Attached files
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 September 30, 2015
OR
| ☐ | 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 November 12, 2015 was 18,201,110.
TABLE OF CONTENTS
| Page | |
| PART I. | |
| Item 1. Financial Statements. | |
| Condensed Consolidated Balance Sheets as of September 30, 2015 (Unaudited) and December 31, 2014 | 4 |
| Condensed Consolidated Statements of Operations for the Three Months and Nine months ended September 30, 2015 and 2014 (Unaudited) | 5 |
| Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2015 and 2014 (Unaudited) | 6 |
| Notes to the Condensed Consolidated Financial Statements (Unaudited) | 7 |
| Item 2. Management’s Discussion and Analysis or Plan of Operation | 16 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risks. | 19 |
| Item 4. Controls and Procedures | 19 |
| PART II. | |
| Item 1. Legal Proceedings. | 21 |
| Item 1A. Risk Factors. | 21 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 21 |
| Item 3. Defaults Upon Senior Securities. | 21 |
| Item 4. Mine Safety Disclosures | 21 |
| Item 5. Other Information. | 21 |
| Item 6. Exhibits. | 21 |
| SIGNATURES | 22 |
| EXHIBIT INDEX | 23 |
2
As used in this report, the term “the Company,” “we,” “us,” or “our” mean Rokwader, Inc., and its subsidiary, 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.
3
PART I.
Item 1. Financial Statements.
| ROKWADER, INC. AND SUBSIDIARY | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| ASSETS | ||||||||
| SEPTEMBER 30, 2015 | DECEMBER 31, 2014 | |||||||
| (UNAUDITED) | (AUDITED) | |||||||
| CURRENT ASSETS: | ||||||||
| Cash (Note 1) | $ | 5,243,711 | $ | 7,514 | ||||
| TOTAL CURRENT ASSETS | 5,243,711 | 7,514 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Property and Equipment, Net of Accumulated Depreciation | ||||||||
| of $404 and zero, respectively (Note 1 & 5) | 9,384 | — | ||||||
| TOTAL PROPERTY AND EQUIPMENT | 9,384 | — | ||||||
| OTHER ASSETS | ||||||||
| Intangible Assets, Net of Accumulated Amortization | ||||||||
| of $12,197 and $9,430, respectively (Note 4) | 42,803 | 45,570 | ||||||
| TOTAL OTHER ASSETS | 42,803 | 45,570 | ||||||
| TOTAL ASSETS | $ | 5,295,898 | $ | 53,084 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts Payable | $ | 19,884 | $ | 3,054 | ||||
| Accrued Interest Payable | — | 61,060 | ||||||
| Accrued Expenses | 5,700 | — | ||||||
| Credit Card Payable | 8,970 | 19,998 | ||||||
| Related Party Convertible Notes Payable (Note 3) | — | 385,000 | ||||||
| TOTAL CURRENT LIABILITIES | 34,554 | 469,112 | ||||||
| TOTAL LIABILITIES | 34,554 | 469,112 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 6) | ||||||||
| STOCKHOLDERS’ (DEFICIT): | ||||||||
| Preferred Stock, $.001 par value, 10,000,000 shares | ||||||||
| were authorized as of September 30, 2015 and December 31, 2014, | — | — | ||||||
| none issued and outstanding. | ||||||||
| Common Stock, $.001 par value, 50,000,000 shares | ||||||||
| authorized, 18,201,110 shares issued and outstanding as | ||||||||
| of September 30, 2015 and 2,623,718 shares issued and | ||||||||
| outstanding as of December 31, 2014. | 18,201 | 2,624 | ||||||
| Additional Paid-In Capital | 7,359,492 | 1,063,590 | ||||||
| Accumulated (Deficit) | (2,116,349 | ) | (1,482,242 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY/(DEFICIT) (Note 2) | 5,261,344 | (416,028 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) | $ | 5,295,898 | $ | 53,084 | ||||
| SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||||||||
4
| ROKWADER, INC. AND SUBSIDIARY | ||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||
| (UNAUDITED) | ||||||||||||||||||||
| THREE | THREE | NINE | NINE | |||||||||||||||||
| MONTHS | MONTHS | MONTHS | MONTHS | |||||||||||||||||
| ENDED | ENDED | ENDED | ENDED | |||||||||||||||||
| SEPTEMBER 30, 2015 | SEPTEMBER 30, 2014 | SEPTEMBER 30, 2015 | SEPTEMBER 30, 2014 | |||||||||||||||||
| REVENUE | $ | 1,524 | $ | 197 | $ | 2,228 | $ | 538 | ||||||||||||
| EXPENSES | ||||||||||||||||||||
| General and Administrative | 344,321 | 239,542 | 637,695 | 350,214 | ||||||||||||||||
| TOTAL EXPENSES | 344,321 | 239,542 | 637,695 | 350,214 | ||||||||||||||||
| OTHER INCOME | ||||||||||||||||||||
| Interest Income | 1,360 | — | 1,360 | — | ||||||||||||||||
| TOTAL OTHER INCOME | 1,360 | — | 1,360 | — | ||||||||||||||||
| NET LOSS | $ | (341,437.00 | ) | $ | (239,542 | ) | $ | (634,107 | ) | $ | (349,674 | ) | ||||||||
| NET LOSS PER COMMON SHARE - BASIC | ||||||||||||||||||||
| & DILUTED | $ | (0.02 | ) | $ | (0.09 | ) | $ | (0.06 | ) | $ | (0.04 | ) | ||||||||
| WEIGHTED AVERAGE NUMBER | ||||||||||||||||||||
| OF COMMON SHARES OUTSTANDING | 18,201,110 | 2,558,718 | 11,209,611 | 2,553,517 | ||||||||||||||||
| SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | ||||||||||||||||||||
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| ROKWADER, INC. AND SUBSIDIARY | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (UNAUDITED) | ||||||||
| NINE | NINE | |||||||
| MONTHS | MONTHS | |||||||
| ENDED | ENDED | |||||||
| SEPTEMBER 30, 2015 | SEPTEMBER 30, 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (634,107 | ) | $ | (158,353 | ) | ||
| Adjustments for non-cash items: | ||||||||
| Amortization expense | 2,767 | 2,870 | ||||||
| Depreciation expense | 404 | |||||||
| Forgi veness of debt | 62,778 | |||||||
| Issuance of stock for services rendered | 4,400 | 5,300 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts payable | 16,830 | 500 | ||||||
| Accrued expenses | 5,700 | — | ||||||
| Credit card payable | (11,028 | ) | 16,168 | |||||
| Accrued Interest Payable | (61,060 | ) | 13,814 | |||||
| Net Cash Used for Operating Activities | (613,316 | ) | (119,701 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITY: | ||||||||
| Acquisition of Property & Equipment (Note 6) | (9,788 | ) | — | |||||
| Net Cash Used for Investing Activities | (9,788 | ) | — | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock | 6,244,301 | — | ||||||
| Proceeds from issuance of note payable | — | 95,000 | ||||||
| Repayment of related party note payable | (385,000 | ) | — | |||||
| Net Cash Provided by Financing Activities | 5,859,301 | 95,000 | ||||||
| NET (DECREASE)/ INCREASE IN CASH | 5,236,197 | (24,701 | ) | |||||
| CASH AT BEGINNING OF PERIOD | 7,514 | 27,142 | ||||||
| CASH AT END OF PERIOD | $ | 5,243,711 | $ | 2,441 | ||||
| Cash Paid During the Period for: | ||||||||
| Interest | $ | 637 | $ | 16,003 | ||||
| Income taxes | $ | 3,475 | $ | 4,675 | ||||
| Issuance of stock for interest payable | $ | 61,060 | $ | — | ||||
| Forgiveness of notes payable | $ | 62,778 | $ | — | ||||
SEE ACCOMPANYING NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HISTORY
ROKWADER, INC. (the Company), was organized under the laws of the State of Delaware on March 18, 2005 as a vehicle to seek, investigate and, if such investigation warrants, acquire a target company or business that primarily desires to seek the perceived advantages of a publicly-held corporation. On April 23, 2007, Rokwader completed an acquisition of all of the issued and outstanding capital stock of Latigo Shore Music, Inc. (“Latigo”). Substantially all of the business conducted by Rokwader is through Latigo, its wholly-owned subsidiary. In May and June 2015, the Company underwent a change of control when it sold an aggregate of 15,250,000 shares of its common stock, together with a warrant to purchase an additional 5,900,000 shares of its common stock to Coco Partners, LLC. As a result of this transaction and the change of control of the Company, our business strategies and plan of operations have evolved into two segments: (i) the continuation of the Latigo music publishing business; and (ii) the investment and acquisition vehicle through Coco Partners.
BASIS OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the accounts of Rokwader, Inc. and subsidiary. Intercompany accounts and transactions have been eliminated.
GOING CONCERN AND PLAN OF OPERATION
The Company’s financial statements have been presented on the basis that it will continue as a going concern. Although the Company has commenced operations, it has not generated significant revenues from operations to date, and still meets the requirements of a development stage company. The Company has an accumulated deficit of $2,116,349 as of September 30, 2015.
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 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.
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 will reserve a portion of the deferred tax assets due to restrictions of tax benefits related to changes in ownership.
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ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 September 30, 2015 and December 31, 2014.
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The accompanying unaudited consolidated condensed financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The unaudited consolidated condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2014 of Rokwader, Inc. in our Form 10-K filed on March 10, 2015 with the SEC.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of cash in banks and highly liquid investments with original maturities of 90 days or less. As of September 30, 2015, and December 31, 2014 the Company had no cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company maintains all cash in deposit accounts, which at times may exceed federally insured limits. The Company has not experienced a loss in such accounts.
As of September 30, 2015, the Company had bank balances of $5,243,711 in two banks. The Company holds more than $250,000 in interest bearing accounts at one bank, thus there is a credit risk related to these cash deposits as of September 30, 2015 of $4,874,335 since these amounts exceed the current federally insured amount of $250,000 per depositor, per insured bank, for each account ownership category.
EARNINGS PER COMMON SHARE
Basic earnings per common share are computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share consists of the weighted average number of common shares outstanding plus the dilutive effects of options and warrants calculated using the treasury stock method. In loss periods, dilutive common equivalent shares are excluded as the effect would be anti-dilutive.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.
8
ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The realizability of long-lived assets is evaluated periodically as events or circumstances indicate a possible inability to recover the carrying amount. Long-lived assets that will no longer be used in our business are written-off in the period identified since they are no longer expected to generate any positive cash flows for us. Long-lived assets that continue to be used by us are periodically evaluated for recoverability. Such evaluation is based on various analyses, including cash flow and profitability projections. The analyses necessarily involve significant management judgment. In the event the projected undiscounted cash flows are less than net book value of the assets, the carrying value of the assets is written down to its estimated fair value.
No impairment loss on intangible assets was recognized for the nine months ended September 30, 2015 and for the year ended December 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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the respective assets, which are as follows:
Equipment 2-10 years
Furniture 2-10 years
Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and betterments are capitalized. The cost and related accumulated depreciation of property and equipment are removed from the accounts upon retirement or other disposition and any resulting gain or loss is reflected in operations of the period.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2014, the FASB issued ASU 2014-18, Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination. ASU 2014-18 elects the accounting alternative to recognize or otherwise consider the fair value of intangible assets as a result of any in-scope transactions and states that they should no longer recognized separately from goodwill (1) customer-related intangible assets unless they are capable of being sold or licensed independently from other assets of the business and (2) non-competition agreements. The amendments in ASU 2014-18 will be effective prospectively for annual reporting periods beginning after December 15, 2015 and the effective date of adoption will begin on the timing of that first in-scope transaction. The Company has not adopted ASU 2014-18 during the year ended December 31, 2014.
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ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In August 2014, the FASB issued ASU No. 2014-15, "Presentation of Financial Statements - Going Concern ". The amendments in this update provide guidance in U.S. GAAP about management's responsibilities to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The main provision of the amendments are for an entity's management, in connection with the preparation of financial statements, to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Management's evaluation should be based on relevant conditions and events that are known or reasonably knowable at the date the financial statements are issued. When management identifies conditions or events that raise substantial doubt about an entity's ability to continue as a going concern, the entity should disclose information that enables users of the financial statements to understand all of the following: (1) principal conditions or events that raised substantial doubt about the entity's ability to continue as a going concern (before consideration of management's plans); (2) management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations; and (3) management's plans that alleviated substantial doubt about the entity's ability to continue as a going concern or management's plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. The amendments in this update are effective for interim and annual reporting periods after December 15, 2016 and early application is permitted. The Company is currently assessing this guidance for future implementation.
In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company adopted ASU 2014-10 during the year ended December 31, 2014, thereby no longer presenting or disclosing any information required by Topic 915.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact the adoption of ASU 2014-09 will have on our financial statements and disclosures.
EQUITY BASED PAYMENTS TO NON-EMPLOYEES
The Company applied the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505 related to Equity Based Payments to Non-Employees to account for these options and warrants issued. According to Topic 505, all transactions in which goods or services are the consideration received for the issuance of equity instruments shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company believes that fair value of these options and warrants is a more reliable measure of the consideration received for services performed for the Company. We determined the fair value of these equity instruments using the Black-Scholes option-pricing model. Factors used in the determination of the fair value of these equity instruments include, the stock price at the grant date, the exercise price, the expected life of the equity instrument, the volatility of the underlying stock, the expected dividends on it, and the risk-free interest rate over the expected life of the equity instrument.
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ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – STOCKHOLDERS’ EQUITY (DEFICIT)
The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.
The following assumptions were used to determine the fair value of the options as of September 30, 2015:
| September 30, 2015 | ||||
| Dividend Yield | 0 | |||
| Expected Volatility | 278 | % | ||
| Risk-Free Interest Rate | 0.47 | |||
| Term in Years | 1.5 | |||
| Stock Price | 0.65 | |||
| Option Exercise Price | 0.75 | |||
The following assumptions were used to determine the fair value of the options at date of original issuance on August 3, 2012:
| August 3, 2012 | ||||
| Dividend Yield | 0 | |||
| Expected Volatility | 100 | % | ||
| Risk-Free Interest Rate | 0.38 | |||
| Term in Years | 1.58 | |||
| Stock Price | 0.75 | |||
| Option Exercise Price | 0.75 | |||
A summary of option activity as is presented below:
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Options | Price | Life (Years) | Value | |||||||||||||
| Outstanding at December 31, 2014 | 325,000 | $ | 0.65 | 1.50 | $ | 191,323 | ||||||||||
| Exercisable at June 30, 2015 | — | — | — | — | ||||||||||||
As of September 30, 2015, all options are vested.
On February 18, 2015, the Company issued 317,392 shares of common stock valued at the price of $0.6177 in an agreement to convert $135,000 of the oldest notes payable and accrued interest of $61,060 which were owed to Mr. Yale Farar and Brooktide LLC. As the date herein, the average price between the “bid and “ask” price of the Company’s stock on the OTC:QB market was $0.42 per share.
On February 24, 2015, the Company issued 10,000 shares of common stock at the price of $0.44, for services rendered to Jeston Cade. The shares of common stock are restricted shares and were valued at the price of $0.44, the closing price on February 24, 2014 on the OTC:QB market as of the date hereof.
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ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – STOCKHOLDERS’ DEFICIT (CONTINUED)
In May 2015, Coco Partners and the Company entered into an agreement pursuant to which Coco Partners would purchase (i) a maximum of 15,250,000 shares of our common stock and (ii) a warrant to purchase an aggregate of 5,900,000 shares of our common stock (the “Warrant”) for an aggregate maximum purchase price of $6,100,000 (the “Purchase Price”). The Purchase Price is payable as follows: (a) $3,050,000 for 7,625,000 shares and the Warrant upon the closing (the “Closing”) and (b) an additional 7,625,000 shares for $3,050,000 on or before June 30, 2015. The Closing occurred on May 7, 2015 and the Company received the initial purchase price of $3,050,000 and the second $3,050,000 for an additional 7,625,000 shares was received on June 30, 2015.
The terms of the Warrant provide that Coco Partners has the right to purchase, at any time after the Closing until April 1, 2020, up to (i) 5,000,000 shares of our common stock at an exercise price of $0.60 per share, (ii) 500,000 shares of our common stock at an exercise price of $1.000 per share and (iii) 400,000 shares of our common stock at an exercise price of $1.25 per share. The Warrant includes certain anti-dilution adjustments to the exercise prices in the event of payment of dividend, subdivision and combination with respect to outstanding shares of our common stock.
The Transaction resulted in a change of control of the Company. With the purchase of the 15,250,000 shares, Coco Partners acquired approximately 83.8% of the outstanding shares of our common stock (this does not include any potential exercise of the Warrant). Upon the Closing, Mr. Rober Wallace, who has a controlling interest in Coco Partners, was appointed Chief Executive Officer, Chief Financial Officer, and Corporate Secretary and as a member of our Board of Directors (the “Board”). Mr. Yale Farar resigned his position as President of the Company but remains as a director and Mr. Gary Saderup resigned his positions as the Secretary of the Company and a director of the Board.
NOTE 3 – RELATED PARTY TRANSACTIONS
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 anytime after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses arising from the Company’s compliance with its public reporting requirements.
On May 24, 2013 Brooktide, LLC loaned the Company $50,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On October 28, 2013 Brooktide, LLC loaned the Company $50,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
12
ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – RELATED PARTY TRANSACTIONS (CONTINUED)
On January 31, 2014 Brooktide, LLC loaned the Company $25,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.50 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On May 22, 2014 Brooktide, LLC loaned the Company $35,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.53 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On July 29, 2014 Brooktide, LLC loaned the Company $35,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $.53 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On October 30, 2014 Brooktide, LLC loaned the Company $30,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $0.45 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On February 18, 2015, the Company issued 317,392 shares of common stock valued at the price of $0.6177 in an agreement to convert $135,000 of the oldest notes payable and accrued interest of $61,060 which were owed to Mr. Yale Farar and Brooktide LLC.
On March 17, 2015 Brooktide, LLC loaned the Company $55,500 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $0.47 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On April 16, 2015 Brooktide, LLC loaned the Company $7,000 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $0.47 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
13
ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – RELATED PARTY TRANSACTIONS (CONTINUED)
As of May 4, 2015, Brooktide, LLC and the Company agreed that the loan of $55,500 entered into on March 17, 2015 and the loan of $7,000 entered into on April 16, 2015 be forgiven by Brooktide, LLC. Additionally, accrued interest payable in the amount of $278 was also forgiven by Brooktide, LLC. In accordance with FASB ASC 470-50-40 Debt Modifications and Extinguishments, the Company recorded this forgiveness of debt from a Related Party as a capital transaction and no gain was recognized on the Company’s consolidated statement of operations.
NOTE 4 – INTANGIBLES
On December 17, 2010, Latigo, a wholly owned subsidiary of the Company, acquired all right, title and interest in 50 musical compositions from the Gary Harju music catalog to the extent of his writer’s and publisher’s share for a cost of $15,000 paid in cash on the closing date of December 17, 2010. The Harju Catalog (including copyrights and publishing rights) consists of 50 original songs written in whole or in part by Mr. Gary Harju. Some of the songs are owned outright by Latigo as a result of the acquisition, and others are and will continue to be subject to publishing agreements with various music publishers, who will continue to collect the publisher’s share of royalties. The other parties who have partial interests in the catalog will continue to receive their share of royalties and other income. The Company will amortize the costs of the Harju Catalog over its estimated useful life based on projected net revenues. The Company projects to generate revenues from the Harju Catalog for an estimate of 20 years based on Mr. Harju’s past accomplishments and the ability of the recorded music to generate revenues for long periods of time. Therefore, the Company estimated the useful life of the Harju Catalog to be 20 years.
On June 1, 2013, Latigo, a wholly owned subsidiary of the Company, acquired all right, title and interest in Andrew Dorff’s “writer’s share” of certain musical compositions written and/or co-written by him for a cost of $40,000 paid in cash. The musical compositions include 106 songs total. The Company currently owns the publishing rights from these musical compositions. Some of the songs are owned outright by Latigo as a result of the acquisition, and others are and will continue to be subject to publishing agreements with various music publishers, who will continue to collect the publisher’s share of royalties and other income. The Company will amortize the costs of Andrew Dorff’s “writer’s share” over its estimated useful life based on projected net revenues. The Company projects to generate revenues from Andrew Dorff’s “writer’s share” for an estimate of 20 years based on Andrew Dorff’s past accomplishments and the ability of the recorded music to generate revenues for long periods of time.
Following is a summary of the intangibles at the end of the years ending:
| September 30, 2015 | December 31, 2014 | |||||||||||||||
| Gross | Accumulated | Gross | Accumulated | |||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
| Intangibles subject to amortization: | ||||||||||||||||
| Harju Music Catalog | 15,000 | 6,156 | 15,000 | 5,297 | ||||||||||||
| Dorff's Writer's Share | 40,000 | 6,040 | 40,000 | 4,133 | ||||||||||||
| $ | 55,000 | $ | 12,196 | $ | 55,000 | $ | 9,430 | |||||||||
For the nine months ended September 30, 2015 and the year ended December 31, 2014, amortization expense was $2,766 and $3,827, respectively.
Amortization of the remaining intangible assets is expected to be $14,313 from 2015 through 2019, and $28,491 in aggregate for years thereafter through 2032.
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ROKWADER, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 – PROPERTY AND EQUIPMENT
| September 30, 2015 | December 31, 2014 | |||||||||||||||
| Gross | Accumulated | Gross | Accumulated | |||||||||||||
| Amount | Depreciation | Amount | Depreciation | |||||||||||||
| Property and Equipment | ||||||||||||||||
| Musical Equipment | $ | 4,692 | $ | 235 | $ | — | $ | — | ||||||||
| Computer Equipment | 1,396 | 46 | — | — | ||||||||||||
| Office Furniture | 3,700 | 123 | — | — | ||||||||||||
| $ | 9,788 | $ | 404 | $ | — | $ | — | |||||||||
Depreciation expense for the nine month period ended September 31, 2015 was $404 and for the year ended December 31, 2014 was zero.
NOTE 6 - LEASES
The Company leases office space under a lease arrangement that is classified as an operating lease. The office space lease provides that the Company pay insurance, utilities and maintenance plus minimum monthly rentals of $1,161 at September 30, 2015. As of September 30, 2015, the Company had a one year office space lease extending through May 31, 2016. Minimum annual rental commitments under non-cancelable leases having initial or remaining lease terms in excess of one year, including the new facilities lease, are as follows:
| September 30, | Amount | |||
| 2015 | $ | 9,288 | ||
| 2016 | — | |||
| 2017 | — | |||
| 2018 | — | |||
| 2019 | — | |||
| Thereafter | — | |||
| Total minimum future rental payments | $ | 9,288 | ||
Total rental expenses for the nine months ended September 30, 2015 and 2014 were $7,453 and zero, respectively.
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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. 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, 2014. 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.
Corporate Overview
Since our acquisition of Latigo Shore Music, Inc. (“Latigo”) in 2007, our principal business objective has been to achieve long-term growth of Latigo’s music publishing business. Latigo’s primary activity is the acquisition and exploitation of music copyrights for the purpose of creating viable entertainment assets, such as a music catalog, that is capable of generating revenue through various publishing outlets. The current Latigo catalog (including copyrights and publishing rights) consists of 250 original songs written in whole or in part by Andrew Dorff (106), Gary Harju (50) and Jeston Cade (94). Other songwriters and their publishing designees own the balance of the percentages of these songs. Typically, total income from a song is split 50% each between the publisher and the writer in a music publishing catalog. Publishers generally collect all income except for the “writers share” from public performance income. Writer’s receive their share of royalties for public performance directly from performing rights organizations such as Broadcast Music, Inc. and the publishers only collect the “publisher’s share” of public performance income. As Latigo’s business is still in its early stage of development, we have generated only a minimal amount of revenue from our operations.
As discussed in more detail below, on May 7, 2015, we completed a transaction with Coco Partners, LLC (“Coco Partners”) in which Coco Partners acquired a controlling interest in the Company by purchasing newly issued shares of our common stock and warrants to purchase shares of our common stock (the “Transaction”). The Transaction is part of an investment strategy of Coco Partners in which the Company may serve as an investment vehicle to acquire other operating companies with significant revenue streams and cash flow. We believe such acquisition and investment strategy, if executed successfully, would increase our ability to access capital and accelerate our music publishing business, while continuing to pursue other businesses and acquisition opportunities to enhance shareholder value.
Transactions with Coco Partners
In May 2015, Coco Partners and the Company entered into an agreement pursuant to which Coco Partners would purchase (i) a maximum of 15,250,000 shares of our common stock and (ii) a warrant to purchase an aggregate of 5,900,000 shares of our common stock (the “Warrant”) for an aggregate maximum purchase price of $6,100,000 (the “Purchase Price”). The Purchase Price is payable as follows: (a) $3,050,000 for 7,625,000 shares and the Warrant upon the closing (the “Closing”) and (b) an additional 7,625,000 shares for $3,050,000 on or before June 30, 2015. The Closing occurred on May 7, 2015 and the Company received the initial purchase price of $3,050,000 and the second $3,050,000 for an additional 7,625,000 shares on June 30, 2015.
The terms of the Warrant provide that Coco Partners has the right to purchase, at any time after the Closing until April 1, 2020, up to (i) 5,000,000 shares of our common stock at an exercise price of $0.60 per share, (ii) 500,000 shares of our common stock at an exercise price of $1.00 per share and (iii) 400,000 shares of our common stock at an exercise price of $1.25 per share. The Warrant includes certain anti-dilution adjustments to the exercise prices in the event of payment of dividend, subdivision and combination with respect to outstanding shares of our common stock.
The Transaction resulted in a change of control of the Company. With the purchase of the 15,250,000 shares, Coco Partners acquired approximately 83.8% of the outstanding shares of our common stock (this does not include any potential exercise of the Warrant). Upon the Closing, Mr. Robert Wallace, who has a controlling interest in Coco Partners, was appointed Chief Executive Officer, Chief Financial Officer and Corporate Secretary and as a member of our Board of Directors (the “Board”). Mr. Yale Farar resigned his position as President of the Company but remains as a director and Mr. Gary Saderup resigned his positions as the Secretary of the Company and a director of the Board.
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Business Strategy and Plan of Operations
As a result of the Transaction and the change in control of the Company, our business strategies and plan of operations have evolved into two segments: (i) the continuation of the Latigo music publishing business; and (ii) the investment and acquisition vehicle through Coco Partners.
Latigo Music Publishing Business
After the completion of the Transaction in May, 2015, our music publishing business continued uninterrupted. The music publishing business includes copywriting musical compositions that are written by various songwriters and composers. Music publishers exploit the copyrights to produce revenues via sales of recordings and other musical usages such as commercials, radio plays and television shows. We believe that emerging technologies and the introduction of innovative business relationships in the current market provides a unique opportunity for Latigo to expand its operations. Revenues for Latigo should be realized through publishing income on copyrights that we acquire. In the past we have mostly marketed our catalog through contacts and associates of our directors. We also retained musical consultants that will be marketing our songs for radio air play, for TV and radio commercials, for TV shows and for movies. These consultants are on month to month letter agreement with a small base pay and a commission override on songs actually distributed and generating revenues. There is no assurance that these consultants will be successful in placing our catalog songs for the generation of revenues.
As a small company we can operate with a creative hands-on approach to the selected few composers and songwriters that are part of our catalog. The music publishing business is primarily an intellectual property business focused on the exploitation of the song itself. In return for promoting, placing, marketing and the administration of the songwriter’s creativity, we receive a share of the revenues generated from the use of the song(s). We expect that our publishing revenue will be derived from two principal sources:
| ·· | Mechanical: Latigo, as licensor receives royalties with respect to songs embodied in recordings sold in any format or configuration, including physical recordings (e.g. CD’s, DVD’s, video cassettes), online and wireless downloads. |
| ·· | Performance: Latigo, as licensor, receives royalties if the song is performed publicly through broadcast of music on television, radio, cable and satellite, live concert performances or other venues, such as nightclubs and stage theatrical productions. |
In addition, we seek to provide creative services to commercial songwriters in music publishing. We also intend to attend music award ceremonies and music and songwriters conventions to further market our catalog of songs. We believe that even with this additional marketing effort, our generation of revenues may remain minimal until we can raise more funds for more aggressive marketing activities.
Furthermore, we intend to fully explore the synergy and opportunities resulting from the Transaction as Coco Partners execute its investment strategy. Future acquisitions under such strategy may provide us with greater access to capital to accelerate growth through the acquisition of existing music copyright catalogs with existing income streams, and provide strong financial support in establishing new songwriters.
Our expenses associated with our music publishing business for the quarter ended September 30, 2015, were $155,009. We expect such expenses to increase as we continue to expand and grow the music business.
Strategy and Operation as Investment Vehicle
The Transaction represents a first phase of a unique investment strategy developed by Coco Partners in which the shares of our common stock may be used as acquisition currency, along with cash, to acquire the equity stake of other operating companies with significant revenue streams. The Company will serve as the investment vehicle to acquire operating businesses of certain consumer facing lifestyle businesses in the U.S. that Coco Partners believes are being driven by identifiable economic and demographic trends. Coco Partners 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, because Coco Partners intends to invest and retain a significant investment portfolio of real estate assets. The acquired operating businesses would have access to such real estate assets which can be scaled and utilized to facilitate and improve the performance of the operating company. Examples of such targets would be found in highly fragmented industries, such as express car washes, assisted living facilities, certain types of medical facilities, and lifestyle companies being driven by identified demographic trends.
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At the direction of Coco Partners, 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.
Through the end of this fiscal year, Coco Partners and we intend to pursue diligently the investment vehicle strategy. 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.
Results of Operation for the nine months ended September 30, 2015 and 2014
During the nine months ended September 30, 2015, the Company generated $2,228 of revenues from its music business compared to $538 revenues for the nine months ended September 30, 2014. During the nine months ended September 30, 2015 and 2014, the Company incurred general and administrative expenses of $637,695 and $350,214, respectively. The general and administrative expenses for the nine months ended September 30, 2015 included marketing, advertising and operational and production expenses of Latigo in the amount of $155,009 and professional and legal fees relating to the Transaction with Coco Partners, complying with the Company SEC reporting obligations and consulting fees of $341,813 and additional legal fees of $140,813 relating to research, development and implementation of a unique investment strategy introduced to the Company by Coco Partners.
Equity and Capital Resources
We have incurred losses since inception of our business in 2005 and, as of September 30, 2015, we had an accumulated deficit of $2,116,349. As of September 30, 2015, we had cash of $5,243,711 and a working capital of $5,209,157, compared to cash of $2,441 and a working capital deficit of $427,465 at September 30, 2014. The increase in the working capital was primarily due to the closing of the Transaction and the reduction of debt through the payment of notes to related parties.
On February 18, 2015, the Company issued 317,392 shares of common stock valued at the price of $0.6177 in an agreement to convert $135,000 of the oldest notes payable and accrued interest of $61,060 which were owed to Mr. Yale Farar and Brooktide LLC (“Brooktide”). In connection with the completion of the Transaction, these shares were deposited into an escrow account for a period of 12 months as security deposit for certain indemnification obligations of the Company and Mr. Farar in favor of Coco Partners.
On March 17, 2015 Brooktide loaned the Company $55,500 in accordance with a Subordinated Convertible Promissory Note (“Note”) executed by the Company. Pursuant to the terms of the Note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $0.47 per share. The Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on the Note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On April 16, 2015 Brooktide loaned the Company $7,000 in accordance with a Subordinated Convertible Promissory Note (the “April 16, 2015 Note”) executed by the Company. Pursuant to the terms of such note, this loan bears an interest rate equal to 6% per annum and is convertible at the option of the holder at any time into common stock of the Company at $0.47 per share. The April 16, 2015 Note is a demand note and may be paid at any time without premium or penalty. The outstanding balance on such note is immediately due and payable without notice or demand, upon or at any time after the occurrence or existence of any one or more of the listed “Events of Default.” The proceeds of the Note were used to pay fees and expenses, to the extent such expenses are not deferred, and to continue to create viable entertainment assets in the music recording industry.
On April 28, 2015, according to agreements between Brooktide and the Company, the principal balances under the Note ($55,500) and the April 16, 2015 Note ($7,000) were forgiven by Brooktide. Additionally, the accrued interest on the Note payable for the three months ended March 31, 2015 in the amount of $278 related to the Note was also forgiven by Brooktide.
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As disclosed above, pursuant to the agreement for the Transaction, on May 7, 2015, the Company issued 7,625,000 shares of common stock and the Warrant in exchange for a cash payment of $3,050,000 from Coco Partners and on June 30, 2015 the Company issued an additional 7,625,000 shares for $3,050,000 in cash from Coco Partners. The Company used some of the cash proceeds to pay off certain debts owed to related parties, including $250,000 for full satisfaction of certain debt owed to Brooktide, LLC and Mr. Yale Farar, and to use the remaining cash proceeds for general corporate purposes, including the expansion of the Latigo music publishing business and the investment strategy developed by Coco Partners.
As discussed above, the Company recently completed the Transaction as part of an investment strategy by Coco Partners to utilize the Company as an investment vehicle to acquire other operating companies with significant revenue and cash flow, which in turn may enhance the Company’s liquidity and capital resources. However, there is no guarantee that Coco Partners and the Company will be able to identify a suitable target or otherwise execute such acquisition strategy successfully, and failure to do so would have a material adverse effect on our business and financial conditions. See “Risk Factor” in Item 1A below for a more detailed discussion of the risks related to the Transaction.
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 certain investors, 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 activities that it would otherwise seek to develop. 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.
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 September 30, 2015, 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.
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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 September 30, 2015 and 2014, 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 September 30, 2015, 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 for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not Applicable
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 | |
| 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.
** Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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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: November 16, 2015 | /s/ Robert Wallace |
|
Robert Wallace , Chief Executive Officer
| |
| Date: November 16, 2015 | /s/ Robert Wallace |
|
Robert Wallace , Chief Financial 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 | |
| 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.
** Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
23