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ROKWADER, INC. SEC Filing Form 10-Q Quartely report 2/2017, submited: 2017-06-16

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Form 10-Q

The SEC form 10-Q is a comprehensive report of a company's performance that must be submitted quarterly by all public companies to the Securities and Exchange Commission. In the 10-Q, firms are required to disclose relevant information regarding their financial position. The form must be submitted on time, and the information should be available to all interested parties.

The 10-Q is due 35 days (it used to be 45 days) after each of the first three fiscal quarters. There is no filing after the fourth quarter because that is when the 10-K is filed.

10-Q 1 rokr_2017mar31-10q.htm MARCH 31, 2017 QUARTERLY REPORT

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2017

 

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 No. 000-51867

 

ROKWADER, INC.

(Exact name of small business issuer as specified in its charter)

 

DELAWARE

(State or other jurisdiction of

incorporation or organization)

7929

(Primary Standard Industrial

Classification Code Number)

73-1731755

(I.R.S. Employer

Identification No.)

 

15466 Los Gatos Blvd. #109-352, Los Gatos, CA 95032

(Address of principal executive offices)

 

(408) 221-6900

(Registrant’s telephone number, including area code)

 

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  þ No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 

Yes ☐ No þ

 

The number of shares of Common Stock, $0.001 par value, of the registrant outstanding as of June 15, 2017 was 18,392,777.

 

 

 

 


 
 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I.  
   
Item 1. Financial Statements.  
   
Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016 4
   
Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2017 and 2016 (Unaudited) 6
   
Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2017 and 2016 (Unaudited) 7
   
Notes to the Unaudited Condensed Consolidated Financial Statements 8
   
Item 2. Management’s Discussion and Analysis or Plan of Operation 26
   
Item 3. Quantitative and Qualitative Disclosures About Market Risks. 27
   
Item 4. Controls and Procedures 27
   
PART II.  
   
Item 1. Legal Proceedings. 29
   
Item 1A. Risk Factors. 29
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 29
   
Item 3. Defaults Upon Senior Securities. 29
   
Item 4. Mine Safety Disclosures 29
   
Item 5. Other Information. 29
   
Item 6. Exhibits. 29
   
SIGNATURES 30
   
EXHIBIT INDEX 31

 

 

 

 

 

 

2


 
 

 

 

 

 

 

  As used in this report, the term “the Company,” “we,” “us,” or “our” mean Rokwader, Inc., and its subsidiaries, unless the context clearly indicates otherwise.

 

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (“Form10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.  Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

 

 Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “desire,” “goal,” “should,” “objective,” “seek,” “plan,” “strive” or “anticipate,” as well as variations of such words or similar expressions, or the negatives of these words. These forward-looking statements present our estimates and assumptions only as of the date of this Form 10-Q. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement. We caution readers not to place undue reliance on any such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes will likely vary materially from those indicated.

 

 

 

 

 

 

3


 
 

 

PART I.

Item 1.  Financial Statements.

 

ROKWADER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
 
   MARCH 31,  DECEMBER 31,
   2017  2016
   (UNAUDITED)  (AUDITED)
CURRENT ASSETS:      
       
Cash (Note 1)  $5,846,164   $5,921,197 
Accounts Receivable   20,575    10,852 
Prepaid Expenses   124,600    27,992 
Prepaid Property Taxes   58,841    —   
TOTAL CURRENT ASSETS   6,050,180    5,960,041 
           
PROPERTY AND EQUIPMENT          
Property and Equipment, Net of Accumulated Depreciation          
of $803,367 and $539,884, respectively (Note 1 & 6)   2,101,095    2,320,002 
           
OTHER ASSETS          
           
Intangible Assets, Net of Accumulated Amortization          
of $17,526 and $16,672, respectively (Note 5)   37,474    38,328 
Deposits   171,680    171,680 
Trademarks (Note 5)   19,044    19,044 
Goodwill (Note 5)   7,527,287    7,527,287 
TOTAL OTHER ASSETS   7,755,485    7,756,339 
           
           
TOTAL ASSETS  $15,906,760   $16,036,382 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY
           
CURRENT LIABILITIES:          
           
Accounts Payable  $241,965   $236,962 
Bank Overdraft   561    —   
Property Taxes Payable   78,455    —   
Accrued Expenses   40,185    32,193 
Accrued Interest Payable   1,331    786 
Other Current Liabilities   27,284    31,348 
Gift Cards & Certificates   105,931    159,842 
Accrued Dividends Payable   181,455    132,706 
Income Tax Payable (Note 1 &10)   110,378    57,854 
Accrued Salaries, Wages & Benefits   83,806    166,183 
Related Party Payables (Note 4)   344,175    344,067 
           
TOTAL CURRENT LIABILITIES   1,215,526    1,161,941 
           
OTHER LIABILITIES          
Deferred Rent   128,916    64,458 
           
TOTAL OTHER LIABILITIES   128,916    64,458 
           
TOTAL LIABILITIES   1,344,442    1,226,399 
           
COMMITMENTS AND CONTINGENCIES (Note 6)          
           
STOCKHOLDERS’ EQUITY:          
Rokwader, Inc. Stockholders' Equity:          
Preferred Stock, $.001 par value, 10,000,000 shares were authorized as of March 31, 2017 and December 31, 2016, none issued and outstanding.   —      —   
Common Stock, $.001 par value, 50,000,000 shares authorized, 18,392,777 shares issued and outstanding as of March 31, 2017 and 18,292,777 shares issued and outstanding          
  as of December 31, 2016   18,392    18,292 
Additional Paid-In Capital   7,488,051    7,428,151 
Accumulated (Deficit)   (2,994,870)   (2,750,359)
Total Rokwader, Inc. Stockholders' Equity   4,511,573    4,696,084 
           
Noncontrolling Interest in Net Assets of Subsidiary   10,050,745    10,113,899 
           
TOTAL STOCKHOLDERS' EQUITY (Note 2)   14,562,318    14,809,983 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $15,906,760   $16,036,382 
 

 See accompanying notes to unaudited condensed consolidated financial statements

5


 
 

 

ROKWADER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
       
   THREE MONTHS  THREE MONTHS
   ENDED  ENDED
   MARCH 31, 2017  MARCH 31, 2016
       
       
NET REVENUE  $1,928,973   $112 
           
COST OF GOODS SOLD   (506,579)   —   
           
GROSS PROFIT   1,422,394    112 
           
OPERATING EXPENSES          
Selling, General and Administrative   (764,635)   (107,832)
Rent Expense (Note 7)   (382,242)   (3,483)
Acquisition Related Expenses (Note 2)   (215,003)   (17,000)
Depreciation and Amortization (Note 5 & 6)   (267,345)   (1,378)
TOTAL OPERATING EXPENSES   (1,629,225)   (129,693)
           
LOSS FROM CONTINUING OPERATIONS   (206,831)   (129,581)
           
OTHER INCOME (EXPENSES)          
Interest Income   —      1,494 
Interest Expense   (545)   —   
Other Income   984    —   
TOTAL OTHER INCOME (EXPENSES)   439    1,494 
           
LOSS BEFORE INCOME TAXES   (206,392)   (128,087)
           
PROVISION FOR INCOME TAXES (Note 1 & 10)   (52,524)   —   
           
NET LOSS   (258,916)   (128,087)
           
NET LOSS ATTRIBUTABLE TO          
NONCONTROLLING INTEREST   (14,405)   —   
           
NET LOSS ATTRIBUTABLE TO          
ROKWADER, INC.  $(244,511)  $(128,087)
           
NET LOSS PER COMMON SHARE - BASIC          
& DILUTED  $(0.01)  $(0.01)
           
WEIGHTED AVERAGE NUMBER  OF COMMON          
SHARES OUTSTANDING - BASIC & DILUTED   18,308,333    18,267,777 
See accompanying notes to unaudited condensed consolidated financial statements

 

6


 
 
ROKWADER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
   THREE MONTHS  THREE MONTHS
   ENDED  ENDED
   MARCH 31, 2017  MARCH 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss  $(258,916)  $(128,087)
           
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation expense   266,491    490 
Amortization expense   854    888 
Amortized deferred rent   64,458    —   
           
Changes in assets and liabilities:          
Accounts receivable   (9,723)   —   
Prepaid expenses   (96,608)   —   
Inventory (Note 2)   (58,841)   —   
Accounts payable   5,003    (1,310)
Bank overdraft   561    —   
Property taxes payable   78,455    —   
Accrued expenses   7,992    (5,700)
Other current liabilities   (4,064)   —   
Gift cards & certificates   (53,911)   —   
Credit card payable   —      (2,654)
Accrued dividends payable to noncontrolling interest   48,749    —   
Income tax payable (Note1 & 10)   52,524    —   
Accrued salaries, wages and benefits   (82,377)   —   
Accrued interest payable   545    —   
           
           Net Cash Used in Operating Activities   (38,808)   (136,373)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment (Note 6)   (47,584)   —   
           
           Net Cash Used for Investing Activities   (47,584)   —   
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Issuance of common stock   60,000    —   
Related party payables (Note 4)   108    —   
Distribution to noncontrolling interest   (48,749)   —   
           
           Net Cash Provided by Financing Activities   11,359    —   
           
NET INCREASE IN CASH   (75,033)   (136,373)
           
CASH AT BEGINNING OF YEAR   5,921,197    5,165,219 
           
CASH AT END OF YEAR  $5,846,164   $5,028,846 
           
Cash Paid During the Period for:          
Interest  $—     $—   
Income taxes  $—     $8,925 
See accompanying notes to unaudited condensed consolidated financial statements

 

7


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

HISTORY

 

ROKWADER, INC. (the “Company”), was organized under the laws of the State of Delaware on March 18, 2005 as a vehicle to seek, investigate and, if such investigation warrants, acquire a target company or business that primarily desires to seek the perceived advantages of a publicly-held corporation. On April 23, 2007, Rokwader completed an acquisition of all of the issued and outstanding capital stock of Latigo Shore Music, Inc. (“Latigo”).

 

In May and June 2015, the Company underwent a change of control when it sold an aggregate of 15,250,000 shares of its common stock, together with a warrant to purchase an additional 5,900,000 shares of its common stock to Coco Partners, LLC (“Coco”). As a result of this transaction and the change of control of the Company, our business strategies and plan of operations has evolved into two segments: (i) the continuation of the Latigo music publishing business; and (ii) the investment and acquisition vehicle focused on Rokwader Acquisition Corp. (“RAC”) supported by Coco.

 

On May 1, 2016, one the Company’s subsidiaries, RAC, acquired a number of car wash businesses in Arizona and entered into multiple agreements related to the acquisition of these businesses. With these acquisitions, the Company has entered the car wash market in Arizona where it plans to establish itself as the market share leader in that Metropolitan Statistical Area (“MSA”) in the car wash industry. With both of these acquisitions, the Company has moved from being a vehicle to acquire target companies to a Company with a fully operational business.

 

On May 11, 2016, RAC changed its name to True Blue Car Wash Corp (“True Blue”).

 

Prior to the acquisition of the car wash businesses by True Blue, substantially all of the business conducted by Rokwader was through Latigo, its wholly-owned subsidiary. Subsequently, the Company’s business will be focused on growth through True Blue and its car wash acquisitions. Through its majority-owned subsidiary, True Blue, the Company intends to acquire additional car washes, and the board of directors of the Company has authorized the Company to invest cash in True Blue in exchange for additional shares of capital stock in True Blue, for the purpose of funding the acquisition of True Blue’s car wash portfolio. The Company believes it will need to raise additional capital in order for True Blue to meet its goal of making acquisitions of several additional car washes in the target MSAs.

 

BASIS OF PRESENTATION

 

These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature and considered necessary for a fair presentation of its financial condition and results of operations for the interim periods presented in this Quarterly Report on Form 10-Q have been included. Operating results for the interim periods are not necessarily indicative of financial results for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

PRINCIPLES OF CONSOLIDATION

 

The unaudited condensed consolidated financial statements include the accounts of Rokwader, Inc. and subsidiaries. All significant inter-company accounts and transactions have been eliminated. The Company owns 100% of its subsidiary, Latigo Shore Music, Inc. The Company also owns 62.27% of its majority-owned subsidiary, True Blue Car Wash Corp.

 

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

 

The preparation of these unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of these unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.

 

8


 
 


ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents consist primarily of cash in banks and highly liquid investments with original maturities of 90 days or less. As of March 31, 2016 and December 31, 2016, the Company had zero cash equivalents.

 

CONCENTRATIONS OF CREDIT RISK

 

The Company maintains all cash in deposit accounts, which at times may exceed federally insured limits. The Company has not experienced a loss in such accounts.

 

The Company holds more than $250,000 in interest bearing accounts at one bank, thus there is a credit risk related to these cash deposits since these amounts exceed the current federally insured amount of $250,000 per depositor, per insured bank, for each account ownership category. As of March 31, 2017, the Company had cash balances of $5,846,164 in three banks and the Company had a credit risk of $5,596,164 related to these cash deposits. As of December 31, 2016, the Company had cash balances of $5,921,197 in three banks and the Company had a credit risk of $5,671,197.

  

FINANCIAL CONDITION AND PLAN OF OPERATION

 

As of March 31, 2017, the Company had working capital of $4,834,654, including $5,846,164 of cash on hand.

 

As a result of the acquisition, by True Blue of the five Express Car Washes (“Express”) from a leading Express Car Wash operator in the Phoenix area, and the agreements to purchase an additional six Express Car Washes from the same operator, the Company has commenced to generate significant revenues, including $1,928,973 for the three months ended March 31, 2017. The Company believes this acquisition will help accelerate growth, amplify valuation, and create liquidity.

 

Through its subsidiary, True Blue, the Company intends to acquire additional car washes in select Metropolitan Strategic Areas (“MSAs”) as part of its investment and operating strategy. True Blue has identified several Express and Full Service Car Washes (“Flex”) that could be acquired. The Company believes it will incur additional costs associated with the execution of this investment strategy, including legal, accounting, and consulting fees to fund these prospective acquisitions. The Company will seek additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees, and from other sources of such additional financings.

 

ACCOUNTS RECEIVABLE

 

The Company reports accounts receivable net of an allowance for doubtful accounts equal to the estimated collection losses to be incurred. Estimated losses are based on actual collection experience and management’s evaluation of the current status of existing receivables. The allowance for doubtful accounts is based on evaluation of various factors influencing the collectability of all receivables. Management anticipates no problems with collection and no allowance for doubtful accounts is considered necessary as of March 31, 2017 and as of December 31, 2016.

 

A trade receivable is considered to be past due if any portion of the receivable balance is outstanding for more than 30 days. No interest is charged on past-due receivables.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets, which are as follows:

 

Machinery and Equipment 2-15 years
Furniture 2-10 years
Leasehold Improvements 15 years

 

9


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major improvements are capitalized. The cost and related accumulated depreciation of property and equipment are removed from the accounts upon retirement or other disposition and any resulting gain or loss is reflected in operations of the period.

 

BUSINESS COMBINATIONS

 

The Company accounts for business combinations using the acquisition method of accounting in accordance with FASB ASC Topic 805 related to Business Combinations, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Goodwill was recorded and it represents the excess of the purchase price over the estimated fair values of net tangible and intangibles assets acquired. Additionally, Topic 805 requires that identifiable intangible assets acquired in a business combination, separate from goodwill, be recorded at their acquisition date fair value. In the event the estimated fair value of the assets and liabilities acquired exceed the purchase price paid, a bargain purchase gain is recorded in the consolidated statement of operations.

 

LONG-LIVED ASSETS

 

The recoverability of long-lived assets is evaluated periodically as events or circumstances indicate a possible inability to recover the carrying amount. Long-lived assets that will no longer be used in our business are written-off in the period identified since they are no longer expected to generate any positive cash flows for us. Long-lived assets that continue to be used by us are periodically evaluated for recoverability. Such evaluation is based on various analyses, including cash flow and profitability projections. The analyses necessarily involve significant management judgment. In the event the projected undiscounted cash flows are less than net book value of the assets, the carrying value of the assets is written down to its estimated fair value.

 

GOODWILL AND INTANGIBLE ASSETS

 

As required by FASB ASC Topic 350, Intangibles – Goodwill and Other, The Company tests Goodwill and other indefinite life intangible assets at least annually for impairment or when circumstances indicate an impairment may exist, in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”).

 

The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives. Goodwill and intangible assets with indefinite life are reviewed, at least annually, for impairment, or when events or circumstances indicate their carrying amount may not be recoverable. Based on the review of goodwill and the intangible assets, no impairment loss was recorded as of March 31, 2017 or as of December 31, 2016.

 

REVENUE RECOGNITION

 

As required by FASB ASC Topic 605, Revenue Recognition (“ASC 605”), the Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is probable.

 

Royalty revenues are earned from the receipt of royalties relating to the licensing of rights in musical compositions. The receipt of royalties principally relates to amounts earned from the public performance of copyrighted material, the mechanical reproduction of copyrighted material on recorded media including digital formats, and the use of copyrighted material in synchronization with visual images. Consistent with industry practice, music publishing royalties generally are recognized as revenue when cash is received. Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

 

Sales revenue from the Company’s car wash operations is recognized when earned based on three different scenarios:

 

1.A customer can purchase one individual car wash and revenue is recognized at the time the car wash is provided.

 

2.A customer purchases a monthly membership, the Company recognizes the revenue when the membership is paid. If a customer requests for their membership to be cancelled, the Company authorizes a pro-rata refund for the days the membership is not used.

 

3.The third scenario is for certain customers that are billed on a monthly basis. For these customers, revenue is recognized each time the customer comes in for a car wash. They are billed at the end of the month for services provided during that month.

 

10


 
 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Company determined that the revenue recognition criteria, from their car wash operations, is met in each of these three different scenarios. An arrangement exists when a customer uses one of the Company’s car wash facilities. Delivery has occurred when the customer’s car is washed. The sales price is fixed or determinable when the customer selects a car wash from a number of options offered by the Company. Each option has a predetermined price associated with it. Lastly, collection is done prior to the car wash service being provided, in scenarios 1 and 2. Collection in scenario 3 is done after the car wash service is provided only for customers that have established their credit worthiness.

 

ADVERTISING EXPENSES

 

Advertising costs are expensed as incurred and are included in selling, general, and administrative expenses in the accompanying statement of operations. Total advertising expenses approximated $1,845 and zero for the three months ended March 31, 2017 and 2016, respectively.

 

STOCK-BASED COMPENSATION

 

The Company measures compensation cost for stock-based awards based on the estimated fair value of the award, and recognize the cost as an expense on a straight line basis over the employee requisite service period. We estimate the fair value of stock options using a Black-Scholes valuation model.

 

INCOME TAXES

 

The Company follows the guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 related to Income Taxes (Topic 740). According to Topic 740, deferred income taxes are recorded to reflect the tax consequences in future years of temporary differences between the tax basis of the assets and liabilities and their financial amounts at year-end.

 

For federal income tax purposes, substantially all expenses incurred prior to the commencement of operations must be deferred and then they may be written off over a 180-month period. Tax deductible losses can be carried forward for 20 years until utilized for federal tax purposes. The Company will provide a valuation allowance in the full amount of the deferred tax assets since there is no assurance of future taxable income. Additionally, the Company may reserve a portion of the deferred tax assets due to restrictions of tax benefits related to changes in ownership.

 

The Company utilizes the Topic 740 to account for the uncertainty in income taxes. Topic 740 for Income Taxes clarifies the accounting for uncertainty in income taxes by prescribing rules for recognition, measurement and classification in financial statements of tax positions taken or expected to be in a tax return. Further, it prescribes a two-step process for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is a greater than 50 percent likelihood of being realized upon ultimate settlement. This topic also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. The Company’s policy is that any interest or penalties related to uncertain tax positions are recognized in income tax expense when incurred. The Company has no uncertain tax positions or related interest or penalties requiring accrual at December 31, 2016 and December 31, 2015.

 

EARNINGS (LOSS) PER COMMON SHARE

 

Basic earnings (loss) per common share are computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share consists of the weighted average number of common shares outstanding plus the dilutive effects of options and warrants calculated using the treasury stock method. In loss periods, dilutive common equivalent shares are excluded as the effect would be anti-dilutive.

 

11


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

EQUITY BASED PAYMENTS TO NON-EMPLOYEES

 

The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for the options and warrants issued, as disclosed in Note 3 of these consolidated financial statements. According to Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company believes that fair value of these options and warrants is a more reliable measure of the consideration received for services performed for the Company. We determined the fair value of these equity instruments using the Black-Scholes option-pricing model. Factors used in the determination of the fair value of these equity instruments include, the stock price at the grant date, the exercise price, the expected life of the equity instrument, the volatility of the underlying stock, the expected dividends on it, and the risk-free interest rate over the expected life of the equity instrument.

 

PREFERRED STOCK

 

The Board of Directors of True Blue, a majority-owned subsidiary of the Company, approved the issuance of 2,000,000 shares of Preferred Stock and designates these shares as Series A 4% Convertible Preferred Stock (“Series A Preferred”). The Series A Preferred has a face amount of $3.75. The Series A Preferred pays a 4% annual dividend on the face amount, payable quarterly, in arrears. True Blue may defer payment of the dividend, in the event loan covenants or other financial restrictions prevent payment, but in such event the dividend shall accrue, and be paid on a Liquidity or Liquidation Event. A Liquidity Event is defined as an initial public offering, a sale, or a merger. Each issued and outstanding share of Series A Preferred is entitled to have one non-cumulative vote each, at each meeting of stockholder of True Blue with respect to any and all matters presented to the stockholders of True Blue for their action or consideration. The stockholders shall have the right at any time to convert outstanding shares of Series A Preferred into fully paid and nonassessable shares of common stock, at an initial conversion ratio of one share of common stock for each one share of Series A Preferred surrendered for conversion.

 

SEGMENT DISCLOSURE

 

FASB ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. As of December 31, 2016, the Company operated through two reportable business segments: (1) Latigo music publishing business; and (2) the investment and acquisition vehicle focused on True Blue. Prior to April 2016, the Company operated through one reportable business segment; however, with the addition of True Blue in April 2016, the Company segregated its operations into two reporting segments to assess the performance of its business in the same way that management intends to review our performance and make operating decisions.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. ASU 2017-04 was issued by the Board to determine whether amendments, similar to those in 2014, that allowed private companies an alternative accounting treatment for subsequently measuring goodwill, should be considered for other entities, including public business entities and not-for-profit entities. The amendments in this Update state that to simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

 

Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

 

12


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

The Board also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.

 

This Update also includes amendments to the Overview and Background Sections of the Codification (as discussed in Part II of the amendments) as part of the Board’s initiative to unify and improve the Overview and Background Sections across Topics and Subtopics. These changes should not affect the related guidance in these Subtopics.

 

An entity should apply the amendments in this Update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this Update.

 

A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. All other entities, including not-for-profit entities, that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently assessing the guidance of this Update for future implementation.

 

RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

 

In January 2017, the FASB issued Accounting Standards Update (ASU) 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. ASU 2017-01 was issued by the Board to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this Update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this Update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the Board has developed more stringent criteria for sets without outputs. Lastly, the amendments in this Update narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments should be applied prospectively on or after the effective date. The Company has assessed the application of this Update and does not anticipate it will have a material impact on the Company’s Unaudited Condensed Consolidated Financial Statements.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 was issued as part of the Board’s Simplification Initiative. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, Accounting for Income Taxes, Classification of Excess Tax Benefits on the Statement of Cash Flows, Forfeitures, Minimum Statutory Tax Withholding Requirements, Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax-Withholding Purposes, Practical Expedient- Expected Term, and Intrinsic Value. The amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing this guidance for future implementation.

 

13


 
 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires entities to recognize lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. In addition, also consistent with the previous leases guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments.

 

For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

 

The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.

 

The amendments in this Update are effective for fiscal years and interim periods beginning after December 15, 2018. The Company is currently assessing this guidance for future implementation.

 

NOTE 2 – BUSINESS COMBINATIONS

 

On May 1, 2016, True Blue Car Wash Corp. (“True Blue”), a majority-owned subsidiary of the Company and formerly known as Rokwader Acquisition Corp, completed the acquisitions of five car wash businesses in Arizona, collectively known as Clean Freak Car Wash (“Clean Freak”), and entered into four individual real property lease agreements with each car wash business for use of the premises where these car wash businesses are located. Additionally, True Blue entered into separate Forward Purchase Agreements with six other car wash businesses to purchase all of their operations and business property upon satisfaction of certain financial performance metrics. With these acquisitions, the Company has entered the car wash market in Arizona where it plans to establish itself as a leader in the car wash industry.

 

True Blue agreed to purchase from the shareholders of Clean Freak USA, Inc. 100% of their stock. Clean Freak USA, Inc. is a privately held company. Clean Freak USA, Inc.’s business is the management, operation, and development of car wash facilities and related uses such as but not limited to convenient shop, restaurants, and other facilities located within or adjacent to the car wash facility. True Blue agreed to purchase these shares in consideration of 800,000 shares of True Blue’s Series A 4% convertible preferred stock at a price of $3.75 per share for a total of $3,000,000.

 

The consideration will be transferred to the shareholders of Clean Freak USA, Inc. in two portions. The first portion will be a transfer of 400,000 shares of True Blue’s Series A 4% convertible preferred stock at April 30, 2016, the closing date of the Stock Purchase Agreement. The remaining 400,000 shares of Series A 4% convertible preferred stock will be treated as contingent consideration and will be transferred to the shareholders when all the Retained Car Wash Businesses listed in the Stock Purchase Agreement are purchased by True Blue pursuant to Forward Purchase Agreements in place between True Blue and the Retained Car Wash Businesses.

 

As part of the acquisition of the Clean Freak car wash businesses, True Blue entered into Asset Contribution Agreements (“ACA”) with five separate car wash businesses. True Blue entered into an ACA with CF Car Wash I, LLC in which True Blue agreed to acquire certain assets owned by CF Car Wash I, LLC, except for real estate, for $1,968,133 of which $888,803 was in cash and $1,079,330 was in True Blue Series A 4% convertible preferred stock at a price of $3.75 per share.

 

True Blue also entered into an ACA with CF Car Wash II, LLC in which True Blue agreed to acquire certain assets owned by CF Car Wash II, LLC, except for real estate, for $1,284,166 of which $300,943 was in cash and $983,223 was in True Blue Series A 4% convertible preferred stock at a price of $3.75 per share.

 

A third separate ACA was entered into by True Blue with CF Car Wash Camelback, LLC to acquire certain assets owned by CF Car Wash Camelback, LLC, except for real estate, for $1,293,334 of which $633,676 was in cash and $659,658 was in True Blue Series A 4% convertible preferred stock at a price of $3.75 per share.

 

14


 
 

 ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – BUSINESS COMBINATIONS (CONTINUED)

 

A fourth ACA was entered into by True Blue with CF Car Wash Chandler, LLC in which True Blue agreed to acquire certain assets owned by CF Car Wash Chandler, LLC, except for real estate, for $262,500 in cash.

 

The fifth ACA agreement was with CF Car Wash Bell, LLC in which True Blue agreed to acquire certain assets owned by CF Car Wash Bell, LLC for $2,602,500 of which $1,882,303 was in cash and $720,197 was in True Blue Series A 4% convertible preferred stock valued at a price of $3.75.

 

In addition, on April 30, 2016, True Blue entered into real property lease agreements with CF Car Wash I, LLC, CF Car Wash II, LLC, CF Car Wash Camelback, LLC, and CF Car Wash Chandler, LLC to lease the premises where each of the four car wash businesses are located. In June 2016, these properties were sold to Lifestyle Property Partners, LP and the real property lease agreements were transferred to Lifestyle Property Partners, LP. Lifestyle Property Partners, LP is a related party and is owned, in part, by the President of the Company. On September 16, 2016, Lifestyle Property Partners, LP assigned ownership of the properties to COCO Partners, LLC and COCO Partners sold the real estate to Spirit Master Funding X, LLC (“Spirit”), a non-related party. True Blue entered into a new lease agreement with Spirit and the leases with Lifestyle Property Partners, LP were cancelled.

 

Additionally, on May 1, 2016, True Blue entered into a Management Agreement with Wash Management Group, LLC (WMG), an Arizona Limited Liability Company. The purpose of this Agreement is to hire WMG to serve as the general manager of the first five express car wash businesses acquired by True Blue, the additional six express car wash business, collectively known as the Retained Car Wash Business, and other car wash operations defined as an express car wash, acquired or developed, in the future, by True Blue or WMG. Due to the nature of this Management Agreement, True Blue treated this as a separate transaction and not considered it part of the consideration transferred for the Clean Freak car washes.

 

The FASB, in ASC Topic 805, Business Combinations (Topic 805), defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination. It also establishes the acquisition date as the date that the acquirer achieves control. The FASB, in Topic 805, requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. Topic 805 also states that the acquirer is to recognize contingent consideration at the acquisition date, measured at its fair value at that date.

 

True Blue allocated the purchase price to the assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition. The following table summarizes the consideration paid for each acquisition and the fair values of the assets acquired and liabilities assumed at the acquisition date:

   Clean Freak  CF Car Wash  CF Car Wash
   USA, Inc.  I, LLC  II, LLC
Consideration:         
Cash  $—     $888,803   $300,943 
Fair value of preferred stock   1,500,000    1,079,530    983,224 
Fair value of contingent consideration   1,264,981    —      —   
Total Consideration  $2,764,981   $1,968,333   $1,284,167 
               
Provisionally recognized amounts of identifiable assets acquired and liabilities assumed:               
Car Wash Equipment  $—     $369,774   $614,351 
Car Wash Improvements   —      —      —   
Security Equipment   —      35,992    11,426 
Machinery & Equipment   —      —      —   
Furniture & Equipment   —      27,126    1,167 
Car Wash Vending Machines   —      13,315    —   
Office Equipment   —      13,793    3,056 
Inventory   —      3,024    3,023 
Gift Cards & Certificates   —      (5,500)   (2,500)
Trademark   19,044    —      —   
Goodwill   2,745,937    1,510,809    653,644 
Gain on Bargain Purchase   —      —      —   
   $2,764,981   $1,968,333   $1,284,167 

15


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 2 – BUSINESS COMBINATIONS (CONTINUED)

 

   CF Car Wash  CF Car Wash  CF Car Wash   
   Camelback, LLC  Chandler, LLC  Bell, LLC  Total
Consideration:            
Cash  $633,676   $262,500   $1,882,303   $3,968,225 
Fair value of preferred stock   659,658    —      720,197    4,942,609 
Fair value of contingent consideration   —      —      —      1,264,981 
Total Consideration  $1,293,334   $262,500   $2,602,500   $10,175,815 
                     
Provisionally recognized amounts of identifiable assets acquired and liabilities assumed:                    
Car Wash Equipment  $285,952   $433,645   $282,542   $1,986,264 
Car Wash Improvements   330,957    —      298,778    629,735 
Security Equipment   16,966    21,495    8,959    94,838 
Machinery & Equipment   3,172    —      30,533    33,705 
Furniture & Equipment   3,593    4,860    19,188    55,934 
Car Wash Vending Machines   —      —      —      13,315 
Office Equipment   —      —      —      16,849 
Inventory   3,023    3,023    3,024    15,117 
Gift Cards & Certificates   (3,500)   (4,000)   (4,250)   (19,750)
Trademark   —      —      —      19,044 
Goodwill   653,171    —      1,963,726    7,527,287 
Gain on Bargain Purchase   —      (196,523)   —      (196,523)
   $1,293,334   $262,500   $2,602,500   $10,175,815 

 

In accordance with U.S. GAAP, the fair value of the stock issued as part of the consideration transferred was measured on the closing date of the acquisition based on agreements between True Blue and third parties. The fair value of contingent consideration was determined by applying an acceptable model based on a discounted expected payment. The model uses a probability weight which True Blue determined to be 95%. The model also excludes the dividend cash flow that would not be paid to the sellers until the preferred stock is actually issued discounted using a 4% rate.

 

The assets acquired and liabilities assumed have been measured at their fair values as of April 30, 2016. The excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets was recorded as goodwill. The fair values of the net assets acquired were determined using valuation techniques specified in the fair value hierarchy in FASB ASC 820, Fair Value Measurements (FASB ASC 820). The fair values of the acquired net assets are based on inputs that are not observable in the market, and therefore qualify as Level 3 inputs according to FASB ASC 820. True Blue obtained independent third-party appraisals to determine the fair value of the net assets acquired. From the appraisal, True Blue determined that the proper fair value of these assets would be best derived using an income valuation technique, which derives a value indication from the property’s capacity to generate revenue. True Blue determined that using this approach would be more reliable as most owners would be focused on the potential income that could be generated from the assets.

 

Subsequent to the provisional allocation of the purchase price to the assets acquired and liabilities assumed, the Company recorded an adjustment to goodwill resulting in a net decrease to goodwill of $1,187,282. This decrease was due to the final fair value valuation of the acquired assets. This was the result of an internal analysis performed by the Company that properly identified certain acquired assets as expenditures rather than assets.

 

16


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 2 – BUSINESS COMBINATIONS (CONTINUED)

 

The following is a reconciliation of the assets acquired and liabilities assumed:

 

   Provisional     Final
   Valuation  Adjustments/  Valuation
   at April 30, 2016  Reclassifications  at April 30, 2016
Car Wash Equipment   1,057,545    928,719    1,986,264 
Machinery and Equipment   34,990    (1,285)   33,705 
Car Wash Vending Machine   3,938    9,377    13,315 
Car Wash Improvements   505,846    123,889    629,735 
Furniture and Equipment   29,599    26,335    55,934 
Office Equipment   6,175    10,674    16,849 
Security Equipment   5,265    89,573    94,838 
Inventory   15,117    —      15,117 
Gift Cards & Certificates   (19,750)   —      (19,750)
Trademark   19,044    —      19,044 
Goodwill   8,714,569    (1,187,282)   7,527,287 
    10,372,338    —      10,372,338 

 

The fair value of the acquired assets and liabilities assumed from CF Car Wash Chandler, LLC acquisition exceeded the total consideration paid. Therefore, the Company recognized a gain on bargain purchase of $196,523 which was reported on the Company’s unaudited condensed consolidated statement of operations. Prior to the recognition of the gain on bargain purchase, the Company reassessed the fair value of the acquired assets and liabilities assumed in the acquisition. The Company believes it was able to acquire those assets of CF Car Wash Chandler, LLC for less than their fair value due to the seller’s built-in low margin for increased competition in their location.

 

Acquisition related expenses from the Clean Freak car washes acquisition totaled $215,003 and $17,000 for the three months ended March 31, 2017 and 2016, respectively. These costs are primarily related to legal, accounting, and consulting services.

 

 

NOTE 3 – STOCKHOLDERS’ EQUITY

 

The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

 

The following assumptions were used to determine the fair value of the options as of:

 

   December 31, 2015
Dividend Yield   0 
Expected Volatility   100%
Risk-Free Interest Rate   0.49 
Term in Years   1 
Stock Price   0.4 
Option Exercise Price   0.75 

 

 

 

17


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 3 – STOCKHOLDERS’ EQUITY (CONTINUED)

 

A summary of warrants activity as is presented below:

 

      Weighted  Average   
      Average  Remaining  Aggregate
      Exercise  Contractual  Intrinsic
   Shares  Price  Life (Years)  Value
Outstanding at December 31, 2015   6,158,333   $0.68    4.10   $—   
                     
Granted   —     $—      —     $—   
Exercised   (25,000)  $0.75    —     $—   
Expired/Cancelled   (233,333)  $—      —     $—   
Outstanding at December 31, 2016   5,900,000   $0.68    3.60   $—   
                     
Granted   —     $—      —     $—   
Exercised   (100,000)  $0.60    —     $—   
Expired/Cancelled   —     $—      —     $—   
Outstanding at March 31, 2017   5,800,000   $0.68    3.00   $—   
                     
Exercisable at March 31, 2017   5,800,000   $0.68    3.00   $—   

 

As of March 31, 2017, all warrants are vested.

 

On March 17, 2017, Coco Partners, LLC exercised 100,000 of its vested warrants at an exercise price of $0.60 per share for a total of $60,000.

 

On December 20, 2016, Mr. William Barnett exercised 25,000 of his vested stock options at an exercise price of $0.75 per share for a total of $18,750.

 

On August 16, 2016, the Company’s majority-owned subsidiary True Blue Car Wash Corp. (“True Blue”) authorized the issuance of 150,000 restricted common stock shares of True Blue stock to Gateway Advisors, Inc. (“GA”), in exchange for the contribution of Intellectual Property by GA, including the non-exclusive right to use GA’s business plan and acquisition model for the roll-up of the car wash industry. These 150,000 restricted common stock shares of True Blue are subject to a vesting contingency which requires a liquidity event, defined as an effective initial public offering in an amount not less than $5,000,000, a sale of True Blue, or a merger of True Blue. Because of the inability, at this time, to estimate when, if ever, the Company would be able to meet any of the liquidity events for the shares to vest, the value for this issuance has been determined to be “de minimis.”

 

Also on August 16, 2016, the Company’s subsidiary True Blue authorized the issuance of 365,000 restricted common stock shares of True Blue stock to COCO Partners, LLC (“COCO”) in exchange for the contribution to True Blue of the Letter of Intent for the purchase of Clean Freak car washes and other work related to the acquisition of Clean Freak car washes. These 365,000 restricted common stock shares of True Blue are subject to a vesting contingency which requires a liquidity event, defined as an effective initial public offering in an amount not less than $5,000,000, a sale of True Blue, or a merger of True Blue. Because of the inability, at this time, to estimate when, if ever, the Company would be able to meet any of the liquidity events for the shares to vest, the value for this issuance has been determined to be “de minimis.”

 

In May 2015, Coco and the Company entered into an agreement pursuant to which Coco would purchase (i) a maximum of 15,250,000 shares of our common stock and (ii) a warrant to purchase an aggregate of 5,900,000 shares of our common stock (the “Warrant”) for an aggregate maximum purchase price of $6,100,000 (the “Purchase Price”). The Purchase Price is payable as follows: (a) $3,050,000 for 7,625,000 shares and the Warrant upon the closing (the “Closing”) and (b) an additional 7,625,000 shares for $3,050,000 on or before June 30, 2015. The Closing occurred on May 7, 2015 and the Company received the initial purchase price of $3,050,000 and the second $3,050,000 for an additional 7,625,000 shares was received on June 30, 2015.

 

18


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 3 – STOCKHOLDERS’ EQUITY (CONTINUED)

 

The terms of the Warrant provide that Coco has the right to purchase, at any time after the Closing until April 1, 2020, up to (i) 5,000,000 shares of our common stock at an exercise price of $0.60 per share, (ii) 500,000 shares of our common stock at an exercise price of $1.000 per share and (iii) 400,000 shares of our common stock at an exercise price of $1.25 per share. The Warrant includes certain anti-dilution adjustments to the exercise prices in the event of payment of dividend, subdivision and combination with respect to outstanding shares of our common stock. On

 

The Transaction resulted in a change of control of the Company. With the purchase of the 15,250,000 shares, Coco acquired approximately 83.8% of the outstanding shares of our common stock (this does not include any potential exercise of the Warrant). Upon the Closing, Mr. Robert Wallace, who has a controlling interest in Coco, was appointed Chief Executive Officer, Chief Financial Officer, and Corporate Secretary and as a member of our Board of Directors (the “Board”).

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

The Company has a payable to Wash Management Group, LLC, a related party, in the amount of $108 as of March 31, 2017 and zero as of December 31, 2016. Wash Management Group, LLC is beneficially controlled by the sellers of the Clean Freak car washes. The sellers additionally own a noncontrolling interest in True Blue Car Wash Corp., the Company’s majority owned subsidiary.

 

The company has a loan payable to Coco Partners, LLC, a related party, in the amount of $329,567 as of March 31, 2017 and zero at December 31, 2016. Coco Partners, LLC is primarily owned by the President of the Company.

 

The company has a loan payable to Gateway Advisors, Inc., a related party, in the amount of $14,500 March 31, 2017 and as of December 31, 2016. The President of the Company has an ownership stake in the stock of Gateway Advisors, Inc.

 

On May 1, 2016, True Blue entered into a Management Agreement with Wash Management Group, LLC (WMG), an Arizona Limited Liability Company. The purpose of this Agreement is to hire WMG to serve as the general manager of the first five express car wash businesses acquired by True Blue, the additional six express car wash business, collectively known as the Retained Car Wash Business, and other car wash operations defined as an express car wash, acquired or developed, in the future, by True Blue or WMG. WMG is beneficially controlled by the sellers of the Clean Freak car washes. The sellers additionally own a noncontrolling interest in True Blue.

 

On February 16, 2016, the Company’s Board of Directors approved for its subsidiary, True Blue Car Wash Corp. to sell to Coco Partners, LLC, up to 6,650,000 shares of True Blue stock for $4,322,500. Also, in exchange for the contribution to True Blue of the LOI for the purchase of Clean Freak Holdings and other work related to the acquisition of Clean Freak Holdings, the Company approved for True Blue to issue to Coco 365,000 restricted common shares of True Blue, subject to a vesting contingency which requires a liquidity event, defined as an initial public offering, a sale, or a merger. The Company’s Board of Directors also approved the reimbursement of acquisition related expenses of Coco. The President of the Company is also the President and majority member of Coco. In accordance with this approval, on December 1, 2016, True Blue sold 6,133,846 shares of its common stock to Coco for $3,987,000.

 

NOTE 5 – GOODWILL AND INTANGIBLES

 

As part of the business acquisitions that the Company’s subsidiary made on May 1, 2016, the Company acquired all rights, title and interest in a Trademark valued at $19,044. The Trademark is for the management, maintenance, operation, and development of Clean Freak car wash facilities. The Company determines that the Trademark will have an infinite life and therefore it will not amortize the intangible asset. It will instead test its Trademark for impairment at least annually in accordance with U.S. GAAP.

 

Additionally, the Company’s acquisition of the car wash businesses resulted in the recognition of Goodwill in the amount of $7,527,287. In accordance with U.S. GAAP, Goodwill is calculated as the excess of the purchase price paid over the fair value of the net identifiable assets recognized. The Goodwill recorded as part of the Clean Freak car washes acquisition primarily reflects the value of adding the Clean Freak brand to the Company. Goodwill has an indefinite life and will be tested, at least annually, for impairment.

 

19


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 5 – GOODWILL AND INTANGIBLES (CONTINUED)

 

On December 17, 2010, Latigo, a wholly owned subsidiary of the Company, acquired all right, title and interest in 50 musical compositions from the Gary Harju music catalog to the extent of his writer’s and publisher’s share for a cost of $15,000 paid in cash on the closing date of December 17, 2010. The Harju Catalog (including copyrights and publishing rights) consists of 50 original songs written in whole or in part by Mr. Gary Harju. Some of the songs are owned outright by Latigo as a result of the acquisition, and others are and will continue to be subject to publishing agreements with various music publishers, who will continue to collect the publisher’s share of royalties. The other parties who have partial interests in the catalog will continue to receive their share of royalties and other income. The Company will amortize the costs of the Harju Catalog over its estimated useful life based on projected net revenues. The Company projects to generate revenues from the Harju Catalog for an estimate of 20 years based on Mr. Harju’s past accomplishments and the ability of the recorded music to generate revenues for long periods of time. Therefore, the Company estimated the useful life of the Harju Catalog to be 20 years.

 

On June 1, 2013, Latigo, a wholly owned subsidiary of the Company, acquired all right, title and interest in Andrew Dorff’s “writer’s share” of certain musical compositions written and/or co-written by him for a cost of $40,000 paid in cash. The musical compositions include 106 songs total. The Company currently owns the publishing rights from these musical compositions. Some of the songs are owned outright by Latigo as a result of the acquisition, and others are and will continue to be subject to publishing agreements with various music publishers, who will continue to collect the publisher’s share of royalties and other income. The Company will amortize the costs of Andrew Dorff’s “writer’s share” over its estimated useful life based on projected net revenues. The Company projects to generate revenues from Andrew Dorff’s “writer’s share” for an estimate of 20 years based on Andrew Dorff’s past accomplishments and the ability of the recorded music to generate revenues for long periods of time.

 

Following is a summary of goodwill and intangibles assets:

 

    March 31, 2017   December 31, 2016
    Gross   Accumulated   Net Carrying   Gross   Accumulated   Net Carrying
    Amount   Amortization   Amount   Amount   Amortization   Amount
Intangible Assets                        
Amortizable Intangibles                        
Harju Music Catalog   $ 15,000     $ (7,764 )   $ 7,236     $ 15,000     $ (7,514 )   $ 7,486  
Dorff's Writer's Share     40,000       (9,762 )     30,238       40,000       (9,158 )     30,842  
      55,000       (17,526 )     37,474       55,000       (16,672 )     38,328  
                                                 
Unamortizable Intangibles     —         —         —         —         —         —    
                                                 
Total Intangible Assets   $ 55,000     $ (17,526 )   $ 37,474     $ 55,000     $ (16,672 )   $ 38,328  
                                                 
Trademarks   $ 19,044     $ —       $ 19,044     $ 19,044     $ —       $ 19,044  
                                                 
Goodwill   $ 7,527,287     $ —       $ 7,527,287     $ 7,527,287     $ —       $ 7,527,287  

 

For the three months ended March 31, 2017 and 2016, amortization expense was $854 and $888, respectively.

 

Amortization of the remaining intangible assets is expected to be $16,906 from 2017 through 2021, and $20,568 in aggregate for years thereafter through 2032.

 

20


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following:

 

    March 31, 2017   December 31, 2016
    Gross   Accumulated   Net Carrying   Gross   Accumulated   Net Carrying
    Amount   Depreciation   Amount   Amount   Depreciation   Amount
Property and Equipment                        
Musical Equipment   $ 4,692     $ (1,642 )   $ 3,050     $ 4,692     $ (1,408 )   $ 3,284  
Computer Equipment     1,396       (466 )     930       1,396       (396 )     1,000  
Car Wash Equipment     2,076,779       (708,545 )     1,368,234       2,029,195       (471,669 )     1,557,526  
Car Wash Improvements     629,735       (54,660 )     575,075       629,735       (39,044 )     590,691  
Car Wash Vending Machine     13,315       (3,832 )     9,483       13,315       (2,671 )     10,644  
Furniture and Equipment     82,859       (28,239 )     54,620       82,859       (18,301 )     64,558  
Security Equipment     98,694       (8,991 )     89,703       98,694       (6,395 )     92,299  
    $ 2,907,470     $ (806,375 )   $ 2,101,095     $ 2,859,886     $ (539,884 )   $ 2,320,002  

 

Depreciation expense for the three months ended Mach 31, 2017 and 2016 was $266,491 and $490, respectively.

 

 

NOTE 7 - LEASES

 

Additionally, the Company’s subsidiary, True Blue Car Wash Corp., leases the property in which its car wash businesses operate. True Blue entered into a lease agreement with Spirit Master Funding X, LLC (“Spirit”) for an initial term of 20 years. True Blue has the option to extend the initial term for four additional successive periods of five years each. Under the leases, True Blue is required to pay an initial base annual rent of $1,200,000 with an annual adjustment of 2% of the base annual rental in effect. In addition, under these lease agreements, True Blue shall pay to Spirit any applicable state sales, excise or rent tax and any applicable county or local sales, excise or rent tax.

 

Minimum annual rental commitments under the Company’s non-cancelable leases having initial or remaining lease terms in excess of one year are as follows:

 

December 31,  Amount
2017   906,000 
2018   1,230,120 
2019   1,254,722 
2020   1,279,817 
2021   1,305,413 
Thereafter   22,580,771 
Total minimum future rental payments  $28,556,843 

 

Total rent expense for the three months ended March 31, 2017 and 2016 was $382,242 and $3,483, respectively.

 

21


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Also, as part of the acquisition of the car wash businesses that took place on May 1, 2016, True Blue entered into a binding Forward Purchase Agreements to acquire another six express car wash sites (collectively the “Retained Car Wash Businesses”) in Arizona. Each proposed purchase is subject to the particular express car wash attaining certain financial performance metrics. There is no assurance that the performance requirements will be met and that any of the six express car wash sites will be acquired.

 

On May 1, 2016, True Blue entered into a Management Agreement with Wash Management Group, LLC (WMG), an Arizona Limited Liability Company. The purpose of this Agreement is to hire WMG to serve as the general manager of the first five express car wash businesses acquired by True Blue, the additional six express car wash business, collectively known as the Retained Car Wash Business, and other car wash operations defined as an express car wash, acquired or developed, in the future, by True Blue or WMG.

The Company is subject to federal and state environmental regulations, including rules relating to air and water pollution and the storage and disposal of gasoline, oil, other chemicals, and waste. The Company believes that it complies with all applicable laws relating to its business.

 

NOTE 9 - SEGMENT INFORMATION

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company currently operates in two segments:

 

Car Wash Business

 

With the car wash business, the Company has entered the car wash industry. The Company will focus its business on the management, operation, and development of car wash facilities. While focusing on developing its brand, the Company will continue to identify other potential car wash operations to acquire in order to grow its portfolio of car wash facilities.

 

Music Publishing Business

 

The Company’s music publishing business comprises of copywriting musical compositions that are written by various songwriters and composers. Music publishers exploit the copyrights to produce revenues via sales of recordings and other musical usages such as commercials, radio plays and television shows.

 

   Music Publishing  Car Wash      
   Business  Business  Corporate  Total
             
For The Three Months Ended March 31, 2017:            
Revenues  $103   $1,928,870   $—     $1,928,973 
Gross Profit   103    1,422,291    —      1,422,394 
Selling, General and Administrative   (10,781)   (685,501)   (68,353)   (764,635)
Rent Expense   —      (382,242)   —      (382,242)
Acquisition Related Expenses   —      (114,307)   (100,696)   (215,003)
Interest Income   —      —      —      —   
Interest Expense   (20)   —      (525)   (545)
Depreciation and Amortization   (1,293)   (266,052)   —      (267,345)
Net Loss   (14,145)   (38,180)   (206,591)   (258,916)

 

22


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 9 - SEGMENT INFORMATION (CONTINUED)

 

   Music Publishing  Car Wash      
   Business  Business  Corporate  Total
             
For The Three Months Ended March 31, 2016:            
Revenues  $112   $—     $—     $112 
Gross Profit   112    —      —      112 
Selling, General and Administrative   (60,106)   —      (47,726)   (107,832)
Rent Expense   (3,483)   —      —      (3,483)
Acquisition Related Expenses   —      —      (17,000)   (17,000)
Interest Income   —      —      1,494    1,494 
Interest Expense   —      —      —      —   
Depreciation and Amortization   (1,378)   —      —      (1,378)
Net Loss   (64,855)   —      (63,232)   (128,087)

 

NOTE 10 – INCOME TAXES

 

The current year provision for income taxes includes income taxes currently payable and those deferred due to temporary differences between financial statement and tax basis of assets and liabilities. The provision for income taxes consists of the following:

 

   March 31, 2017  March 31, 2016
Current      
Federal  $44,113   $—   
State   8,411    —   
    52,524    —   
           
Deferred          
Federal   —      —   
State   —      —   
    —      —   
           
Total  $52,524   $—   

 

The following reconciles the federal statutory income tax rate to the effective rate of the provision for income taxes.

 

   March 31, 2017  March 31, 2016
Federal Statutory Rate   34.00%   34.00%
State Taxes   -4.08%   0.00%
Meals & Entertainment   -0.67%   0.00%
Change in Valuation Allowance   -51.91%   -34.00%
Effect of Arizona Tax Rate Change   -2.85%   0.00%
Other   0.06%   0.00%
Effective Rate   -25.45%   0.00%

 

23


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 10 – INCOME TAXES (CONTINUED)

 

Deferred income tax assets (liabilities) are as follows:

 

   March 31, 2017  December 31, 2016
       
Deferred income tax liabilities:      
Property, Plant and Equipment   (239,144)   (309,134)
Trademarks   (354)   (239)
Goodwill   —      —   
    (239,498)   (309,373)
           
Deferred income tax assets:          
Start-Up Expenses   38,337    40,594 
Intangible Assets   15,523    16,544 
Net Operating Loss Carryforward   448,729    463,947 
Charitable Contributions Carryforward   186    188 
Acquisition Related Expenses   498,368    431,271 
Deferred Rent   48,001    24,257 
Accrued Interest Payable   496    296 
Goodwill   261,495    300,507 
Accrued PTO   17,132    13,396 
Less Valuation Allowance   (1,088,769)   (981,627)
    239,498    309,373 
           
Total Deferred Taxes  $—     $—   

 

As of March 31, 2017, the Company had incurred $294,400 of start-up expenses amortizable over 15 years. Also, the Company acquired certain intangible assets in the amount of $187,464 amortizable over 15 years. With the acquisition of the Clean Freak car washes, the Company acquired trademarks of $19,044 which are amortizable over 15 years. Additionally, it acquired Goodwill of $7,527,287 of which $2,745,937 is not deductible for tax purposes.

 

Additionally, the Company has net operating loss carry forwards of approximately $1,176,560 and $1,505,753 for both federal and state purposes, respectively. These federal and state carry forwards are scheduled to expire beginning 2027. The Company is no longer subject to examination by the Internal Revenue Service for years prior to 2012 and by the Franchise Tax Board for years prior to 2011. There could be certain limitation, imposed by Internal Revenue Code Section 382, on the utilization of these loss carry forwards if there were more than a 50 percent change of control.

 

24


 
 

 

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 11 – SUBSEQUENT EVENTS

 

On April 28, 2017, the Board of Directors of the Company approved a plan for the sale of the Company’s music publishing business held by its wholly-owned subsidiary, Latigo Shore Music, Inc. (“Latigo”). Due to the Company’s shift in business strategies from the music publishing business to being an investment and acquisition vehicle to acquire operating car wash businesses, the Company deemed necessary for the disposal of its music publishing segment in order to concentrate its full efforts in carrying on its new business strategy. As such, the Board has instructed the management of the Company to execute a plan for the sale of Latigo’s music publishing business. The Company expects to sell Latigo’s music publishing business at a price that is reasonable in relation to its current fair value and expects the sale to be completed within a year from the date of the Board approval. The following table identifies the major classes of assets and liabilities included as part of the disposal of Latigo’s music publishing business.

 

   As of  As of
   March 31, 2017  December 31, 2016
Carrying amounts of major classes of assets included      
as part of the sale of Latigo's music publishing business      
Cash  $—     $215 
Property and Equitpment, Net of Accumulated Depreciation   5,780    6,219 
Intangible Assets, Net of Accumulated Amortization   37,474    38,328 
           
Total major classes of assets included as part of the sale          
of Latigo's music publishing busines  $43,254   $44,762 
           
Carrying amounts of major classes of liabilities included          
as part of the sale of Latigo's music publishing business          
Bank Overdraft  $561   $—   
Accrued Interest Payable   47    27 
Income Tax Payable   15,867    12,729 
Related Party Note Payable   13,500    13,500 
           
Total major classes of liabilities included as part of the sale          
of Latigo's music publishing business  $29,975   $26,256 

 

In addition, on April 28, 2017, the Board of Directors of the Company authorized management to change the name of the Company from Rokwader, Inc. to True Blue Holdings, Inc.

 

Management has evaluated subsequent events through the date of this report and all events have been appropriately disclosed and/or reflected in the consolidated financial statements.

 

 

 

 

 

 

 

 

 

25


 
 

 

Item 2.  Management’s Discussion and Analysis or Plan of Operation

 

This 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. Such forward-looking statements are subject to known and unknown risks, uncertainties, estimates and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. The analysis set forth below is provided pursuant to applicable Securities and Exchange Commission regulations and is not intended to serve as a basis for projections of future events.   The terms “we” or the “Company” refers to Rokwader, Inc. and its consolidated subsidiaries.

 

Plan of Operations

 

As a result of the acquisition of five car washes in May, 2016 and the change in control of the Company in May, 2015, our business strategy and plan of operations have evolved into the management, operation, and development of car wash facilities by our majority-owned subsidiary, True Blue Car Wash Corp. 

 

Management, Operation, and Development of Car Wash Facilities by True Blue Car Wash Corp.

 

The acquisition of the leading express car wash platform, in the Phoenix Metropolitan Strategic Areas (“MSAs”), by True Blue Car Wash Corp. was the first step in executing the Company’s investment strategy. True Blue has now entered the car wash industry in Arizona and it will continue with the management and operation of the acquired express car wash businesses. In addition, True Blue will continue to develop the brand it acquired as well as identify other potential car wash operations to acquire in order to grow its portfolio of car wash facilities.

 

The Company will seek to acquire equity stakes in operating companies with senior management that are leaders in their industry with deep domain expertise and proven, scalable business models. In some cases, the Company will identify a talented operator with deep domain expertise and build a platform around the operator upon identifying a platform acquisition.  We believe that serving as an investment vehicle for such strategy would benefit the Company by enhancing our ability to generate revenue and net income, and providing more predictable financing as the Company’s credibility and financial stability become more secured.

 

The first 8 months of operations of the five car washes acquired by True Blue are reflected in the financial statements of the Company. The remaining 6 locations are expected to be acquired under forward purchase contracts at a fixed multiple of EBITDAR. As the new sites mature to stabilized profitability, True Blue intends to exercise its right to acquire the sites. The 6 forward purchase sites are expected to generate similar results as the first 5 locations in annual EBITDA at the time of acquisition exercise. All of the acquisitions are subject to final due-diligence and definitive agreements. There is no assurance that the acquisition will be completed or if completed that future operational results will be consistent with prior results of operations.

 

Through the end of the Company’s 2017 fiscal year, we intend to pursue diligently the investment vehicle strategy with a particular focus on the car wash consolidation. As such, we expect our expenses to increase due to additional costs associated with the execution of such strategy, including additional legal, accounting, and consulting fees.

 

Strategy and Operation as Investment Vehicle

 

The Company will serve as the investment vehicle to acquire operating businesses of certain consumer facing lifestyle businesses in the U.S. that the Company believes are being driven by identifiable economic and demographic trends. The Company intends to target operating companies that have demonstrated the ability to execute scalable business models, particularly those companies in which the real estate component of the business is mission critical to the business, and where such real estate assets may be used as part of an OPCO-PROPCO strategy, to provide part of the financing for the acquisitions of the underlying operating business (“OPCOs”).

 

The Company will seek to acquire equity stakes in operating companies with an asymmetrical risk/reward profile where we can accelerate growth, amplify valuation and create liquidity. The Company intends to partner with senior management that are leaders in their industry with deep domain expertise and proven, scalable business models. In some cases, the Company will identify a talented operator with deep domain expertise and build a platform around the operator upon identifying a platform acquisition.  We believe that serving as an investment vehicle for such strategy would benefit the Company by enhancing our ability to generate revenue and net income, and providing more predictable financing as the Company’s credibility and financial stability become more secured.

 

26


 
 

Results of Operation for the three months ended March 31, 2017 and 2016

 

During the three months ended March 31, 2017, the Company generated revenues of $1,928,973 compared to $112 revenues for the three months ended March 31, 2016.  The increase in revenues was due to the acquisitions of the five car washes. During the three months ended March 31, 2017 and 2016, the Company incurred general and administrative expenses of $764,635 and $107,832, respectively. The general and administrative expenses for the three months ended March 31, 2017 included marketing, advertising and operational and acquisition expenses of the five car washes and depreciation and amortizations costs of $267,345.

 

Liquidity and Capital Resources

 

We have incurred losses since inception of our business in 2005 and, as of March 31, 2017, we had an accumulated deficit of $2,994,870.  As of March 31, 2017, we had cash of $5,846,164 and a working capital of $4,834,654, compared to cash of $5,921,197 and a working capital of $4,798,100 at March 31, 2016. The decrease in the working capital was primarily due to the payment of property taxes associated with the acquisition of the five car washes. 

 

To the extent that the Company's capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, collaborative or other arrangements with certain investors, corporate partners, licensees or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders will provide any portion of the Company's future financing requirements.  No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its activities that it would otherwise seek to develop. This would have a material adverse effect on the Company. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

 

Critical Accounting Policies

 

From time to time, the FASB or other standards setting bodies will issue new accounting pronouncements. Updates to the Codification are communicated through issuance of an Accounting Standards Update (“ASU”).

  

 

We have adopted all applicable recently issued accounting pronouncements. The adoption of the accounting pronouncements did not have a material effect on our operations.

 

Off-balance Sheet Arrangements

 

Since our inception through March 31, 2017, we have not engaged in any off-balance sheet arrangements.

 

Item 3.           Quantitative and Qualitative Disclosures About Market Risks.

 

As a “small reporting company” we are not required to provide this information pursuant to Regulation S-K.

 

Item 4.           Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls are also designed with an objective of ensuring that such information is accumulated and communicated to our management, including our chief executive officer, in order to allow timely consideration regarding required disclosures.

 

The evaluation of our disclosure controls by our principal executive officer included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. Our management, including our chief executive officer, does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

27


 
 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, our Principle Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures as of March 31, 2017, were not effective because of material weaknesses in our internal control over financial reporting, described below, in Management’s Report on Internal Control over Financial Reporting. Notwithstanding the identified material weaknesses, management believes the financial statements included in this Interim Report on Form 10-Q fairly represents in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

  

Changes in Internal Control Over Financial Reporting

 

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

 

With the oversight of management, the Company has begun to take steps and plan to take additional measures to remediate the underlying causes of the material weakness. With respect to ensuring the timely and accurate recording of accounting transactions and filing of our financial results, management has begun implementation of its remediation plan by hiring a controller who is knowledgeable of U.S. GAAP and SEC Rules and Regulations. This individual will help to oversee our accounting systems, design internal controls, ensure compliance, implement accounting policies and procedures, and implement process improvements, in order for the Company to report within the time periods specified under the Securities and Exchange Commission’s rules and forms.

 

Additionally, as part of management’s remediation plan, management intends to:

·         Implement a more robust accounting policy to document the accounting for complex accounting transactions in a comprehensive technical memorandum.

·         Management will work, closely, with consultants to streamline activities and implement best practices to record accounting transactions.

 

 

 

 

 

 

 

 

 

 

 

 

 

28


 
 

While management is closely monitoring the implementation of this remediation plan, there is no assurance that the aforementioned plan will be sufficient and that additional steps may not be necessary.

 

PART II

  

Item 1. Legal Proceedings.

 

None

 

Item 1A. Risk Factors.

 

Not Applicable for smaller reporting companies.

 

Item 2.               Unregistered Sales of Equity Securities and Use of Proceeds.

 

On March 17, 2017, Coco Partners, LLC, of which the CEO/President of the Company is the principal owner, exercised 100,000 of its vested warrants at an exercise price of $0.60 per share for a total of $60,000.  

Item 3.               Defaults Upon Senior Securities.

 

None.

 

Item 4.                Mine Safety Disclosures

 

Not Applicable

 

Item 5.                Other Information.

 

Not Applicable

 

Item 6.                Exhibits.

 

(a) Exhibits.

 

Exhibit   Item
     
31.1*   Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
31.2*   Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
32.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS **   XBRL Instance Document
     
101.SCH**    XBRL Taxonomy Extension Schema Document
     
101.CAL**    XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB **   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE**    XBRL Taxonomy Extension Presentation Linkbase Document

 

  * Filed herewith.

** Submitted electronically herewith, attached as Exhibit 101 to this report formatted in XBRL (Extensible Business Reporting Language). 

 

29


 
 

 

  

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  ROKWADER, INC.
   
Date: June 15, 2017 /s/ Robert Wallace
 

Robert Wallace , Chief Executive Officer

 

   
Date: June 15, 2017 /s/ Robert Wallace
 

Robert Wallace , Chief Financial Officer

 

  

 

 

 

30


 
 

 

 

EXHIBIT INDEX

 

Exhibit   Item
     
31.1*   Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
31.2*   Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
     
32.1*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS**    XBRL Instance Document
     
101.SCH**    XBRL Taxonomy Extension Schema Document
     
101.CAL**    XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF **    XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB**    XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document

 

  * Filed herewith.

** Submitted electronically herewith, attached as Exhibit 101 to this report formatted in XBRL (Extensible Business Reporting Language).

 

 

 

 

 

 

31


 

ROKWADER, INC. Latest filings

Filing dateCompanyFormQuarterYear
2017-09-29ROKWADER, INC.DEF 14C32017view
2017-08-28ROKWADER, INC.8-K32017view
2017-08-21ROKWADER, INC.10-Q32017view
2017-08-14ROKWADER, INC.NT 10-Q32017view
2017-07-06ROKWADER, INC.PRE 14C32017view
2017-06-27ROKWADER, INC.8-K/A22017view
2017-06-16ROKWADER, INC.10-Q22017view
2017-05-25ROKWADER, INC.10-K22017view
2017-05-15ROKWADER, INC.NT 10-Q22017view
2017-03-31ROKWADER, INC.NT 10-K12017view