unit for which the Company
received $325,000 in proceeds.
On February 16, 2017, the Company renamed US Talc and Minerals
to RMR Industrial Minerals, Inc.