Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2014

Notes

Note 2 - Summary of Significant Accounting Policies

Note 2 – Summary of Significant Accounting Policies

Basis of Accounting

The consolidated financial statements of the Company have been prepared on the accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, OWDPI and National Fuel and Energy, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain items in the 2013 consolidated financial statements have been reclassified to conform to the 2014 consolidated financial statements’ presentation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, we consider all highly liquid investments with an original maturity date of three months or less to be cash equivalents.  Cash balances may at times exceed the federal depository insurance limit; however, we believe that risk of loss is minimal due to the strength of the financial institution in which funds are held.  We held no short-term investments considered to be cash equivalents at December 31, 2014 and 2013.

Inventories

Inventories, consisting primarily of dolls manufactured for resale, are stated at the lower of cost or market, with cost determined using primarily the first-in-first-out (FIFO) method.  We currently purchase substantially all inventories from one foreign supplier, and are dependent on that supplier for substantially all merchandise inventory purchases since we commenced operations.

Prepaid Consulting Services

Fees for consulting services, generally paid through the issuance of shares of our common stock, are amortized over the life of the underlying consulting contracts.

Property and Equipment

Property and equipment is stated at cost and consists of molds and equipment used by our manufacturer to produce dolls and their accessories, including clothes, shoes, jewelry, as well as face painting masks.  Because we currently are unable to project the number of units to be manufactured from our molds, our property and equipment is depreciated over an estimated useful life of five years using the straight-line method.  At December 31, 2014 and 2013, property and equipment cost was $70,000, with accumulated depreciation of $17,500 and $3,500 at December 31, 2014 and 2013, respectively.  Depreciation expense was $14,000 and $3,500 for the years ended December 31, 2014 and 2013, respectively.

Revenue Recognition

We record revenue from the sales of dolls and accessories in accordance with the underlying sales agreements when the products are shipped, the selling price is fixed and determinable, and collection is reasonably assured.

Research and Development Costs

Research and development costs are expensed as incurred in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 730, Research and Development.  The costs of materials and other costs acquired for research and development activities are charged to expense as incurred.  Research and development costs for the years ended December 31, 2014 and 2013 were $31,884 and $28,173, respectively.

Advertising

Advertising costs are non-direct in nature, and are expensed in the periods in which the advertising takes place.  Advertising expense totaled $366,577 and $284,517 for the years ended December 31, 2014 and 2013, respectively.

Fair Value of Financial Instruments

Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value.  As of December 31, 2014 and 2013, we believe the amounts reported for cash, accrued interest, accrued expenses, and notes payable approximate fair value because of the short-term nature of these financial instruments.

We adopted ASC Topic 820 for financial instruments measured as fair value on a recurring basis.  ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).  These tiers include:

·               Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·               Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in 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, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2014 and 2013:

	Total	Level 1	Level 2	Level 3
December 31, 2014:
Derivative liability	$2,718,652	$-	$-	$2,718,652
Convertible debentures	1,359,680	-	-	1,359,680
Current portion of long-term debt	22,598	-	-	22,598
Long-term debt	9,800	-	-	9,800
Total liabilities measured at fair value	$4,110,730	$-	$-	$4,110,730
December 31, 2013:
Derivative liability	$2,104,849	$-	$-	$2,104,849
Convertible debentures	592,095	-	-	592,095
Current portion of long-term debt	13,979	-	-	13,979
Long-term debt	9,106	-	-	9,106
Total liabilities measured at fair value	$2,720,029	$-	$-	$2,720,029

Income (Loss) per Share

The computation of basic income (loss) per common share is based on the weighted average number of shares outstanding during each year.

The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents that would arise from the exercise of stock options and warrants outstanding, using the treasury stock method and the average market price per share during the year.  Common stock equivalents are not included in the diluted loss per share calculation when their effect is anti-dilutive.  Options and warrants to purchase 4,977,267 shares of common stock at prices ranging from $0.01 to $0.06 were excluded from the calculation of loss per share for the year ended December 31, 2014 because their effect was anti-dilutive.

Since we had no dilutive effect of stock options and warrants for the years ended December 31, 2014 and 2013, our basic weighted average number of common shares outstanding is the same as our diluted weighted average number of common shares outstanding.

Income Taxes

We account for income taxes using the asset and liability method.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This amended guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts).  This ASU will supersede the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance, and creates a Topic 606, “Revenue from Contracts with Customers.”

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2. Identify the performance obligations in the contract.

Step 3. Determine the transaction price.

Step 4. Allocate the transaction price to the performance obligations in the contract.

Step 5. Recognize revenue when (or as) the entity satisfies a performance obligation.

ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  Early application is not permitted.  We have not yet determined how our consolidated financial statements will be affected by the adoption of ASU 2014-09.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 310-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”  The amendments in this Update provide guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures.  The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  We have not yet determined how our consolidated financial statements will be affected by the adoption of ASU 2014-15.