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. The Company owns 100% of its subsidiary, Latigo Shore Music, Inc. The Company also owns 85.38% of its
subsidiary, True Blue Car Wash Corp.
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. As of September 30, 2016, the Company had zero cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company maintains all cash in deposit
accounts, which at times may exceed federally insured limits. The Company has not experienced a loss in such accounts.
As of September 30, 2016 and December
31, 2015, the Company had bank balances of $1,433,474 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 September 30,
2016 of $1,111,840 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.
9
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
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 $2,603,067 as of September
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 September 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.
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 nine months ended September 30, 2016 and 2015 was $67,350 and
$404, respectively.
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.
10
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
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 September 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.
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 $976 for the nine months ended September 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.
11
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
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 September 30, 2016
and December 31, 2015.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share
are computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share
consists of the weighted average number of common shares outstanding plus the dilutive effects of options and warrants calculated
using the treasury stock method. In loss periods, dilutive common equivalent shares are excluded as the effect would be anti-dilutive.
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 September
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.
12
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.
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.
13
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
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.
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:
14
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – BUSINESS COMBINATIONS
(CONTINUED)
|
|
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
|
|
|
|
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
|
|
15
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – BUSINESS COMBINATIONS
(CONTINUED)
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 Nine Months Ended
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
September 30, 2016
|
|
September 30, 2015
|
Net Revenue
|
|
$
|
1,972,573
|
|
|
$
|
1,647,211
|
|
|
$
|
5,889,665
|
|
|
$
|
4,778,523
|
|
Net Income (Loss)
|
|
$
|
99,038
|
|
|
$
|
(300,838
|
)
|
|
$
|
727,547
|
|
|
$
|
(1,258,860
|
)
|
Net Income (Loss) Atributable to Rokwader, Inc.
|
|
$
|
72,201
|
|
|
$
|
(256,855
|
)
|
|
$
|
554,684
|
|
|
$
|
(1,129,369
|
)
|
Net Income (Loss) per Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share - Basic & Diluted
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.06
|
)
|
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 September 30, 2016:
|
|
September 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
|
16
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 3 – STOCKHOLDERS’ EQUITY
(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, 2015
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
4.10
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Exercised
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Exprired/Cancelled
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
Outstanding at September 30, 2016
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
3.60
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
6,158,333
|
|
|
$
|
0.68
|
|
|
|
3.60
|
|
|
$
|
—
|
|
As of September 30, 2016, all options are vested.
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.”
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 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.
17
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 3 – STOCKHOLDERS’ EQUITY
(CONTINUED)
The terms of the Warrant provide that
Coco has the right to purchase, at any time after the Closing until April 1, 2020, up to (i) 5,000,000 shares of our common stock
at an exercise price of $0.60 per share, (ii) 500,000 shares of our common stock at an exercise price of $1.000 per share and (iii)
400,000 shares of our common stock at an exercise price of $1.25 per share. The Warrant includes certain anti-dilution adjustments
to the exercise prices in the event of payment of dividend, subdivision and combination with respect to outstanding shares of our
common stock.
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”). Upon the Closing, Mr. Yale Farar resigned his position as President of the Company.
On December 21, 2015 Mr. Farar resigned as a director of the Board. Also upon the Closing 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 $1,038 as of September
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 Chandler, LLC in the amount of $601 as of September
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 $1,462 as of September 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.
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 $30 as of September 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 has a receivable from Lifestyle
Property Partners, LP, a related party, in the amount of $537,595 as of September 30, 2016. Lifestyle Property Partners, LP is
primarily managed by the Company’s President.
The Company, through its subsidiary
True Blue Car Wash Corp., has a payable to a related party, Coco Partners, LLC in the amount of $464,567 as of September 30, 2016.
Coco Partners, LLC 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
|
|
As of
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
|
|
CF Car Wash Bell, LLC
|
|
$
|
1,038
|
|
|
$
|
—
|
|
CF Car Wash Chandler, LLC
|
|
|
601
|
|
|
|
—
|
|
CF Car Wash I, LLC
|
|
|
1,462
|
|
|
|
—
|
|
CF Car Wash II, LLC
|
|
|
30
|
|
|
|
—
|
|
Lifestyle Property Partners, LP
|
|
|
537,595
|
|
|
|
—
|
|
Coco Partners, LLC
|
|
|
(464,567
|
)
|
|
|
—
|
|
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.
18
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
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.
Following is a summary of goodwill and
intangibles assets:
|
|
September 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
|
|
|
$
|
(7,246
|
)
|
|
$
|
7,754
|
|
|
$
|
15,000
|
|
|
$
|
(6,442
|
)
|
|
$
|
8,558
|
|
Dorff's Writer's Share
|
|
|
40,000
|
|
|
|
(8,538
|
)
|
|
|
31,462
|
|
|
|
40,000
|
|
|
|
(6,678
|
)
|
|
|
33,322
|
|
|
|
|
55,000
|
|
|
|
(15,784
|
)
|
|
|
39,216
|
|
|
|
55,000
|
|
|
|
(13,120
|
)
|
|
|
41,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortizable Intangibles
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
$
|
55,000
|
|
|
$
|
(15,784
|
)
|
|
$
|
39,216
|
|
|
$
|
55,000
|
|
|
$
|
(13,120
|
)
|
|
$
|
41,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
19,044
|
|
|
$
|
—
|
|
|
$
|
19,044
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
8,753,527
|
|
|
$
|
—
|
|
|
$
|
8,753,527
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For the nine months ended September
30, 2016 and 2015, amortization expense was $2,664 and $2,768, respectively.
Amortization of the remaining intangible
assets is expected to be $16,604 from 2016 through 2021, and $22,612 in aggregate for years thereafter through 2032.
19
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
|
|
September 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
|
|
|
$
|
(1,173
|
)
|
|
$
|
3,519
|
|
|
$
|
4,692
|
|
|
$
|
(469
|
)
|
|
$
|
4,223
|
|
Computer Equipment
|
|
|
1,396
|
|
|
|
(326
|
)
|
|
|
1,070
|
|
|
|
1,396
|
|
|
|
(116
|
)
|
|
|
1,280
|
|
Car Wash Equipment
|
|
|
1,102,126
|
|
|
|
(48,255
|
)
|
|
|
1,053,871
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Car Wash Improvements
|
|
|
505,846
|
|
|
|
(14,051
|
)
|
|
|
491,795
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Car Wash Vending Machine
|
|
|
3,938
|
|
|
|
(328
|
)
|
|
|
3,610
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Furniture and Equipment
|
|
|
60,242
|
|
|
|
(3,922
|
)
|
|
|
56,320
|
|
|
|
3,700
|
|
|
|
(308
|
)
|
|
|
3,392
|
|
Security Equipment
|
|
|
9,121
|
|
|
|
(189
|
)
|
|
|
8,932
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
1,687,361
|
|
|
$
|
(68,244
|
)
|
|
$
|
1,619,117
|
|
|
$
|
9,788
|
|
|
$
|
(893
|
)
|
|
$
|
8,895
|
|
Depreciation expense for the nine months ended September
30, 2016 and 2015 was $67,350 and $404, respectively.
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 September 30, 2016. Beginning
October 1, 2016, the monthly rent payment will reduce to $490 for the remainder of the lease term. As of September 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 nine months
ended September 30, 2016 and 2015 was $655,401 and $7,453, respectively.
20
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
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.
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.
Information related to the Company’s
operating segments is as follows:
21
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 10- SEGMENT INFORMATION (CONTINUED)
|
|
Music Publishing
|
|
Car Wash
|
|
|
|
|
|
|
Business
|
|
Business
|
|
Corporate
|
|
Total
|
Three Months Ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
479
|
|
|
$
|
1,972,094
|
|
|
$
|
—
|
|
|
$
|
1,972,573
|
|
Gross Profit
|
|
|
479
|
|
|
|
1,477,625
|
|
|
|
—
|
|
|
|
1,478,104
|
|
Selling, General and Administrative
|
|
|
(47,114
|
)
|
|
|
(1,139,696
|
)
|
|
|
(72,041
|
)
|
|
|
(1,258,851
|
)
|
Acquisition Related Expenses
|
|
|
—
|
|
|
|
(117,896
|
)
|
|
|
(7,451
|
)
|
|
|
(125,347
|
)
|
Interest expense
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(38
|
)
|
Depreciation and Amortization
|
|
|
(1,377
|
)
|
|
|
(39,866
|
)
|
|
|
—
|
|
|
|
(41,243
|
)
|
Net loss
|
|
|
(45,024
|
)
|
|
|
97,430
|
|
|
|
(78,715
|
)
|
|
|
(26,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,524
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,524
|
|
Gross Profit
|
|
$
|
1,524
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,524
|
|
Sellig, General and Administrative
|
|
$
|
(75,168
|
)
|
|
$
|
—
|
|
|
$
|
(269,153
|
)
|
|
$
|
(344,321
|
)
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
1,360
|
|
|
|
1,360
|
|
Interest expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(113
|
)
|
|
|
(113
|
)
|
Depreciation and Amortization
|
|
|
(1,326
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,326
|
)
|
Net loss
|
|
|
(73,643
|
)
|
|
|
—
|
|
|
|
(267,794
|
)
|
|
|
(341,437
|
)
|
|
|
Music Publishing
|
|
Car Wash
|
|
|
|
|
|
|
Business
|
|
Business
|
|
Corporate
|
|
Total
|
Nine Months Ended September 30, 2016:
|
|
|
|
|
|
|
Revenues
|
|
$
|
681
|
|
|
$
|
3,421,821
|
|
|
$
|
—
|
|
|
$
|
3,422,502
|
|
Gross Profit
|
|
|
681
|
|
|
|
2,605,463
|
|
|
|
—
|
|
|
|
2,606,144
|
|
Selling, General and Administrative
|
|
|
(171,482
|
)
|
|
|
(1,811,343
|
)
|
|
|
(155,906
|
)
|
|
|
(2,138,731
|
)
|
Acquisition Related Expenses
|
|
|
—
|
|
|
|
(603,913
|
)
|
|
|
(129,266
|
)
|
|
|
(733,179
|
)
|
Interest Income
|
|
|
—
|
|
|
|
—
|
|
|
|
2,218
|
|
|
|
2,218
|
|
Interest Expense
|
|
|
(76
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(76
|
)
|
Depreciation and Amortization
|
|
|
(4,132
|
)
|
|
|
(65,882
|
)
|
|
|
—
|
|
|
|
(70,014
|
)
|
Net Loss
|
|
|
(170,006
|
)
|
|
|
92,171
|
|
|
|
(284,819
|
)
|
|
|
(362,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,228
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,228
|
|
Gross Profit
|
|
|
2,228
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,228
|
|
Selling, General and Administrative
|
|
|
(155,009
|
)
|
|
|
—
|
|
|
|
(482,686
|
)
|
|
|
(637,695
|
)
|
Interest Income
|
|
|
—
|
|
|
|
—
|
|
|
|
1,360
|
|
|
|
1,360
|
|
Interest Expense
|
|
|
(128
|
)
|
|
|
—
|
|
|
|
(559
|
)
|
|
|
(687
|
)
|
Depreciation and Amortization
|
|
|
(3,172
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,172
|
)
|
Net Loss
|
|
|
(152,781
|
)
|
|
|
—
|
|
|
|
(481,326
|
)
|
|
|
(634,107
|
)
|
The following is a summary of the Company’s
total assets as of September 30, 2016 and December 31, 2015:
Total Assets:
|
|
|
|
|
Music Publishing Business
|
|
$
|
53,783
|
|
|
$
|
122,390
|
|
Car Wash Business
|
|
|
12,646,448
|
|
|
|
—
|
|
Total Segment Assets
|
|
|
12,700,231
|
|
|
|
122,390
|
|
Corporate and Eliminations
|
|
|
67,389
|
|
|
|
5,093,604
|
|
Total Assets
|
|
$
|
12,767,620
|
|
|
$
|
5,215,994
|
|
22
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:
|
|
September 30, 2016
|
|
December 31, 2015
|
Current
|
|
|
|
|
Federal
|
|
$
|
77,758
|
|
|
$
|
—
|
|
State
|
|
|
22,157
|
|
|
|
—
|
|
|
|
|
99,915
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(243
|
)
|
|
|
243
|
|
State
|
|
|
(42
|
)
|
|
|
42
|
|
|
|
|
(285
|
)
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
99,630
|
|
|
$
|
285
|
|
The following reconciles the federal statutory income tax
rate to the effective rate of the provision for income taxes.
|
|
September 30, 2016
|
|
December 31, 2015
|
Federal Statutory Rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
Federal Rate Adjustment
|
|
|
0.62
|
%
|
|
|
0.00
|
%
|
State Taxes
|
|
|
-11.53
|
%
|
|
|
8.84
|
%
|
Meals & Entertainment
|
|
|
-0.87
|
%
|
|
|
0.00
|
%
|
Change in Valuation Allowance
|
|
|
-56.55
|
%
|
|
|
-42.84
|
%
|
Other
|
|
|
-3.55
|
%
|
|
|
0.00
|
%
|
Effective Rate
|
|
|
-37.88
|
%
|
|
|
0.00
|
%
|
Deferred income tax assets (liabilities)
are as follows:
|
|
September 30, 2016
|
|
December 31, 2015
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property, Plant and Equipment
|
|
|
(16,333
|
)
|
|
|
(285
|
)
|
Trademarks
|
|
|
(149
|
)
|
|
|
—
|
|
Goodwill
|
|
|
(68,556
|
)
|
|
|
—
|
|
|
|
|
(85,038
|
)
|
|
|
(285
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Start-Up Expenses
|
|
|
42,441
|
|
|
|
50,792
|
|
Intangible Assets
|
|
|
19,729
|
|
|
|
10,601
|
|
Net Operating Loss Carryforward
|
|
|
485,628
|
|
|
|
745,490
|
|
Charitable Contributions Carryforward
|
|
|
18
|
|
|
|
199
|
|
Acquisition Related Expenses
|
|
|
429,124
|
|
|
|
—
|
|
Deferred Rent
|
|
|
63,910
|
|
|
|
—
|
|
Less Valuation Allowance
|
|
|
(955,812
|
)
|
|
|
(807,082
|
)
|
|
|
|
85,038
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Taxes
|
|
$
|
—
|
|
|
$
|
(285
|
)
|
23
ROKWADER, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 11 – INCOME TAXES (CONTINUED)
As of September 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 $1,849,267 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 $1,085,000 and a deferred tax liability of $85,000. As of September
30, 2016, the Company established a valuation allowance of $1,085,000 to fully offset the deferred tax asset based on a brief history
of operations.
NOTE 12 – SUBSEQUENT EVENTS
Management has evaluated subsequent
events through the date of this report.
24