UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JuneSeptember 30, 20192020
or
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 0-55402
Rocky Mountain Industrials, Inc. (formerly RMR Industrials, Inc.)
(Exact name of registrant as specified in its charter)
Nevada | 46-0750094 | |
(State or jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
4601 DTC Blvd., Suite 130
Denver, CO80237
(Address of principal executive offices)
(720) (720) 614-5213
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
N/A | | N/A | | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨◻ No x⌧
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ¨◻ No x
⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large“large accelerated filer,” “accelerated filer,"” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x
⌧
As of December 31, 2020,15, 2021, the registrant had 35,785,858 shares of Class A Common Stock, 4,401,2774,822,332 shares of Class B Common Stock outstanding and 118.5 shares of Preferred Stock outstanding.
ROCKY MOUNTAIN INDUSTRIALS, INC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are "forward-looking“forward-looking statements."” Forward-looking statements may include our statements regarding our goals, beliefs, strategies, objectives, plan, including product and service developments, future financial conditions, results or projections or current expectations. Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "estimates," "intends," "plan" "expects," "may," "will," "should," "predicts," "anticipates," "continues,"“believes,” “estimates,” “intends,” “plan” “expects,” “may,” “will,” “should,” “predicts,” “anticipates,” “continues,” or "potential,"“potential,” or the negative thereof or other variations thereon or comparable terminology, and similar expressions are intended to identify forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, achievements, or industry results, expressed or implied by such forward-looking statements. Such uncertainties and risks include those discussed in the “Risk Factors” and similar sections of our Annual Report on Form 10-K for the year ended March 31, 20192020 and our other filings with the Securities and Exchange Commission, all of which are incorporated by reference herein. Forward-looking statements appear in Item 2 - "Management's– “Management’s Discussion and Analysis of Financial Condition and Results of Operations,"” as well as elsewhere in this Quarterly Report.
Our management has included projections and estimates in this Form 10-Q, which are based primarily on management’s experience in the industry, assessments of our results of operations, discussions and negotiations with third parties and a review of information filed by our competitors with the SEC or otherwise publicly available. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events except as otherwise required by law.
Unless otherwise specified or required by context, as used in this Report, the terms "we," "our," "us"“we,” ���our,” “us” and the "Company" refer“Company” refers collectively to Rocky Mountain Industrials, Inc., (“RMI”) formerly RMR, Industrials, Inc. (“RMR”), and its wholly/majority-owned subsidiaries, RMR Aggregates, Inc., RMR Logistics, Inc., and Rail Land Company, LLC, RMR Recycling, Inc., RMR Water, LLC and RMR Ready Mix, Inc..LLC. Unless otherwise indicated, the term "common stock"“common stock” refers to shares of our Class A Common Stock and Class B Common Stock.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP)in the United States (GAAP).
2
CAUTIONARY NOTE REGARDING EXPLORATION STAGE STATUS
AND USE OF CERTAIN MINING TERMS
We are considered an “exploration stage” company under the U.S. Securities and Exchange Commission (“SEC”) Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations (“Guide 7”), because we do not have reserves as defined under Guide 7. Reserves are defined in Guide 7 as that part of a mineral deposit which can be economically and legally extracted or produced at the time of the reserve determination. The establishment of reserves under Guide 7 requires, among other things, certain spacing of exploratory drill holes to establish the required continuity of mineralization and the completion of a detailed cost or feasibility study. Since we have no reserves as defined in Guide 7, we have not exited the exploration stage and continue to report our financial information as an exploration stage entity as required under relevant accounting principles. We will remain an exploration stage company under Guide 7 until such time as we demonstrate reserves in accordance with the criteria in Guide 7.
Since we have no reserves, we will expense all mine construction costs, even though these expenditures are expected to have a future economic benefit in excess of one year. We will also expense our reclamation and remediation costs at the time the obligation is incurred. Companies that have reserves and have exited the exploration stage typically capitalize these costs, and subsequently amortize them on a units-of-production basis as reserves are mined, with the resulting depletion charge allocated to inventory, and then to cost of sales as the inventory is sold. As a result of these and other differences, our financial statements will not be comparable to the financial statements of mining companies that have established reserves and have exited the exploration stage.
We use certain terms in this report such as “production,” “mining or processing activities,” and “mine construction.” Production means the estimated quantities (tonnage) delivered or shipped to our customers, which may result in disclosure of related limestone and dolomite sales. Mining or processing activities means the process of extracting limestone and dolomite from the earth and treating that material. Mine construction means work carried out to access areas in the mine containing limestone and dolomite, which principally includes road construction, ramp construction and ancillary activities. We use these terms in this report since we believe they are necessary and helpful for the reader to understand our business and operations. However, we caution you that we do not have reserves and therefore have not exited the exploration stage as defined in Guide 7, and our use of the terminology described above is not intended to indicate that we have established reserves or have exited the exploration stage for purposes of Guide 7. Furthermore, since we do not have reserves, we cannot provide any indication or assurance as to how long we will likely continue mining activities at our mine site or whether such activities will be profitable.
3
ROCKY MOUNTAIN INDUSTRIALS, INC.
TABLE OF CONTENTS
4
PART I – FINANCIAL INFORMATION
ROCKY MOUNTAIN INDUSTRIALS, INC.
INDEX TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2019
ROCKY MOUNTAIN INDUSTRIALS, INC.
Condensed Consolidated Balance Sheets
| June 30, 2019 | March 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 855,977 | $ | 528,417 | ||||
| Accounts receivable | 241,273 | 102,870 | ||||||
| Inventory | 32,246 | 48,976 | ||||||
| Prepaid expenses | 134,747 | 140,223 | ||||||
| Restricted cash | 112,130 | 111,694 | ||||||
| Total current assets | 1,376,373 | 932,180 | ||||||
| Right of use asset | 450,546 | - | ||||||
| Property, plant and equipment, net of accumulated depreciation | 5,250,635 | 3,260,511 | ||||||
| Land under development | 5,833,024 | 5,304,374 | ||||||
| Asset retirement obligation | 26,810 | 43,323 | ||||||
| Goodwill | 338,585 | 41,000 | ||||||
| Deposits and other assets | 36,785 | 65,842 | ||||||
| Total assets | $ | 13,312,758 | $ | 9,647,230 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 1,294,942 | $ | 875,465 | ||||
| Accrued liabilities | 231,868 | 182,348 | ||||||
| Accrued liabilities, related party | 1,190,000 | 1,315,000 | ||||||
| Capital lease payable, current | - | 31,101 | ||||||
| Note Payable | 1,059,426 | - | ||||||
| Line of Credit | 664,604 | - | ||||||
| Equipment loan payable, current | 304,786 | 330,230 | ||||||
| Total current liabilities | 4,745,626 | 2,734,144 | ||||||
| Note payable, net of discount | 1,424,250 | - | ||||||
| Deferred rent | - | 39,898 | ||||||
| Accrued reclamation liability | 62,478 | 60,990 | ||||||
| Preferred Shares Debt | 203,814 | - | ||||||
| Lease Liability | 450,546 | - | ||||||
| Total liabilities | 6,886,714 | 2,835,032 | ||||||
| Stockholders' Deficit | ||||||||
| Preferred Stock, $0.001 par value, 50,000,000 shares authorized: none issued and outstanding | - | - | ||||||
| Class A Common Stock, $0.001 par value; 2,000,000,000 shares authorized; 35,785,858 shares issued and outstanding on June 30, 2019 and March 31, 2019, respectively. | 35,786 | 35,786 | ||||||
| Class B Common Stock, $0.001 par value; 100,000,000 shares authorized, 4,103,252 and 4,032,752 shares issued outstanding on June 30, 2019 and March 31, 2019, respectively. | 4,539 | 4,033 | ||||||
| Additional paid-in capital | 44,651,787 | 42,102,105 | ||||||
| Accumulated deficit | (38,217,961 | ) | (35,428,938 | ) | ||||
| Total Rocky Mountain Industrials, Inc stockholders’ deficit | 6,474,151 | 6,712,986 | ||||||
| Noncontrolling interest | (48,107 | ) | 99,212 | |||||
| Total stockholders’ equity (deficit) | $ | 6,426,044 | $ | 6,812,198 | ||||
| Total liabilities and stockholders’ equity (deficit) | $ | 13,312,758 | $ | 9,647,230 | ||||
The accompanying notes are an integral part of these financial statements.
ROCKY MOUNTAIN INDUSTRIALS, INC.
Condensed Consolidated Statements of Operations (Unaudited)
| For the three | For the three | |||||||
| months ended | months ended | |||||||
| June 30, 2019 | June 30, 2018 | |||||||
| Revenue | $ | 477,724 | $ | 329,614 | ||||
| Cost of goods sold | 421,300 | 319,854 | ||||||
| Gross profit | 56,424 | 9,760 | ||||||
| Selling, general and administrative (includes depreciation, depletion and amortization) | 2,927,187 | 1,411,849 | ||||||
| Loss from operations | (2,870,763 | ) | (1,402,089 | ) | ||||
| Gain on sale of assets | 18,000 | - | ||||||
| Interest income (expense), net | (83,579 | ) | (235,775 | ) | ||||
| Loss before income tax provision | (2,936,342 | ) | (1,637,864 | ) | ||||
| Income tax expense | - | - | ||||||
| Net loss | (2,936,342 | ) | (1,637,864 | ) | ||||
| Add: Net loss attributed to noncontrolling interest | (147,319 | ) | (74,506 | ) | ||||
| Net loss attributable to Rocky Mountain Industrials, Inc. | (2,789,023 | ) | (1,563,358 | ) | ||||
| Basic and diluted loss attributable to Rocky Mountain Industrials, Inc. per common share | $ | (0.53 | ) | $ | (0.35 | ) | ||
| Weighted average shares outstanding | 5,185,212 | 4,555,817 | ||||||
| | | | | | |
| | September 30, | | March 31, | ||
|
| 2020 |
| 2020 | ||
ASSETS |
| |
|
| |
|
Current assets |
| |
|
| |
|
Cash | | $ | 1,077,265 | | $ | 57,240 |
Accounts receivable | |
| 59,248 | |
| 80,180 |
Inventory | |
| — | |
| 9,520 |
Prepaid expenses | |
| 197,288 | |
| 388,953 |
Restricted cash | |
| 226,229 | |
| 217,500 |
Assets held for sale | | | 205,204 | | | 2,674,941 |
Total current assets | |
| 1,765,234 | |
| 3,428,334 |
| | | | | | |
Property, plant, and equipment, net | |
| 2,812,479 | |
| 2,973,221 |
Land under development | |
| 7,510,052 | |
| 6,800,616 |
Right of use asset | | | 380,401 | | | 519,754 |
Asset retirement obligation, net | |
| 78,414 | |
| 62,195 |
Other intangibles, net | |
| 70,916 | |
| 68,191 |
Deposits and other assets | |
| 313,378 | |
| 56,785 |
Total assets | | $ | 12,930,874 | | $ | 13,909,096 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
|
| |
|
|
Current liabilities | |
|
| |
|
|
Accounts payable | | $ | 1,288,981 | | $ | 1,223,995 |
Accounts payable, related party | |
| | |
| |
Accrued liabilities | |
| 1,357,738 | |
| 1,064,633 |
Accrued liabilities, related party | |
| 1,580,000 | |
| 1,210,000 |
Capital lease payable, current | |
| — | |
| |
Dividends payable | | | 536,156 | | | 140,032 |
Debt due within one year | | | 3,302,390 | | | 1,756,654 |
Liabilities held for sale | | | 1,102,690 | | | 2,363,203 |
Total current liabilities | |
| 9,167,955 | |
| 7,758,517 |
| | | | | | |
Debt due after one year | | | 655,348 | | | 250,000 |
Preferred shares debt | | | — | | | 200,001 |
Lease liability | | | 380,402 | | | 519,754 |
Accrued reclamation liability | |
| 114,018 | |
| 108,701 |
Total liabilities | |
| 10,317,723 | |
| 8,836,973 |
| | | | | | |
Commitments and Contingencies | | | | | | |
| | | | | | |
Stockholders’ Equity | |
|
| |
|
|
Preferred Stock Series A-1, $0.001 par value, 50,000,000 shares authorized: 48.27 and 43.27 shares issued and outstanding on September 30, 2020 and March 31, 2020, respectively | |
| 4,827,000 | |
| 4,327,000 |
Preferred Stock Series A-2, $0.001 par value, 50,000,000 shares authorized: 19.45 and NaN issued and outstanding on September 30, 2020 and March 31, 2020, respectively | | | 1,950,000 | | | — |
Preferred Stock Series A-3, $0.001 par value, 50,000,000 shares authorized: 50.75 and NaN issued and outstanding on September 30, 2020 and March 31, 2020, respectively | | | 5,075,140 | | | — |
Class A Common Stock, $0.001 par value; 2,000,000,000 shares authorized; 35,785,858 shares issued and outstanding on September 30, 2020 and March 31, 2020 | |
| 35,786 | |
| 35,786 |
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized; 4,507,076 and 4,840,919 shares issued and outstanding on September 30, 2020 and March 31, 2020, respectively | |
| 4,508 | |
| 5,277 |
Additional paid-in capital | |
| 47,198,292 | |
| 49,276,203 |
Accumulated deficit | |
| (56,477,575) | |
| (48,572,143) |
Total stockholders’ equity | | | 2,613,151 | | | 5,072,123 |
Total liabilities and stockholders’ equity | | $ | 12,930,874 | | $ | 13,909,096 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ROCKY MOUNTAIN INDUSTRIALS, INC.
Condensed Consolidated Statements of Changes in Stockholder EquityOperations (Unaudited)(Continued)
| Common Stock Class A | Common Stock Class B | Additional Paid-In | Accumulated | Noncontrolling | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Total | |||||||||||||||||||||||||
| Balance, March 31, 2018 | 35,785,858 | $ | 35,786 | 2,868,967 | $ | 2,869 | $ | 30,237,968 | $ | (27,429,017 | ) | $ | (188,207 | ) | $ | 2,659,399 | ||||||||||||||||
| Issuance of common stock for exercise of a warrant | — | — | 209,040 | 209 | 3,123,468 | — | — | 3,123,677 | ||||||||||||||||||||||||
| Issuance of restricted common shares for compensation | — | — | 145,000 | 145 | (145 | ) | — | — | — | |||||||||||||||||||||||
| Stock-based compensation from stock options | — | — | — | — | 344,386 | — | — | 344,386 | ||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2018 | — | — | — | — | — | (1,563,358 | ) | (74,506 | ) | (1,637,864 | ) | |||||||||||||||||||||
| Balance, June 30, 2018 | 35,785,858 | 35,786 | 3,223,007 | 3,223 | 33,705,677 | (28,992,375 | ) | (262,713 | ) | 4,489,598 | ||||||||||||||||||||||
| | | | | | | | | | | | |
| | Three months ended | | Six months ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | | | | | | | | | | | |
Revenue | | $ | 174,300 | | $ | 282,613 | | $ | 443,261 | | $ | 516,564 |
Cost of goods sold | |
| 152,990 | |
| 216,121 | |
| 343,668 | |
| 543,117 |
Gross profit | |
| 21,310 | |
| 66,492 | |
| 99,593 | |
| (26,553) |
Selling, general and administrative (includes depreciation, depletion and amortization for the three months ended of $78,568 in 2020 and $140,119 in 2019; and for the six months ended of $157,506 in September 2020 and $242,130 in September 2019) | |
| 3,051,235 | |
| 2,858,228 | |
| 5,965,605 | |
| 5,703,835 |
Loss from operations | |
| (3,029,925) | |
| (2,791,736) | |
| (5,866,012) | |
| (5,730,388) |
Gain on sale of assets | | | — | | | — | | | — | | | 18,000 |
Interest income (expense), net | |
| (215,151) | |
| (76,088) | |
| (333,801) | |
| (141,593) |
| | | | | | | | | | | | |
Loss before income tax provision | |
| (3,245,076) | |
| (2,867,824) | |
| (6,199,813) | |
| (5,853,981) |
Income tax expense | |
| — | |
| — | |
| — | |
| — |
Net loss from continuing operations | | | (3,245,076) | | | (2,867,824) | | | (6,199,813) | | | (5,853,981) |
| | | | | | | | | | | | |
Loss from discontinued operations, net of tax | | | (898,250) | | | (253,110) | | | (1,309,495) | | | (203,295) |
| | | | | | | | | | | | |
Net Loss | | | (4,143,326) | | | (3,120,934) | | | (7,509,308) | | | (6,057,276) |
| | | | | | | | | | | | |
Add: Net loss attributed to noncontrolling interests | |
| — | |
| (156,047) | |
| — | |
| (303,366) |
| | | | | | | | | | | | |
Net loss attributable to Rocky Mountain Industrials, Inc. | | $ | (4,143,326) | | $ | (2,964,887) | | $ | (7,509,308) | | $ | (5,753,910) |
| | | | | | | | | | | | |
Basic and diluted loss per share from continuing operations | | $ | (0.52) | | $ | (0.54) | | $ | (0.97) | | $ | (1.12) |
| | | | | | | | | | | | |
Basic and diluted loss per share from discontinued operations | | $ | (0.14) | | $ | (0.05) | | $ | (0.21) | | $ | (0.04) |
| | | | | | | | | | | | |
Basic and diluted loss attributable to Rocky Mountain Industrials, Inc. per common share | | $ | (0.70) | | $ | (0.56) | | $ | (1.24) | | $ | (1.10) |
| | | | | | | | | | | | |
Weighted average shares outstanding | |
| 6,296,869 | |
| 5,263,208 | |
| 6,358,966 | |
| 5,242,210 |
| Common Stock Class A | Common Stock Class B | Additional Paid-In | Accumulated | Noncontrolling | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Total | |||||||||||||||||||||||||
| Balance, March 31, 2019 | 35,785,858 | $ | 35,786 | 4,032,752 | $ | 4,033 | $ | 42,102,105 | $ | (35,428,938 | ) | $ | 99,212 | $ | 6,812,198 | |||||||||||||||||
| Issuance of warrant for services | - | - | - | 436 | 299,723 | - | - | 300,159 | ||||||||||||||||||||||||
| Issuance of common shares for subscription | - | - | 75,000 | 75 | 1,499,925 | - | - | 1,500,000 | ||||||||||||||||||||||||
| Issuance of restricted common shares for compensation | - | - | 37,000 | 37 | (37 | ) | - | - | - | |||||||||||||||||||||||
| Issuance of common stock for services | - | - | 12,000 | 12 | (12 | ) | - | - | - | |||||||||||||||||||||||
| Stock-based compensation from stock options | - | - | - | - | 750,029 | - | - | 750,029 | ||||||||||||||||||||||||
| Forfeiture of common stock | - | - | (53,500 | ) | (54 | ) | 54 | - | - | - | ||||||||||||||||||||||
| Net loss for the three months ended June 30, 2019 | - | - | - | - | - | (2,789,023 | ) | (147,319 | ) | (2,936,342 | ) | |||||||||||||||||||||
| Balance, June 30, 2019 | 35,785,858 | 35,786 | 4,103,252 | 4,539 | 44,651,787 | (38,217,961 | ) | (48,107 | ) | 6,426,044 | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ROCKY MOUNTAIN INDUSTRIALS, INC.
Statements of Cash FlowsChanges in Stockholder Equity (Unaudited)
| Three months ended June 30, 2019 | Three months ended June 30, 2018 | |||||||
| Cash flow from operating activities | ||||||||
| Net loss | $ | (2,936,342 | ) | $ | (1,637,864 | ) | ||
| Depreciation and amortization expense | 102,011 | 85,806 | ||||||
| Stock-based compensation | 1,050,189 | 344,594 | ||||||
| Amortization of debt discount | - | 165,671 | ||||||
| Paid-in-kind interest | - | 65,804 | ||||||
| Accretion expense | 16,513 | - | ||||||
| Deferred rent | (39,898 | ) | - | |||||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (138,403 | ) | (26,343 | ) | ||||
| Prepaid expenses | 5,476 | 2,420 | ||||||
| Inventory | 16,730 | 25,595 | ||||||
| Restricted cash | (436 | ) | 97,940 | |||||
| Deposits | 29,057 | (2 | ) | |||||
| Accounts payable | 419,477 | (22,172 | ) | |||||
| Accounts payable, related party | - | - | ||||||
| Accrued liabilities | (8,418 | ) | (1,042 | ) | ||||
| Accrued liabilities, related party | (125,000 | ) | (365,000 | ) | ||||
| Deferred rent | - | (1,143 | ) | |||||
| Net cash used in operating activities | (1,609,044 | ) | (1,265,736 | ) | ||||
| Acquisition of H2K | (2,120,000 | ) | - | |||||
| Acquisition of land for development | (528,650 | ) | - | |||||
| Acquisition of new accounting system | - | - | ||||||
| Purchase of property, plant and equipment | (269,719 | ) | (450,211 | ) | ||||
| Net cash used in investing activities | (2,918,369 | ) | (450,211 | ) | ||||
| Payments on equipment loan | (56,547 | ) | (45,413 | ) | ||||
| Payments on capital leases | - | (9,862 | ) | |||||
| Proceeds from note payable | 1,424,250 | - | ||||||
| Repayment of debt | - | - | ||||||
| Proceeds from issuance of Class B common stock | 1,500,000 | 3,123,468 | ||||||
| Proceeds from issuance of unsecured note | 1,000,000 | - | ||||||
| Proceeds from short term debt | 783,456 | - | ||||||
| Proceeds from issuance OF PREFERRED SHARES | 203,814 | - | ||||||
| Net cash provided by financing activities | 4,854,973 | 3,068,193 | ||||||
| Net increase in cash | 327,560 | 1,352,246 | ||||||
| Cash at beginning of period | 528,417 | 814,621 | ||||||
| Cash at end of period | $ | 855,977 | $ | 2,166,867 | ||||
| Supplemental cash flow information | ||||||||
| Cash paid for interest | $ | 22,511 | $ | 4,452 | ||||
| Cash paid for income taxes | - | - | ||||||
| Right of use asset | 450,546 | - | ||||||
| Lease liability | (450,546 | ) | - | |||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Preferred Stock | | Additional | | | | | | | | | | ||||
| | Common Stock Class A | | Common Stock Class B | | Series A-1 | | Paid-In | | Accumulated | | Noncontrolling | | | | ||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Interest |
| Total | |||||||
Balance, March 31, 2019 | | 35,785,858 | | $ | 35,786 | | 4,032,752 | | $ | 4,033 | | 0 | | $ | 0 | | $ | 42,102,106 | | $ | (35,428,938) | | $ | 99,212 | | $ | 6,812,198 |
Issuance of warrant for services | | — | | | — | | — | | | 436 | | — | | | — | | | 299,723 | | | — | | | — | | | 300,159 |
Issuance of common shares for subscription | | — | | | — | | 75,000 | | | 75 | | — | | | — | | | 1,499,925 | | | — | | | — | | | 1,500,000 |
Issuance of restricted common shares for compensation | | — | | | — | | 37,000 | | | 37 | | — | | | — | | | (37) | | | — | | | — | | | — |
Issuance of common stock for services | | — | | | — | | 12,000 | | | 12 | | — | | | — | | | (12) | | | — | | | — | | | — |
Stock-based compensation from stock options | | — | | | — | | — | | | — | | — | | | — | | | 750,029 | | | — | | | — | | | 750,029 |
Forfeiture of common stock | | — | | | — | | (53,500) | | | (54) | | — | | | — | | | 54 | | | — | | | — | | | — |
Net loss | | — | | | — | | — | | | — | | — | | | — | | | — | | | (2,789,023) | | | (147,319) | | | (2,936,342) |
Balance, June 30, 2019 | | 35,785,858 | | | 35,786 | | 4,103,252 | | | 4,539 | | 0 | | | 0 | | | 44,651,787 | | | (38,217,961) | | | (48,107) | | | 6,426,044 |
Issuance of warrant for services | | — | | | — | | — | | | (85) | | — | | | — | | | — | | | — | | | — | | | (85) |
Issuance of Series A-1 Preferred shares | | — | | | — | | — | | | — | | 7.5 | | | 757,266 | | | — | | | — | | | — | | | 757,266 |
Issuance of common shares for subscription | | — | | | — | | 100,000 | | | 100 | | — | | | — | | | 1,624,900 | | | — | | | — | | | 1,625,000 |
Issuance of restricted common shares for compensation | | — | | | — | | 85,000 | | | 85 | | — | | | — | | | (85) | | | — | | | — | | | — |
Stock-based compensation from stock options | | — | | | — | | — | | | — | | — | | | — | | | 829,594 | | | — | | | — | | | 829,594 |
Net loss | | — | | | — | | — | | | — | | — | | | — | | | — | | | (2,964,887) | | | (156,047) | | | (3,120,934) |
Balance, September 30, 2019 | | 35,785,858 | | $ | 35,786 | | 4,288,252 | | $ | 4,639 | | 7.5 | | $ | 757,266 | | $ | 47,106,196 | | $ | (41,182,848) | | $ | (204,154) | | $ | 6,516,885 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ROCKY MOUNTAIN INDUSTRIALS, INC.
Statements of Changes in Stockholder Equity (Unaudited)(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Preferred Stock | | | | | | | | | |||||||||||||||||
| | Common Stock Class A | | Common Stock Class B | | Series A-1 | | Series A-2 | | Series A-3 | | Additional | | Accumulated | | | | ||||||||||||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-In Capital |
| Deficit |
| Total | |||||||||||
Balance, March 31, 2020 | | 35,785,858 | | $ | 35,786 | | 4,840,919 | | $ | 5,277 | | | 43.27 | | $ | 4,327,000 | | | — | | $ | — | | | — | | $ | — | | $ | 49,276,203 | | $ | (48,572,143) | | $ | 5,072,123 |
Issuance of Series A-1 Preferred shares for services | | — | | | — | | — | | | — | | | 5.00 | | | 500,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | 500,000 |
Series A-2 Preferred shares issued to settle preferred shares debt | | — | | | — | | — | | | — | | | — | | | — | | | 2.00 | | | 200,000 | | | — | | | — | | | — | | | — | | | 200,000 |
Series A-2 Preferred shares issued to settle note payable | | — | | | — | | — | | | — | | | — | | | — | | | 2.50 | | | 250,000 | | | — | | | — | | | — | | | — | | | 250,000 |
Issuance of Series A-2 Preferred shares | | — | | | — | | — | | | — | | | — | | | — | | | 14.95 | | | 1,500,000 | | | — | | | — | | | — | | | — | | | 1,500,000 |
Exchange of Class B Common Stock for Series A-3 Preferred Shares | | — | | | — | | (338,343) | | | (338) | | | — | | | — | | | — | | | — | | | 50.75 | | | 5,075,140 | | | (5,074,802) | | | — | | | — |
Issuance of restricted Class B Common stock for compensation | | — | | | — | | 5,000 | | | 5 | | | — | | | — | | | — | | | — | | | — | | | — | | | (5) | | | — | | | — |
Other | | — | | | — | | — | | | (436) | | | | | | | | | | | | | | | | | | | | | 436 | | | | | | — |
Quarterly dividends on Series A-1 and A-2 Preferred shares | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (157,132) | | | (157,132) |
Stock-based compensation | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,295,104 | | | — | | | 1,295,104 |
Net loss | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,365,982) | | | (3,365,982) |
Balance, June 30, 2020 | | 35,785,858 | | | 35,786 | | 4,507,576 | | | 4,508 | | | 48.27 | | | 4,827,000 | | | 19.45 | | | 1,950,000 | | | 50.75 | | | 5,075,140 | | | 45,496,936 | | | (52,095,257) | | | 5,294,113 |
Issuance of Class B Common Shares upon exercise of warrants | | — | | | — | | 2,500 | | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 31,247 | | | — | | | 31,250 |
Issuance of Class B Common shares for services | | — | | | — | | 15,000 | | | 15 | | | — | | | — | | | — | | | — | | | — | | | — | | | 374,985 | | | — | | | 375,000 |
Forfeiture of Class B Common stock | | — | | | — | | (18,000) | | | (18) | | | — | | | — | | | — | | | — | | | — | | | — | | | 18 | | | — | | | — |
Quarterly dividends on Series A-1 and A-2 Preferred shares | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (238,992) | | | (238,992) |
Stock-based compensation | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,295,106 | | | — | | | 1,295,106 |
Net loss | | — | | | — | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,143,326) | | | (4,143,326) |
Balance, September 30, 2020 | | 35,785,858 | | $ | 35,786 | | 4,507,076 | | $ | 4,508 | | | 48.27 | | $ | 4,827,000 | | | 19.45 | | $ | 1,950,000 | | | 50.75 | | $ | 5,075,140 | | $ | 47,198,292 | | $ | (56,477,575) | | $ | 2,613,151 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ROCKY MOUNTAIN INDUSTRIALS, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
| | | | | | |
| | Six months ended | ||||
| | September 30, | ||||
|
| 2020 |
| 2019 | ||
Cash flow from operating activities: |
| |
|
| |
|
Net loss | | $ | (7,509,308) | | $ | (6,057,276) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
|
| |
| |
Operating and investing cash flows for discontinued operations | | | 2,445,604 | | | (579,148) |
Depreciation, depletion and amortization expense | |
| 157,506 | |
| 242,130 |
Stock-based compensation | |
| 2,590,210 | |
| 1,880,322 |
Amortization of debt discount | |
| 271,939 | |
| — |
Accretion expense | | | 5,317 | | | 18,117 |
Deferred rent | | | — | | | (39,898) |
Changes in operating assets and liabilities: | |
|
| |
|
|
Accounts receivable | |
| 20,932 | |
| (14,039) |
Inventory | |
| 9,520 | |
| 25,899 |
Prepaid expenses | |
| 191,665 | |
| (149,867) |
Restricted cash | |
| (8,729) | |
| (72,800) |
Deposits and other assets | |
| (256,593) | |
| 34,057 |
Accounts payable | |
| 64,986 | |
| 756,599 |
Accrued liabilities | |
| 293,105 | |
| 97,192 |
Accrued liabilities, related parties | |
| 370,000 | |
| (130,000) |
Net cash used in operating activities | |
| (1,353,846) | |
| (3,988,712) |
| | | | | | |
Cash Flows from Investing Activities: | | | | | | |
Acquisition of other intangibles | | | — | | | (23,693) |
Investments in land under development | | | (334,436) | | | (742,425) |
Purchase of property, plant and equipment | |
| (9,843) | |
| — |
Net cash used in investing activities | |
| (344,279) | |
| (766,118) |
| | | | | | |
Cash Flows from Financing Activities: | | | | | | |
Proceeds from note payable | | | 3,788,500 | | | 1,291,695 |
Repayment of debt | | | (2,601,600) | | | (106,864) |
Proceeds from issuance of Class B common stock | |
| — | |
| 3,124,375 |
Proceeds from exercise of Class B common stock warrants | | | 31,250 | | | — |
Proceeds from issuance of Series A-1 Preferred shares | | | | | | 965,113 |
Proceeds from issuance of Series A-2 Preferred shares | | | 1,500,000 | | | — |
Net cash provided by financing activities | |
| 2,718,150 | |
| 5,274,319 |
| | | | | | |
Net increase in cash | |
| 1,020,025 | |
| 519,489 |
| | | | | | |
Cash at beginning of period | |
| 57,240 | |
| 528,417 |
Cash at end of period | | $ | 1,077,265 | | $ | 1,047,906 |
| | | | | | |
Supplemental cash flow information | |
| | |
| |
Cash paid for interest | | $ | 87,278 | | $ | 73,511 |
Cash paid for income taxes | | | — | | | — |
Right of use Asset | | | — | | | 374,357 |
Lease liability | | | — | | | (374,357) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
ROCKY MOUNTAIN INDUSTRIALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
NOTE A – FORMATION, CORPORATE CHANGES, AND MATERIAL MERGERS AND ACQUISITIONSOn January 1, 2020, the Company changed its name from RMR Industrials, Inc. to Rocky Mountain Industrials, Inc.
Rocky Mountain Industrials, Inc. (the “Company”, “RMI”, “we”, “our”, “us”) seeks to acquire and consolidate complementary industrial assets. RMI’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.
Formation
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”, “RMR”, “we”, “our”, “us”.) seeks to acquire and consolidate complementary industrial assets. RMI’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 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.
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
10
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. During July 2018, we exercised our option to acquire an additional approximately 150 acres for a total of approximately 620 acres.
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, In April 2020, the Company changedbegan the shutdown of substantially all the operations of RMR Logistics with the closure of its name from RMR Industrials, Inc. to Rocky Mountain Industrials, Inc., (RMI).Wellington, Colorado location and the disposal of its operational assets through auction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying unaudited interim consolidated financial statements for the period ended June 30, 2019 have been prepared in accordance with the accounting policies described in the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended March 31, 2020, (“2020 Form 10-K”) and should be read in conjunction with such consolidated financial statements and related notes. The 2020 year end consolidated balance sheet data included in the Form 10-Q filing was derived from the audited consolidated financial statements in our 2020 Form 10-K, but does not include all disclosures required by accounting principles generally accepted in the United States forStates. The following notes to these interim consolidated financial informationstatements highlight significant changes to the notes included in accordance withthe March 31, 2020 audited consolidated financial statements included in our 2020 Form 10-K and present interim disclosures as required by the Securities and Exchange Commission (SEC) regulations.Commission.
Consolidation
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 the Company’s acquisitions are 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.
Consolidation
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The auditedcondensed 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.
Fair Value Measurements
Revenue Recognition
AsThe fair value of January 1,2018, we adopted ASU NO. 2014-09, “Revenue from Contracts with Customers” (Topic 606). The Company recognizes revenues,a financial instrument is the amount that could be received upon deliverythe sale of goodsan 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
11
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 customer –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 $5,326,003 and $4,324,892 as of September 30, 2020 and March 31, 2020, respectively.
Net Loss per Common Share
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders, after deducting preferred dividends, 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. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued, as their effect is anti-dilutive.
Discontinued Operations
In April 2020, the Company began the shutdown and closing of operations located in Wellington, Colorado comprising substantially all the operations of RMR Logistics and the Logistics segment. The closing of the Wellington location was substantially complete in June, 2020. Substantially all of the mobile equipment was sold at auction in August of 2020 at a loss of $836,778. Auction proceeds received was approximately $1,287,000 and was used to pay down debt.
Carrying amounts of major classes of assets and liabilities included in discontinued operations are comprised of the following as of:
| | | | | | |
| | September 30, | | March 31, | ||
|
| 2020 |
| 2020 | ||
| | | | | | |
Cash | | $ | — | | $ | 1,800 |
Accounts Receivable | | | 17,315 | | | 45,287 |
Property, plant and equipment, net | | | 182,889 | | | 2,384,877 |
Goodwill | | | — | | | 237,977 |
Other noncurrent assets | | | 5,000 | | | 5,000 |
Total assets held for sale | | $ | 205,204 | | $ | 2,674,941 |
| | | | | | |
Accounts payable and accrued liabilities | | $ | 57,367 | | $ | 75,634 |
Debt | | | 1,045,323 | | | 2,287,569 |
Total liabilities held for sale | | $ | 1,102,690 | | $ | 2,363,203 |
12
Major line items comprising net loss from discontinued operations are comprised of the following:
| | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Six Months Ended September 30, | ||||||
|
| | 2020 |
| | 2019 |
| | 2020 |
| | 2019 |
Revenue | | $ | 220 | | $ | 372,723 | | $ | 122,665 | | $ | 616,496 |
Cost of goods sold | | | (8,648) | | | (420,562) | | | (199,004) | | | (514,866) |
| | | (8,428) | | | (47,839) | | | (76,339) | | | 101,630 |
Selling, general and administrative (including depreciation and amortization) | | | 39,551 | | | 164,176 | | | 368,161 | | | 245,756 |
Interest expense, net | | | 13,493 | | | 30,990 | | | 28,217 | | | 49,064 |
Loss on sales of fixed assets | | | (836,778) | | | (10,105) | | | (836,778) | | | (10,105) |
Net loss from discontinued operations | | $ | (898,250) | | $ | (253,110) | | $ | (1,309,495) | | $ | (203,295) |
3. 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 timecontemplates the Company’s performance obligationrealization of assets and liquidation of liabilities in the normal course of business. Under the going concern assumption, an entity is satisfied at an amountordinarily 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 Company expectsentity will be able 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 obligationsrealize its assets and discharge its liabilities in the contract, (iii) determinenormal course of business. However, 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, allowances or taxes, as applicable.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. As of June 30, 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 June 30, 2019, the Company had cash of $855,977 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
The Company has $112,130 in restricted cash held as cash collateral for a reclamation bond for the Bureau of Land Management and Colorado Division of Reclamation, Mining and Safety, 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 relatedsufficient cash or other current assets, nor does it have an established and adequate source of revenues, to cover its customers. Concentrationoperating costs and to allow it to continue as a going concern.
The ability of credit risk is limited to certain customers to whom we make substantial sales. As of June 30, 2019, the Company had one large customerto 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 accountedit 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 and preferred stock and proceeds from debt financing. 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.
The Company is currently working through a number of opportunities to ensure the business will continue as a going concern. These include:
1. | The development of the Rail Park will generate sustained annual revenues by providing transloading services and realized gains on the sale of land while limiting future capital development costs. |
2. | Expansion of the Mid-Continent Quarry, which will allow greater volume production with limited fixed cost increases. |
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4. INVENTORY
Inventory, for approximately 34%which there was none as of our accounts receivable balance and 69% 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 exposureSeptember 30, 2020, is limited.
Inventory
Inventories are valued at the lower of cost (average) or market. Cost is determined by
| | | |
| | March 31, | |
|
| 2020 | |
| | | |
Blasted Rock | | $ | 2,316 |
Packaging | | | 7,204 |
Total | | $ | 9,520 |
5. PROPERTY, PLANT AND EQUIPMENT
The following summarizes the weighted average method.
Property, Plant and Equipment
Property,Company’s property, plant and equipment are recorded at cost. Significant improvements are capitalized, while maintenance and repair expenses are chargedas of:
| | | | | | |
|
| September 30, |
| March 31, | ||
| | 2020 | | 2020 | ||
Recoverable Limestone | | $ | 1,477,469 | | $ | 1,477,470 |
Mill Equipment | |
| 1,289,113 | |
| 1,273,395 |
Mining Equipment | |
| 336,934 | |
| 336,934 |
Mobile Equipment | |
| 813,965 | |
| 813,975 |
Other | |
| 78,972 | |
| 78,972 |
Total | |
| 3,996,453 | |
| 3,980,746 |
Less: Accumulated Depreciation | |
| (1,183,974) | |
| (1,007,525) |
Property, plant and equipment, net | | $ | 2,812,479 | | $ | 2,973,221 |
6. NOTES PAYABLE
On September 9, 2020, Company, executed the standard loan documents required for securing a loan (the “EIDL Loan”) from the United States Small Business Administration (the “SBA”) under its Economic Injury Disaster Loan (“EIDL”) assistance program in light of the impact of the COVID-19 pandemic on the Company’s business. The principal amount of the EIDL Loan is $150,000, with proceeds to operations as incurred. The straight-line method of depreciation isbe used for substantially allworking capital purposes. Interest on the EIDL Loan accrues at the rate of 3.75% per annum and installment payments, including principal and interest, are due monthly beginning twelve months from the date of the assets for financial reporting purposes.
DepletionEIDL Loan in the amount of acquired mineral properties$731. The balance of principal and interest is determined pursuant to a unit-of-extraction method which provides for depletion of such costs overpayable thirty years from the productive lifedate of the mineral properties. The unit-of-extraction rate is determined by computingpromissory note. In connection with 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 June 30, 2019 and 2018, depletion of mineral properties was approximately $7,992 and $10,618
We are considered an “exploration stage” company under the U.S. Securities and Exchange Commission (“SEC”) Industry Guide 7 as suchEIDL Loan, the Company expenses any development costs as incurred.executed the EIDL Loan documents, which include the SBA Secured Disaster Loan Note, dated September 9, 2020, the Loan Authorization and Agreement, dated September 9, 2020, and the Security Agreement, dated September 9, 2020, each between the SBA and the Company.
On July 24, 2020, Rail 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 toCompany executed a Term Loan Promissory Note, primarily secured by the ongoing developmentunderlying property of the Rail Park.Park (“Secured Promissory Note”), with a private lender for $2,450,000. The Secured Promissory Note matures on July 31, 2021, and accrues interest at 10% per annum. RMI is a guarantor of the Secured Promissory Note.
Lease ObligationsIn April and June 2020, the Company executed 2 unsecured note agreements with an investor totaling $1,000,000. The unsecured notes are carried net of original issue discount (10%), which is being amortized on a straight line basis, which approximates the effective interest method.
In March 2020, the federal government passed the Coronavirus Aid, Relief, and Security Act (the "CARES Act"), which provided among other things the creation of the Paycheck Protection Plan ("PPP"), which is sponsored and administered by the U.S. Small Business Administration ("SBA"). On April 1, 2019, we adopted FASB ASU 2016-02, Leases: (Topic 842) (“ASU 2016-02”20, 2020, the Company executed a loan agreement (the "PPP Loan") under the PPP, evidenced by promissory notes, with Simmons Bank ("Simmons"), providing for $438,500 in proceeds, which sets outwas funded to the principles forCompany on April 24, 2020. In June 2020, the recognition, measurement, presentationPaycheck Protection Program
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Flexibility Act of 2020 (the "PPPFA") was signed into law and disclosureestablished the payment dates in the event that amounts borrowed under the PPP are not forgiven. The PPP Loans mature April 20, 2022, but may be forgiven subject to the terms of leases for both parties to a contract (i.e. lesseesthe PPP 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 purchaseapproval by the lessee. This classification will determine whether lease expense is recognized based on an effectiveSBA. The Company recorded the PPP Loan as a debt obligation and accrues interest method or on a straight-line basis over the term of the lease, respectively. A lesseePPP Loan. The interest rate on the PPP Loan is also required1.00%. The PPP Loan is unsecured and contains customary events of default relating to, recordamong other things, payment defaults, making materially false and misleading representations to the SBA or Simmons, or breaching the terms of the PPP Loan. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company. Under the PPPFA, monthly payments of principal and interest commence on the later of 10 months following the "covered period" (as defined in the PPPFA) or the date that Simmons notifies the Company that the SBA has notified Simmons that all or a right-of-use assetportion of the PPP Loan has not been forgiven.
In May 2021, the Company submitted its applications to the SBA for forgiveness of the PPP Loans. As of September 30, 2021, the PPP Loan principal and accrued interest are classified as noncurrent in the Condensed Consolidated Balance Sheets. In June 2021, the Company received formal notification in the form of a lease liabilityletter dated May 25, 2021, from Simmons that the SBA approved the Company’s PPP Loan forgiveness applications for all leases with a termthe Company’s Loan in the amount of greater than 12 months regardless of their classification. Leases with a term of 12 months or less$438,500 (including accrued interest). The Company will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidancethe debt forgiveness during its fiscal first quarter ending June 30,2022, and will recognize a gain on extinguishment of debt (other income) in the amount of $438,500 in the Consolidated Statements of Operations for sales-type leases, direct financing leases and operating leases.the respective quarter.
For leases in which the Company is the lessee, the Company determined that the guidance has a material impact as
| | | | | | | | | | | |
| | | | | | | | | | | |
|
| September 30, 2020 |
| March 31, 2020 |
| Effective Interest Rate | |
| Maturity Date | ||
Equipment loans | | $ | 152,305 | | $ | 191,530 | | 2.10% - 6.30% | | | August 25, 2021 - January 22, 2023 |
Secured promissory note | | | 2,450,000 | | | — | | 10.00% | | | July 31, 2021 |
Senior unsecured note | | | — | | | 1,247,268 | | 25.00% | | | April 4, 2020 |
Term loan | | | 367,721 | | | 1,297,014 | | 3.69% | | | July 21, 2020 |
Unsecured notes | | | 1,462,710 | | | 967,856 | | 10.00% | | | April 3, 2021 - June 30, 2021 |
Lines of credit | | | 304,767 | | | 621,224 | | 5.750% | | | May 6, 2020 |
Promissory notes (PPP loan) | | | 438,500 | | | — | | 1.00% | | | April 20, 2022 |
Secured disaster loan (SBA) | | | 150,000 | | | — | | 3.75% | | | September 9, 2050 |
| | | 5,326,003 | | | 4,324,892 | | | | | |
Unamortized debt issuance cost | | | (322,942) | | | (30,669) | | | | | |
| | | 5,003,061 | | | 4,294,223 | | | | | |
Discontinued operations | | | (1,045,323) | | | (2,287,569) | | | | | |
Less: current portion | | | (3,302,390) | | | (1,756,654) | | | | | |
Debt due after one year | | $ | 655,348 | | $ | 250,000 | | | | | |
7. TRANSACTIONS WITH RELATED PARTIES
As of September 30, 2020, the Company has three operating leasesaccrued $1,580,000 for office space. Twounpaid officers’ compensation expense in accordance with consulting agreements with our Non-executive Board Chairman and Chief Executive Officer. Under the terms of these leases have greatereach 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.
8. SHAREHOLDERS’ EQUITY
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock for issuance. In April 2021, the Board of Directors of the Company authorized 118.47 shares as Series A Preferred Stock and designated 48.27 as Series A-1 Convertible
15
Preferred Stock, designated 19.45 as Series A-2 Convertible Preferred Stock and designated 50.75 as Series A-3 Convertible Preferred Stock (collectively referred to as “Series A Preferred Stock”). The Series A Preferred Stock is senior, with respect to dividend rights and to rights upon any voluntary or involuntary liquidation, dissolution or winding up of the Company (each, a "Liquidation Event") in preference and priority to the Class A Common Stock and Class B Common Stock of the Company.
Voting Rights
Series A Preferred Stock is entitled to vote on all matters submitted to a vote of the stockholders of the Company together with the holders of Class B Common Stock and is entitled to that number of votes equal to the number of shares of Class B Common Stock into which the holder's shares of Series A Preferred Stock could then be converted.
Dividends
Series A-1 Preferred Stock and Series A-2 Preferred Stock, accrue dividends at the rate per annum of $8,000 (“Accruing Dividends”), subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock, whether or not declared, and shall be cumulative. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than 12 months remainingdividends on shares of Class B Common Stock payable in shares of Class B Common Stock) unless the holders of the Series A-1 Preferred Stock and Series A-2 Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A-1 Preferred Stock and Series A- 2 Preferred Stock in an amount at least equal to the sum of (i) the amount of the aggregate Accruing Dividends then accrued on such share of Series A-1 Preferred Stock or Series A-2 Preferred Stock (as applicable) and not previously paid and (ii) in the case of a dividend on Class B Common Stock or any class or series that is convertible into Class B Common Stock, that dividend per share of Series A-1 Preferred Stock or Series A-2 Preferred Stock (as applicable) as would equal the product of (l) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Class B Common Stock and (2) the number of shares of Class B Common Stock issuable upon conversion of a share of Series A-I Preferred Stock or Series A-2 Preferred Stock (as applicable), in each case calculated on the termrecord date for determination of these leasesholders entitled to receive such dividend. Series A-3 Preferred Stock does not accrue dividends.
Liquidation Preference
In the event of any Liquidation Event, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, and in the event of a Deemed Liquidation Event (as defined below), the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the consideration payable to stockholders in such Deemed Liquidation Event or out of the available proceeds, as applicable, before any payment shall be made to the holders of Common Stock. A Deemed Liquidation Event is defined as a merger or consolidation in which a change of control of the Company has occurred or the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or any subsidiary of the Company of all or substantially all the assets of the Company and its subsidiaries taken as a whole.
Conversion
Series A Preferred Stock is convertible, at the option of the holder, into a number of shares of Class B Common Stock determined by dividing (i) the sum of the Series A Original Issue Price and all then-unpaid Accruing Dividends by (ii) the respective conversion price in effect at the time of conversion. The Series A-1 Preferred Stock conversion price is $25.00 per share, the Series A-2 Preferred Stock conversion price is $21.00 per share and the Series A-3 Preferred Stock conversion price is $15.00 per share.
In the event of an underwritten public offering, public uplist, or qualified equity issuance of at least $10,000,000 in gross proceeds and a minimum price per share of $25.00 for the Company's Common Stock (“Qualified Offering”), Series A
16
Preferred Stock shall automatically be converted into such number of fully paid and non-assessable shares of Class B Common Stock at the then effective conversion rate as noted above.
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 and 100,000,000 shares of 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. 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.
9. 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 September 30, 2020, there were 1,592,436 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 adoptionfirst three anniversaries of this guidancethe grant date provided that the award recipient continues to be employed by us through each of those vesting dates and as such the Company recorded a right of use asset and a lease liability of $491,111 atexpire ten years from the date of adoption. Leases withgrant.
10. SEGMENT REPORTING
For the three six months ended September 30, 2020, the Company has 2 reportable segments: Aggregates and Rail Park. The Company had 3 reportable segments for the three and six months ended September 30, 2019: Aggregates, Logistics and Rail Park. The Aggregates segment produces chemical grade lime for use in the aggregates market. The Logistics segment was shutdown in April 2020, and its results of operations have been included in discontinued operations. The Rail Park segment consists of land under development to provide a termrail terminal and services facility and currently has no operational activity. The Rail Park will require significant future capital investment before the segment starts generating recurring revenue. The Company expects that the Rail Park development will commence in the first half of 12 months or less will becalendar year 2021.
The Aggregates segment has a major customer, a mining operation (“Mine”), that accounted for similar to existing guidance for operating leases. The Company also is committed to a lease for a portable office spaceapproximately 80% and 86% of Aggregates segment revenue for the usethree and six months ended September 30, 2020, respectively. As of a Dozer withinSeptember 30, 2020, the Company’s aggregates operation, on adoptionMine accounted for approximately 74% of our Aggregates segment accounts receivable balance.
The accounting policies of the new leasesegments are the same as those described in the summary of significant 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
policies. The Company evaluates its long-lived assetsperformance based on profit or loss from operations before income taxes not including nonrecurring gains and losses.
17
The Company accounts for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to existintersegment sales and transfers as if the total estimated future cash flows on an undiscounted basissales or transfers were to third parties, that is, at current market prices.
The Company’s reportable segments are less than the carrying amount of the asset. Any impairment lossesstrategic business units that offer different products and services. They are measuredmanaged separately because each business requires different technology 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,marketing strategies. All assets are grouped atheld and all operating activities occur within the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. United States.
| | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2020 | | | Six months ended September 30, 2020 | ||||||||||||
Description | | Aggregates |
| Rail Park |
| Other/Corporate |
| Total | |
| Aggregates |
| Rail Park |
| Other/Corporate |
| Total |
Revenue | $ | 174,300 | $ | — | $ | — | $ | 174,300 | | $ | 443,261 | $ | — | $ | — | $ | 443,261 |
Gross profit | | 21,310 | | — | | — |
| 21,310 | |
| 99,593 |
| — | | — |
| 99,593 |
Selling, general and administrative | | 193,558 | | — | | 2,857,677 |
| 3,051,235 | |
| 632,179 |
| — | | 5,333,426 |
| 5,965,605 |
Property, plant and equipment, net | | 2,750,867 | | — | | 61,612 |
| 2,812,479 | |
| 2,750,867 |
| — | | 61,612 |
| 2,812,479 |
Land under development | | — | | 7,497,146 | | 12,906 |
| 7,510,052 | |
| — |
| 7,497,146 | | 12,906 |
| 7,510,052 |
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 JuneSeptember 30, 2019 segment information has not been retroactively adjusted to reflect the Company’s mineral resources do not meet the definitionimpact 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. discontinued operations.
| | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2019 | | | Six months ended September 30, 2019 | ||||||||||||||||
Description | | Aggregates |
| Logistics |
| Rail Park |
| Other |
| Total | |
| Aggregates |
| Logistics |
| Rail Park |
| Other |
| Total |
Revenues from external customers | $ | 267,575 | $ | 488,111 | $ | — | $ | (100,350) | $ | 655,336 | | $ | 501,525 | $ | 813,572 | $ | — | $ | (182,037) | $ | 1,133,060 |
Intersegment revenues | | (100,348) |
| 100,348 | | — | | — |
| — | |
| (182,037) |
| 182,037 | | — | | — |
| — |
Interest expense | | 1,113 |
| 31,825 | | — | | 74,139 |
| 107,077 | |
| 2,367 |
| 50,821 | | — | | 137,468 |
| 190,656 |
Depreciation, depletion and amortization | | 70,752 |
| 100,731 | | — | | 976 |
| 172,459 | |
| 143,931 |
| 158,909 | | — | | 1,278 |
| 304,118 |
Segment loss | | 461,069 |
| 282,408 | | 14,831 | | 2,352,591 |
| 3,110,899 | |
| 944,390 |
| 334,357 | | 21,604 | | 4,756,925 |
| 6,057,276 |
Segment assets | | 4,158 |
| 442,701 | | 213,776 | | 403,093 |
| 1,063,728 | |
| 3,599,439 |
| 3,175,151 | | 6,036,901 | | 1,564,995 |
| 14,376,486 |
Expenditure for segment assets | | — |
| 433,099 | | — | | — |
| 433,099 | |
| — |
| 2,704,124 | | — | | — |
| 2,704,124 |
11. COMMITMENTS AND CONTINGENCIES
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 JuneSeptember 30, 2019,2020, the Company’s undiscounted reclamation obligations totaled approximately $221,081.$366,000. 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.
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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:
| Balance at April 1, 2019 | $ | 60,990 | |||||
| | | | ||||
Balance at April 1, 2020 |
| $ | 108,701 | ||||
| Liabilities incurred | - | |
| 0 | |||
| Accretion expense | 1,488 | |
| 5,317 | |||
| Balance at June 30, 2019 | $ | 62,478 | |||||
Balance at September 30, 2020 | | $ | 114,018 | ||||
12. SUBSEQUENT EVENTS
Land Under Development
Fair Value Measurements
The fair valueIn 2018, the Company formed the Rocky Mountain Rail Park Metropolitan District (“District”) for the purpose 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 significantfinancing public improvements related to the fair value measurement. The fair value hierarchy is defined intodevelopment of approximately 620 acres including open space and other right-of-way areas and providing ongoing operations and maintenance services related to 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 thatpublic improvements. Public improvements are corroborated by market data
- Level 3: Unobservable inputs that are not corroborated by market data
The fair value of notes payable was $1,059,466 and $0 as at June 30, 2019 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 June 30, 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 portiongenerally, any part or all of a deferred tax asset will notthe public improvements authorized to be realized. In makingplanned, designed, acquired, constructed, installed, relocated, redeveloped, operated, maintained and/or financed, including necessary and appropriate landscaping, appurtenances and real property to effect such a determination, management considers all available positiveimprovements, as generally described in the Colorado Special District Act (Title 32, Article 1, Colorado Revised Statutes) and negative evidence, includingas may be necessary to serve the future reversals of existing taxable temporary differences, projected future taxable income,taxpayers and ongoing prudent and feasible tax planning strategies in assessing the amountinhabitants of the valuation allowance. WhenDistrict, as determined by the District Board, including public improvements within and without the District’s boundaries.
In April 2021, the District closed on its Limited Tax General Obligation and Water Revenue Bonds, Series 2021A and 2021B (“Tax -Exempt Bonds”) raising total proceeds of approximately $65.2 million, $51.2 million of which will be directly used to fund the public improvements. The Tax -Exempt Bonds are an obligation of the District and not of the Company establishes or reducesand will be repaid through ownership taxes and other enterprise revenues collected by the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively,District from property owners residing in the period such determination is made.District.
Additionally,Water Rights
In September 2021, the Company recognizessold its water rights attributable to the tax benefit from an uncertain tax position only if it is more likely than not thatLand under development to the tax position will be sustainedDistrict for a sales price of approximately $5.9 million. The proceeds were received on examination bySeptember 30, 2021, resulting in the taxing authorities basedrecording of a gain on the technical meritssales of the position. The tax benefitassets of approximately $5.8 million, which was 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 itsconsolidated 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.
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 businessoperation for the foreseeable future with neither the intention nor the necessityquarter ended September 30, 2021.
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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 and preferred stock and proceeds from debt financing. 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.
The Company is currently working through a number of opportunities to ensure the business will continue as a going concern. These include:
NOTE D – ACCOUNTS RECEIVABLE
Accounts Receivable at June 30, 2019 was $241,273 compared to $102,870 at March 31, 2019. The increase is due to a increase in production and product demand. No allowance is recorded, as all items are current.
NOTE E – INVENTORY
Inventory, which primarily represents finished goods, packaging and fuel, are valued at the lower of cost (average) or market.
| June 30, 2019 | March 31, 2019 | |||||||
| Blasted Rock | $ | 32,246 | $ | 41,021 | ||||
| Finished Goods | $ | - | $ | 923 | ||||
| Packaging | $ | - | $ | 2,450 | ||||
| Propane and Fuel | $ | - | $ | 4,582 | ||||
| Total | $ | 32,246 | $ | 48,976 | ||||
NOTE F – PROPERTY, PLANT AND EQUIPMENT
The following summarizes the Company’s assets at June 30, 2019 and March 31, 2019 respectively:
| June 30, 2019 | March 31, 2019 | |||||||
| Recoverable Limestone | $ | 1,477,469 | $ | 1,477,469 | ||||
| Mill Equipment | 1,273,395 | 1,287,743 | ||||||
| Mining Equipment | 336,934 | 336,934 | ||||||
| Mobile Equipment | 2,923,782 | 849,627 | ||||||
| Property improvements | 69,263 | 65,637 | ||||||
| Office Equipment | 9,710 | 1,630 | ||||||
| Total Fixed Assets | 6,090,553 | 4,019,040 | ||||||
| Less Accumulated Depreciation | (839,918 | ) | (758,529 | ) | ||||
| Property, plant and equipment, net of accumulated depreciation | $ | 5,250,635 | $ | 3,260,511 | ||||
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 H – EQUIPMENT LOAN AND CAPITAL LEASE PAYABLE
The Company has entered into various equipment loans with an equipment manufacturer in connection with the CalX acquisition, pursuant to which we acquired equipment with an aggregate principal value of approximately $528,593. The equipment loans require payments over 12 months at a fixed interest rate from 1.99% to 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 less than 12 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: | ||||
| 2020 | $ | 20,837 | ||
| 2021 | - | |||
| Total future minimum lease payments | $ | 20,837 | ||
NOTE I – TRANSACTIONS WITH RELATED PARTIES
The Company has accrued $1,190,000 for unpaid officers’ compensation expense in accordance with consulting agreements with our Non-executive Board Chairman and Chief Executive Officer. 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 J – SHAREHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 50,000,000 shares of preferred stock for issuance. At June 30, 2019, no shares of preferred stock were 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 and 100,000,000 shares of Class B Common Stock. At June 30, 2019 and March 31, 2019, the Company had 35,785,858 of Class A Common Stock outstanding. On June 30, 2019 and March 31, 2019, the Company had 4,103,252 and 4,032,752 shares issued and outstanding, 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 period ended June 30, 2019, an accredited investor exercised a warrant to purchase shares of Class B Common Stock for which the Company received $1,500,000 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 June 30, 2019, there were 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.
NOTE L – SELLING GENERAL AND ADMINISTRATIVE COSTS
Selling general and administrative costs for the three month period ended June 30, 2019 were $2,927,187 compared to $1,411,849 in the prior year. Increases in salaries, employee benefits, and consulting fees were primarily responsible for the increase.
NOTE M – INTEREST EXPENSE
The interest expense for the three month period ended June 30, 2019 was $83,579 compared to the prior year of $235,775 the decrease is the result of a note payable of $2,250,000 that was repaid on October 1, 2018.
NOTE N – SEGMENT REPORTING
Rocky Mountain Industrials, Inc (RMI) has three reportable segments: aggregates, logistics and Rail Park. The aggregates segment produces chemical grade lime for use in the aggregates market. The logistics segment is in the process of developing a rail access delivery location and will generate sales through a combination of land sales as well as lease income and Rail services. The Rail Park segment will require significant future capital injections before the segment will start generating recurring revenue. The Company expects that the rail park development will conclude late in the Company’s 2021 financial year or early in the Company’s 2022 financial year. The aggregates segment relied significantly on sales to the West Elk Mine for the period ended June 30, 2019. The sales to the West Elk Mine contributed 69% of revenue to this segment.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. RMI evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses.
RMI accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.
RMI’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.
| Description | Aggregates | Logistics | Rail Park | Other | Total | |||||||||||||||
| Revenues from external customers | 233,950 | 325,461 | - | (81,687 | ) | 477,724 | ||||||||||||||
| Intersegment revenues | (81,689 | ) | 81,689 | - | - | - | ||||||||||||||
| Interest revenue | - | - | - | - | - | |||||||||||||||
| Interest expense | 1,254 | 18,996 | - | 63,329 | 83,579 | |||||||||||||||
| Depreciation, depletion and amortization | 73,179 | 58,178 | - | 302 | 131,659 | |||||||||||||||
| Segment loss | 483,321 | 51,949 | 6,773 | 2,404,334 | 2,936,342 | |||||||||||||||
| Segment assets | 3,595,281 | 2,732,450 | 5,823,125 | 1,161,902 | 13,312,758 | |||||||||||||||
| Expenditure for segment assets | - | 2,271,025 | 2,271,025 | |||||||||||||||||
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements for purposes of U.S. federal securities laws. See “Cautionary Note Regarding Forward-Looking Statements”.
Overview
Overview
Rocky Mountain Industrials, Inc. (“we”, “us”, the “Company” or “RMI”) 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.
We were incorporated in the State of Nevada on August 6, 2012, under the name “Online Yearbook” with the principal business objective of developing and marketing online yearbooks for schools, companies, and government agencies.
On November 17, 2014, Rocky Mountain Resource Holdings, Inc. (“RMR”RMRH”) became our majority shareholder by acquiring 5,200,000 shares of our common stock (the “Shares”), or 69.06% of the issued and outstanding shares of our common stock, pursuant to stock purchase agreements with Messrs. El Maraana and Salah Blal, our former officers and directors. The Shares were acquired for an aggregate purchase price of $357,670.
On December 8, 2014, weour name was changed our namefrom Rocky Mountain Resource Holdings, Inc. to “RMR Industrials, Inc.” in connection with a change inOn January 1, 2020, we changed our business plan.
name from RMR Industrials, Inc. (“we”, “us”, the “Company” or “RMR”) 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“Rocky Mountain region. We have a strategy to own, operate, develop, acquire and vertically integrate complementary industrial businesses.
Industrials, Inc.”
On February 27, 2015 (the “Closing Date”), we entered into and consummated a merger transaction pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, OLYB Acquisition Corporation, a Nevada corporation and wholly owned subsidiary of the Company (“Merger Sub”), and RMR IP, Inc., a Nevada corporation (“RMR IP”). In accordance with the terms of Merger Agreement, on the Closing Date, Merger Sub merged with and into RMR IP (the “Merger”), with RMR IP surviving the Merger as our wholly owned subsidiary. Chad Brownstein and Gregory M. Dangler are directors of the Company and co-owners of RMRH, which was the majority shareholder of the Company prior to the Merger. Additionally, Messrs. Brownstein and Dangler were indirect controlling shareholders and directors of RMR IP prior to the Merger. As such, the Merger was among entities under the common control of Messrs. Brownstein and Dangler.
On July 28, 2016, we formed RMR Aggregates, Inc., a Colorado corporation (“RMR Aggregates”), as oura wholly owned subsidiary.subsidiary of the Compnay. RMR Aggregates was formed to hold assets primarily relating to 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, pursuant to an Asset Purchase Agreement with CalX Minerals, LLC, a Colorado limited liability company (“CalX”), we completed the purchase of substantially all of the assets associated with the business of operating the Mid-Continent Limestone Quarry on 41 BLM unpatented placer mining claims in Garfield County, Colorado. CalX assets include the mining claims, improvements, access rights, water rights, equipment, inventory, contracts, permits, certain intellectual property rights, and other tangible and intangible assets associated with the limestone mining operation. The acquisition of these CalX assets will promote the development and implementation of the Company’s limestone mining operations in Colorado.
During January 2018, the Company formed Rail Land Company, LLC (“Rail Land Company”) as a wholly owned subsidiary of the Company to acquire and develop a rail terminal and services facility (“Rail Park”). Rail Land Company purchased 620 acres of real estate located in Bennett, Colorado. The Company’s development of the Rail Park is intended to expand the Company’s 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 sellers trucking assets. In April 2020, the Company
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began the shutdown of substantially all the operations of RMR Logistics with the closure of its Wellington, Colorado location and the disposal of its operational assets through auction.
On January 1, 2020 we changed our name to “Rocky Mountain Industrials, Inc.” in connection with a change in our business plan.
Results of Operations
Comparison of the Three and Six Months Ended JuneSeptember 30, 20192020 and JuneSeptember 30, 20182019
Revenues
Our revenues for the three-month and six-month period ended JuneSeptember 30, 20192020 were $477,724.$174,300 and $443,261, respectively. This compares to revenue for the same period ended JuneSeptember 30, 20182019 of $329,614. The increase in revenues were driven by the increased tons sold from the Company’s Glenwood Springs mine.$282,613 and $516,564.
Cost of Goods Sold
Our cost of goods sold for the three-month periodand six-month periods ended JuneSeptember 30, 20192020 were $421,300$152,990 and $343,668, respectively. This compares to cost of goods sold for the same periodperiods ended JuneSeptember 30, 20182019 of $319,854. The increase in costs related to increased production during the year.$216,121 and $543,117.
Operating Expenses
Our operating expenses for the three-month periodand six-month periods ended JuneSeptember 30, 20192020 were $2,927,187.$3,051,235 and $5,965,605. This compares to operating expenses for the same periods ended JuneSeptember 30, 20182019 of $1,411,849.$2,858,228 and $5,703,835. Operating expenses consisted of overhead costs related to mining operations, consulting services from related parties, public company costs, salaries and wages, and depreciation and amortization. The increase was due primarily to increased head count coupled with costs incurred by the Company in relation to the Company’s rail park development.
Interest Expense (Income), net
Our interest expense, net for the three-month periodand six-month periods ended JuneSeptember 30, 2019 was $83,579,2020 were $215,151 and $333,801, compared to $235,775$76,088 and $141,593 of interest expense for the same period ended JuneSeptember 30, 2019. The $2,250,000 note payable issued to an accredited investor in October 2016 was paid off on October 3, 2018.
Net Loss Attributable to Rocky Mountain Industrials, Inc.
Our net loss for the three-month periodand six-month periods ended JuneSeptember 30, 20192020 was $2,936,342.$4,143,326 and $7,509,308. This compares to a net loss for the same periodperiods ended JuneSeptember 30, 20182019 of $1,637,864.$2,964,887 and $5,753,910.
Liquidity and Capital Resources
As of JuneSeptember 30, 2019,2020, we had current assets of $1,376,373,$1,765,234, total current liabilities of $4,745,626$9,167,955 and working capital deficiency of $3,369,253.$7,402,721. We have incurred an accumulated loss of $38,217,961$56,477,575 since inception. Our independent auditors issued an audit opinion for our financial statements for the fiscal year ended March 31, 2019 which includes a statement expressing substantial doubt as to our ability to continue as a going concern due to our limited liquidity and our lack of revenues.
We will be seeking additional capital to execute our business plan and reach positive cash flow from operations. Our base monthly expenses are approximately $200,000 per month. As evidenced by approximately $1.2$1.6 million of our current liabilities being owed to related parties, we have relied historically on related parties to sustain the Company’s operations. In order to successfully execute our business plan, the net proceeds of a $10-20 million offering will be required to finance our planned acquisition and for general working capital purposes.
We do not generate adequate cash flows to support our existing operations. Moreover, the historical and existing capital structure is not adequate to fund our planned growth. Our current cash requirements are significant due to our business plan which contemplates future acquisitions. We anticipate generating losses at least through the 20202021 fiscal year. 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.
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Other than as stated above, we currently do not have any arrangements for additional financing, and we may not be able to obtain financing when required. Our future is dependent upon our ability to obtain financing, a successful marketing and promotion program, and, further in the future, achieving a profitable level of operations. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. We will require additional funds to maintain our reporting status with the SEC and remain in good standing with the state of Nevada. There are no assurances that we will be able to raise the required working capital on 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 JuneSeptember 30, 20192020 totaling $38,217,961$56,477,575 and have completed the preliminary stages of our business plan. We anticipate incurring additional losses before realizing any revenues 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, 2019 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.
Recently Issued Accounting Pronouncements
We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our net results of operations, financial position, or cash flows.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Required
Item 4. 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.
In light of the material weakness described below, we performed additional analysis and other post-closing procedures to ensure that our condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the condensed 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.
Material Weakness and Related Remediation Initiatives
Our Chief Executive Officer and Chief Financial Officer have concluded that as of JuneSeptember 30, 2019,2020, there was a material weakness in our internal control over financial reporting in that, due to budget constraints, the Company’s accounting department does not have sufficient accounting personnel (either in-house or external) necessary to ensure that complete and effective financial reporting controls are designed and implemented. Accordingly, 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.
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Remediation of Internal Control Deficiencies and Expenditures
We are developing a plan to address this material weakness, which includes hiring qualified accounting personnel and establishing a formal audit committee. We are uncertain at this time of the costs necessary to remediate the material weakness. Once implemented, remedial controls will have to be in place for at least several quarters 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 adequate internal control over financial reporting systems, we may encounter difficulties in the audit or review of our financial statements by our independent registered public accounting firm, which in turn may have a material adverse effect on our ability to prepare financial statements in accordance with GAAP and to comply with our SEC reporting obligations.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended JuneSeptember 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
None.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the threesix months ended JuneSeptember 30, 2019, we sold to2020, accredited investors twopurchased 14.95 shares of preferred stockSeries A-2 Preferred Stock for which the Company received gross proceeds of $200,000.$1,500,000. During the same period, accredited investors exercised warrants to purchase 2,500 Class B Common Stock shares for which the Company received $31,250 in gross proceeds.
Item 3. Defaults Upon Senior Securities
None.
None.
Item 4. Mine Safety Disclosures
Information regarding mine safety violations is included in Exhibit 95 to this quarterly report.
None.
None.
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Exhibit | Exhibit | |
| | |
31.1 * | | |
31.2 * | | |
32.1 * | | |
32.2 * | | |
95* | | |
101.INS | | Inline XBRL Instance Document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data |
| | |
* | Filed herewith |
* Filed herewith24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ROCKY MOUNTAIN INDUSTRIALS, INC. | |||
| | ||
Date: December | By: | /s/ | |
Brian Fallin | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
| | ||
Date: December | By: | /s/ | |
Brian H. Aratani | |||
Chief Financial Officer | |||
(Principal Financial Officer and Principal Accounting Officer) | |||
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