ROKWADER, INC. - FORM 10-Q - August 21, 2017

Attached files

file	filename
EX-32.1 - SECTION 1350 CERTIFICATION OF PRESIDENT AND PRINCIPAL FINANCIAL AND ACCOUNTING O - ROKWADER, INC.	exhibit_32-1.htm
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFF - ROKWADER, INC.	exhibit_31-2.htm
EX-31.1 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF PRESIDENT - ROKWADER, INC.	exhibit_31-1.htm
EX-10.1 - STOCK PURCHASE AGREEMENT, DATED JUNE 7, 2017, BETWEEN THE COMPANY, AS SELLER, AN - ROKWADER, INC.	exhibit_10-1.htm
EX-10.1 - STOCK PURCHASE AGREEMENT, DATED JUNE 7, 2017, BETWEEN THE COMPANY, AS SELLER, AN - ROKWADER, INC.	exhibit_10-1.pdf

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2017

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

For the transition period from ______________ to ______________

Commission File No. 000-51867

ROKWADER, INC.

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

DELAWARE

(State or other jurisdiction of

incorporation or organization)

7929

(Primary Standard Industrial

Classification Code Number)

73-1731755

(I.R.S. Employer

Identification No.)

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

(Address of principal executive offices)

(408) 221-6900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

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

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

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

Yes ☐ No þ

The number of shares of Common Stock, $0.001 par value, of the registrant outstanding as of August 21, 2017 was 18,792,777.

TABLE OF CONTENTS

	Page
PART I.

Item 1. Financial Statements.	4

Condensed Consolidated Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016	4

Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2017 and 2016 (Unaudited)	6

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2017 and 2016 (Unaudited)	7

Notes to the Unaudited Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis or Plan of Operation	32

Item 3. Quantitative and Qualitative Disclosures About Market Risks.	36

Item 4. Controls and Procedures	36

PART II.

Item 1. Legal Proceedings.	37

Item 1A. Risk Factors.	37

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	37

Item 3. Defaults Upon Senior Securities.	38

Item 4. Mine Safety Disclosures	38

Item 5. Other Information.	38

Item 6. Exhibits.	40

SIGNATURES	41

EXHIBIT INDEX	42

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

FORWARD-LOOKING STATEMENTS

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

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

PART I.

Item 1. Financial Statements.

ROKWADER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	JUNE 30,			DECEMBER 31,
	2017			2016
	(UNAUDITED)			(AUDITED)
CURRENT ASSETS:

Cash (Note 1)	$	6,449,062		$	5,920,982
Accounts Receivable		29,583			10,852
Prepaid Expenses		57,211			27,992
Current Assets of Discontinued Operations (Note 11)		—			215
TOTAL CURRENT ASSETS		6,535,856			5,960,041

PROPERTY AND EQUIPMENT
Property and Equipment, Net of Accumulated Depreciation of $1,004,425 and $537,315, respectively (Note 1 & 6)		1,901,758			2,313,783
Property and Equipment of Discontinued Operations, Net of Accumulated Depreciation of zero and $2,569 (Note 11)		—			6,219
TOTAL PROPERTY AND EQUIPMENT		1,901,758			2,320,002

OTHER ASSETS

Deposits		171,680			171,680
Trademarks (Note 5)		19,329			19,044
Goodwill (Note 5)		7,527,287			7,527,287
Other Assets of Discontinued Operations (Note 11)		—			38,328
TOTAL OTHER ASSETS		7,718,296			7,756,339


TOTAL ASSETS	$	16,155,910		$	16,036,382

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts Payable	$	277,384		$	236,962
Property Taxes Payable		39,228			—
Accrued Expenses		—			32,193
Accrued Interest Payable		1,815			759
Other Current Liabilities		27,380			31,348
Gift Cards & Certificates		49,268			159,842
Accrued Dividends Payable		33,041			132,706
Income Tax Payable (Note 1 &10)		212,529			57,854
Accrued Salaries, Wages & Benefits		148,479			166,183
Related Party Payables (Note 4)		331,014			330,567
Current Liabilities of Discontinued Operations (Note 11)		—			13,527

TOTAL CURRENT LIABILITIES		1,120,138			1,161,941

OTHER LIABILITIES
Deferred Rent		193,374			64,458

TOTAL OTHER LIABILITIES		193,374			64,458

TOTAL LIABILITIES		1,313,512			1,226,399

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS’ EQUITY:
Rokwader, Inc. Stockholders' Equity:
Preferred Stock, $.001 par value, 10,000,000 shares were authorized as of June 30, 2017 and December 31, 2016, none issued and outstanding.		—			—
Common Stock, $.001 par value, 50,000,000 shares authorized, 18,792,777 shares issued and outstanding as of June 30, 2017 and 18,292,777 shares issued and outstanding as of December 31, 2016		18,792			18,292
Additional Paid-In Capital		7,727,651			7,428,151
Accumulated (Deficit)		(2,893,198	)		(2,750,359	)
Less: Treasury Stock		(26,800	)		—
Total Rokwader, Inc. Stockholders' Equity		4,826,445			4,696,084

Noncontrolling Interest in Net Assets of Subsidiary		10,015,953			10,113,899

TOTAL STOCKHOLDERS' EQUITY (Note 2)		14,842,398			14,809,983

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	16,155,910		$	16,036,382

See accompanying notes to unaudited condensed consolidated financial statements

ROKWADER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	THREE MONTHS			THREE MONTHS			SIX MONTHS			SIX MONTHS
	ENDED			ENDED			ENDED			ENDED
	JUNE 30, 2017			JUNE 30, 2016			JUNE 30, 2017			JUNE 30, 2016

NET REVENUE	$	2,351,149		$	1,449,727		$	4,280,018		$	1,449,727

COST OF GOODS SOLD		(611,052	)		(394,015	)		(1,117,631	)		(394,015	)

GROSS PROFIT		1,740,097			1,055,712			3,162,387			1,055,712

OPERATING EXPENSES
Selling, General and Administrative		(865,622	)		(364,046	)		(1,637,257	)		(410,172	)
Rent Expense (Note 7)		(364,458	)		(257,315	)		(728,916	)		(257,315	)
Acquisition Related Expenses (Note 2)		(122,801	)		(590,832	)		(337,804	)		(607,832	)
Depreciation and Amortization (Note 5 & 6)		(202,036	)		(26,016	)		(468,089	)		(26,016	)
TOTAL OPERATING EXPENSES		(1,554,917	)		(1,238,209	)		(3,172,066	)		(1,301,335	)

INCOME (LOSS) FROM CONTINUING OPERATIONS		185,180			(182,497	)		(9,679	)		(245,623	)

OTHER INCOME (EXPENSES)
Interest Income		—			724			—			2,218
Interest Expense		(531	)		—			(1,056	)		—
(Loss) on Disposal of Equipment		(6,483	)		—			(6,483	)		—
TOTAL OTHER INCOME (EXPENSES)		(7,014	)		724			(7,539	)		2,218

INCOME (LOSS) BEFORE INCOME TAXES
FROM CONTINUING OPERATIONS		178,166			(181,773	)		(17,218	)		(243,405	)

PROVISION FOR INCOME TAXES (Note 1 & 10)		(140,518	)		(104,887	)		(189,619	)		(104,887	)

NET INCOME (LOSS) FROM CONTINUING OPERATIONS		37,648			(286,660	)		(206,837	)		(348,292	)

DISCONTINUED OPERATIONS (Note 11)
Income (Loss) from Discontinued Operations,
(Including Gain on Disposal of
Discontinued Operations of $67,745)		66,131			(57,749	)		55,124			(124,204	)

Income Tax Benefit		12,105			41,671			8,967			41,671

INCOME (LOSS) FROM DISCONTINUED OPERATIONS		78,236			(16,078	)		64,091			(82,533	)

NET INCOME (LOSS)		115,884			(302,738	)		(142,746	)		(430,825	)

NET INCOME (LOSS) ATTRIBUTABLE TO
NONCONTROLLING INTEREST		93			(14,582	)		93			(14,582	)

NET INCOME (LOSS) ATTRIBUTABLE TO
ROKWADER, INC.	$	115,791		$	(288,156	)	$	(142,839	)	$	(416,243	)

NET LOSS PER COMMON SHARE - BASIC
& DILUTED FROM CONTINUINING OPERATIONS	$	0.00		$	(0.02	)	$	(0.01	)	$	(0.02	)

NET LOSS PER COMMON SHARE - BASIC
& DILUTED FROM DISCONTINUED OPERATIONS	$	0.00		$	(0.00	)	$	0.00		$	(0.00	)

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC & DILUTED		17,147,173			18,267,777			17,102,998			18,267,777

See accompanying notes to unaudited condensed consolidated financial statements

ROKWADER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	SIX MONTHS			SIX MONTHS
	ENDED			ENDED
	JUNE 30, 2017			JUNE 30, 2016

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$(142,746)			$(430,825)
(Income)Loss from discontinued operations, net of tax		(64,091	)		82,533
Net loss from continuing operations	$	(206,837	)	$	(348,292	)

Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation expense		468,089			26,016
Loss from sale of property and equipment		6,483			—
Amortized deferred rent		128,916			67,934


Changes in assets and liabilities:
Accounts receivable		(18,731	)		(14,044	)
Prepaid expenses		(29,219	)		(23,032	)
Prepaid property taxes		—			(44,627	)
Other current assets		—			(20,000	)
Accounts payable		40,422			237,985
Property taxes payable		39,228			—
Accrued expenses		(32,193	)		97,472
Other current liabilities		(3,968	)		—
Gift cards & certificates		(110,574	)		(18,461	)
Accrued dividends payable to noncontrolling interest		(99,665	)		32,954
Income tax payable (Note1 & 10)		154,675			27,192
Accrued salaries, wages and benefits		(17,704	)		39,059
Accrued interest payable		1,056			—
Deferred tax liability (Note 1 & 10)		—			33,788

Cash Provided by Operating Activities - Continuing Operations		319,978			93,944
Cash Provided by (Used in) Operating Activities - Discontinued Operations		72,207			(3,846	)
Net Cash Provided by Operating Activities		392,185			90,098

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (Note 6)		(62,547	)		—
Purchase of trademark (Note 5)		(285	)		—
Related party receivables (Note 4)		—			(598,096	)
Business combination (Note 2)		—			(3,968,225	)

Cash Used in Investing Activities - Continuing Operations		(62,832	)		(4,566,321	)
Cash Provided by Investing Activities - Discontinued Operations		36,620			—
Net Cash Used by Investing Activities		(26,212	)		(4,566,321	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		300,000			—
Bank overdraft		—			33,662
Purchase of treasury stock		(26,800	)		—
Related party payables (Note 4)		447			35,067
Distribution to noncontrolling interest		(98,040	)		(32,954	)

Cash Provided by Financing Activities - Continuing Operations		175,607			35,775
Cash Used in Financing Activities - Discontinued Operations		(13,500	)		—
Net Cash Provided by Financing Activities		162,107			35,775

NET INCREASE (DECREASE) IN CASH		528,080			(4,440,448	)

CASH AT BEGINNING OF YEAR		5,920,982			5,099,188

CASH AT END OF YEAR	$	6,449,062		$	658,740

Cash Paid During the Period for:
Interest	$	—		$	38
Income taxes	$	22,500		$	8,925

Non-Cash Transactions:

Sale of Subsidiary (Note 11)	$	26,800		$	—

Issuance of Subsidiary Stock to Purchase of property
and equipment (Note 2)	$	—		$	(3,443,071	)

Acquisition by Subsidiary (Note 2)	$	—		$	(3,000,000	)

Issuance of preferred stock by a subsidiary	$	—		$	6,443,071

See accompanying notes to unaudited condensed consolidated financial statements

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

HISTORY

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

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

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

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

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

On June 28, 2017, the Company sold 100% of the voting stock of Latigo. Thus, after the sale of Latigo, the Company will continue its focus on growth through True Blue and its car wash acquisitions. All gains and losses on disposition, along with the sales, costs and expenses and income taxes attributable to the discontinued operations, are presented in the section of our condensed consolidated financial statements for all periods presented. (See Note 11).

PRINCIPLES OF CONSOLIDATION

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

Certain reclassifications have been made to conform prior period condensed consolidated financial statements to the current period presentation.

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

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 June 30, 2017 and December 31, 2016, the Company had zero cash equivalents.

CONCENTRATIONS OF CREDIT RISK

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

The Company holds more than $250,000 in interest bearing accounts at two banks, thus there is a credit risk related to these cash deposits since these amounts exceed the current federally insured amount of $250,000 per depositor, per insured bank, for each account ownership category. As of June 30, 2017, the Company had cash balances of $6,449,062 in two banks and the Company had a credit risk of $5,923,946 related to these cash deposits. As of December 31, 2016, the Company had cash balances of $5,921,197 in three banks and the Company had a credit risk of $5,671,197.

FINANCIAL CONDITION AND PLAN OF OPERATION

As of June 30, 2017, the Company had working capital of $5,415,718, including $6,449,062 of cash on hand.

As a result of the acquisition, by True Blue of the five Express Car Washes (“Express”) from a leading Express Car Wash operator in the Phoenix area, and the agreements to purchase an additional six Express Car Washes from the same operator, the Company has commenced to generate significant revenues, including $4,280,018 for the six months ended June 30, 2017. The Company believes this acquisition will help accelerate growth, amplify valuation, and create liquidity.

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTS RECEIVABLE

The Company reports accounts receivable net of an allowance for doubtful accounts equal to the estimated collection losses to be incurred. Estimated losses are based on actual collection experience and management’s evaluation of the current status of existing receivables. The allowance for doubtful accounts is based on evaluation of various factors influencing the collectability of all receivables. Management anticipates no problems with collection and no allowance for doubtful accounts is considered necessary as of June 30, 2017 and as of December 31, 2016.

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

PROPERTY AND EQUIPMENT

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

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

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

BUSINESS COMBINATIONS

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

LONG-LIVED ASSETS

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GOODWILL AND INTANGIBLE ASSETS

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

The Company amortizes intangible assets with finite lives on a straight-line basis over their estimated useful lives. Goodwill and intangible assets with indefinite life are reviewed, at least annually, for impairment, or when events or circumstances indicate their carrying amount may not be recoverable. Based on the review of goodwill and the intangible assets, no impairment loss was recorded as of June 30, 2017 or as of December 31, 2016.

REVENUE RECOGNITION

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

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

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

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

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

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.

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 $5,105 and zero for the six months ended June 30, 2017 and 2016, respectively.

STOCK-BASED COMPENSATION

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

INCOME TAXES

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

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

The Company utilizes the Topic 740 to account for the uncertainty in income taxes. Topic 740 for Income Taxes clarifies the accounting for uncertainty in income taxes by prescribing rules for recognition, measurement and classification in financial statements of tax positions taken or expected to be in a tax return. Further, it prescribes a two-step process for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is a greater than 50 percent likelihood of being realized upon ultimate settlement. This topic also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. The Company’s policy is that any interest or penalties related to uncertain tax positions are recognized in income tax expense when incurred. The Company has no uncertain tax positions or related interest or penalties requiring accrual at June 30, 2017 and December 31, 2016.

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DISCONTINUED OPERATIONS

The Company evaluates long-lived assets that have been sold to determine if the results of the business should be classified as discontinued operations in accordance with FASB ASC Topic 205-20 related to Presentation of Financial Statements – Discontinued Operations. Topic 205-20, states that a disposal of component of an entity or a group of components of an entity shall be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of three events occur. One event being the component of an entity or group of components of an entity is disposed of by sale.

In April 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 raises the threshold for determining which disposals are required to be presented as discontinued operations and modifies related disclosure requirements. The Company elected to early adopt the guidance of ASU 2014-08.

On June 28, 2017, the Company sold 100% of its subsidiary, Latigo Shore Music, Inc. (“Latigo”). In accordance with Topic 205-20, the Company evaluated whether the sale of Latigo should be classified as a discontinued operation. Latigo qualified as a component of the Company due to its maintenance of separate record to measure it performance. Latigo operated for the purpose of generating revenues and profits, and as such, qualified as a business. Additionally, the Company determined that the sale of Latigo will have a major effect on the company’s operations and financial results because Latigo’s operations represented a significant portion of the Company’s pre-tax loss for the year ended December 31, 2016. As such, the Company determined that the results of Latigo’s operations have been reclassified as discontinued operations for all periods presented.

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK

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

TREASURY STOCK

The Company follows the guidance in FASB ASC Topic 505 related to Treasury Stock. According to the guidance in FASB ASC Topic 505-30, the Company, as permitted by the laws of the State of Delaware, will hold repurchased shares as treasury stock until a decision is made as to the shares’ ultimate disposition. The Company shows the cost of the treasury stock as a reduction from the total of capital stock, additional paid-in capital, and accumulated deficit. If the determination is made that the treasury stock is to be retired, the Company will charge any excess of the repurchase price over the stock’s par value to additional paid-in capital. Any amounts that exceed additional paid-in capital will be charged to retained earnings.

SEGMENT DISCLOSURE

FASB ASC Topic 280, Segment Reporting, establishes standards for reporting financial and descriptive information about a public entity’s reportable segments. As of June 30, 2017, the Company operated through one reportable business segment: (1) the investment and acquisition vehicle focused on True Blue.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2017, the FASB issued Accounting Standards Update (ASU) 2017-09, Compensation – Stock Compensation (Topic 718). ASU 2017-09 was issued by the Board to provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless all of the following are met:

The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.


	3)	The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.

The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company is currently assessing the guidance of this Update for future implementation.

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

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

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

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

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

NOTE 2 – BUSINESS COMBINATIONS

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

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

During the six months ended June 30, 2017 and 2016, the Company incurred acquisition related expenses of $337,804 and $607,832, resepectively. Acquisition related expenses from the Clean Freak car washes acquisition totaled $104,796 and $607,832 for the six months ended June 30, 2017 and 2016, respectively. These costs are primarily related to legal, accounting, and consulting services.

NOTE 3 – STOCKHOLDERS’ EQUITY

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

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

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

A summary of warrants activity as is presented below:

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Life (Years)		Value
Outstanding at December 31, 2015		6,158,333		$	0.68		4.10	$	—

Granted		—		$	—		—	$	—
Exercised		(25,000	)	$	0.75		—	$	—
Expired/Cancelled		(233,333	)	$	—		—	$	—
Outstanding at December 31, 2016		5,900,000		$	0.68		3.60	$	—

Granted		—		$	—		—	$	—
Exercised		(500,000	)	$	0.60		—	$	—
Expired/Cancelled		—		$	—		—	$	—
Outstanding at June 30, 2017		5,400,000		$	0.69		2.75	$	—

Exercisable at June 30, 2017		5,400,000		$	0.69		2.75	$	—

As of June 30, 2017, all warrants are vested.

On June 30, 2017, Coco Partners, LLC exercised 400,000 of its vested warrants at an exercise price of $0.60 per share for a total of $240,000.

On June 28, 2017, the Company sold its subsidiary Latigo Shore Music, Inc. As part of the consideration received for the purchase of Latigo, the Company received 40,000 shares of its common stock at a price of $0.67 per share for a total of $26,800 (See Note 11). The Company, as permitted by the laws of the State of Delaware, will hold these shares as treasury stock until a decision is made as to the shares’ ultimate disposition. In accordance with FASB ASC Topic 505-30 related to Treasury Stock, the Company shows the cost of the treasury stock as a deduction from the total of capital stock, additional paid-in capital, and retained earnings.

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

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

NOTE 3 – STOCKHOLDERS’ EQUITY (CONTINUED)

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

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

NOTE 4 – RELATED PARTY TRANSACTIONS

The Company has a payable to Wash Management Group, LLC, a related party, in the amount of $447 as of June 30, 2017 and zero as of December 31, 2016. Wash Management Group, LLC is beneficially controlled by the sellers of the Clean Freak car washes. The sellers additionally own a noncontrolling interest in True Blue Car Wash Corp., the Company’s majority owned subsidiary.

The company has a loan payable to Coco Partners, LLC, a related party, in the amount of $316,067 as of June 30, 2017 and at December 31, 2016. Coco Partners, LLC is primarily owned by the President of the Company.

The company has a loan payable to Gateway Advisors, Inc., a related party, in the amount of $14,500 as of June 30, 2017 and as of December 31, 2016. The President of the Company has an ownership stake in the stock of Gateway Advisors, Inc.

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

NOTE 5 – GOODWILL AND INTANGIBLES

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

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

Following is a summary of goodwill and intangibles assets:

	June 30, 2017						December 31, 2016
	Gross		Accumulated		Net Carrying		Gross		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount

Trademarks	$	19,329	$	—	$	19,329	$	19,044	$	—	$	19,044

Goodwill	$	7,527,287	$	—	$	7,527,287	$	7,527,287	$	—	$	7,527,287

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	June 30, 2017							December 31, 2016
	Gross		Accumulated			Net Carrying		Gross		Accumulated			Net Carrying
	Amount		Depreciation			Amount		Amount		Depreciation			Amount
Property and Equipment
Car Wash Equipment		2,086,488		(869,111	)		1,217,377		2,029,195		(471,669	)		1,557,526
Car Wash Improvements		629,726		(69,597	)		560,129		629,735		(39,044	)		590,691
Car Wash Vending Machine		13,315		(4,749	)		8,566		13,315		(2,671	)		10,644
Furniture and Equipment		61,522		(20,471	)		41,051		61,523		(11,720	)		49,803
Office Equipment		19,854		(10,877	)		8,977		18,636		(5,816	)		12,820
Security Equipment		95,278		(29,620	)		65,658		98,694		(6,395	)		92,299
	$	2,906,183	$	(1,004,425	)	$	1,901,758	$	2,851,098	$	(537,315	)	$	2,313,783

Depreciation expense reported in Income from Continuing Operations for the six months ended June 30, 2017 and 2016 was $468,089 and $26,016, respectively.

NOTE 7 - LEASES

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

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

December 31,	Amount
2017		606,000
2018		1,230,120
2019		1,254,722
2020		1,279,817
2021		1,305,413
Thereafter		22,580,771
Total minimum future rental payments	$	28,256,843

Total rent expense for the six months ended June 30, 2017 and 2016 was $728,916 and $257,315, respectively.

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – COMMITMENTS AND CONTINGENCIES

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

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

NOTE 9 - SEGMENT INFORMATION

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

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.

	Car Wash
	Business			Corporate			Total
For The Three Months Ended June 30, 2017:
Revenues	$	2,351,149		$	—		$	2,351,149
Gross Profit		1,740,097			—			1,740,097
Selling, General and Administrative		(833,269	)		(32,353	)		(865,622	)
Rent Expense		(364,458	)		—			(364,458	)
Acquisition Related Expenses		(118,701	)		(4,100	)		(122,801	)
Interest Income		—			—			—
Interest Expense		—			(531	)		(531	)
Depreciation and Amortization		(202,036	)		—			(202,036	)
Income from Discontinued Operations, net of tax		78,236			—			78,236
Net Income		38,428			77,456			115,884

	Car Wash
	Business			Corporate			Total

For The Three Months Ended June 30, 2016:
Revenues	$	1,449,727		$	—		$	1,449,727
Gross Profit		1,055,712			—			1,055,712
Selling, General and Administrative		(326,307	)		(37,739	)		(364,046	)
Rent Expense		(257,315	)		—			(257,315	)
Acquisition Related Expenses		(486,017	)		(104,815	)		(590,832	)
Interest Income		—			724			724
Interest Expense		—			—			—
Depreciation and Amortization		(26,016	)		—			(26,016	)
Loss from Discontinued Operations, net of tax		—			(16,078	)		(16,078	)
Net Loss		(191,166	)		(111,572	)		(302,738	)

	Car Wash
	Business			Corporate			Total

For The Six Months Ended June 30, 2017:
Revenues	$	4,280,018		$	—		$	4,280,018
Gross Profit		3,162,387			—			3,162,387
Selling, General and Administrative		(1,536,552	)		(100,705	)		(1,637,257	)
Rent Expense		(728,916	)		—			(728,916	)
Acquisition Related Expenses		(233,008	)		(104,796	)		(337,804	)
Interest Income		—			—			—
Interest Expense		—			(1,056	)		(1,056	)
Depreciation and Amortization		(468,089	)		—			(468,089	)
Income from Discontinued Operations, net of tax		64,091			—			64,091
Net Income (Loss)		248			(142,994	)		(142,746	)

	Car Wash
	Business			Corporate			Total

For The Six Months Ended June 30, 2016:
Revenues	$	1,449,727		$	—		$	1,449,727
Gross Profit		1,055,712			—			1,055,712
Selling, General and Administrative		(326,307	)		(83,865	)		(410,172	)
Rent Expense		(257,315	)		—			(257,315	)
Acquisition Related Expenses		(486,017	)		(121,815	)		(607,832	)
Interest Income		—			2,218			2,218
Interest Expense		—			—			—
Depreciation and Amortization		(26,016	)		—			(26,016	)
Loss from Discontinued Operations, net of tax		—			(82,533	)		(82,533	)
Net Loss		(191,166	)		(239,659	)		(430,825	)

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – INCOME TAXES

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

	Six Months Ended			Six Months Ended
	June 30, 2017			June 30, 2016
Current
Federal	$	163,577		$	44,497
State		26,327			26,745
		189,904			71,242

Deferred
Federal		(243	)		30,399
State		(42	)		3,246
		(285	)		33,645

Total	$	189,619		$	104,887

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

	Six Months Ended			Six Months Ended
	June 30, 2017			June 30, 2016
Federal Statutory Rate		34.00	%		34.00	%
Federal Rate Adjustment		0.00	%		0.97	%
State Taxes		-152.91	%		-12.24	%
Meals & Entertainment		-7.80	%		-0.27	%
Change in Valuation Allowance		-1011.22	%		-11.94	%
Effect of Arizona Tax Rate Change		29.23	%		0.00	%
Other		7.42	%		-53.33	%
Effective Rate		-1101.28	%		-42.81	%

Deferred income tax assets (liabilities) are as follows:

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	June 30, 2017			December 31, 2016
Deferred income tax liabilities:
Property, Plant and Equipment		(197,194	)		(309,134	)
Trademarks		(473	)		(239	)
Goodwill		—			—
		(197,667	)		(309,373	)

Deferred income tax assets:
Start-Up Expenses		35,524			40,594
Intangible Assets		—			16,544
Net Operating Loss Carryforward		326,570			463,947
Charitable Contributions Carryforward		—			188
Acquisition Related Expenses		531,758			431,271
Deferred Rent		72,001			24,257
Accrued Interest Payable		676			296
Goodwill		225,658			300,507
Accrued PTO		22,052			13,396
Less Valuation Allowance		(1,016,572	)		(981,627	)
		197,667			309,373

Total Deferred Taxes	$	—		$	—

As of June 30, 2017, the Company had incurred $286,400 of start-up expenses amortizable over 15 years. With the acquisition of the Clean Freak car washes, the Company acquired trademarks of $19,044 which are amortizable over 15 years. Additionally, it acquired Goodwill of $7,527,287 of which $2,745,937 is not deductible for tax purposes.

Additionally, the Company has net operating loss carry forwards of approximately $893,300 and $706,300 for both federal and state purposes, respectively. These federal and state carry forwards are scheduled to expire beginning 2027. The Company is no longer subject to examination by the Internal Revenue Service for years prior to 2012 and by the Franchise Tax Board for years prior to 2011. There could be certain limitation, imposed by Internal Revenue Code Section 382, on the utilization of these loss carry forwards if there were more than a 50 percent change of control.

NOTE 11 – DISCONTINUED OPERATIONS

Due to the Company’s shift in business strategies from the music publishing business to being an investment and acquisition vehicle to acquire operating car wash businesses, the Company deemed necessary for the disposal of its music publishing business in order to concentrate its full efforts in carrying on its new business strategy. On June 28, 2017, the Company sold 100% of its subsidiary, Latigo Shore Music, Inc. (“Latigo”). The Company entered into a Stock Purchase Agreement with Mr. Steve Dorff, former President of Latigo and DillonPark, LLC (a Delaware limited liability company). The agreement called for the sale of 100% of the capital stock of Latigo at a selling price of $91,800 of which $65,000 was in cash plus forty thousand (40,000) shares of Rokwader, Inc.’s common stock, owned by Mr. Dorff. The value of each share of common stock was determined to be $0.67 per share based on the market price for the Company’s stock at the time of the close of the Stock Purchase Agreement. The sale of Latigo was negotiated by all parties involved on an arm’s length basis.

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In accordance with Topic 205-20, the Company evaluated whether the sale of Latigo should be classified as a discontinued operation. Latigo qualified as a component of the Company due to its maintenance of separate record to measure it performance. Latigo operated for the purpose of generating revenues and profits, and as such, qualified as a business. Additionally, the Company determined that the sale of Latigo will have a major effect on the company’s operations and financial results. As such, the Company determined that the results of Latigo’s operations have been reclassified as discontinued operations for all periods presented.

A pre-tax gain on disposal of discontinued operations in the amount of $67,745 was reported in income from discontinued operations in the Company’s condensed consolidated statement of operations for the six months ended June 30, 2017. Zero gain on disposal of discontinued operations was reported in the Company’s condensed consolidated statement of operations for the six months ended June 30, 2016. Additionally, a pre-tax loss of $12,621 from discontinued operations and an income tax benefit of $8,967 were reported in income from discontinued operations for the six months ended June 30, 2017. A pre-tax loss of $124,204 from discontinued operations and a tax benefit of $41,671 were reported in discontinued operations for the six months ended June 30, 2016. After disposal, the Company will not have any further continuing involvement with Latigo’s operations.

The following table identifies the results of operations of Latigo:

	Three Months Ended
	June 30, 2017			June 30, 2016
Pre-Tax Income (Loss) from Discontinued Operations
Net Revenues	$	235		$	90
Selling, General and Administrative Expenses		(1,034	)		(54,102	)
Rent Expense		—			(2,322	)
Depreciation and Amortization		(1,293	)		(1,377	)
Interest Expense		(21	)		(38	)
Other Income		499			—
Pre-Tax (Loss) from Discontinued Operations		(1,614	)		(57,749	)
Pre-Tax Income on Disposal of Discontinued Operations		67,745			—
Total Pre-Tax Income (Loss) from Discontinued Operations		66,131			(57,749	)
Income Tax Benefit		12,105			41,671
Income (Loss) from Discontinued Operations	$	78,236		$	(16,078	)

	Six Months Ended
	June 30, 2017			June 30, 2016
Pre-Tax (Loss) from Discontinued Operations
Net Revenues	$	338		$	202
Selling, General and Administrative Expenses		(11,815	)		(115,808	)
Rent Expense		—			(5,805	)
Depreciation and Amortization		(2,587	)		(2,755	)
Interest Expense		(41	)		(38	)
Other Income		1,484			—
Pre-Tax (Loss) from Discontinued Operations		(12,621	)		(124,204	)
Pre-Tax Income (Loss) on Disposal of Discontinued Operations		67,745			—
Total Pre-Tax Income (Loss) from Discontinued Operations		55,124			(124,204	)
Income Tax Benefit		8,967			41,671
Income (Loss) from Discontinued Operations	$	64,091		$	(82,533	)

ROKWADER, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table identifies the carrying amount of the major classes of assets and liabilities included as part of the disposal of Latigo and reported as discontinued operations in the Company’s condensed consolidated balance sheets:

	June 30, 2017		December 31, 2016
Assets
Cash	$	—	$	215
Property and Equipment, Net of Accumulated Depreciation		—		6,219
Intangible Assets, Net of Accumulated Amortization		—		38,328
Total Assets	$	—	$	44,762

Liabilities
Accrued Interest Payable	$	—	$	27
Related Party Note Payable		—		13,500
of Latigo's music publishing business	$	—	$	13,527

NOTE 12 – SUBSEQUENT EVENTS

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

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

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

Plan of Operations

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

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

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

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

The Company’s acquisition of the leading express car wash platform in Arizona consisted of 5 established locations with the right to acquire an additional 6 new locations under forward purchase contracts. The remaining 6 locations are expected to be acquired at a fixed multiple of Earnings Before Interest, Taxes, Depreciation, Amortization and Rent (EBITDAR). As the new sites mature to stabilized profitability, True Blue intends to exercise its right to acquire the sites. The 6 forward purchase sites are expected to generate similar results as the first 5 locations in annual EBITDAR at the time of acquisition exercise. All of the acquisitions are subject to final due-diligence and definitive agreements. There is no assurance that the acquisition will be completed, or if completed, that future operational results will be consistent with prior results of operations.

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

Strategy and Operation as Investment Vehicle

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

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

Results of Operation

Net Revenues

Three months ended June 30, 2017 and 2016

The Company’s net revenue for the three months ended June 30, 2017 increased by $901,422 compared to the three months ended June 30, 2016. The increase of 62% is due, primarily, to the acquisition of the 5 car wash locations by the Company’s subsidiary True Blue. The Company acquired the 5 car wash locations in May 2016 and only reported two months of net revenues during the three months ended June 30, 2016 as opposed to three months of net revenues during the three months ended June 30, 2017.

Six months ended June 30, 2017 and 2016

The Company’s increase in net revenue for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was $2,830,291, an increase of 195%. The increase is also due to the Company reporting the net revenues from the 5 car wash locations for six months in 2017 as opposed to two months during the six months ended June 30, 2016.

Operating Expenses

	Three Months Ended				Six Months Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Operating Expenses
Selling, General and Administrative	$	865,622	$	364,046	$	1,637,257	$	410,172
Rent Expense		364,458		257,315		728,916		257,315
Acquisition Related Expenses		122,801		590,832		337,804		607,832
Depreciation and Amortization		202,036		26,016		468,089		26,016
Total Operating Expenses	$	1,554,917	$	1,238,209	$	3,172,066	$	1,301,335

Three months ended June 30, 2017 and 2016

Selling, General and Administrative Expenses increased by $501,576, a 138% increase. This increase was in part due to the Company becoming a fully operating entity with the acquisition of the 5 car wash locations in May 2016. Additionally, the increase was also due to management hiring a staff to run the Company’s operations.

Rent Expense increased by $107,143, a 41% increase related to the Company incurring three months of rent costs for the 5 car wash locations during the three months ended June 30, 2017 compared to only two months’ rent costs during the same period in 2016.

Acquisition Related Expenses decreased by $468,031, a 79% decline. This decline is, in part, due to the completion of the Company’s acquisition of the 5 car wash locations. In addition to the Company incurring costs related to the acquisition of the 5 car wash locations, which were not significant, the Company incurred $118,701 of additional acquisition related costs during the three months ended June 30, 2017 as management continued to implement the Company’s business strategy.

Depreciation and Amortization Expense increased by $176,020. A 676% increase due to the Company’s acquisition of the 5 car wash locations.

Six months ended June 30, 2017 and 2016

The Company’s increase in Selling, General and Administrative Expenses of $1,227,085, a 299% increase, is due in part, to the Company reporting six months of SG &A Expenses during the six months ended June 30, 2017 compared to only two months in the same period in 2016. As the Company became a fully operating entity, management hired a staff to run the Company’s operations, resulting in an increase in the Company’s salaries and wages costs.

Rent Expense increased by $471,601, a 183% increase related to the Company incurring six months of rent costs for the 5 car wash locations during the six months ended June 30, 2017 compared to only two months’ rent costs during the same period in 2016.

Acquisition Related Expenses decreased by $270,028, a 44% decline. This decline is, in part, due to the completion of the Company’s acquisition of the 5 car wash locations in May 2016. The Company incurred $233,008 of acquisition related costs during the six months ended June 30, 2017 as management continued to implement the Company’s business strategy. These costs were not related to the acquisition of the 5 car wash locations.

Depreciation and Amortization Expense increased by $442,073. A 1,699% increase due to the Company’s acquisition of the 5 car wash locations.

Liquidity and Capital Resources

We have incurred losses since inception of our business in 2005 and, as of June 30, 2017, we had an accumulated deficit of $2,893,198. This deficit was the result of the Company’s operations during its development stage. As management continues to implement the Company’s business strategy through its subsidiary, management expects the Company to generate net revenues that will enable it to fund its business operations, continue to develop its acquired brand and identify other potential car wash operations to acquire in order to grow its portfolio of car wash facilities.

Cash

As of June 30, 2017, the Company held cash of $6,449,062 compared to cash of $5,920,982 as of December 31, 2016. The increase of $528,080, a 9% increase, is due to the Company’s improving net revenues during the six months ended June 30, 2017. The Company’s will use this cash to continue funding its business operations as well as continuing its business strategy of acquiring additional car wash operations. In order to continue to execute its business strategy, the Company expects to incur additional legal, accounting, and consulting fees for the remainder of its fiscal year 2017.

Cash Flows

Cash provided by operating activities – continuing operations was $319,978 during the six months ended June 30, 2017 compared to $93,944 for the same period in 2016. The increase is primarily due to the Company’s increase in net revenues.

Cash used in investing activities – continuing operations was $62,832 and $4,566,321 during the six months ended June 30, 2017 and 2016, respectively. The decrease was due to the Company’s acquisition of the 5 car wash locations in the second quarter of 2016 while no such acquisitions have been made in 2017.

Cash provided by financing activities – continued operations was $175,607 during the six months ended June 30, 2017 compared to $35,775 for the six months ended June 30, 2016. The increase was the result of common stock issued by the Company after Coco Partners, LLC, the majority owner of the Company, exercised a number of its vested stock warrants acquired in 2015. Also, the increase was offset by a decrease due to the change in distributions to non-controlling interests during the six months ended June 30, 2017.

Critical Accounting Policies

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

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

See Note 1 – Summary of Significant Accounting Policies, to the condensed consolidated financial statements for a detailed description of the Company’s account policies.

Off-balance Sheet Arrangements

Since our inception through June 30, 2017, we have not engaged in any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, our Principle Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures as of June 30, 2017, were not effective because of material weaknesses in our internal control over financial reporting, described below, in Management’s Report on Internal Control over Financial Reporting. Notwithstanding the identified material weaknesses, management believes the financial statements included in this Interim Report on Form 10-Q fairly represents in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Changes in Internal Control Over Financial Reporting

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

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

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

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

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

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

PART II

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

Not Applicable for smaller reporting companies.

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

On June 30, 2017, Coco Partners, LLC, of which the CEO/President of the Company is the principal owner, exercised 400,000 of its vested warrants at an exercise price of $0.60 per share for a total of $240,000.

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

On June 7, 2017, in connection with the sale of Latigo, as part of the purchase price the Company issued 40,000 shares of common stock to the purchasers.

Item 3 Defaults Upon Senior Securities.

None.

Item 4 Mine Safety Disclosures

Not Applicable

Item 5 Other Information.

Due to the Company’s shift in business strategies from the music publishing business to being an investment and acquisition vehicle to acquire operating car wash businesses, the Company deemed necessary for the disposal of its music publishing business in order to concentrate its full efforts in carrying on its new business strategy. On June 28, 2017, the Company sold 100% of its subsidiary, Latigo Shore Music, Inc. (“Latigo”). The Company entered into a Stock Purchase Agreement with Mr. Steve Dorff, former President of Latigo and DillonPark, LLC (a Delaware Limited Liability Company). The agreement called for the sale of 100% of the capital stock of Latigo at a selling price of $91,800 of which $65,000 was in cash plus forty thousand (40,000) shares of Rokwader, Inc.’s common stock, owned by Mr. Dorff. The value of each share of common stock was determined to be $0.67 per share based on the market price for the Company’s stock at the time of the close of the Stock Purchase Agreement. The sale of Latigo was negotiated by all parties involved on an arm’s length basis.

The Company has made certain reclassifications to its condensed consolidated financial statements to conform prior periods presented to the current period presentation. Thus segregating its discontinued operations.

The following table identifies the results of operations of Latigo:

	Three Months Ended
	June 30, 2017			June 30, 2016
Pre-Tax Income (Loss) from Discontinued Operations
Net Revenues	$	235		$	90
Selling, General and Administrative Expenses		(1,034	)		(54,102	)
Rent Expense		—			(2,322	)
Depreciation and Amortization		(1,293	)		(1,377	)
Interest Expense		(21	)		(38	)
Other Income		499			—
Pre-Tax (Loss) from Discontinued Operations		(1,614	)		(57,749	)
Pre-Tax Income on Disposal of Discontinued Operations		67,745			—
Total Pre-Tax Income (Loss) from Discontinued Operations		66,131			(57,749	)
Income Tax Benefit		12,105			41,671
Income (Loss) from Discontinued Operations	$	78,236		$	(16,078	)

	Six Months Ended
	June 30, 2017			June 30, 2016
Pre-Tax (Loss) from Discontinued Operations
Net Revenues	$	338		$	202
Selling, General and Administrative Expenses		(11,815	)		(115,808	)
Rent Expense		—			(5,805	)
Depreciation and Amortization		(2,587	)		(2,755	)
Interest Expense		(41	)		(38	)
Other Income		1,484			—
Pre-Tax (Loss) from Discontinued Operations		(12,621	)		(124,204	)
Pre-Tax Income (Loss) on Disposal of Discontinued Operations		67,745			—
Total Pre-Tax Income (Loss) from Discontinued Operations		55,124			(124,204	)
Income Tax Benefit		8,967			41,671
Income (Loss) from Discontinued Operations	$	64,091		$	(82,533	)

	June 30, 2017		December 31, 2016
Assets
Cash	$	—	$	215
Property and Equitpment, Net of Accumulated Depreciation		—		6,219
Intangible Assets, Net of Accumulated Amortization		—		38,328
Total Assets	$	—	$	44,762

Liabilities
Accrued Interest Payable	$	—	$	27
Related Party Note Payable		—		13,500
of Latigo's music publishing business	$	—	$	13,527

Item 6 Exhibits.

(a) Exhibits.

Exhibit		Item

31.1*		Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

10.1*		Stock Purchase Agreement, dated June 7, 2017, between the Company, as seller, and Steve Dorff and Dillonpark LLC, as purchasers.

101.INS **		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

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

SIGNATURES

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

	ROKWADER, INC.

Date: August 21, 2017	/s/ Robert Wallace
	Robert Wallace, Chief Executive Officer

EXHIBIT INDEX

Exhibit		Item

31.1*		Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10.1*		Stock Purchase Agreement, dated June 7, 2017, between the Company, as seller, and Steve Dorff and Dillonpark LLC, as purchasers.
101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

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

ROKWADER, INC. - FORM 10-Q - August 21, 2017

Attached files

ROKWADER, INC. Reports