The accompanying notes are an integral part
of these financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
The accompanying notes are an integral part
of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
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”)
is dedicated to operating industrial assets in the United States which include minerals, materials, and services. Our vision is
to become a key provider of industrial materials and services in the Rocky Mountain region. We have a strategy to own, operate,
develop, acquire and vertically integrate complementary industrial businesses.
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.
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 that will be 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 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.
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 (“Rail
Park”). Rail Land Company purchased an acreage position in Bennett, Colorado.
The acreage is in the process of being entitled and rezoned for the development of the Rail Park.
Basis of Presentation and Consolidation
The accompanying unaudited consolidated financial
statements for the period ended September 30, 2018 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 condensed consolidated financial statements include the financial
condition and results of operations of RMR Logistics, Inc., and Rail Land Company 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 condensed 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 September 30, 2018 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 unaudited interim
condensed 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.
Revenue Recognition
Performance obligations are contractual
promises to transfer or provide a distinct good or service for a stated price. The Company’s product sales agreements are
single-performance obligations that are satisfied at a point in time. Revenue from product sales are recognized when control of
the promised good is transferred to the customer, and the performance obligation is met, typically when the product is shipped.
Revenue includes product sales of limestone, aggregate materials and other transportation charges to customers, net of discounts,
allowances or taxes, as applicable.
Cost of Goods Sold
Cost of goods sold is comprised of both
fixed and variable costs, including materials and supplies, labor, delivery, repairs and maintenance, utilities and other overhead
costs associated with our product sales.
Segment Reporting
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making
decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as
one operating segment.
Cash and Cash Equivalents
The Company considers all highly liquid securities with original
maturities of three months or less at the date of purchase to be cash equivalents. As of September 30, 2018, the Company had cash
of $3,765,842 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.
Inventory
Inventory, which primarily represents finished goods, packaging
and fuel are valued at the lower of cost (average) or net realizable value.
Other noncurrent assets
Other noncurrent assets consist of two security deposits in
connection with our office leases in Denver and Los Angeles.
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.
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
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 of reflect the Company’s credit rating.
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 September 30, 2018 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 January 2017, the FASB issued ASU No. 2017-01,
Clarifying
the Definition of a Business,
which narrows the definition of a business. This ASU provides a screen to determine whether a
group of assets constitute a business. The screen requires that when substantially all of the fair value of the gross assets acquired
(or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.
This screen reduces the number of transactions that need to be further evaluated as acquisitions. If the screen is not met, this
ASU (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together
significantly contribute to the ability to create an output and (2) removes the evaluation of whether a market participant could
replace missing elements. Although outputs are not required for a set to be a business, outputs generally are a key element of
a business; therefore, the FASB has developed more stringent criteria for sets without outputs. The ASU is effective for public
companies for annual periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material
impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
,
which will result in lessees recognizing most leases on the balance sheet. Lessees are required to disclose more quantitative and
qualitative information about their leases than current U.S. GAAP requires. The ASU is effective for public entities for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2018. We are beginning to compile all operating
and capital leases to assess the impact of adopting this standard.
Management believes recently issued accounting pronouncements
will have no impact on the financial statements of the Company.
NOTE C – ACCOUNTS RECEIVABLE
Accounts Receivable at September 30, 2018 was $151,030 compared
to $79,630 at March 31, 2018. The increase is due to an increase in production and product demand. No allowance is recorded, as
all items are current.
NOTE D – INVENTORY
Inventory, which primarily represents finished goods, packaging
and fuel are valued at the lower of cost (average) or market. Finished goods and propane and fuel were not inventoried at
September 30, 2018 due to immateriality.
|
|
September 30,
2018
|
|
|
March 31,
2018
|
|
|
|
|
|
|
|
|
Blasted Rock
|
|
$
|
13,475
|
|
|
$
|
37,157
|
|
Finished Goods
|
|
$
|
2,048
|
|
|
$
|
3,180
|
|
Packaging
|
|
$
|
12,602
|
|
|
$
|
9,614
|
|
Propane and Fuel
|
|
$
|
4,455
|
|
|
$
|
4,339
|
|
Total
|
|
$
|
32,580
|
|
|
$
|
54,290
|
|
NOTE E – 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 six months ended September 30, 2018 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 F – NOTE PAYABLE
On October 3, 2016, the Company entered into a Note Purchase
Agreement (the “Note Purchase Agreement”) with RMR Aggregates, Inc., and Central Valley Administrators Inc., a Nevada
corporation (“CVA”). Pursuant to the terms of the Note Purchase Agreement, RMR Aggregates sold to CVA, and CVA purchased
from RMR Aggregates, a 10% promissory note in an aggregate principal amount of $2,250,000 (the “Note”). The Note has
a maturity date of October 3, 2018, and accrues interest at a rate of 10% per annum.
Under the terms of the Note Purchase Agreement, RMR Aggregates
also agreed to issue 20,000 shares of common stock of RMR Aggregates (the “RMRA Shares”) to CVA, which represents 20%
of RMR Aggregates’ total issued and outstanding common stock. CVA shall have the right, at any time, to convert the RMRA
Shares into shares of Class B common stock of the Company, at a ratio of 1 share of RMRA Shares being converted into 7.5 shares
of the Company’s Class B common stock. RMR Aggregates will also have the right, at any time after October 3, 2017 and after
the Note is no longer outstanding, to call the RMRA Shares in exchange for shares of Class B common stock of the Company using
the same ratio; provided, however, that the amount of RMRA Shares that may be called in exchange for shares of the Company’s
Class B common stock shall be limited to the extent necessary to ensure that, following such exercise, CVA and its affiliates will
not beneficially own in excess of 4.99% of the Company’s total issued and outstanding common stock.
The Note Purchase Agreement provides, among other things, that
CVA shall have a liquidation right upon an event of default arising from the failure by RMR Aggregates to repay the outstanding
principal amount of the Note on the maturity date, meaning CVA can cause RMR Aggregates to sell its assets until it repays the
outstanding amount due under the Note. RMR Aggregates shall have the right to call the Note at any time at par plus accrued interest
thereunder.
The conversion feature in the Note Purchase Agreement was valued
at $769,000 and recorded as a discount to the CVA Note. The carrying value of the CVA Note at September 30, 2018:
Principal value
|
|
$
|
2,250,000
|
|
Accrued interest
|
|
|
493,611
|
|
Unamortized debt discount
|
|
|
(6,707
|
)
|
Note payable, net
|
|
$
|
2,736,904
|
|
NOTE G – EQUIPMENT LOAN AND CAPITAL LEASE PAYABLE
The Company has entered into various equipment loans with an
equipment manufacturer in connection with the CalX acquisition, pursuant to which we acquired equipment with an aggregate principal
value of approximately $582,709. The equipment loans require payments over 37-60 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 18 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 September 30:
2019
|
|
$
|
40,852
|
|
2020
|
|
|
10,471
|
|
Total future minimum lease payments
|
|
$
|
51,323
|
|
NOTE H – TRANSACTIONS WITH RELATED PARTIES
Since inception, the Company accrued $201,566 in amounts owed
to related parties for services performed or reimbursement of costs on behalf of the Company. In addition, the Company has accrued
$1,665,000 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.
NOTE I – SHAREHOLDERS’ DEFICIT
Reverse Stock Split
On September 4, 2015, the Company implemented a reverse stock
split of all of its authorized and issued and outstanding shares of Class B Common Stock in ratio of one-for-twenty. All historical
and per share amounts have been adjusted to reflect the reverse stock split.
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock
for issuance. At September 30, 2018, 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 September 30, 2018, the Company had 35,785,858 shares issued and outstanding of Class A Common Stock and 3,291,536
and 2,967,712 shares issued and outstanding of 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 three months ended September 30,
2018, accredited investors exercised warrants to purchase 114,705 shares of Class B Common Stock for which the Company
received $1,400,000 in gross proceeds. During the same period, RMR Aggregates entered into a subscription agreement with an
accredited investor to issue and sell 5,263 shares of RMR Aggregates common stock, this issuance and sale generated gross
proceeds of $2,500,000. The Company used proceeds from the sale and available cash for the repayment of outstanding indebtedness.
NOTE J – SELLING GENERAL AND ADMINISTRATIVE COSTS
Selling general and administrative costs for the six month period
increased from $2,681,434 in September of 2017 to $3,152,278 in September of 2018. Increases in salaries, employee benefits, marketing,
stock based compensation and consulting fees were primarily responsible for this increase.
NOTE K – INTEREST EXPENSE
The interest expense for the six months ended September 30,
2018 is primarily the result of a note payable of $2,250,000 entered into October 3, 2016.
NOTE L – SUBSEQUENT EVENTS
Subsequent to September 30, 2018, accredited investors exercised
warrants to purchase 136,672 shares of the Company’s Class B common stock at an exercise price of $15.00.
On October 3, 2018, RMR Aggregates used proceeds from
the sale of common stock and available cash for the repayment of CVA’s Note principal outstanding balance. In
connection with CVA’s Note being paid in full in accordance with the Note Purchase Agreement, CVA converted all of its
RMRA Shares into Class B common stock of the Company in December 2018.