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EXCEL - IDEA: XBRL DOCUMENT - ROKWADER, INC.Financial_Report.xls
EX-31.2 - RULE 13A-14(A)/15D-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - 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-32.1 - SECTION 1350 CERTIFICATION OF PRESIDENT AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER - ROKWADER, INC.exhibit_32-1.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q  

 

(Mark One)

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

 

For the Quarterly Period Ended March 31, 2014

 

OR

 

 o 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. 333-125314

 

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.)

 

23945 Calabasas Road, Suite 115, Calabasas, CA 91302

(Address of principal executive offices)

 

(818) 224-3675

(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  o Accelerated filer                     o
Non-accelerated filer     o Smaller reporting company  þ

 

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

Yes  o No  þ

 

The number of shares of Common Stock, $0.001 par value, of the registrant outstanding at May 15, 2014 was 2,548,718.

 

 


 
 

 

 

TABLE OF CONTENTS

 

  Page
PART I.  
   
Item 1. Financial Statements. 4
   
CONDENSED CONSOLIDATED BALANCE SHEETS 4
   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED 5
   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED 6
   
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED 8
   
Item 2. Management’s Discussion and Analysis or Plan of Operation 20
   
Item 3. Quantitative and Qualitative Disclosures About Market Risks. 22
   
Item 4T. Controls and Procedures 22
   
PART II. 23
   
Item 1. Legal Proceedings. 23
   
Item 1A. Risk Factors. 23
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 23
   
Item 3. Defaults Upon Senior Securities. 23
   
Item 4. Mine Safety Disclosures 23
   
Item 5. Other Information. 23
   
Item 6. Exhibits. 23
   
SIGNATURES 23
   
EXHIBIT INDEX 24
Certification of CEO Pursuant to Rule 15d-14(a) 25
Certification of CFO Pursuant to Rule 15d-14(a) 26
Certification of CEO and CFO Pursuant to Section 1350 27

 

 

2


 
 

 

 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

 

 

3


 
 

PART I.

Item 1.  Financial Statements.

ROKWADER, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(A DEVELOPMENT STAGE COMPANY)
       
ASSETS
   MARCH 31,  DECEMBER 31,
   2014  2013
CURRENT ASSETS:   (Unaudited)  (Audited)
       
Cash (Note 1)  $18,218   $27,142 
           
TOTAL CURRENT ASSETS   18,218    27,142 
           
OTHER ASSETS          
           
Intangible Assets, Net of Accumulated Amortization          
of $6,560 and $5,603, respectively (Note 4)   48,440    49,397 
           
TOTAL OTHER ASSETS   48,440    49,397 
           
TOTAL ASSETS  $66,658   $76,539 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT
           
CURRENT LIABILITIES:          
           
Accounts Payable  $2,604   $—   
Accrued Interest Payable   45,770    41,621 
Credit Card Payable   5,739    2,803 
Related Party Convertible Note Payable (Note 3)   285,000    260,000 
Derivative Liabilities   189,295    —   
           
TOTAL CURRENT LIABILITIES   528,408    304,424 
           
TOTAL LIABILITIES   528,408    304,424 
           
STOCKHOLDERS’ DEFICIT:          
Preferred Stock, $.001 par value, 10,000,000 shares were authorized as of March 31, 2014 and December 31, 2013, none issued and outstanding.   —      —   
Common Stock, $.001 par value, 50,000,000 shares authorized, 2,548,718 shares issued and outstanding as of March 31, 2014. 50,000,000 shares authorized, 2,548,718`shares issued and outstanding as of December 31, 2013.   2,549    2,549 
Additional Paid-In Capital   874,028    874,028 
Additional Paid-In Capital  - Stock Options   121,077    121,077 
(Deficit) Accumulated During Development Stage   (1,459,404)   (1,225,539)
           
TOTAL STOCKHOLDERS' DEFICIT (Note 2)   (461,750)   (227,885)
           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $66,658   $76,539 
           
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4


 
 

 

ROKWADER, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(A DEVELOPMENT STAGE COMPANY)
 
    THREE   THREE   FOR THE PERIOD
    MONTHS   MONTHS   FROM MARCH 18, 2005
    ENDED   ENDED   (INCEPTION)
    MARCH 31, 2014   MARCH 31, 2013   TO MARCH 31, 2014
             
REVENUE   $ 82     $ 41     $ 24,333  
                         
                         
EXPENSES                        
General and Administrative     (44,652 )     (17,905 )     (1,215,721 )
Impairment Losses (Notes 4)     —         —         (79,548 )
TOTAL EXPENSES     (44,652 )     (17,905 )     (1,295,269 )
                         
OTHER INCOME (EXPENSE)                        
Interest Income     —         —         827  
Change in Fair Value of Derivative Liabilities     (189,295 )     —         (189,295 )
                         
                         
NET LOSS   $ (233,865 )   $ (17,864 )   $ (1,459,404 )
                         
                         
NET LOSS PER COMMON SHARE - BASIC                        
& DILUTED   $ (0.09 )   $ (0.01 )        
                         
                         
WEIGHTED AVERAGE NUMBER                        
OF COMMON SHARES OUTSTANDING     2,548,718       2,483,718          
                         
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

5


 
 

 

ROKWADER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(A DEVELOPMENT STAGE COMPANY)
             
    THREE   THREE   FOR THE PERIOD
    MONTHS   MONTHS   FROM MARCH 18, 2005
    ENDED   ENDED   (INCEPTION)
    MARCH 31, 2014   MARCH 31, 2013   TO MARCH 31, 2014
OPERATING ACTIVITIES:        
Net loss   $ (233,865 )   $ (17,864 )   $ (1,459,404 )
Adjustments for non-cash items:                        
Amortization expense     957       322       60,976  
Impairment Losses (Note 4)     —         —         79,548  
Issuance of stock for interest payable     —         —         2,823  
Issuance of stock for services rendered     —         —         83,510  
Non-cash stock compensation expense     —         —         136,080  
Change in Fair Value of Derivative Liabilities     (189,295 )     —         (189,295 )
                         
Changes in assets and liabilities:                        
Accrued interest payable     4,149       3,510       45,770  
Accounts payable     2,604       5,068       2,604  
Credit card payable     2,936       8,802       5,739  
                         
           Net Cash Used for Operating Activities     (33,924 )     (162 )     (853,059 )
                         
INVESTING ACTIVITY:                        
Acquisition of Latigo Shore Music, Inc.     —         —         (29,964 )
Acquisition of Dorff Writers Share     —         —         (40,000 )
Acquisition of Music Catalog (Note 4)     —         —         (15,000 )
                         
Net Cash Used for Investing Activities     —         —         (84,964 )
                         
FINANCING ACTIVITIES:                        
Issuance of common stock     —         —         395,241  
Repayment of loan payable     —         —         (94,000 )
Proceeds from issuance of loan payable to officer     —         —         310,000  
Proceeds from issuance of note payable     25,000       —         345,000  
                         
           Net Cash Provided by Financing Activities     25,000       —         956,241  
                         
NET (DECREASE)/ INCREASE IN CASH     (8,924 )     (162 )     18,218  
                         
CASH AT BEGINNING OF PERIOD     27,142       3,566       —    
                         
CASH AT END OF PERIOD   $ 18,218     $ 3,404     $ 18,218  
                         
Cash Paid During the Period for:                        
Interest   $ 4,231     $ 4,106     $ 68,214  
Income taxes   $ 3,075     $ 2,823     $ 32,400  

 

 

6


 
 

 

ROKWADER, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(A DEVELOPMENT STAGE COMPANY)
(Continued)
             
    THREE   THREE   FOR THE PERIOD
    MONTHS   MONTHS   FROM MARCH 18, 2005
    ENDED   ENDED   (INCEPTION)
    MARCH 31, 2014   MARCH 31, 2013   TO MARCH 31, 2014
     
Non-Cash Investing and Financing activities                        
In addition to paying $30,000 in cash for the purchase of Latigo Shore Music, Inc., the Company issued 70,000 shares of common stock valued at $1.00   $ —       $ —       $ 70,000  
                         
The Company issued 104,500 shares of common stock for services rendered. (Note 2)   $ —       $ —       $ 29,260  
                       
The Company issued 1,000,000 shares of common stock to Mr. Yale Farar in full satisfaction of $280,000 plus interest owed to Mr. Farar. (Note 2 & 3)   $ —       $ —       $ 282,823  
                         
The Company issued 15,000 shares of common stock for services rendered. (Note 2)   $ —       $ —       $ 11,250  
                         
The Company issued 25,000 shares of common stock for services rendered. (Note 2 & 3)   $ —       $ —       $ 12,500  
                       
The Company issued 60,000 shares of common stock to Brooktide, LLC in full satisfaction of $30,000 owed to Brooktide, LLC. (Note 2 & 3)   $ —       $ —       $ 30,000  
                       
The Company issued 40,000 shares of common stock to Brooktide, LLC in full satisfaction of $30,000 owed to Brooktide, LLC. (Note 2 &3)   $ —       $ —       $ 30,000  
                         
The Company issued 45,000 shares of common stock for services rendered. (Note 2 & 3)   $ —       $ —       $ 22,500  
                         
The Company issued 20,000 shares of common stock for services rendered (Note 2 & 3)   $ —       $ —       $ 8,000  
                         
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

7


 
 

 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

HISTORY

 

ROKWADER, INC. (the Company), a development stage company, was organized under the laws of the State of Delaware on March 18, 2005.

 

DEVELOPMENT STAGE ENTERPRISE

 

The Company is a development stage company as defined by the Financial Accounting Standards Board’s Accounting Standards Codification Topic 915 related to Development Stage Entities. With the acquisition of Latigo Shore Music, Inc. (Latigo) as a subsidiary, the Company has commenced operations and has become operational. The Company qualifies as a development stage company as it has not generated significant revenues. All losses accumulated since inception have been considered as part of the Company’s development stage activities.

 

BASIS OF CONSOLIDATION

 

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The Company’s fiscal year end is December 31. The condensed consolidated financial statements include the accounts of Rokwader, Inc. and subsidiary. Inter-company accounts and transactions have been eliminated.

 

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2014, and for all periods presented herein, have been made.

 

It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 2013 audited consolidated financial statements.

 

GOING CONCERN AND PLAN OF OPERATION

 

The Company’s condensed consolidated financial statements have been presented on the basis that it will continue as a going concern. Although the Company has commenced operations, it has not generated significant revenues from operations to date, and still meets the requirements of a development stage company. The Company has an accumulated deficit of $1,459,404 as of March 31, 2014.

 

To the extent that the Company’s capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders will provide any portion of the Company’s future financing requirements.

 

No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company and raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

INCOME TAXES

 

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

 

8


 
 

 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

INCOME TAXES (CONTINUED)

 

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.

 

The Company utilizes the Financial Accounting Standards Board’s Accounting Standards Codification Topic 740 related to Income Taxes to account for the uncertainty in income taxes. Topic 740 for Income Taxes clarifies the accounting for uncertainty in income taxes by prescribing rules for recognition, measurement and classification in financial statements of tax positions taken or expected to be in a tax return. Further, it prescribes a two-step process for the financial statement measurement and recognition of a tax position. The first step involves the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more likely than not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is a greater than 50 percent likelihood of being realized upon ultimate settlement. This topic also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. The Company’s policy is that any interest or penalties related to uncertain tax positions are recognized in income tax expense when incurred. The Company has no uncertain tax positions or related interest or penalties requiring accrual at March 31, 2014 and December 31, 2013.

 

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. The company does not have cash equivalents as of March 31, 2014 and December 31, 2013.

 

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.

 

COMPREHENSIVE INCOME (LOSS)

 

The Company has not presented a separate statement of other comprehensive income (loss) as there are no such items.

 

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

 

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

 

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

 

9


 
 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value Measurements

 

ASC 820, “Fair Value Measurements”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, inputs other than level one that are either directly or indirectly observable such as quoted prices for identical or similar assets or liabilities on markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company recorded derivative liabilities at fair value as of March 31, 2014 of $189,295 using Level 2 inputs.

LONG-LIVED ASSETS

 

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

 

During 2010, the Company determined that, based on estimated future cash flows, the carrying amount of the intangible assets acquired in the purchase of Latigo Shore Music, Inc., including the Music Copyright Costs and Master Compact Disks exceed their fair value by $18,942 each. Accordingly, an impairment loss of $37,884 was recognized for the year ended December 31, 2010 related to these intangibles. No impairment loss was recognized for the three month period ended March 31, 2014. Additionally, during 2010, the Company determined that the carrying amount of goodwill exceeded its fair value. Accordingly, a goodwill impairment loss of $41,664 was recognized for the year ended December 31, 2010. No goodwill loss was recognized for the three month period ended March 31, 2014.

 

REVENUE RECOGNITION

 

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

 

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

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2014, the FASB issued an accounting standards update allowing an accounting alternative for the subsequent measurement of goodwill. An entity within the scope of the amendments that elects the accounting alternative in the Update should amortize goodwill on a straight line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate. An entity that elects the account alternative is further required to make an account policy election to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill should be tested for impairment when a triggering event occurs that indicates that the fair value of an entity may be below its carrying value. When a triggering event occurs, an entity must perform the quantitative test to compare the entity’s fair value with its carrying amount, including goodwill (or the fair value of the reporting unit with that carrying amount, including goodwill, of the reporting unit). If the qualitative assessment indicates that it is not more likely than not that goodwill is impaired, further testing is unnecessary. The goodwill impairment loss, if any, represents the excess of the carrying amount of the entity over its fair value (or the excess of the carrying amount of the reporting unit over the fair value of the reporting unit). The goodwill impairment loss cannot exceed the entity’s carrying amount of the goodwill. The disclosures required under this alternative are similar to existing U.S. generally accepted accounting principles (GAAP). However an entity that elects the accounting alternative is not required to present changes in goodwill in a tabular reconciliation. The accounting alternative, if elected should be applied prospectively to goodwill existing as of the beginning of the period of adoption and new goodwill recognized in annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted, including application to any period for which the entity’s annual or interim financial statements have not yet been made available for issuance. Implementation of this update will not have a material impact on our consolidated financial position or results of operations.

10


 
 

 

 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 2 – STOCKHOLDERS DEFICIT

 

On February 1, 2006, the Company completed an initial registered public offering of its common stock pursuant to the Company's registration statement on Form SB−2 (File No. 333−125314) that the Securities and Exchange Commission declared effective on November 2, 2005 (the “Registration Statement”). The Company offered and sold 125,000 registered shares of the Company's common stock, at a price of $1.00 per share. Pursuant to Rule 419 of Regulation C, promulgated under the Securities Act of 1933, as amended, the Company deposited all proceeds of the offering and the shares sold into an escrow account. The offering was conducted by the Company's management without the use of an underwriter or securities dealer and the Company has not paid and will not pay commissions in connection with the sale of the shares. The shares sold and the proceeds of the offering were held in escrow pending completion of a business combination. The Company had until May 2, 2007 to consummate a qualifying business combination with another entity.

 

Accordingly, the $125,000 subject to the withdrawal restrictions had been classified as restricted cash, and in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 480 related to Financial Instruments with Characteristics of Both Liabilities and Equity, a liability was recorded for the obligation to repay these amounts to the investors if an acquisition is not consummated. On April 10, 2007, the Company returned these funds to the investors including interest as management determined that a qualifying business combination would not occur by May 2, 2007.

 

On August 16, 2007, the Company issued shares of its common stock for services rendered. As a result, Mitchell W. Turk received 32,000 shares of common stock, Gary Saderup received 17,500 shares of common stock, Steve Dorff received 30,000 shares of common stock, and William B. Barnett received 25,000 shares of common stock. The shares of common stock issued are restricted shares and each share certificate contains a legend restricting sales and transfers.

 

The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for these shares issued. According to Topic 505, issuance of equity instruments for services received are based on the fair value of the equity instruments issued or on the fair value of the services received, whichever is a more reliable measure. The Company used the value of its common stock shares to account for this transaction. The value of its shares is deemed more reliable as it was obtained from the valuation of an unrelated valuation specialist.

 

On August 16, 2007, the Company issued 1,000,000 shares of common stock to Brooktide, LLC (a company controlled by Mr. Yale Farar) in full satisfaction of $280,000 plus interest owed to Mr. Farar. The shares of common stock are restricted shares and the share certificates contain a legend restricting sales and transfers.

 

On September 26, 2007, in order to provide a fair and reasonable percentage in ownership of the Company and a fair and reasonable share price for potential future investors, the Company adjusted its capitalization. The Company received, from Brooktide, LLC (a company controlled by Mr. Yale Farar), 544,286 shares of common stock for cancellation. The Company cancelled and returned the shares of common stock to authorized but unissued status.

 

The Company, in its development stage, does not have a history of operations, and there is no liquid market for trading the Company’s stock. Subsequently, determining the fair value of our common stock requires making complex and subjective judgments. The valuation of the per share value of the Company’s common stock was determined contemporaneously by the Board of Directors, in its best judgment. Over the past year, the Company’s share valuation has fluctuated in response to the Company’s varying business condition.

 

Significant Factors, Assumptions, and Methodologies Used in Determining Fair Value

Significant factors and assumptions used in determining the Company’s fair value of its common stock include, future prospects for business, economic conditions of the music industry, debt restructuring, availability of capital resources, and cancellation of outstanding shares of common stock.

 

Significant Factors contributing to the Difference between Fair Value as of the Date of Each Grant and Estimated IPO Price

In April 2007 the Company acquired Latigo Shore Music, Inc. which business had been valued at $100,000 by an independent business appraisal firm. In light of the perceived future potential of Latigo’s music inventory and industry experience of Latigo’s President, the Company and Latigo’s President agreed on a per share valuation of $1.00 per share of the Company’s common stock. This valuation was determined after arms-length negotiations between the Company and Latigo and was accepted as a fair valuation by the parties to this transaction.

 

11


 
 

  

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 2 – STOCKHOLDERS’ DEFICIT (CONTINUED)

 

In August 2007, the Company’s ability to continue operations was in question and a restructuring of debt was deemed imperative. The Board considered the then net worth of the Company, the reduced prospects for business at the time, the general economic conditions in the music industry and the subjective value related to development stage companies. Faced with these circumstances, the Board determined a significantly reduced value of $0.28 per share was justified. In October 2007, the Company obtained a retrospective independent valuation of the Company’s stock as of August 16, 2007 of $0.28 per share thus supporting the Board’s valuation. An unrelated valuation specialist performed this independent valuation.

 

In October 2007, when the public offering price was being considered, the Company had recently significantly restructured its debt, had reduced the number of outstanding shares and had received additional loans from its President. In addition, by late 2007, the Company was seeing increased interest in Latigo’s business and music catalog thus enhancing the prospects for business. These internal and external factors, along with the fact that shares offered in the proposed initial public offering (“IPO”) would be freely tradable, convinced the Board that the fair valuation of the Company’s stock in the public offering should be $0.75 per share.

 

The Company’s business prospects and capitalization have been fluid from month to month and period to period. The Board of Directors, in setting fair values on stock issuances, uses its best judgment to evaluate the then current business condition and prospects for the Company and its industry and determines stock valuation to reflect current business conditions and prospects. Consequently, as business conditions have fluctuated over the past 12 months, so has the Company’s stock valuation as determined by the Board. Future variations in the Company’s stock price should be anticipated.

 

The Company filed a registration statement, Form S-1, with the SEC on December 6, 2007. The SEC declared the registration statement effective on May 13, 2008. On August 5, 2008, the Company closed its initial public offering after selling 318,504 shares of its common stock at a price of $0.75 per share for gross proceeds of $238,878. After $66,127 of offering costs, the net proceeds totaled $172,751. Net proceeds will be used to acquire music catalogues, for music production and promotion and for general working capital.

 

On August 29, 2008, the Company’s board of directors agreed to issue 9,000 stock options to Mr. Gary Saderup for the purchase of the Company’s shares of common stock. The stock options are exercisable at $0.75 per share and expire 2 years from the date of grant. On August 26, 2010, the Company and Mr. Saderup mutually agreed to extend the exercise date of these options to August 28, 2012.

 

On August 31, 2008, the Company additionally agreed to enter into a consulting agreement with Mr. Stephen Horwitz. According to the agreement, Mr. Horwitz would act as a consultant to the Company for 18 months. The Company will grant Mr. Horwitz warrants to purchase 25,000 shares of its common stock at an exercise price of $0.75 per share. Warrants to purchase 12,500 shares will be granted upon execution of the consulting agreement. The warrants to purchase the remaining 12,500 shares were to be granted in 90 days, subject to approval by the President of the Company as to the quality of the work performed by Mr. Horwitz. On November 26, 2008, the Board of Directors denied the grant of the remaining 12,500 shares. Additionally, the consulting agreement expired on June 1, 2009, a total of nine months. The 12,500 warrants issued expire 2 years from the date of grant. On August 26, 2010, the Company and Mr. Horwitz mutually agreed to extend the exercise date of these warrants to August 28, 2012. As a result of this modification, and the modification described above, the Company recognized $7,437 in stock-based compensation in the 2010 consolidated statement of operations.

 

The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for these options and warrants issued. According to Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company believes that fair value of these options and warrants is a more reliable measure of the consideration received for services performed for the Company. We determined the fair value of these equity instruments using the Black-Scholes option-pricing model. Factors used in the determination of the fair value of these equity instruments include, the stock price at the grant date, the exercise price, the expected life of the equity instrument, the volatility of the underlying stock, the expected dividends on it, and the risk-free interest rate over the expected life of the equity instrument. The initial fair value of these options and warrants granted was $7,566 which was calculated using the Black-Scholes option-pricing model.

 

At December 31, 2010, the 21,500 vested options are outstanding at an exercise price of $0.75 per share and there is no intrinsic value. Compensation cost charged to operations was $7,437 for the year ended December 31, 2010. Compensation cost charged to operations was $11,250 for the year ended December 31, 2009.

 

12


 
 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 2 – STOCKHOLDERS DEFICIT (CONTINUED)

 

On January 3, 2011, the Company entered into a Securities Purchase Agreement (“Agreement”) with CSB IV US Holdings, LLC (“Purchaser”) to sell 70,000 shares of the Company’s common stock at a price of $.50 per share. The proceeds from this sale will be used to pay fees and expenses; to the extent such expenses are not deferred, arising from the Company’s compliance with its public reporting requirements and to continue to create viable entertainment assets in the music recording industry.

 

On June 15, 2011, the Company issued 25,000 shares its common stock, at a price of $0.50 per share, to Mr. Steve Dorff for services rendered. The shares of common stock issued are restricted shares and each share certificate contains a legend restricting sales and transfers. The Company determined that the price of $0.50 per share was a fair value for the shares issued to Mr. Dorff based on its most recent securities sale transaction.

 

On July 27, 2011 the Company issued 60,000 shares of common stock to Brooktide, LLC (a company controlled by Mr. Yale Farar) in full satisfaction of $30,000 owed to Brooktide, LLC. The shares of common stock are restricted shares and the share certificates contain a legend restricting sales and transfers.

 

On September 16, 2011, Mr. Stephen Horowitz exercised his 12,500 warrants to purchase 12,500 shares of the Company’s common stock at an exercise price of $0.75 per share.

 

On September 16, 2011, Mr. Gary Saderup exercised his options to purchase 9,000 shares of the Company’s common stock at an exercise price of $0.75 per share.

 

On March 8, 2012, the Company issued 40,000 shares of common stock to Brooktide, LLC (a company controlled by Mr. Yale Farar) in full satisfaction of $30,000 owed to Brooktide, LLC. The shares of common stock are restricted shares and the share certificates contain a legend restricting sales and transfers.

 

On April 2, 2012, the Company sold 53,500 shares of the Company’s common stock at a price of $0.75 per share. The proceeds from this sale will be used to pay fees and expenses; to the extent such expenses are not deferred, arising from the Company’s compliance with its public reporting requirements and to continue to create viable entertainment assets in the music recording industry.

 

On August 3, 2012, the Company’s board of directors agreed to issue 25,000 stock options to Mr. William Barnett, 25,000 stock options to Mr. Mitchell Turk, 25,000 stock options to Mr. Gary Saderup, 25,000 stock options to Mr. Steve Dorff, and 250,000 stock options to Brooktide, LLC for the purchase of the Company’s shares of common stock. The stock options are exercisable at $0.75 per share and expire 2 years from the date of grant. As a result of the issuance of these stock options, the Company recognized $121,077 in stock-based compensation in the 2012 consolidated statement of operations.

 

The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for these options and warrants issued. According to Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company believes that fair value of these options and warrants is a more reliable measure of the consideration received for services performed for the Company. We determined the fair value of these equity instruments using the Black-Scholes option-pricing model. Factors used in the determination of the fair value of these equity instruments include, the stock price at the grant date, the exercise price, the expected life of the equity instrument, the volatility of the underlying stock, the expected dividends on it, and the risk-free interest rate over the expected life of the equity instrument. The initial fair value of these options and warrants granted was $121,077 which was calculated using the Black-Scholes option-pricing model.

 

The stock option expense included in general and administrative expense for the year ended December 31, 2012 is $121,077 and December 31, 2011, is $0. FASB ASC 718 “Compensation-Stock Compensation” requires that only the compensation expense expected to vest be recognized.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected volatility is based on the daily historical volatility of comparative companies, measured over the expected term of the option. The risk-free rate is based on the implied yield on U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option.

 

12


 
 

 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 2 – STOCKHOLDERS DEFICIT (CONTINUED)

 

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 at date of original issuance on August 3, 2012:

 

   August 3, 2012
Dividend Yield   0 
Expected Volatility   100%
Risk-Free Interest Rate   0.38 
Term in Years   1.58 

 

Summary of option activity as is presented below:

 

   Options  Weighted Average Exercise Price  Average Remaining Contractual Life (years)  Aggregate Intrinsic Value
Options granted August 3, 2012   350,000   $0.75    1.58   $121,077 
Options forfeited or expired   —      —      —      —   
Outstanding at December 31, 2012   350,000   $0.75    1.58   $121,077 
                     
Exercisable at December 31, 2012   —      —      —      —   
                     
Options forfeited or expired   —      —      —      —   
Outstanding at December 31, 2013   350,000   $0.75    1.58   $121,077 
                     
Exercisable at December 31, 2013   —      —      —      —   
                     
Options forfeited or expired   —      —      —      —   
Outstanding at March 31, 2014   350,000   $0.75    1.58   $121,077 
                     
Exercisable at March 31, 2014   —      —      —      —   
                     

 

On August 20, 2013, the Company issued 45,000 shares of common stock, at the price of $0.50, for services rendered. 10,000 shares of common stock were issued to Mr. Gary Saderup, 20,000 shares of common stock were issued to Mr. Steve Dorff, and 15,000 shares of common stock were issued to Mr. William Barnett. The shares of common stock are restricted shares and the share certificates contain a legend restricting sales and transfers. The Company determined that the price of $0.50 per share was a fair value for the shares issued for services rendered based on its most recent securities sale transaction.

 

On November 1, 2013, the Company issued 20,000 shares of common stock at the price of $0.40, for services rendered to Mr. Andrew Dorff. The shares of common stock are restricted shares and the share certificates contain a legend restricting sales and transfers. The Company determined that the price of $0.40 per share was a fair value for the shares issued for services rendered based on its most recent securities sale transaction.

 

13


 
 

 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 3 – RELATED PARTY TRANSACTIONS

 

On August 16, 2007, the Company issued 1,000,000 shares of common stock to Mr. Yale Farar in full satisfaction of $280,000 plus interest owed to him. The shares of common stock are restricted shares and the share certificates contain a legend restricting sales and transfers. The $280,000 owed to Mr. Farar was comprised of the $170,000 loan to the Company, including $50,000 on March 30, 2007, pursuant to the Agreement to Advance Funds dated September 21, 2005 and the $110,000 loan to the Company in accordance with the 6% Subordinated Convertible Promissory Note on April 26, 2007.

 

Mr. Yale Farar, President, had loaned the Company $170,000, including $50,000 on March 30, 2007, pursuant to the terms of the Agreement to Advance Funds dated September 21, 2005, as amended. The Company used these funds to make payments for its general and administrative expenses and deferred offering costs. Pursuant to the terms of the Agreements to Advance Funds dated September 21, 2005, as amended, the loans were on an interest-free basis, documented by promissory notes and payable only upon consummation of a merger transaction or Event of Default, as defined by the promissory notes.

 

On April 26, 2007, Mr. Farar, the President of Rokwader, loaned the Company $110,000 in accordance with a 6% Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, the loan bears interest at 6% per annum and absent an “Event of Default,” was payable on demand or upon receipt by the Company of not less than $500,000 in capital or sale of substantially all of the Company’s assets or 80% of the Company’s capital stock. The proceeds of the Note were used to complete the acquisition of Latigo and to pay fees and expenses, to the extent such expenses were not deferred, arising from the Company’s compliance with its public reporting requirements.

 

On November 13, 2007, Brooktide, LLC loaned the Company $75,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.375 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.”

 

The proceeds of the Note were used to pay fees and expenses arising from the Company’s compliance with its public reporting requirements and to continue to create viable entertainment assets in the music recording industry. Additionally, the proceeds of the Note were used to pay for costs relating to its registration statement with the SEC, which was declared effective May 13, 2008 and finalized on August 5, 2008.

 

Based on a conversion price of $.375, the convertibility does not result in a beneficial conversion feature as defined in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 470 related to Debt with Conversion and Other Options. Further, per the Financial Accounting Standards Board’s Accounting Standards Codification Topic 815 related to Contracts in Entity’s Own Equity, the debt meets the definition of conventional convertible debt and bifurcation of the embedded derivative is not necessary.

 

Additionally, Brooktide, LLC owns a controlling interest in the Company’s common stock. Mr. Farar, the President of Rokwader, is the sole manager of Brooktide, LLC. As a sole manager, Mr. Farar, has voting and investment power over the shares owned by Brooktide, LLC.

 

The Company neither owns nor leases any real or personal property. Most office services are provided without charge by the president. In addition, Mr. Dorff, director and President of Latigo provides music studio facilities to us at no cost. Such costs are immaterial to the financial statements and accordingly, have not been reflected therein.

 

The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities, such that they may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.

 

On February 12, 2009, the Company issued 15,000 shares of its common stock at a price of $0.75 per share to Mr. Steve Dorff for services performed. Using the results of its initial public offering performed on August, 5, 2008, the Company determined that the price of $0.75 per share was a fair value for the shares issued to Mr. Steve Dorff.

 

14


 
 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 3 – RELATED PARTY TRANSACTIONS (CONTINUED)

 

The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for these shares issued. According to Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliable measure. The Company believes that the fair value of these shares is a more reliable measure of the consideration received for services performed for the Company.

 

On April 14, 2010, Mr. Yale Farar, the President of Rokwader, loaned the Company $25,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.75 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.”

 

The proceeds of the Note were used to pay fees and expenses arising from the Company’s compliance with its public reporting requirements.

 

On December 17, 2010, Brooktide, LLC loaned Latigo Shore Music, Inc. (“Latigo”), a wholly owned subsidiary of the Company, $16,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by Latigo. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.75 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.”

 

The proceeds of the Note were used to purchase musical compositions from the Gary Harju music catalog to the extent of his writer’s and publisher’s share (“Harju Catalog”). The Harju Catalog consists of 50 original songs written in whole or in part by Gary Harju.

 

On December 17, 2010 Brooktide, LLC loaned the Company $9,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.75 per share. The Note is a demand note and may be paid at any time without premium or penalty.

 

The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.”

 

The proceeds of the Note were used to pay fees and expenses; to the extent such expenses are not deferred, arising from the Company’s compliance with its public reporting requirements and to continue to create viable entertainment assets in the music recording industry.

 

On June 15, 2011, the Company issued 25,000 shares its common stock, at a price of $0.50 per share, to Mr. Steve Dorff for services rendered. The shares of common stock issued are restricted shares and each share certificate contains a legend restricting sales and transfers. Based on the Company’s most recent securities sale transaction, the Company determined that the price of $0.50 per share was a fair value for the shares issued to Mr. Dorff.

 

The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for these shares issued. According to Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliable measure. The Company believes that the fair value of these shares is a more reliable measure of the consideration received for services performed for the Company.

 

On July 27, 2011 Brooktide, LLC loaned the Company $30,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses; to the extent such expenses are not deferred, arising from the Company’s compliance with its public reporting requirements and to continue to create viable entertainment assets in the music recording industry.

 

15


 
 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 3 – RELATED PARTY TRANSACTIONS (CONTINUED)

 

Based on a conversion price of $.50, the convertibility does not result in a beneficial conversion feature as defined in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 470 related to Debt with Conversion and Other Options. Because the conversion price at issuance is the same as the estimated price of the Company’s common stock based on recent issuances of common stock at $.50 per share (see Note 2).  Further, per the Financial Accounting Standards Board’s Accounting Standards Codification Topic 815 related to Contracts in Entity’s Own Equity, the debts meet the definition of conventional convertible debts and bifurcation of the embedded conversion feature is not necessary as the embedded conversion feature is not clearly and closely related to the economic characteristics and risks of the debts.

 

On September 21, 2011, the Company issued 60,000 shares of common stock to Brooktide, LLC in full satisfaction of $30,000 owed to Brooktide, LLC. The shares of common stock are restricted shares and the share certificates contain a legend restricting sales and transfers. The $30,000 owed to Brooktide, LLC was comprised of the $30,000 loan to the Company in accordance with the 6% Subordinated Convertible Promissory Note on July 27, 2011.

 

On March 8, 2012 Brooktide, LLC loaned the Company $30,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.75 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, arising from the Company’s compliance with its public reporting requirements and to continue to create viable entertainment assets in the music recording industry.

 

Additionally, Brooktide, LLC owns a controlling interest in the Company’s common stock. Mr. Farar, the President of Rokwader, is the sole manager of Brooktide, LLC. As a sole manager, Mr. Farar has voting and investment power over the shares owned by Brooktide, LLC.

 

Based on a conversion price of $.75, the convertibility does not result in a beneficial conversion feature as defined in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 470 related to Debt with Conversion and Other Options. Because the conversion price at issuance is the same as the estimated price of the Company’s common stock based on recent issuances of common stock at $.75 per share (see Note 5).  Further, per the Financial Accounting Standards Board’s Accounting Standards Codification Topic 815 related to Contracts in Entity’s Own Equity, the debts meet the definition of conventional convertible debts and bifurcation of the embedded conversion feature is not necessary as the embedded conversion feature is not clearly and closely related to the economic characteristics and risks of the debts.

 

On April 2, 2012, the Company sold 20,000 shares of the Company’s common stock at a price of $0.75 per share to the Chief Financial Officer of the Company, Mitchell W. Turk. The proceeds from this sale will be used to pay fees and expenses; to the extent such expenses are not deferred, arising from the Company’s compliance with its public reporting requirements and to continue to create viable entertainment assets in the music recording industry.

 

On August 3, 2012, the Company’s board of directors agreed to issue 25,000 stock options to Mr. William Barnett, 25,000 stock options to Mr. Mitchell Turk, 25,000 stock options to Mr. Gary Saderup, 25,000 stock options to Mr. Steve Dorff, and 250,000 stock options to Brooktide, LLC for the purchase of the Company’s shares of common stock. The stock options are exercisable at $0.75 per share and expire 2 years from the date of grant. As a result of the issuance of these stock options, the Company recognized $121,077 in stock-based compensation in the 2012 consolidated statement of operations.

 

The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for these options and warrants issued. According to Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company believes that fair value of these options and warrants is a more reliable measure of the consideration received for services performed for the Company. We determined the fair value of these equity instruments using the Black-Scholes option-pricing model. Factors used in the determination of the fair value of these equity instruments include, the stock price at the grant date, the exercise price, the expected life of the equity instrument, the volatility of the underlying stock, the expected dividends on it, and the risk-free interest rate over the expected life of the equity instrument. The initial fair value of these options and warrants granted was $121,077 which was calculated using the Black-Scholes option-pricing model.

 

16


 
 

ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 3 – RELATED PARTY TRANSACTIONS (CONTINUED)

 

On April 1, 2013 Brooktide, LLC loaned the Company $35,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.

 

On May 24, 2013 Brooktide, LLC loaned the Company $50,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.

 

On October 28, 2013 Brooktide, LLC loaned the Company $50,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty.

 

The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.

 

On January 31, 2014 Brooktide, LLC loaned the Company $25,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.

 

The Company determined that these notes have an embedded derivative and are therefore accounted for at fair value. The Company recorded a fair market value adjustment for the three months ended March 31, 2014 of $189,295. The fair market value adjustments were based on the Black-Scholes method using the following assumptions: risk free rate of 2.73%, dividend yield of 0%, expected life of 10 years and volatility of 86%. The fair value derivative liability under the notes as of March 31, 2014 was $189,295.

 

NOTE 4 – INTANGIBLES

 

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

 

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ROKWADER, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(A DEVELOPMENT STAGE COMPANY)

 

NOTE 4 – INTANGIBLES (CONTINUED)

 

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

 

Following is a summary of the intangibles at the end of the years ending:

 

  March 31, 2014   December 31, 2013
  Gross   Accumulated   Gross   Accumulated
  Amount   Amortization   Amount   Amortization
Intangibles subject to amortization:                
Harju Music Catalog   $ 15,000     $ 4,384     $ 15,000     $ 4,080  
Dorff's Writer's Share     40,000       2,176       40,000       1,523  
    $ 55,000     $ 6,560     $ 55,000     $ 5,603  
                                 

 

For the three months ended March 31, 2014 and the year ended December 31, 2013, amortization expense was $957 and $2,811, respectively.

 

Amortization of the remaining intangible assets is expected to be $16,810 from 2014 through 2018, and $31,630 in aggregate for years thereafter through 2032.

 

 

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

 

This 10-Q contains forward-looking statements. Our actual results could differ materially from those set forth as a result of general economic conditions and changes in the assumptions used in making such forward-looking statements. 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. 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.

 

Plan of Operations

 

Our principal business objective for the next 12 months will be to achieve long-term growth through Latigo, our wholly-owned subsidiary. In this regard, we are putting extensive effort into marketing the songs in our catalogs, by introducing them to recording artists, producers and singers in order to try and get them recorded. When they are recorded and if successfully released they will generate royalties. We currently have retained two music industry consultants who are bringing to the attention of active music industry parties the songs in our catalogs. The consultants, pursuant to a month to month letter agreement, are paid minimal consultant fees and commissions. We cannot at this time predict future results of our operations, as it is very difficult to predict success of released and marketed recordings. In the end, the public makes the final judgment by their purchases. Furthermore, the Company continues to review other business opportunities which include strategic relationships or mergers and acquisitions. Latigo is also interested in acquiring additional music catalogs. Latigo hopes to be able to receive publishing fees on the copyrights as other singers, movies, television, or other theatrical outlets utilize the songs in the catalog.

 

Latigo’s expenses associated with its business for the quarter ended March 31, 2014, were $16,749. 

 

On January 24, 2013, the Company, which already owned a 50% interest of the Andrew Dorff Catalog (the “Catalog”), acquired the remaining 50 % interest of the catalog from Dillonpark, LLC, an entity of which Mr. Farar, the president and principal shareholder of the Company, is a member and manager. The purchase price for the additional 50% of the Catalog was $22,000, which is the same amount that Dillonpark paid to acquire the Catalog. Furthermore, the purchase price of $22,000 is only required to be paid if and when the Catolog produces cash through royalties or sales. There is no level of cash production required to trigger the commencement of repayment of the $22,000. To date the Catalog has not produced any revenue.

 

Results of Operation for the three months ended March 31, 2014 and 2013

 

During the three months ended March 31, 2014, the Company generated $82 of revenues compared to $41 revenues for the three months ended March 31, 2013.  During the three months ended March 31, 2014 and 2013, the Company incurred general and administrative expenses of $44,652 and $17,905, respectively, consisting primarily of operational expenses of Latigo and professional fees related to preparation of the Company’s Form 10 and other SEC reporting obligations. During the three months ended March 31, 2014 and 2013, the company incurred a loss from change in fair value of derivative liabilities of $189,295 and $0, respectively. These operating expenses combined with limited or no revenues resulted in net losses of $(233,865) and $(17,864) for the periods ended March 31, 2014 and 2013, respectively.  As of March 31, 2014 and 2013, the Company had stockholders’ deficits of $461,750 and $170,585, respectively.

 

 

Equity and Capital Resources

 

We have incurred losses since inception of our business (March 18, 2005) and, as of March 31, 2014, we had an accumulated deficit of $1,459,404.  As of March 31, 2014, we had cash of $18,218 and a working capital deficit of $510,190, compared to cash of $3,404 and a working capital deficit of $182,471 at March 31, 2013.

 

To the extent that the Company's capital resources are insufficient to meet current or planned operating requirements, the Company will seek additional funds through equity or debt financing, collaborative or other arrangements with corporate partners, licensees or others, and from other sources, which may have the effect of diluting the holdings of existing shareholders. The Company has no current arrangements with respect to, or sources of, such additional financing and the Company does not anticipate that existing shareholders will provide any portion of the Company's future financing requirements.  Although there is no contractual relationship between the Company and Mr. Farar, the President and principal shareholder, he has indicated that, if the Company continues to grow, he would favorably entertain funding corporate expenses for approximately another 24 months. Any additional capital advanced by Mr. Farar would most likely be in the form of a convertible promissory note at 6% interest (the “Note”) and convertible into common stock of the Company at a price equal to the closing bid price on the OTCQB on the date of the Note. There is no assurance that Mr. Farar will continue to support the Company. Without a further influx of monies, either from revenues or from outside investors, the Company will run out of funds within approximately six months.

 

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No assurance can be given that additional financing will be available when needed or that such financing will be available on terms acceptable to the Company. If adequate funds are not available, the Company may be required to delay or terminate expenditures for certain of its programs that it would otherwise seek to develop and commercialize. This would have a material adverse effect on the Company. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

 

12 month Plan

 

Our plan of operation for the next 12 months will be Phase 1 in which we will try to implement the most effective strategies to gain market awareness of our catalog songs. Most of this will take our music consultants to pitch our songs to producers, artists, music executives, and film & TV music supervisors with the intention of getting songs in our catalogs produced and released. Assuming some success with Phase 1, we will move into Phase 2 which will include marketing activities in Europe and Asia and seeking acquisitions of additional music catalogs. Phase 2 would also include hiring songwriters to write songs for the Company to distribute and write songs for a particular artist or medium, whether TV or movies. We anticipate that the total cost of these two Phases will be approximately $405,000. 

 

We have already begun Phase 1 with the hiring of two music consultants In April, 2014. Phase 1will also include attendance at music award ceremonies and music songwriter’s conventions. The estimate cost of the work for Phase 1 is $80,000, plus an estimated $25,000 for general and administrative costs and $55,000 for costs associated with being a public company.

 

Upon completion of Phase 1, we will begin Phase 2 which we estimate the cost to be $245,000. We believe that Phase 1 will continue until the summer of 2015. Phase 2 is estimated to cost $165,000 for the creative expense plus $80,000 for general, administrative, legal, accounting and associated fees to remain a public.

 

We do not have enough funds to cover the cost of Phase 1. We will require additional funding in order to cover administrative expenses and to proceed with the recommended Phase 2 programs that may be needed as a result of the success of the Phase 1 work.

 

Specifically, over the next 12 months, the Company anticipates the following $160,000 of expenses:

 

Music Consultants  $60,000 
Attendance at Music Conventions and Awards   20,000 
General & Administrative   25,000 
 Accounting fees   20,000 
Edgar fees   5,000 
 Legal fees   25,000 
Transfer Agent   5,000 
TOTAL  $160,000 

 

In addition, creative costs will increase in coming years, and there will be continuing general and administrative costs, including costs of maintaining current reporting status under the Securities Exchange Act of 1934.

 

We anticipate that additional funding will be in the form of equity financing from the sale of our common stock or from related party loans. We do not have any arrangements in place for any future equity financing or loans. There are no agreements for future loans and contribution with any of the Directors and officers.

 

The Company has no current plans, proposals or arrangements, written or otherwise, to seek a business combination with another entity in the near future.

 

Tabular Disclosure of Contractual Obligations

 

As a small reporting company, we are not required to provide this information and have elected not to provide it.

 

 

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Emerging Growth Company Status 

 

The Jumpstart our Business Startups Act of 2012, or the JOBS Act, permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to "opt out" of this provision and, as a result, we will not be complying with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

Critical Accounting Policies

 

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

 

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

 

Off-balance Sheet Arrangements

 

Since our inception through March 31, 2014, we have not engaged in any off-balance sheet arrangements.

 

Item 3.               Quantitative and Qualitative Disclosures About Market Risks.

 

Not Applicable.

 

Item 4.T.           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 Chief Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the end of the period covered by this report. Based on that evaluation, our Principle Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures as of March 31, 2014 and 2013, were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. 

 

Changes in Internal Control over Financial Reporting.

 

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

 

Item 1.               Legal Proceedings.

 

None

 

Item 1A.            Risk Factors.

 

Not Applicable

 

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

 

None

 

Item 3.               Defaults Upon Senior Securities.

 

None

 

Item 4.                Mine Safety Disclosures

 

None

 

Item 5.                Other Information.

 

None  

 

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

 

 

 

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: May 20, 2014 /s/ Yale Farar
 

Yale Farar, President

(Principal Executive Officer)

   
Date: May 20, 2014 /s/ Yale Farar
 

Yale Farar, Chief Financial Officer

(Principal Financial and Accounting Officer)

 

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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

 

 

 

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