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”). On April 30, 2016, on the Company’s subsidiaries, Rokwader Acquisition Corp. (“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 as its initial launch. 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.
Prior to the acquisition of the car wash businesses
by RAC, 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 RAC and its car wash acquisitions.
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 RAC supported by Coco.
On May 11, 2016, RAC changed its name to True
Blue Car Wash Corp (“True Blue”).
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments of
a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. Interim
results are not necessarily indicative of results for a full year. These statements and notes thereto should be read in conjunction
with the consolidated financial statements and notes thereto filed with the Securities and Exchange Commission in the Company’s
2015 Annual Report on Form 10-K.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include
the accounts of Rokwader, Inc. and subsidiaries. All significant inter-company accounts and transactions have been eliminated.
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.
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.
7
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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 June 30, 2016 and December 31, 2015,
the Company had bank balances of $658,740 and $5,165,219, respectively, in three 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 June 30, 2016 of $385,820
and 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.
GOING CONCERN AND PLAN OF OPERATION
The Company’s financial statements have
been presented on the basis that it will continue as a going concern. Although, the Company has commenced operations, it has not
generated significant revenues from operations to date. The Company
has an accumulated deficit of $2,643,181 as of June 30, 2016.
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 corporate partners, licensees or others, and from other sources of,
such additional financings 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 programs that it would otherwise
seek to develop and commercialize. This would have a material adverse effect on the Company and raises substantial doubt about
the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
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 at June 30, 2016. There were no accounts
receivable as of December 31, 2015.
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.
8
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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
|
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. Depreciation expense for the six months ended June 30, 2016 was $26,995 and $893 for the
year ended December 31, 2015.
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. The fair
value of intangible assets is estimated using a cost, market or income approach. Goodwill represents the excess of the purchase
price over the estimated fair values of net tangible and intangibles assets acquired. Finite-lived intangibles assets are amortized
over their estimated useful lives using straight-line method.
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.
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. Intangible assets 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 the intangible
assets, no impairment loss was recorded as of June 30, 2016 or December 31, 2015.
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.
9
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
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 is recognized when earned based
on three different scenarios. A customer can purchase one individual car wash and revenue is recognized at the time the car wash
is provided. A second scenario is when a customer purchases a monthly membership, the Company recognizes the revenue when the membership
is paid. 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.
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 $3,444 for the six months ended June 30, 2016 and zero for the year ended December 31, 2015.
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 June 30, 2016 and December 31,
2015.
10
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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.
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 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 Car Wash
Corp., a 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
ASC Topic 280, Segment Reporting, establishes
standards for reporting financial and descriptive information about a public entity’s reportable segments. As of June 30,
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.
11
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2016, the FASB issued Accounting Standards
Update (ASU) 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing (ASU
2016-10). ASU 2016-10 was issued by the Board to improve Topic 606 by reducing:
|
1)
|
The potential for diversity in practice at initial application
|
|
2)
|
The cost and complexity of applying Topic 606 both at transition
and on an ongoing basis.
|
The core principle of the guidance in Topic
606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve that core principle, an entity should
apply the following steps:
|
1)
|
Identify the contract(s) with a customer
|
|
2)
|
Identify the performance obligations in the contract
|
|
3)
|
Determine the transaction price.
|
|
4)
|
Allocate the transaction price to the performance obligations in
the contract.
|
|
5)
|
Recognize revenue when (or as) the entity satisfies a performance
obligation.
|
The amendments in ASU 2016-10 clarify the following
two aspects of Topic 606: identifying performance obligations and the licensing implementation guide, while retaining the related
principles for those areas. The effective date and transition requirements for the amendments in ASU 2016-10 are for annual reporting
periods beginning after December 31, 2016, including interim periods within that reporting period. FASB ASU 2015-14 Revenue from
Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.
The Company is currently assessing this guidance for future implementation.
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.
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.
12
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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 April 30, 2016, True Blue Car Wash Corp.
(“True Blue”), a 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 $1,968,333 of which $888,803 was in cash and $1,079,530 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
$1,284,629 of which $300,943 was in cash and $983,686 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.
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.
13
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – BUSINESS COMBINATIONS (CONTINUED)
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.
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 provisionally 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 estimated 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
|
|
|
|
983,686
|
|
Fair value of contingent consideration
|
|
|
1,500,000
|
|
|
|
—
|
|
|
|
—
|
|
Total Consideration
|
|
$
|
3,000,000
|
|
|
$
|
1,968,333
|
|
|
$
|
1,284,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisionally recognized amounts of identifiable
|
|
|
|
|
|
|
|
|
|
|
|
|
assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
Car Wash Equipment
|
|
$
|
—
|
|
|
$
|
129,506
|
|
|
$
|
416,709
|
|
Car Wash Improvements
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Security Equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
2,399
|
|
Machinery & Equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Furniture & Equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Car Wash Vending Machines
|
|
|
—
|
|
|
|
3,938
|
|
|
|
—
|
|
Office Equipment
|
|
|
—
|
|
|
|
4,132
|
|
|
|
2,043
|
|
Inventory
|
|
|
—
|
|
|
|
3,024
|
|
|
|
3,023
|
|
Gift Cards & Certificates
|
|
|
—
|
|
|
|
(5,500
|
)
|
|
|
(2,500
|
)
|
Trademark
|
|
|
19,044
|
|
|
|
—
|
|
|
|
—
|
|
Goodwill
|
|
|
2,980,956
|
|
|
|
1,833,233
|
|
|
|
862,955
|
|
|
|
$
|
3,000,000
|
|
|
$
|
1,968,333
|
|
|
$
|
1,284,629
|
|
14
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE 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
|
|
|
|
4,943,071
|
|
Fair value of contingent consideration
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,500,000
|
|
Total Consideration
|
|
$
|
1,293,334
|
|
|
$
|
262,500
|
|
|
$
|
2,602,500
|
|
|
$
|
10,411,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisionally recognized amounts of identifiable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Car Wash Equipment
|
|
$
|
144,524
|
|
|
$
|
57,818
|
|
|
$
|
308,988
|
|
|
$
|
1,057,545
|
|
Car Wash Improvements
|
|
|
169,305
|
|
|
|
—
|
|
|
|
336,541
|
|
|
|
505,846
|
|
Security Equipment
|
|
|
—
|
|
|
|
2,866
|
|
|
|
—
|
|
|
|
5,265
|
|
Machinery & Equipment
|
|
|
1,600
|
|
|
|
—
|
|
|
|
33,390
|
|
|
|
34,990
|
|
Furniture & Equipment
|
|
|
7,968
|
|
|
|
647
|
|
|
|
20,984
|
|
|
|
29,599
|
|
Car Wash Vending Machines
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,938
|
|
Office Equipment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,175
|
|
Inventory
|
|
|
3,024
|
|
|
|
3,023
|
|
|
|
3,023
|
|
|
|
15,117
|
|
Gift Cards & Certificates
|
|
|
(4,000
|
)
|
|
|
(3,500
|
)
|
|
|
(4,250
|
)
|
|
|
(19,750
|
)
|
Trademark
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,044
|
|
Goodwill
|
|
|
970,913
|
|
|
|
201,646
|
|
|
|
1,903,824
|
|
|
|
8,753,527
|
|
|
|
$
|
1,293,334
|
|
|
$
|
262,500
|
|
|
$
|
2,602,500
|
|
|
$
|
10,411,296
|
|
In according 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 estimated fair values of assets acquired
and liabilities assumed are Level 3 inputs determined by Management based on various market and income analyses.
The following unaudited pro forma information
presents the combined financial results for the Company and Clean Freak Car Wash as if the Clean Freak Car Wash acquisition had
been completed at the beginning of the Company’s prior year, January 1, 2015.
|
|
For Three Months Ended
|
|
For Six Months Ended
|
|
|
June 30, 2016
|
|
June 30, 2015
|
|
June 30, 2016
|
|
June 30, 2015
|
Net Revenue
|
|
$
|
2,082,757
|
|
|
$
|
1,680,017
|
|
|
$
|
3,917,092
|
|
|
$
|
3,131,310
|
|
Net Income (Loss)
|
|
$
|
363,640
|
|
|
$
|
(648,771
|
)
|
|
$
|
585,062
|
|
|
$
|
(284,394
|
)
|
Net Income (Loss) Atributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rokwader, Inc.
|
|
$
|
340,499
|
|
|
$
|
(706,443
|
)
|
|
$
|
510,822
|
|
|
$
|
(283,889
|
)
|
Net Income (Loss) per Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share - Basic & Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.02
|
)
|
15
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2016:
|
|
June 30, 2016
|
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
|
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, 2015
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
4.10
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Exprired/Cancelled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at June 30, 2016
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
3.60
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2016
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
3.60
|
|
|
$
|
—
|
|
As of June 30, 2016, 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.
16
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – STOCKHOLDERS’ EQUITY (CONTINUED)
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 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.
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.
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”). Mr. Yale Farar resigned his position as President of the Company but remains as a
director and Mr. Gary Saderup resigned his positions as the Secretary of the Company and a director of the Board.
NOTE 4 – RELATED PARTY TRANSACTIONS
The Company, through its subsidiary True Blue
Car Wash Corp., has a receivable from a related party, CF Car Wash Bell, LLC in the amount of $552,592 as of June 30, 2016. CF
Car Wash Bell, LLC is part of a group of companies that are owned by the McDowell family. Members of the McDowell family are shareholders
of True Blue Car Wash Corp.
The Company, through its subsidiary True Blue
Car Wash Corp., has a receivable from a related party, CF Car Wash Camelback, LLC in the amount of $12,866 as of June 30, 2016.
CF Car Wash Camelback, LLC is part of a group of companies that are owned by the McDowell family. Members of the McDowell family
are shareholders of True Blue Car Wash Corp.
The Company, through its subsidiary True Blue
Car Wash Corp., has a receivable from a related party, CF Car Wash Chandler, LLC in the amount of $7,870 as of June 30, 2016. CF
Car Wash Chandler, LLC is part of a group of companies that are owned by the McDowell family. Members of the McDowell family are
shareholders of True Blue Car Wash Corp.
The Company, through its subsidiary True Blue
Car Wash Corp., has a receivable from a related party, CF Car Wash I, LLC in the amount of $13,465 as of June 30, 2016. CF Car
Wash I, LLC is part of a group of companies that are owned by the McDowell family. Members of the McDowell family are shareholders
of True Blue Car Wash Corp.
17
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – RELATED PARTY TRANSACTIONS (CONTINUED)
The Company, through its subsidiary True Blue
Car Wash Corp., has a receivable from a related party, CF Car Wash II, LLC in the amount of $6,852 as of June 30, 2016. CF Car
Wash II, LLC is part of a group of companies that are owned by the McDowell family. Members of the McDowell family are shareholders
of True Blue Car Wash Corp.
The Company, through its subsidiary True Blue
Car Wash Corp., has a receivable from a related party, Twins Management, Inc. in the amount of $4,451 as of June 30, 2016. Twins
Management, Inc. is part of a group of companies that are owned by the McDowell family. Members of the McDowell family are shareholders
of True Blue Car Wash Corp.
The Company, through its subsidiary True Blue
Car Wash Corp., has a payable to a related party, Coco Partners, LLC in the amount of $24,067 as of June 30, 2016. Coco Partners,
LLC is owned primarily by the President of the Company.
The Company, through its subsidiary, True Blue
Car Wash Corp., has a payable to a related party, Gateway Advisors, Inc. in the amount of $11,000 as of June 30, 2016. Gateway
Advisors, Inc. is owned primarily by the President of the Company.
The following table summarizes the Company’s
related party receivables and payables with the above mentioned related parties:
|
|
As of
June 30, 2016
|
|
As of
December 31, 2015
|
CF Car Wash Bell, LLC
|
|
$
|
552,592
|
|
|
$
|
—
|
|
CF Car Wash Camelback, LLC
|
|
|
12,866
|
|
|
|
—
|
|
CF Car Wash Chandler, LLC
|
|
|
7,870
|
|
|
|
—
|
|
CF Car Wash I, LLC
|
|
|
13,465
|
|
|
|
—
|
|
CF Car Wash II, LLC
|
|
|
6,852
|
|
|
|
—
|
|
Twins Management, Inc.
|
|
|
4,451
|
|
|
|
—
|
|
Coco Partners, LLC
|
|
|
(24,067
|
)
|
|
|
—
|
|
Gateway Advisors, Inc.
|
|
|
(11,000
|
)
|
|
|
—
|
|
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.
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.
18
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – RELATED PARTY TRANSACTIONS (CONTINUED)
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 5 – GOODWILL AND INTANGIBLES
As part of the business acquisitions that the
Company’s subsidiary made on April 30, 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 $8,753,526. In accordance with U.S. GAAP, Goodwill
is calculated as the excess of the purchase price paid over the net 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.
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.
19
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – GOODWILL AND INTANGIBLES (CONTINUED)
Following is a summary of goodwill and intangibles
assets:
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Gross
|
|
Accumulated
|
|
Net Carrying
|
|
Gross
|
|
Accumulated
|
|
Net Carrying
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
Harju Music Catalog
|
|
$
|
15,000
|
|
|
$
|
(6,978
|
)
|
|
$
|
8,022
|
|
|
$
|
15,000
|
|
|
$
|
(6,442
|
)
|
|
$
|
8,558
|
|
Dorff's Writer's Share
|
|
|
40,000
|
|
|
|
(7,918
|
)
|
|
|
32,082
|
|
|
|
40,000
|
|
|
|
(6,678
|
)
|
|
|
33,322
|
|
|
|
|
55,000
|
|
|
|
(14,896
|
)
|
|
|
40,104
|
|
|
|
55,000
|
|
|
|
(13,120
|
)
|
|
|
41,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortizable Intangibles
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
$
|
55,000
|
|
|
$
|
(14,896
|
)
|
|
$
|
40,104
|
|
|
$
|
55,000
|
|
|
$
|
(13,120
|
)
|
|
$
|
41,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
19,044
|
|
|
$
|
—
|
|
|
$
|
19,044
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
8,753,527
|
|
|
$
|
—
|
|
|
$
|
8,753,527
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For the six months ended June 30, 2016, amortization
expense was $1,776 and $3,690 for the year ended December 31, 2015.
Amortization of the remaining intangible assets
is expected to be $17,492 from 2016 through 2021, and $22,612 in aggregate for years thereafter through 2032.
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Gross
|
|
Accumulated
|
|
Net Carrying
|
|
Gross
|
|
Accumulated
|
|
Net Carrying
|
|
|
Amount
|
|
Depreciation
|
|
Amount
|
|
Amount
|
|
Depreciation
|
|
Amount
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
Musical Equipment
|
|
$
|
4,692
|
|
|
$
|
(938
|
)
|
|
$
|
3,754
|
|
|
$
|
4,692
|
|
|
$
|
(469
|
)
|
|
$
|
4,223
|
|
Computer Equipment
|
|
|
1,396
|
|
|
|
(256
|
)
|
|
|
1,140
|
|
|
|
1,396
|
|
|
|
(116
|
)
|
|
|
1,280
|
|
Car Wash Equipment
|
|
|
1,096,944
|
|
|
|
(19,262
|
)
|
|
|
1,077,682
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Car Wash Improvements
|
|
|
505,846
|
|
|
|
(5,621
|
)
|
|
|
500,225
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Car Wash Vending Machine
|
|
|
3,938
|
|
|
|
(131
|
)
|
|
|
3,807
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Furniture and Equipment
|
|
|
47,739
|
|
|
|
(1,621
|
)
|
|
|
46,118
|
|
|
|
3,700
|
|
|
|
(308
|
)
|
|
|
3,392
|
|
Security Equipment
|
|
|
5,265
|
|
|
|
(59
|
)
|
|
|
5,206
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
1,665,820
|
|
|
$
|
(27,888
|
)
|
|
$
|
1,637,932
|
|
|
$
|
9,788
|
|
|
$
|
(893
|
)
|
|
$
|
8,895
|
|
Depreciation expense for the six months ended June 30, 2016 was
$26,995 and $893 for the year ended December 31, 2015.
20
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LEASES
The Company’s subsidiary, Latigo Shore
Music, Inc., leases office space under a lease arrangement that is classified as an operating lease. The office space lease provides
that Latigo pay insurance, utilities and maintenance plus minimum monthly rentals of $980 at June 30, 2016. Beginning October 1,
2016, the monthly rent payment will reduce to $490 for the remainder of the lease term. As of June 30, 2016, Latigo extended this
lease for one year through May 31, 2017.
Additionally, the Company’s subsidiary,
True Blue Car Wash Corp., leases the property in which its car wash businesses operate. Each of the five car wash businesses, entered
into lease agreements with Lifestyle Property Partners, L.P. for a term of 21 years. Under the leases, True Blue is required to
pay monthly rent payments of $15,000 for CF Car Wash Chandler, $16,667 for CF Car Wash Camelback, $8,333 for CF Car Wash II, $31,667
for CF Car Wash I, and $18,612 for CF Car Wash Bell. In addition, under these lease agreements, True Blue is required to pay to
Lifestyle Property Partners, L.P. Actual Costs. Actual Costs are defined in the lease agreements as expenses which the landlord
shall pay or become obligated to pay, which are not paid directly by the tenant pertaining to the premises.
True Blue also entered into an agreement with
Twins Management, Inc. to lease office space. The lease with Twins Management, Inc. is on a month to month basis and it requires
a monthly payment of $2,639 per month.
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
|
2016
|
|
$
|
743,344
|
|
2017
|
|
|
1,137,316
|
|
2018
|
|
|
1,171,436
|
|
2019
|
|
|
1,206,579
|
|
2020
|
|
|
1,242,776
|
|
Thereafter
|
|
|
26,473,289
|
|
Total minimum future rental payments
|
|
$
|
31,974,740
|
|
Total rent expense for the six months ended
June 30, 2016 was $263,120 and $10,936 for the year ended December 31, 2015.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
True Blue entered into a non-binding Letter
of Intent to acquire eleven car washes by another leading car wash platform in Arizona. The eleven car wash sites consist of nine
mature operational sites and two sites currently in development. There is no assurance that True Blue will be successful in completing
the purchase of any of the eleven sites.
Also, as part of the acquisition of the car
wash businesses that took place on April 30, 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.
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.
21
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – LITIGATION
On May 10, 2016 a complaint was filed by USAA
Casualty Insurance Company against the entities that sold certain assets to the Company’s subsidiary, True Blue Car Wash
Corp. The complaint is in the amount of $3,310 and is related to an incident that occurred on October 19, 2014 on the premises
of one of these entities. As of the date of these financial statements, the case remains open.
In May 2016, a complaint was filed by Allstate
Fire and Casualty Insurance Company against the entities that sold certain assets to the Company’s subsidiary, True Blue
Car Wash Corp. In addition to the complaint, an Offer of Judgment in the amount of $2,515 was filed relating to an incident that
occurred on or about July 11, 2014 on the premises of one of these entities. As of the date of these financial statements, the
case remains open.
On February 24, 2016 a lawsuit was filed by
Advocates for American Disabled Individuals, LLC in the amount of $5,000 against the entities that sold certain assets to the Company’s
subsidiary, True Blue Car Wash Corp. The lawsuit is related to an incident that occurred on December 13, 2015 on the premises of
one of these entities. The suit was settled in the amount of $4,500 on April 28, 2016 with prejudice. As part of the settlement
other affiliated entities were also required to make corrections to their facilities within a sixty (60) day period. All entities
subject to the suit complied within the required period and the suit was closed.
NOTE 10- 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.
22
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10- SEGMENT INFORMATION (CONTINUED)
Information related to the Company’s
operating segments is as follows:
|
|
Music Publishing
|
|
Car Wash
|
|
|
|
|
|
|
Business
|
|
Business
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
90
|
|
|
$
|
1,449,727
|
|
|
$
|
—
|
|
|
$
|
1,449,817
|
|
Gross Profit
|
|
|
90
|
|
|
|
1,055,712
|
|
|
|
—
|
|
|
|
1,055,802
|
|
Selling, General and Administrative
|
|
|
(59,251
|
)
|
|
|
(487,973
|
)
|
|
|
(140,954
|
)
|
|
|
(688,178
|
)
|
Acquisition Related Expenses
|
|
|
—
|
|
|
|
(607,832
|
)
|
|
|
—
|
|
|
|
(607,832
|
)
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
724
|
|
|
|
724
|
|
Interest expense
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
Depreciation and Amortization
|
|
|
(1,377
|
)
|
|
|
(26,016
|
)
|
|
|
—
|
|
|
|
(27,393
|
)
|
Net loss
|
|
|
(59,940
|
)
|
|
|
(99,738
|
)
|
|
|
(143,060
|
)
|
|
|
(302,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103
|
|
Gross Profit
|
|
$
|
103
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
103
|
|
Sellig, General and Administrative
|
|
$
|
(62,786
|
)
|
|
$
|
—
|
|
|
$
|
(187,614
|
)
|
|
$
|
(250,400
|
)
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(114
|
)
|
|
|
(114
|
)
|
Depreciation and Amortization
|
|
|
(923
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(923
|
)
|
Net loss
|
|
|
(62,683
|
)
|
|
|
—
|
|
|
|
(187,614
|
)
|
|
|
(250,297
|
)
|
23
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – SEGMENT INFORMATION (CONTINUED)
|
|
Music Publishing
|
|
Car Wash
|
|
|
|
|
|
|
Business
|
|
Business
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
202
|
|
|
$
|
1,449,727
|
|
|
$
|
—
|
|
|
$
|
1,449,929
|
|
Gross Profit
|
|
|
202
|
|
|
|
1,055,712
|
|
|
|
|
|
|
|
1,055,914
|
|
Selling, General and Administrative
|
|
|
(124,368
|
)
|
|
|
(487,823
|
)
|
|
|
(205,680
|
)
|
|
|
(817,871
|
)
|
Acquisition Related Expenses
|
|
|
—
|
|
|
|
(607,832
|
)
|
|
|
—
|
|
|
|
(607,832
|
)
|
Interest Income
|
|
|
—
|
|
|
|
—
|
|
|
|
2,218
|
|
|
|
2,218
|
|
Interest Expense
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
Depreciation and Amortization
|
|
|
(2,755
|
)
|
|
|
(26,016
|
)
|
|
|
—
|
|
|
|
(28,771
|
)
|
Net Loss
|
|
|
(124,983
|
)
|
|
|
(99,738
|
)
|
|
|
(206,104
|
)
|
|
|
(430,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
703
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
703
|
|
Gross Profit
|
|
|
703
|
|
|
|
—
|
|
|
|
—
|
|
|
|
703
|
|
Selling, General and Administrative
|
|
|
(79,841
|
)
|
|
|
—
|
|
|
|
(208,708
|
)
|
|
|
(288,549
|
)
|
Interest Income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest Expense
|
|
|
(128
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(128
|
)
|
Depreciation and Amortization
|
|
|
(1,845
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,845
|
)
|
Net Loss
|
|
|
(79,138
|
)
|
|
|
—
|
|
|
|
(208,707
|
)
|
|
|
(287,845
|
)
|
The following is a summary of the Company’s
total assets as of June 30, 2016 and December 31, 2015:
Total Assets:
|
|
|
|
|
Music Publishing Business
|
|
$
|
51,776
|
|
|
$
|
122,390
|
|
Car Wash Business
|
|
|
11,784,279
|
|
|
|
—
|
|
Total Segment Assets
|
|
|
11,836,055
|
|
|
|
122,390
|
|
Corporate and Eliminations
|
|
|
(8,449
|
)
|
|
|
5,093,604
|
|
Total Assets
|
|
$
|
11,827,606
|
|
|
$
|
5,215,994
|
|
24
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – 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:
|
|
June 30, 2016
|
|
December 31, 2015
|
Current
|
|
|
|
|
Federal
|
|
$
|
1,883
|
|
|
$
|
—
|
|
State
|
|
|
27,545
|
|
|
|
—
|
|
|
|
|
29,428
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
30,522
|
|
|
|
243
|
|
State
|
|
|
3,266
|
|
|
|
42
|
|
|
|
|
33,788
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63,216
|
|
|
$
|
285
|
|
The following reconciles the federal statutory income tax rate to
the effective rate of the provision for income taxes.
|
|
June 30, 2016
|
|
December 31, 2015
|
Federal Statutory Rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
Federal Rate Adjustment
|
|
|
0.65
|
%
|
|
|
0.00
|
%
|
State Taxes
|
|
|
-8.38
|
%
|
|
|
8.84
|
%
|
Meals & Entertainment
|
|
|
-0.54
|
%
|
|
|
0.00
|
%
|
Change in Valuation Allowance
|
|
-46.49
|
%
|
|
|
-42.84
|
%
|
Other
|
|
|
3.56
|
%
|
|
|
0.00
|
%
|
Effective Rate
|
|
|
-17.20
|
%
|
|
|
0.00
|
%
|
25
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – INCOME TAXES (CONTINUED)
Deferred income tax assets (liabilities) are
as follows:
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property, Plant and Equipment
|
|
|
(6,591
|
)
|
|
|
(285
|
)
|
Trademarks
|
|
|
(59
|
)
|
|
|
—
|
|
Goodwill
|
|
|
(27,422
|
)
|
|
|
—
|
|
|
|
|
(34,072
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Start-Up Expenses
|
|
|
46,882
|
|
|
|
50,792
|
|
Intangible Assets
|
|
|
21,611
|
|
|
|
10,601
|
|
Net Operating Loss Carryforward
|
|
|
519,713
|
|
|
|
745,490
|
|
Charitable Contributions Carryforward
|
|
|
199
|
|
|
|
199
|
|
Acquisition Related Expenses
|
|
|
391,320
|
|
|
|
—
|
|
Deferred Rent
|
|
|
25,564
|
|
|
|
—
|
|
Less Valuation Allowance
|
|
|
(1,005,289
|
)
|
|
|
(807,082
|
)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Taxes
|
|
$
|
(34,072
|
)
|
|
$
|
(285
|
)
|
As of June 30, 2016, 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
$187,464 amortizable over 15 years. Trademarks of $19,044 amortizable over 15 years and Goodwill of $8,753,526 amortizable over
15 years.
Additionally, the Company has net operating
loss carry forwards of approximately $1,230,860 and $1,734,889 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 $1,005,000 and a deferred tax liability of $34,000. As of June
30, 2016, the Company established a valuation allowance of $1,005,000 to fully offset the deferred tax asset based on a brief history
of operations.
NOTE 12 – SUBSEQUENT EVENTS
On August 16, 2016, the Company’s 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.”
Management has evaluated subsequent events
through the date of this report.
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