Our audited consolidated financial statements
are set forth in this Annual Report beginning on page F-1.
NOTES TO THE 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”). Substantially all of the business conducted by Rokwader is through Latigo, its wholly-owned subsidiary.
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. As a result of this
transaction and the change of control of the Company, our business strategies and plan of operations have evolved into two segments:
(i) the continuation of the Latigo music publishing business; and (ii) the investment and acquisition vehicle through Coco Partners.
BASIS OF CONSOLIDATION
The consolidated financial statements
include the accounts of Rokwader, Inc. and subsidiary. Inter-Company accounts and transactions have been eliminated.
INCOME TAXES
The Company follows the guidance of
the Financial Accounting Standards Board’s Accounting Standards Codification Topic 740 related to Income Taxes. 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 Financial Accounting
Standards Board’s Accounting Standards Codification Topic 740 related to Income Taxes 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, 2015 and December 31, 2014.
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.
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.
As of December 31, 2015, the Company
had bank balances of $5,165,219 in two banks. 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 as of December 31, 2015 of $4,849,763 since these amounts exceed the current
federally insured amount of $250,000 per depositor, per insured bank, for each account ownership category.
F-7
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER COMMON SHARE
Basic earnings 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.
USE OF ESTIMATES IN THE PREPARATION
OF FINANCIAL STATEMENTS
The preparation of 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 the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates
and assumptions.
LONG-LIVED ASSETS
The realizability 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.
No impairment loss on intangible assets
was recognized for the years ended December 31, 2015 and 2014, respectively.
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.
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.
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:
Equipment 2-10 years
Furniture 2-10 years
Expenditures for repairs and maintenance
are charged to expense as incurred. The costs of major renewals and betterments 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.
F-8
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2015, the FASB issued ASU
2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities
and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to
all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and
assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this
Update. The amendments in this Update will align the presentation of deferred income tax assets and liabilities with International
Financial Reporting Standards (IFRS). IAS 1, Presentation of Financial Statements, requires deferred tax assets and liabilities
to be classified as noncurrent in a classified statement of financial position. For public entities, the amendments in ASU 2015-17
will be effective for financial statements issued for annual periods beginning after December 15, 2016 and interim periods within
those annual periods. For all other entities, thee amendments in this Update are effective for financial statements issued for
annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.
Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendments
in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods
presented. If an entity applies the guidance prospectively, the entity should disclose in the first interim and first annual period
of change, the nature of and reason for the change in accounting principle and a statement that prior periods were not retrospectively
adjusted. If an entity applies the guidance retrospectively, the entity should disclose in the first interim and first annual period
of change the nature of and reason for the change in accounting principle and quantitative information about the effects of the
accounting change on prior periods. The Company is currently assessing this guidance for future implementation.
In February 2015, the FASB issued ASU
2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis. ASU 2015-02 change the analysis that a reporting entity
must perform to determine whether it should consolidate certain types of legal entities. The amendments in this Update affect the
following areas: (1) Limited partnerships and similar legal entities, (2) Evaluating fees paid to a decision maker or a service
provider as a variable interest, (3) The effect of fee arrangements on the primary beneficiary determination, (4) The effect of
related parties on the primary beneficiary determination, and (5) Certain investment funds. The amendments in this Update are effective
for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15,
2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and
for interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an
interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning
of the fiscal year that includes that interim period. A reporting entity may apply the amendments in this Update using a modified
retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption.
A reporting entity also may apply the amendments retrospectively. The Company is currently assessing this guidance for future implementation.
In December 2014, the FASB issued ASU
2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination. ASU 2014-18
elects the accounting alternative to recognize or otherwise consider the fair value of intangible assets as a result of any in-scope
transactions and states that they should no longer recognized separately from goodwill (1) customer-related intangible assets unless
they are capable of being sold or licensed independently from other assets of the business and (2) non-competition agreements.
The amendments in ASU 2014-18 will be effective prospectively for annual reporting periods beginning after December 15, 2015 and
the effective date of adoption will begin on the timing of that first in-scope transaction. The Company has not adopted ASU 2014-18
during the year ended December 31, 2014.
In August 2014, the FASB issued ASU
No. 2014-15, "Presentation of Financial Statements - Going Concern ". The amendments in this update provide guidance
in U.S. GAAP about management's responsibilities to evaluate whether there is substantial doubt about an entity's ability to continue
as a going concern and to provide related footnote disclosures. The main provision of the amendments are for an entity's management,
in connection with the preparation of financial statements, to evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date
that the financial statements are issued. Management's evaluation should be based on relevant conditions and events that are known
or reasonably knowable at the date the financial statements are issued. When management identifies conditions or events that raise
substantial doubt about an entity's ability to continue as a going concern, the entity should disclose information that enables
users of the financial statements to understand all of the following: (1) principal conditions or events that raised substantial
doubt about the entity's ability to continue as a going concern (before consideration of management's plans); (2) management's
evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations; and (3)
management's plans that alleviated substantial doubt about the entity's ability to continue as a going concern or management's
plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity's ability to continue
as a going concern. The amendments in this update are effective for interim and annual reporting periods after December 15, 2016
and early application is permitted. The Company is currently assessing this guidance for future implementation.
F-9
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 2014, the FASB issued ASU 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction
of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information
on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively
for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early
adoption is permitted. The Company adopted ASU 2014-10 during the year ended December 31, 2014, thereby no longer presenting or
disclosing any information required by Topic 915.
In May 2014, the FASB issued ASU
No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 amends the
guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic
with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract
revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also
requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts
with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the
time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized
before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods
beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either
retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the
adoption of ASU 2014-09 will have on our financial statements and disclosures.
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 these options and warrants issued. 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.
NOTE 2 – STOCKHOLDERS’ DEFICIT
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:
|
|
December 31, 2015
|
Dividend Yield
|
|
|
0
|
|
Expected Volatility
|
|
|
100
|
%
|
Risk-Free Interest Rate
|
|
|
0.49
|
|
Term in Years
|
|
|
1
|
|
Stock Price
|
|
|
0.40
|
|
Option Exercise Price
|
|
|
0.75
|
|
The following assumptions were used to determine the fair value of the options at date of original issuance
on August 3, 2012:
|
|
August 3, 2012
|
Dividend Yield
|
|
|
0
|
|
Expected Volatility
|
|
|
100
|
%
|
Risk-Free Interest Rate
|
|
|
0.38
|
|
Term in Years
|
|
|
1.58
|
|
Stock Price
|
|
|
0.75
|
|
Option Exercise Price
|
|
|
0.75
|
|
F-10
NOTE 2 – STOCKHOLDERS’ DEFICIT
(CONTINUED)
A summary of option activity as is presented
below:
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
Shares
|
|
Price
|
|
Life (Years)
|
|
Value
|
Outstanding at December 31, 2014
|
|
|
325,000
|
|
|
$
|
0.65
|
|
|
|
1.50
|
|
|
$
|
191,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
5,900,000
|
|
|
$
|
0.68
|
|
|
|
4.25
|
|
|
$
|
—
|
|
Exercised
|
|
|
(66,667
|
)
|
|
$
|
0.75
|
|
|
|
—
|
|
|
$
|
—
|
|
Exprired/Cancelled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at December 31, 2015
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
4.10
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2015
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
4.10
|
|
|
$
|
—
|
|
As of December 31, 2015, all options are vested.
On December 21, 2015, Brooktide, LLC
exercised 66,667 of its vested stock options. The Company issued 66,667 shares of its common stock at an exercise price of $0.75
per share for a total of $50,000.
On December 22, 2015, the Company extended
its remaining 258,333 outstanding stock options through December 31, 2016.
On February 18, 2015, the Company issued
317,392 shares of common stock valued at the price of $0.6177 in an agreement to convert $135,000 of the oldest notes payable and
accrued interest of $61,060 which were owed to Mr. Yale Farar and Brooktide LLC. As the date herein, the average price between
the “bid and “ask” price of the Company’s stock on the OTC:QB market was $0.42 per share.
On February 24, 2015, the Company issued
10,000 shares of common stock at the price of $0.44, for services rendered by Jeston Cade. The shares of common stock are restricted
shares and were valued at the price of $0.44, the closing price on February 24, 2014 on the OTC:OB market as of the date hereof.
In May 2015, Coco Partners and the Company
entered into an agreement pursuant to which Coco Partners 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.
The terms of the Warrant provide that
Coco Partners 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.
F-11
NOTE 3 – RELATED PARTY TRANSACTIONS
The Transaction resulted in a
change of control of the Company. With the purchase of the 15,250,000 shares, Coco Partners 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 Partners, was appointed Chief Executive Officer, Chief Financial
Officer, and Corporate Secretary and as a member of our Board of Directors (the “Board”). Mr. Yale Farar resigned
his position as President of the Company and director of the Board and Mr. Gary Saderup resigned his positions as the
Secretary of the Company and a director of the Board.
On April 14, 2010, Mr. Yale Farar, the
President of Rokwader, loaned the Company $25,000 in accordance with a Subordinated Convertible Promissory Note (“Note”)
executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible
at the option of the holder at any time into common stock of the Company at $.75 per share. The Note is a demand note and may be
paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice
or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.”
The proceeds of the Note were used to pay fees and expenses arising from the Company’s compliance with its public reporting
requirements.
On May 24, 2013 Brooktide, LLC loaned
the Company $50,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the
holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without
premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any
time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note
were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment
assets in the music recording industry.
On October 28, 2013 Brooktide, LLC loaned
the Company $50,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the
holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without
premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any
time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note
were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment
assets in the music recording industry.
On January 31, 2014 Brooktide, LLC loaned
the Company $25,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the
holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without
premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any
time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note
were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment
assets in the music recording industry.
On May 22, 2014 Brooktide, LLC loaned
the Company $35,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the
holder at any time into common stock of the Company at $.53 per share. The Note is a demand note and may be paid at any time without
premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any
time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note
were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment
assets in the music recording industry.
On July 29, 2014 Brooktide, LLC loaned
the Company $35,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the
holder at any time into common stock of the Company at $.53 per share. The Note is a demand note and may be paid at any time without
premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any
time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note
were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment
assets in the music recording industry.
F-12
NOTE 3 – RELATED PARTY TRANSACTIONS
(CONTINUED)
On October 30, 2014 Brooktide, LLC loaned
the Company $30,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the
holder at any time into common stock of the Company at $0.45 per share. The Note is a demand note and may be paid at any time without
premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any
time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note
were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment
assets in the music recording industry.
On February 18, 2015, the Company issued
317,392 shares of common stock valued at the price of $0.6177 in an agreement to convert $135,000 of the oldest notes payable and
accrued interest of $61,060 which were owed to Mr. Yale Farar and Brooktide LLC.
On March 17, 2015 Brooktide, LLC loaned
the Company $55,500 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of
the holder at any time into common stock of the Company at $0.47 per share. The Note is a demand note and may be paid at any time
without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon
or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds
of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable
entertainment assets in the music recording industry.
On April 16, 2015 Brooktide, LLC loaned
the Company $7,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company.
Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the
holder at any time into common stock of the Company at $0.47 per share. The Note is a demand note and may be paid at any time without
premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any
time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note
were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment
assets in the music recording industry.
As of May 4, 2015, Brooktide, LLC and
the Company agreed that the loan of $55,500 entered into on March 17, 2015 and the loan of $7,000 entered into on April 16, 2015
be forgiven by Brooktide, LLC. Additionally, accrued interest payable in the amount of $278 was also forgiven by Brooktide, LLC.
In accordance with FASB ASC 470-50-40 Debt Modifications and Extinguishments, the Company recorded this forgiveness of debt from
a Related Party as a capital transaction and no gain was recognized on the Company’s consolidated statement of operations.
NOTE 4 – INTANGIBLES
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.
F-13
Following is a summary of the intangibles at the end of the years ending:
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amortization
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
Harju Music Catalog
|
|
|
15,000
|
|
|
|
6,442
|
|
|
|
15,000
|
|
|
|
5,297
|
|
Dorff's Writer's Share
|
|
|
40,000
|
|
|
|
6,678
|
|
|
|
40,000
|
|
|
|
4,133
|
|
|
|
$
|
55,000
|
|
|
$
|
13,120
|
|
|
$
|
55,000
|
|
|
$
|
9,430
|
|
For the years ended December 31, 2015
and 2014, respectively, amortization expense was $3,690 and $3,827, respectively.
Amortization of the remaining intangible
assets is expected to be $16,397 from 2016 through 2020, and $25,483 in aggregate for years thereafter through 2032.
F-14
NOTE 5 – PROPERTY AND EQUIPMENT
|
|
December 31, 2015
|
|
December 31, 2014
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
|
|
Amount
|
|
Depreciation
|
|
Amount
|
|
Depreciation
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Musical Equipment
|
|
$
|
4,692
|
|
|
$
|
469
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Computer Equipment
|
|
|
1,396
|
|
|
|
116
|
|
|
|
—
|
|
|
|
—
|
|
Office Furniture
|
|
|
3,700
|
|
|
|
308
|
|
|
|
—
|
|
|
|
—
|
|
x
|
|
$
|
9,788
|
|
|
$
|
893
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Depreciation expense for the years ended December 31, 2015 and 2014, respectively, was $893 and zero.
NOTE 6 - LEASES
The Company leases office space under
a lease arrangement that is classified as an operating lease. The office space lease provides that the Company pay insurance, utilities
and maintenance plus minimum monthly rentals of $1,161 at September 30, 2015. As of September 30, 2015, the Company had a one year
office space lease extending through May 31, 2016. Minimum annual rental commitments under non-cancelable leases having initial
or remaining lease terms in excess of one year, including the new facilities lease, are as follows:
December 31,
|
|
Amount
|
2016
|
|
$
|
5,805
|
|
2017
|
|
|
—
|
|
2018
|
|
|
—
|
|
2019
|
|
|
—
|
|
2020
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
Total minimum future rental payments
|
|
$
|
5,805
|
|
Total rental expenses for the years
ended December 31, 2015 and 2014, respectively, were $14,007 and zero.
NOTE 7 – 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:
|
|
2015
|
|
2014
|
Current
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
243
|
|
|
|
—
|
|
State
|
|
|
42
|
|
|
|
—
|
|
|
|
|
285
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
285
|
|
|
$
|
—
|
|
F-15
NOTE 7 – INCOME TAXES (CONTINUED)
The following reconciles the federal
statutory income tax rate to the effective rate of the provision for income taxes.
|
|
2015
|
|
2014
|
Federal Statutory Rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Valuation Allowance Adjustment
|
|
|
-34
|
%
|
|
|
-34
|
%
|
Effective Rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
State Statutory Rate
|
|
|
8.84
|
%
|
|
|
8.84
|
%
|
Valuation Allowance Adjustment
|
|
|
-8.84
|
%
|
|
|
-8.84
|
%
|
Effective Rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Deferred income tax liabilities (assets)
are as follows:
|
|
2015
|
|
2014
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property, Plant and Equipment
|
|
|
285
|
|
|
|
—
|
|
|
|
|
285
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Start-Up Expenses
|
|
|
(50,792
|
)
|
|
|
(58,614
|
)
|
Intangible Assets
|
|
|
(10,601
|
)
|
|
|
(12,147
|
)
|
Net Operating Loss Carryforward
|
|
|
(745,490
|
)
|
|
|
(426,374
|
)
|
Charitable Contributions Carryforward
|
|
|
(199
|
)
|
|
|
—
|
|
Accrued Interest Payable
|
|
|
—
|
|
|
|
(24,323
|
)
|
Less Valuation Allowance
|
|
|
807,082
|
|
|
|
521,458
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Taxes
|
|
$
|
285
|
|
|
$
|
—
|
|
As of December 31, 2015, the Company
had incurred $300,000 of start-up expenses amortizable over 15 years. Also, the Company acquired certain intangible assets in the
amount of $113,500 amortizable over 15 years.
Additionally, the Company has net operating
loss carry forwards of approximately $1,854,900 and $1,968,200 for both federal and state purpose, 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 2011 and by the Franchise Tax Board for years prior to 2010. 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. The Company has recorded a deferred tax asset of $807,100 and a deferred tax liability of $300. As of December
31, 2015, the Company established a valuation allowance of $806,800 to fully offset the deferred tax asset and deferred tax liability
based on a brief history of operations.
NOTE 8 – SUBSEQUENT EVENTS
Management has evaluated subsequent
events through the date of this report.
F-16