TONNER-ONE WORLD HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2015 AND 2014
Note 1 – Organization and Basis of Presentation
Organization, Nature of Business
Tonner-One World Holdings, Inc. (the "Company"), a Nevada Corporation, is a Houston based company focused on doll design and marketing. Substantially all of the Company's operations are conducted through its wholly owned subsidiary, The One World Doll Project, Inc. (a Texas Corporation - "OWDPI\"). OWDPI began operations on October 1, 2010, and in October 2013 commenced sales of dolls. National Fuel and Energy, Inc. (a Texas Corporation) is a wholly owned subsidiary of the Company that has been dormant since its inception on October 1, 2010. On March 3, 2016, the Board of Directors and the holders of a majority of the voting power of the Company voted to change the name of the Company from One World Holdings, Inc. to Tonner-One World Holdings, Inc. The name change became effective April 8, 2016.
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 2014 consolidated financial statements have been reclassified to conform to the 2015 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, 2015 and 2014.
Accounts Receivable
Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. We determine the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. We determined that no allowance for doubtful accounts was required at December 31, 2015 and 2014.
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 maintain a reserve for obsolete inventories to reduce excess and obsolete inventories to their estimated net realizable value. The reserve was $150,000 and $0 as of December 31, 2015 and 2014, respectively. We currently purchase all inventories from a limited number of foreign suppliers, and are dependent on those suppliers 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 manufacturers 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, 2015 and 2014, property and equipment cost was $88,500 and $70,000, respectively, with accumulated depreciation of $33,042 and $17,500 at December 31, 2015 and 2014, respectively. Depreciation expense was $15,542 and $14,000 for the years ended December 31, 2015 and 2014, 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, 2015 and 2014 were $117,315 and $31,884, respectively.
Advertising
Advertising costs are non-direct in nature, and are expensed in the periods in which the advertising takes place. Advertising expense totaled $568,202 and $366,577 for the years ended December 31, 2015 and 2014, 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, 2015 and 2014, we believe the amounts reported for cash, accounts receivable, accrued interest payable, accrued expenses, notes payable and stockholder advances 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:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
10,852,906
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10,852,906
|
|
Convertible debentures
|
|
|
2,387,981
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,387,981
|
|
Current portion of long-term debt
|
|
|
29,409
|
|
|
|
-
|
|
|
|
-
|
|
|
|
29,409
|
|
Long-term debt
|
|
|
62,361
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities measured at fair value
|
|
$
|
13,332,657
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,332,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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 years ended December 31, 2015 and 2014, because their effect was anti-dilutive.
Since we had no dilutive effect of stock options and warrants for the years ended December 31, 2015 and 2014, 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 July 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-11, "Inventory (Topic 330), Simplifying the Measurement of Inventory." An entity is required to measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Other than the change in the subsequent measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of this Update, there are no other substantive changes to the guidance on measurement of inventory. For public companies, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this Update are to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently unable to determine the impact on our consolidated financial statements of the adoption of this new accounting pronouncement.
In April 2015, the FASB issued ASU No. 2015-03, "Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs." To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public companies, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted for financial statements that have not been previously issued. We are currently unable to determine the impact on our consolidated financial statements of the adoption of this new accounting pronouncement.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)". 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; however, in July 2015, the FASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption, but would not allow adoption any earlier than the original effective date of the standard. 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, including possible transition alternatives, will have on our consolidated financial statements
Note 3 – Going Concern Uncertainty
The Company has incurred operating losses since inception, and has limited financial resources and a working capital deficit of $17,573,313 at December 31, 2015. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In addition, the Company had an accumulated deficit of $29,932,153 and a total stockholders' deficit of $17,577,515 at December 31, 2015. The Company's ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and, ultimately, achieve profitable operations. Management's plans to address the Company's continuing existence include obtaining debt or equity funding from private or institutional sources or obtaining loans from financial institutions and individuals, where possible. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 4 – Convertible Debentures
During the years ended December 31, 2012 and 2011, the Company issued various convertible debentures for cash in the total amount of $409,500. All debentures issued in 2011 and 2012 are unsecured and bear simple interest of 14% per annum with a one-year maturity. The outstanding principal and interest of the debenture is convertible into shares of common stock at a conversion price of $30.00 per share. The conversion rate was based upon the market price of the Company's common stock as determined by reference to recent cash sales.
During the year ended December 31, 2013, the Company issued various convertible debentures in the total amount of $1,224,516: $945,500 cash; $10,000 original issue discount; $5,000 services; $203,000 for other notes payable; and $61,016 for accrued interest payable. In addition in 2013, $84,534 cash payments were made to reduce the principal balance of convertible debentures and a total principal balance of $548,411 was extinguished through the conversion of principal to common shares of the Company. The debentures issued in 2013 are unsecured and bear simple interest ranging from 6% to 15% per annum, with maturities ranging from six months to one year. The outstanding principal and accrued interest of the debentures are convertible into shares of the Company's common stock at a fixed conversion price ranging from $0.15 to $30.00 per share in addition to variable discounted pricing based on conversion prices defined in the underlying agreements.
During the year ended December 31, 2014, the Company issued various convertible debentures in the total amount of $1,384,954: $1,158,332 cash; $19,040 original issue discount; $95,000 services; $50,000 transfer from stockholder advances; $17,454 adjustment to principal; and $45,128 for accrued interest payable. Related to these note issuances, the Company recorded $477,368 in debt discounts for beneficial conversion features and $1,127,938 in debt discounts for derivatives. These debt discounts are being amortized over the term of the notes to interest expense. In addition in 2014, $107,433 cash payments were made to reduce the principal balance of convertible debentures and a total principal balance of $329,251 was extinguished through the conversion of principal to common shares of the Company. The debentures issued in 2014 are unsecured and bear simple interest ranging from 5% to 22% per annum, with maturities ranging from six months to two years. The outstanding principal and accrued interest of the debentures are convertible into shares of the Company's common stock at a fixed conversion price ranging from $0.00025 to $0.06 per share in addition to variable discounted pricing based conversion prices defined in the underlying agreements.
The following is a schedule of short-term convertible debentures outstanding as of December 31, 2014:
Description
|
Date
|
Conversion Price
|
Original Principal Amount
|
Unpaid
Principal Balance
|
Term
|
Interest Rate
|
|
|
|
|
|
|
|
Debenture 1
|
10/10/11
|
$30.00
|
$ 25,000
|
$ 25,000
|
12 months
|
14%
|
Debenture 3
|
2/17/12
|
$30.00
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 4
|
3/9/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 5
|
3/19/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 6
|
4/29/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 7
|
4/25/12
|
$30.00
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 8
|
10/9/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 10
|
11/15/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 11
|
11/20/12
|
$30.00
|
2,000
|
2,000
|
12 months
|
14%
|
Debenture 12
|
12/11/12
|
$30.00
|
2,500
|
2,500
|
12 months
|
14%
|
Debenture 13
|
12/29/12
|
$30.00
|
2,500
|
2,500
|
12 months
|
14%
|
Debenture 14
|
1/5/13
|
$30.00
|
2,500
|
2,500
|
12 months
|
14%
|
Debenture 15
|
2/5/13
|
$30.00
|
2,500
|
2,500
|
12 months
|
14%
|
Debenture 17
|
7/23/13
|
Variable
|
62,000
|
62,000
|
9 months
|
8%
|
Debenture 19
|
7/29/13
|
$30.00
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 21
|
8/30/13
|
Variable
|
37,500
|
27,800
|
12 months
|
15%
|
Debenture 22
|
9/4/13
|
Variable
|
50,000
|
50,000
|
12 months
|
8%
|
Debenture 23
|
9/19/13
|
Variable
|
25,000
|
25,000
|
12 months
|
14%
|
Debenture 24
|
9/27/13
|
Variable
|
25,402
|
21,545
|
12 months
|
14%
|
Debenture 31
|
10/3/13
|
Variable
|
3,750
|
3,750
|
12 months
|
8%
|
Debenture 32
|
10/23/13
|
Variable
|
50,000
|
35,000
|
12 months
|
6%
|
Debenture 33
|
10/25/13
|
Variable
|
52,000
|
52,000
|
9 months
|
8%
|
Debenture 34
|
10/25/13
|
Variable
|
30,000
|
47,455
|
9 months
|
8%
|
Debenture 36
|
11/29/13
|
Variable
|
30,000
|
30,000
|
6 months
|
15%
|
Debenture 37
|
11/29/13
|
Variable
|
25,000
|
17,200
|
6 months
|
15%
|
Debenture 38
|
11/29/13
|
Variable
|
25,000
|
25,000
|
6 months
|
15%
|
Debenture 39
|
12/2/13
|
Variable
|
25,000
|
25,000
|
6 months
|
15%
|
Debenture 47
|
6/23/13
|
Variable
|
35,000
|
17,500
|
7 months
|
10%
|
Debenture 48
|
6/23/13
|
Variable
|
12,500
|
12,500
|
7 months
|
10%
|
Debenture 49
|
1/12/14
|
Variable
|
26,000
|
26,000
|
12 months
|
22%
|
Debenture 50
|
1/12/14
|
Variable
|
60,000
|
60,000
|
12 months
|
12%
|
Debenture 51
|
2/3/14
|
$0.06
|
50,000
|
46,600
|
2 months
|
14%
|
Debenture 52
|
2/18/14
|
$0.06
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 53
|
3/17/14
|
Variable
|
25,000
|
23,500
|
12 months
|
18%
|
Debenture 54
|
3/20/14
|
Variable
|
10,000
|
10,000
|
12 months
|
18%
|
Debenture 55
|
3/25/14
|
Variable
|
10,000
|
10,000
|
12 months
|
18%
|
Debenture 56
|
3/28/14
|
Variable
|
55,000
|
55,000
|
12 months
|
18%
|
Debenture 57
|
4/1/14
|
$0.0025
|
50,000
|
800
|
6 months
|
14%
|
Debenture 58
|
4/9/14
|
Variable
|
75,000
|
75,000
|
11 months
|
18%
|
Debenture 59
|
4/10/14
|
Variable
|
60,000
|
60,000
|
11 months
|
18%
|
Debenture 60
|
4/11/14
|
Variable
|
2,272
|
2,272
|
11 months
|
18%
|
Debenture 61
|
4/11/14
|
Variable
|
40,000
|
40,000
|
12 months
|
15%
|
Debenture 63
|
4/23/14
|
$0.04
|
10,500
|
10,500
|
12 months
|
14%
|
Debenture 64
|
5/8/14
|
$0.06
|
4,000
|
4,000
|
12 months
|
14%
|
Debenture 65
|
5/21/14
|
Variable
|
50,000
|
45,300
|
12 months
|
16%
|
Debenture 66
|
6/3/14
|
Variable
|
15,000
|
15,000
|
12 months
|
8%
|
Debenture 67
|
7/2/14
|
Variable
|
27,500
|
27,500
|
12 months
|
12%
|
Description
|
Date
|
Conversion Price
|
Original Principal Amount
|
Unpaid Principal Balance
|
Term
|
Interest Rate
|
|
|
|
|
|
|
|
Debenture 68
|
7/11/14
|
$0.01
|
25,000
|
25,000
|
12 months
|
14%
|
Debenture 69
|
7/18/14
|
Variable
|
27,500
|
27,500
|
12 months
|
12%
|
Debenture 70
|
7/24/14
|
$0.06
|
48,360
|
48,360
|
12 months
|
14%
|
Debenture 71
|
8/4/14
|
Variable
|
35,250
|
35,250
|
9 months
|
8%
|
Debenture 72
|
9/22/14
|
Variable
|
15,500
|
15,500
|
9 months
|
8%
|
Debenture 73
|
8/29/14
|
Variable
|
67,595
|
23,201
|
6 months
|
5%
|
Debenture 75
|
9/8/14
|
$0.01
|
25,000
|
25,000
|
12 months
|
14%
|
Debenture 76
|
9/9/14
|
$0.01
|
36,359
|
36,359
|
12 months
|
14%
|
Debenture 77
|
9/9/14
|
$0.0025
|
8,641
|
811
|
12 months
|
14%
|
Debenture 78
|
9/9/14
|
$0.0025
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 79
|
9/9/14
|
$0.0025
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 80
|
9/9/14
|
$0.0025
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 81
|
9/9/14
|
$0.0025
|
77,595
|
73,845
|
12 months
|
14%
|
Debenture 82
|
9/10/14
|
$0.01
|
8,000
|
8,000
|
12 months
|
14%
|
Debenture 83
|
9/10/14
|
$0.01
|
15,000
|
15,000
|
12 months
|
14%
|
Debenture 84
|
9/10/14
|
$0.01
|
25,000
|
25,000
|
12 months
|
14%
|
Debenture 85
|
9/17/14
|
Variable
|
5,000
|
5,000
|
6 months
|
5%
|
Debenture 86
|
9/22/14
|
Variable
|
32,500
|
32,500
|
9 months
|
8%
|
Debenture 87
|
9/24/14
|
Variable
|
140,995
|
140,995
|
6 months
|
5%
|
Debenture 88
|
10/1/14
|
$0.00025
|
16,378
|
13,878
|
12 months
|
14%
|
Debenture 89
|
10/27/14
|
Variable
|
57,422
|
45,622
|
12 months
|
8%
|
Debenture 90
|
10/27/14
|
$0.01
|
50,000
|
50,000
|
12 months
|
14%
|
Debenture 91
|
10/31/14
|
Variable
|
53,097
|
51,097
|
12 months
|
8%
|
Debenture 92
|
10/31/14
|
$0.0025
|
63,097
|
63,097
|
12 months
|
16%
|
Debenture 93
|
11/13/14
|
Variable
|
33,000
|
33,000
|
9 months
|
8%
|
Debenture 94
|
12/9/14
|
Variable
|
15,000
|
15,000
|
12 months
|
8%
|
|
|
|
|
|
|
|
Total at December 31, 2014
|
|
|
$ 2,066,713
|
1,899,237
|
|
|
Less discount
|
|
|
|
(539,557)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
$ 1,359,680
|
|
|
The following is a schedule of long-term convertible debentures outstanding as of December 31, 2014:
Description
|
Date
|
Conversion Price
|
Original Principal Amount
|
Unpaid Principal Balance
|
Term
|
Interest Rate
|
|
|
|
|
|
|
|
Debenture 62
|
4/16/14
|
Variable
|
$ 37,520
|
$ 11,802
|
24 months
|
12%
|
Debenture 74
|
9/3/14
|
Variable
|
37,520
|
37,520
|
24 months
|
12%
|
|
|
|
|
|
|
|
Total at December 31, 2014
|
|
|
$ 75,040
|
49,322
|
|
|
Less discount
|
|
|
|
(43,684)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
$ 5,638
|
|
|
During the year ended December 31, 2015, the Company issued various convertible debentures in the total amount of $1,864,501, as follows: $1,675,947 cash; $24,800 original issue discount; $10,000 transfer from short-term notes payable; $128,460 transfer from stockholder advances; and $25,293 for accrued interest payable. Related to these note issuances, the Company recorded $407,613 in debt discounts for beneficial conversion features and $1,227,525 in debt discounts for derivatives. These debt discounts are being amortized over the term of the notes to interest expense. In addition, in 2015, $286,395 cash payments were made to reduce the principal balance of convertible debentures and a total principal balance of $311,768 was extinguished through the conversion of principal to common shares of the Company. The debentures issued in 2015 are unsecured and bear simple interest ranging from 8% to 15% per annum, with maturities ranging from six months to two years. The outstanding principal and accrued interest of the debentures are convertible into shares of the Company's common stock at a fixed conversion price ranging from $0.001 to $0.0145 per share in addition to variable discounted pricing based conversion prices defined in the underlying agreements.
The following is a schedule of short-term convertible debentures outstanding as of December 31, 2015:
Description
|
Date
|
Conversion Price
|
Original Principal Amount
|
Unpaid
Principal Balance
|
Term
|
Interest Rate
|
|
|
|
|
|
|
|
Debenture 1
|
10/10/11
|
$30.00
|
$ 25,000
|
$ 25,000
|
12 months
|
14%
|
Debenture 3
|
2/17/12
|
$30.00
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 4
|
3/9/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 5
|
3/19/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 6
|
4/29/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 7
|
4/25/12
|
$30.00
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 8
|
10/9/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 10
|
11/15/12
|
$30.00
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 11
|
11/20/12
|
$30.00
|
2,000
|
2,000
|
12 months
|
14%
|
Debenture 12
|
12/11/12
|
$30.00
|
2,500
|
2,500
|
12 months
|
14%
|
Debenture 14
|
1/5/13
|
$30.00
|
2,500
|
2,500
|
12 months
|
14%
|
Debenture 15
|
2/5/13
|
$30.00
|
2,500
|
2,500
|
12 months
|
14%
|
Debenture 17
|
7/23/13
|
Variable
|
62,000
|
62,000
|
9 months
|
8%
|
Debenture 19
|
7/29/13
|
$30.00
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 22
|
9/4/13
|
Variable
|
50,000
|
50,000
|
12 months
|
8%
|
Debenture 31
|
10/3/13
|
Variable
|
3,750
|
3,750
|
12 months
|
8%
|
Debenture 33
|
10/25/13
|
Variable
|
52,000
|
52,000
|
9 months
|
8%
|
Debenture 34
|
10/25/13
|
Variable
|
30,000
|
47,455
|
9 months
|
8%
|
Debenture 36
|
11/29/13
|
Variable
|
30,000
|
22,800
|
6 months
|
15%
|
Debenture 37
|
11/29/13
|
Variable
|
25,000
|
25,000
|
6 months
|
15%
|
Debenture 39
|
12/2/13
|
Variable
|
25,000
|
15,000
|
6 months
|
15%
|
Debenture 47
|
6/23/13
|
Variable
|
35,000
|
17,500
|
7 months
|
10%
|
Debenture 48
|
6/23/13
|
Variable
|
12,500
|
12,500
|
7 months
|
10%
|
Debenture 49
|
1/12/14
|
Variable
|
26,000
|
26,000
|
12 months
|
22%
|
Debenture 50
|
1/12/14
|
Variable
|
60,000
|
60,000
|
12 months
|
12%
|
Debenture 51
|
2/3/14
|
$0.06
|
50,000
|
46,600
|
2 months
|
14%
|
Debenture 52
|
2/18/14
|
$0.06
|
5,000
|
5,000
|
12 months
|
14%
|
Debenture 53
|
3/17/14
|
Variable
|
25,000
|
23,500
|
12 months
|
18%
|
Debenture 54
|
3/20/14
|
Variable
|
10,000
|
10,000
|
12 months
|
18%
|
Debenture 55
|
3/25/14
|
Variable
|
10,000
|
10,000
|
12 months
|
18%
|
Debenture 56
|
3/28/14
|
Variable
|
55,000
|
55,000
|
12 months
|
18%
|
Debenture 57
|
4/1/14
|
$0.0025
|
50,000
|
800
|
6 months
|
14%
|
Debenture 58
|
4/9/14
|
Variable
|
75,000
|
75,000
|
11 months
|
18%
|
Debenture 59
|
4/10/14
|
Variable
|
60,000
|
60,000
|
11 months
|
18%
|
Debenture 60
|
4/11/14
|
Variable
|
2,272
|
2,272
|
11 months
|
18%
|
Debenture 61
|
4/11/14
|
Variable
|
40,000
|
19,475
|
12 months
|
15%
|
Debenture 62
|
4/16/14
|
Variable
|
30,000
|
8,503
|
24 months
|
12%
|
Debenture 63
|
4/23/14
|
$0.04
|
10,500
|
10,500
|
12 months
|
14%
|
Debenture 64
|
5/8/14
|
$0.06
|
4,000
|
4,000
|
12 months
|
14%
|
Debenture 65
|
5/21/14
|
Variable
|
50,000
|
50,000
|
12 months
|
15%
|
Debenture 68
|
7/11/14
|
$0.01
|
25,000
|
7,500
|
12 months
|
14%
|
Debenture 70
|
7/24/14
|
$0.06
|
48,360
|
48,360
|
12 months
|
14%
|
Debenture 73
|
8/29/14
|
Variable
|
67,595
|
19,966
|
6 months
|
5%
|
Debenture 74
|
9/3/14
|
Variable
|
37,520
|
37,520
|
24 months
|
12%
|
Debenture 75
|
9/8/14
|
$0.01
|
25,000
|
25,000
|
12 months
|
14%
|
Debenture 76
|
9/9/14
|
$0.01
|
36,359
|
36,359
|
12 months
|
14%
|
Debenture 77
|
9/9/14
|
$0.0025
|
8,641
|
811
|
12 months
|
14%
|
Debenture 78
|
9/9/14
|
$0.0025
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 79
|
9/9/14
|
$0.0025
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 80
|
9/9/14
|
$0.0025
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 81
|
9/9/14
|
$0.0025
|
77,595
|
73,845
|
12 months
|
14%
|
Debenture 82
|
9/10/14
|
$0.01
|
8,000
|
8,000
|
12 months
|
14%
|
Debenture 83
|
9/10/14
|
$0.01
|
15,000
|
15,000
|
12 months
|
14%
|
Debenture 85
|
9/17/14
|
Variable
|
5,000
|
5,000
|
6 months
|
5%
|
Debenture 87
|
9/24/14
|
Variable
|
140,995
|
140,995
|
6 months
|
5%
|
Debenture 88
|
10/1/14
|
$0.00025
|
16,378
|
13,878
|
12 months
|
14%
|
Debenture 90
|
10/27/14
|
$0.01
|
50,000
|
50,000
|
12 months
|
14%
|
Debenture 92
|
10/31/14
|
$0.0025
|
63,097
|
63,097
|
12 months
|
16%
|
Debenture 96
|
3/27/15
|
Variable
|
128,460
|
111,670
|
12 months
|
8%
|
Debenture 97
|
1/18/15
|
Variable
|
7,500
|
7,500
|
12 months
|
14%
|
Debenture 98
|
2/12/15
|
$0.0145
|
12,500
|
12,500
|
12 months
|
14%
|
Debenture 99
|
3/31/15
|
$0.01
|
112,972
|
112,972
|
12 months
|
14%
|
Debenture 100
|
2/2/15
|
Variable
|
79,115
|
79,115
|
12 months
|
12%
|
Debenture 101
|
2/2/15
|
Variable
|
45,000
|
45,000
|
12 months
|
12%
|
Debenture 102
|
2/24/15
|
$0.0025
|
10,000
|
9,000
|
12 months
|
14%
|
Debenture 104
|
3/12/15
|
Variable
|
25,000
|
25,000
|
12 months
|
14%
|
Debenture 105
|
3/21/15
|
$0.0025
|
30,000
|
30,000
|
12 months
|
14%
|
Debenture 106
|
1/5/15
|
Variable
|
15,000
|
15,000
|
6 months
|
15%
|
Debenture 107
|
1/5/15
|
Variable
|
15,000
|
5,300
|
6 months
|
15%
|
Debenture 109
|
2/11/15
|
Variable
|
25,000
|
25,000
|
12 months
|
8%
|
Debenture 110
|
2/26/15
|
Variable
|
16,000
|
16,000
|
12 months
|
8%
|
Debenture 111
|
3/4/15
|
Variable
|
27,500
|
27,500
|
12 months
|
8%
|
Debenture 112
|
3/1/15
|
$0.0015
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 114
|
4/2/15
|
Variable
|
26,947
|
24,447
|
12 months
|
8%
|
Debenture 115
|
4/2/15
|
$0.001
|
23,660
|
23,660
|
12 months
|
14%
|
Debenture 116
|
3/31/15
|
Variable
|
14,000
|
14,000
|
6 months
|
15%
|
Debenture 117
|
4/14/15
|
Variable
|
20,000
|
20,000
|
6 months
|
15%
|
Debenture 118
|
4/27/15
|
Variable
|
25,000
|
25,000
|
12 months
|
14%
|
Debenture 119
|
3/31/15
|
Variable
|
14,000
|
14,000
|
6 months
|
15%
|
Debenture 120
|
5/27/15
|
$0.0025
|
7,500
|
7,500
|
12 months
|
14%
|
Debenture 121
|
7/2/15
|
$0.0025
|
175,000
|
175,000
|
12 months
|
14%
|
Debenture 122
|
7/3/15
|
Variable
|
238,894
|
221,894
|
12 months
|
8%
|
Debenture 124
|
9/4/15
|
Variable
|
106,789
|
58,289
|
12 months
|
8%
|
Debenture 126
|
9/8/15
|
$0.0025
|
112,663
|
112,663
|
12 months
|
14%
|
Debenture 128
|
9/15/15
|
$0.0025
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 129
|
9/8/15
|
$0.0050
|
2,000
|
2,000
|
12 months
|
14%
|
Debenture 130
|
10/12/15
|
$0.0050
|
15,000
|
15,000
|
12 months
|
14%
|
Debenture 131
|
10/12/15
|
$0.0050
|
20,000
|
20,000
|
12 months
|
14%
|
Debenture 132
|
10/15/15
|
$0.0025
|
10,750
|
10,750
|
12 months
|
14%
|
Debenture 134
|
10/20/15
|
$0.0050
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 135
|
12/5/15
|
$0.0050
|
10,000
|
10,000
|
12 months
|
14%
|
Debenture 137
|
12/18/15
|
$0.0050
|
20,000
|
20,000
|
12 months
|
14%
|
|
|
|
|
|
|
|
Total at December 31, 2015
|
|
|
$ 3,053,312
|
2,765,246
|
|
|
Less discount
|
|
|
|
(377,265)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
$ 2,387,981
|
|
|
The following is a schedule of long-term convertible debentures outstanding as of December 31, 2015:
Description
|
Date
|
Conversion Price
|
Original Principal Amount
|
Unpaid Principal Balance
|
Term
|
Interest Rate
|
|
|
|
|
|
|
|
Debenture 123
|
8/24/15
|
Variable
|
$ 34,650
|
$ 34,650
|
24 months
|
8%
|
Debenture 125
|
9/4/15
|
Variable
|
105,000
|
105,000
|
24 months
|
8%
|
Debenture 127
|
9/25/15
|
Variable
|
50,000
|
50,000
|
24 months
|
8%
|
Debenture 133
|
10/20/15
|
Variable
|
100,000
|
100,000
|
24 months
|
8%
|
Debenture 136
|
12/4/15
|
Variable
|
160,000
|
160,000
|
24 months
|
8%
|
|
|
|
|
|
|
|
Total at December 31, 2015
|
|
|
$ 449,650
|
449,650
|
|
|
Less discount
|
|
|
|
(387,289)
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
$ 62,361
|
|
|
As of December 31, 2015, $1,978,133 of the convertible debentures were delinquent. We believe we have good relationships with the debenture holders, and we continue to have discussions with them regarding the extension of maturity dates or settlement of amounts due. Several of the convertible debentures have default interest rates that apply when the debentures are delinquent, and we have accrued default interest where applicable. In addition, we have been unable to complete certain conversions of convertible debentures during the year ended December 31, 2015, pending the increase in the number of authorized shares of our common stock, and have accrued applicable penalties as of December 31, 2015.
Accrued interest payable for the convertible debentures, including accrued default interest and penalties, where applicable, totaled $1,141,478 and $195,458 as of December 31, 2015 and 2014, respectively.
Note 5. Derivative Liability
We evaluated the convertible debentures in accordance with ASC Topic 815, "Derivatives and Hedging," and determined that the conversion feature of the convertible promissory notes were not afforded the exemption for conventional convertible instruments due to their variable conversion rates. The notes have no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. We elected to recognize the notes under paragraph 815-15-25-4, whereby there would be a separation into a host contract and derivative instrument. We elected to initially and subsequently measure the notes in their entirety at fair value, with changes in fair value recognized in earnings. We recorded a derivative liability representing the imputed interest associated with the embedded derivative.
The debt discount is amortized over the life of the note and recognized as interest expense. For the years ended December 31, 2015 and 2014, we amortized debt discount of $1,388,935 and $1,287,418 to interest expense, respectively. The derivative liability is adjusted periodically according to stock price fluctuations and other inputs and was $10,852,906 and $2,718,652 at December 31, 2015 and 2014, respectively.
At December 31, 2015, the convertible debentures and related accrued interest payable were convertible into approximately 2,496,336,000 shares of our common stock. Based on the assumptions used to estimate the fair value of the derivative liability at December 31, 2015, and assuming all lenders converted the notes payable at the December 31, 2015 conversion prices, the Company would have had insufficient authorized shares of common stock to complete the debt conversions.
During the years ended December 31, 2015 and 2014, the Company had the following activity in its derivative liability account:
Derivative liability at December 31, 2013
|
|
$
|
2,104,849
|
|
Derivative liability at inception of new debt
|
|
|
1,127,938
|
|
Derivative liability at issuance of warrants
|
|
|
2,334
|
|
Elimination of liability on conversion
|
|
|
(1,014,809
|
)
|
Elimination of liability for cash payments
|
|
|
(26,659
|
)
|
Loss on derivative liability
|
|
|
524,999
|
|
|
|
|
|
|
Derivative liability at December 31, 2014
|
|
|
2,718,652
|
|
Derivative liability at inception of new debt
|
|
|
1,227,524
|
|
Elimination of liability on conversion
|
|
|
(1,364,115
|
)
|
Loss on derivative liability
|
|
|
8,270,845
|
|
|
|
|
|
|
Derivative liability at December 31, 2015
|
|
$
|
10,852,906
|
|
For purpose of estimating the fair market value of the derivative liability, we used the Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative liability at December 31, 2015 are as follows:
Stock price at valuation date: $0.0056
|
Risk free interest rates: .16% - 1.06%
|
Conversion prices: $0.00025 - $0.0047
|
Volatility: 129.22% - 356.07%
|
Years to maturity: .18 - 1.93
|
|
These assumptions are subject to significant changes and market fluctuations from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material.
Note 6 – Notes Payable
As of December 31, 2015, we had short-term notes payable to certain individuals and companies totaling $459,801. These notes are unsecured, payable to non-related parties and bear interest at rates ranging from 0% to 25%. As of December 31, 2015, several of the notes payable were delinquent. We believe we have good relationships with the note holders, and we continue to have discussions with them regarding the extension of maturity dates or settlement of amounts due. Several of the convertible debentures have default interest rates that apply when the debentures are delinquent.
As of December 31, 2014, we had short-term notes payable to certain individuals and companies totaling $120,328. These notes are payable to non-related parties and bear interest at rates ranging from 14% to 16% per annum.
Accrued interest payable for the short-term notes payable, including accrued default interest where applicable, was $82,144 and $44,358 as of December 31, 2015 and 2014, respectively.
Note 7 – Stockholder Advances
Since the inception of the Company, we have relied on cash advances from certain stockholders to fund our operations. These advances generally have no specified repayment terms and no stated rate of interest. All advances are considered by us to be due on demand until such time as the advances are converted into notes payable, issuances of shares of our common stock or other formal repayment arrangements. At December 31, 2015 and 2014, stockholder advances totalled $456,376 and $569,439, respectively.
Note 8 – Long-Term Debt
Our long-term debt consisted of the following at December 31:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Note payable to an individual due July 20, 2016, interest at 14%
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
Less discount
|
|
|
(591
|
)
|
|
|
(3,240
|
)
|
Net
|
|
|
29,409
|
|
|
|
26,760
|
|
Current portion
|
|
|
29,409
|
|
|
|
22,598
|
|
Long-term portion
|
|
|
-
|
|
|
|
4,162
|
|
Long-term convertible debentures, net of discount from Note 4
|
|
|
62,361
|
|
|
|
5,638
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
62,361
|
|
|
$
|
9,800
|
|
The long-term debt has been recorded net of a discount for the value assigned to shares of our common stock and detachable warrants issued in connection with the origination of the notes. The discount is amortized to interest expense over the term of the notes. Pursuant to an Amendment to Security Agreement, the warrants were subsequently cancelled.
Payment terms for the $30,000 notes payable are $350 per month for six months and $698 per month for sixty months, including interest. We are in default on the $30,000 note payable at December 31, 2015 due to our failure to make timely payments in accordance with the terms of the note agreement.
Accrued interest payable for the long-term debt was $41,648 and $37,448 as of December 31, 2015 and 2014, respectively.
Note 9 – Stockholders' Deficit
On March 3, 2016, the holders with the power to vote more than a majority of the outstanding common stock of the Company approved an amendment to the Company's Articles of Incorporation to effect the authorized share increase in our common stock from 500,000,000 shares to 2,000,000,000 shares of common stock. The amendment became effective April 8, 2016.
Previously, stockholders holding a majority of the voting power of the our outstanding voting stock, as well as our Board of Directors, approved an amendment to our Articles of Incorporation dated December 30, 2013 to (a) effect a reverse stock split of our common stock by a ratio of one-for-seven hundred fifty (1:750) and (b) reduce the number of authorized shares of common stock from 1,500,000,000 to 50,000,000. The Financial Industry Regulatory Authority ("FINRA") approved the reverse stock split effective January 13, 2014.
The increase in the authorized shares of common stock and the reverse stock split have been given retroactive effect in our consolidated financial statements for all periods presented.
We have authorized the issuance of up to 1,000,000 shares of Series AA Preferred Stock. Among other things, the Series AA Preferred Stock allows holders thereof enhanced voting rights based on ten thousand (10,000) votes per share of the Company's common stock held by such holders of Series AA Preferred Stock. The Series AA Preferred Stock is not convertible into common stock, does not pay dividends, and does not include a liquidation preference. In June 2014, 20,000 shares of Series AA Preferred Stock were issued to each of the four members of the Company's Board of Directors. Effective January 1, 2016, we cancelled 20,000 shares of Series AA Preferred Stock upon the resignation of a Director.
We have also authorized the issuance of up to 5,000,000 shares of Series BB Preferred Stock. Among other things, the Series BB Preferred Stock allows holders thereof voting rights, on an as-converted basis, equal to holders of common stock as a single class with respect to all matters submitted to holders of common stock, quarterly dividends payable in arrears in either cash or in kind, liquidation preferences, and is convertible at the option of the holder into 50 shares of common stock of the Company. In August 2014, a total of 186,000 shares of Series BB Preferred Stock was issued to two officers and one of our founders upon their surrender of a total of 9,300,000 shares of common stock.
During the year ended December 31, 2015, we issued a total of 261,357,966 shares of our common stock with a total value of $1,245,158 for conversion of debt.
During the year ended December 31, 2015, 10,000,000 shares of our common stock were surrendered to the Company at par value of $25,000 and cancelled.
During the year ended December 31, 2014, we issued a total of 178,842,449 shares of our common stock: 388 shares at $1 par value in rounding up shares in the reverse stock split; 39,668 shares at $99 par value to extinguish an obligation for unissued common shares; 158,062,393 shares for conversion of debt with a total value of $1,796,319; and 20,740,000 shares for services with a total value of $2,038,345. Certain officers and directors also exchanged 9,300,000 shares of common stock for 186,000 shares of Series BB Preferred Stock recorded at the $186 par value of the preferred stock.
As of December 31, 2015, we had several convertible debentures and related accrued interest payable that were convertible into approximately 2,496,336,000 shares of our common stock. We have 2,000,000,000 common shares authorized will be required to again increase the number of authorized shares of common stock in the event all convertible debt is converted into shares of our common stock.
As of December 31, 2015, we had certain penalties on delinquent convertible debentures and pending debenture conversions that are payable in shares of our common stock. We record these obligations at the current market value of our common stock, marking the obligations to market at each reporting date. We recognize the change in the market value as gain or loss on debt payable in shares in other income (expense) in our consolidated statements of operations. For the year ended December 31, 2015, we recognized a gain on debt payable in shares of $47,057.
Note 10 – Stock Options and Warrants
During the year ended December 31, 2014 in connection with the issuance of a convertible debenture, we issued warrants to purchase 1,977,267 shares of our common stock to a lender. The warrants are exercisable for a period of five years at an exercise price of $0.06 per share, with certain adjustments to the exercise price for lower conversion prices or option or warrant exercise prices granted after the effective date of the warrants. We estimated the value of the warrants using the Black-Scholes pricing model at $394,860 and included this amount in our derivative calculations discussed in Note 5.
During the year ended December 31, 2014, we issued options to purchase 3,000,000 shares of our common stock to a consultant. The options are exercisable for a period of five years at an exercise price of $0.01 per share. We estimated the value of the options using the Black-Scholes pricing model at $240,000 and included this amount in selling, general and administrative expenses for the year ended December 31, 2014.
During the year ended December 31, 2015, we did not issued any new stock options or warrants.
The following table summarizes the stock option and warrant activity during the years ended December 31, 2015 and 2014:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average Remaining Contract Term
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
-
|
|
|
|
|
|
|
|
Granted
|
|
|
4,977,267
|
|
|
$
|
0.03
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
Expired or cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at
December 31, 2014
|
|
|
4,977,267
|
|
|
$
|
0.03
|
|
|
|
4.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2015
|
|
|
4,977,267
|
|
|
$
|
0.03
|
|
|
|
3.25
|
|
On May 12, 2014, the Board of Directors of the Company adopted and approved the One World Holdings Inc. 2014 Stock Option and Stock Award Plan (the "Plan"). Also, the holders of a majority of the Company's outstanding common stock voted to approve and authorize adoption of the Plan. A total of 2,000,000 shares of our common stock are available for issuance under the Plan. Under the Plan, we may issue options, including incentive stock options and non-statutory stock options, restricted stock grants, or stock appreciation rights. Awards under the Plan may be granted to employees, consultants, directors and individuals who meet the requirements defined in the Plan. No options have been granted under the Plan.
Note 11 – Consulting Agreements
We have entered into various consulting agreements for financial and business development services to the Company. Certain of these consulting agreements provide for cash compensation to the consultants; however, several are based on issuances of shares of our common stock in exchange for services (see Note 9).
Under the consulting agreements that provide for share issuances, shares were generally issued at the inception of the agreements for services provided. There generally are no specified performance requirements and no provision in the agreements for return of the shares. Compensation expense is calculated based on the market price of the stock on the effective date of agreement and amortized over the period over which the services are provided to the Company. During the years ended December 31, 2015 and 2014, total amortization of prepaid consulting services included in selling, general and administrative expense was $93,442 and $2,363,263, respectively. As of December 31, 2015, the unamortized compensation paid in common shares was $22,500, reported as a current asset, prepaid consulting services, in our consolidated balance sheet.
Note 12 – Related Party Transactions
Several of the consulting agreements discussed in Note 11 are with related parties. Related parties consist primarily of our executive officers, directors and individuals affiliated through family relationships with our officers and directors. There was no compensation expense paid in common shares to related parties during the year ended December 31, 2015. Of the total compensation expense paid in common shares during the year ended December 31, 2014, the following amounts were paid to related parties:
Executive officers
|
|
$
|
952,356
|
|
Directors
|
|
|
269,730
|
|
Founder, stockholder
|
|
|
399,600
|
|
Family of officers and directors
|
|
|
78,029
|
|
|
|
|
|
|
Total related parties
|
|
$
|
1,699,715
|
|
|
|
|
|
|
As discussed above, the compensation expense paid in stock is calculated based on the market price of the common stock on the effective date of agreement and amortized over the period over which the services are provided to the Company.
In addition to compensation expense paid in stock, we had the following amounts paid for consulting and professional fees to related parties during the years ended December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Founder, stockholder
|
|
$
|
187,046
|
|
|
$
|
130,619
|
|
Family of officers and directors
|
|
|
225,901
|
|
|
|
193,118
|
|
|
|
|
|
|
|
|
|
|
Total related parties
|
|
$
|
412,947
|
|
|
$
|
323,737
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015, we had convertible debentures of $5,000, $46,600, $112,663 and $8,000 payable to four individual related parties. The outstanding principal and interest are convertible into shares of our common stock at conversion prices ranging from $0.0025 to $30 per share. We also had a short-term, non-interest bearing note payable of $5,000 to a related party as of December 31, 2015.
As of December 31, 2014, we had convertible debentures of $5,000, $46,600 and $8,000 payable to three individual related parties. The outstanding principal and interest are convertible into shares of our common stock at conversion prices ranging from $0.01 to $30 per share.
Accrued interest payable to related parties totaled $30,731 and $17,461 at December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, we had stockholder advances payable to related parties totaling $83,023 and $88,964, respectively.
Note 13 – Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets (liabilities) are comprised of the following at December 31:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
2,683,900
|
|
|
$
|
1,633,500
|
|
Related party accrued expenses
|
|
|
348,000
|
|
|
|
281,000
|
|
Depreciation
|
|
|
(16,100
|
)
|
|
|
(10,900
|
)
|
Other
|
|
|
5,100
|
|
|
|
3,400
|
|
|
|
|
3,020,900
|
|
|
|
1,907,000
|
|
Valuation allowance
|
|
|
(3,020,900
|
)
|
|
|
(1,907,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
The difference between the income tax benefit in the accompanying statements of operations and the amount that would result if the U.S. Federal statutory rate were applied to pre-tax loss for the years ended December 31, 2015 and 2014 is as follows:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Income tax benefit at statutory rate
|
|
$
|
4,644,600
|
|
|
$
|
2,427,600
|
|
Services paid with common stock
|
|
|
(143,800
|
)
|
|
|
(838,000
|
)
|
Interest and amortization
|
|
|
(486,100
|
)
|
|
|
(450,600
|
)
|
(Gain) loss on settlement of debt
|
|
|
35,600
|
|
|
|
(207,300
|
)
|
Loss on derivative
|
|
|
(2,894,800
|
)
|
|
|
(183,700
|
)
|
Related party accruals
|
|
|
(67,000
|
)
|
|
|
(77,100
|
)
|
Depreciation
|
|
|
(100
|
)
|
|
|
(1,900
|
)
|
Other
|
|
|
(2,000
|
)
|
|
|
(2,800
|
)
|
Change in valuation allowance
|
|
|
(1,086,400
|
)
|
|
|
(666,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2015, we had a net operating loss carry forward available to offset future taxable income of approximately $7,818,000, which will expire at various dates through December 31, 2035. If substantial changes in our ownership should occur, there would also be an annual limitation of the amount of the net operating loss carry forward that could be utilized.
FASB ASC Topic 718-740,
Income Taxes
, requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-non threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. We performed a review of our material tax positions in accordance with recognition and measurement standards established by ASC Topic 718-740. We have no unrecognized tax benefit that would affect the effective tax rate if recognized.
We classify interest and penalties arising from the underpayment of income taxes in our statements of under general and administrative expenses. As of December 31, 2015 and 2014, we had no accrued interest or penalties related to uncertain tax positions.
We file income tax returns in the U.S. federal jurisdiction. All U.S. federal net operating loss carry forwards through the year ended December 31, 2015 are subject to examination.
Note 14 – Supplemental Statement of Cash Flows Information
During the years ended December 31, 2015 and 2014, we paid no amounts for income taxes.
During the years ended December 31, 2015 and 2014, we paid $174,458 and $74,396 for interest expense, respectively.
During the year ended December 31, 2015, we had the following non-cash financing and investing activities:
|
·
|
Increased additional paid-in capital and debt discount by $407,613 for beneficial conversion feature of convertible notes payable.
|
·
|
Increased debt discount and derivative liability by $1,227,524.
|
·
|
Decreased stockholder advances and increased convertible debentures by $128,460.
|
·
|
Increased accounts payable and accrued expenses by $275,597, decreased accrued interest payable by $35,035, decreased convertible debentures by $311,769, decreased debt discount by $92,339, decreased derivative liability by $1,364,115, increased common stock by $653,395 and increased additional paid-in capital by $591,763 for common shares issued in conversion of debt.
|
|
·
|
Decreased accrued interest payable and increased convertible debentures by $25,293.
|
|
·
|
Decreased notes payable and increased convertible debentures by $10,000.
|
|
·
|
Decreased common stock and increased additional paid-in capital by $25,000.
|
During the year ended December 31, 2014, we had the following non-cash financing and investing activities:
|
·
|
Increased convertible debentures and prepaid consulting services by $60,000.
|
|
·
|
Increased additional paid-in capital and debt discount by $477,368 for beneficial conversion feature of convertible notes payable.
|
|
·
|
Increased common stock and decreased additional paid-in capital by $1 for rounding up of shares in reverse stock split.
|
|
·
|
Increased debt discount and derivative liability by $1,127,938.
|
|
·
|
Decreased unissued common stock and increased common stock by $99.
|
|
·
|
Decreased stockholder advances and increased convertible debentures by $50,000.
|
|
·
|
Decreased stockholder advances and increased accounts payable by $4,000.
|
|
·
|
Increased prepaid consulting services by $2,038,345, increased common stock by $51,850 and increased additional paid-in capital by $1,986,495 for common shares issued for services.
|
|
·
|
Decreased accrued interest payable by $18,189, decreased convertible debentures by $329,251, decreased debt discount by $146,230, decreased derivative liability by $1,014,809, increased common stock by $395,157 and increased additional paid-in capital by $1,401,162 for common shares issued in conversion of debt.
|
|
·
|
Decreased accrued interest payable and increased convertible debentures by $45,128 for accrued interest payable added to debt principal.
|
|
·
|
Increased Series BB Preferred stock by $186, decreased common stock by $23,250 and increased additional paid-in capital by $23,064 for issuance of Series BB Preferred shares for common shares.
|
Note 15 – Contingencies
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Management, along with the assistance of counsel, will determine the ultimate disposition and potential impact of these matters on our financial condition, liquidity or results of operations.
On November 4, 2014, we were named as a defendant in a civil lawsuit filed by Darling Capital, LLC, ("Darling") a creditor of ours, in the New York Supreme Court, County of New York. The plaintiff filed a Motion For Summary Judgment in Lieu of Complaint the same day. The plaintiff alleges, among other things, that we defaulted on our obligations under a Convertible Promissory Note held by Darling. The complaint sought, among other relief, judgment against us in the amount of $57,627. A settlement was reached on September 3, 2015 for the sum of $70,000 consisting of four payments with the final payment due on November 20, 2015. The first payment of $10,000 was made on September 9, 2015. No other payments have been made.
On December 3, 2014, WHC Capital, LLC filed a complaint against the Company, requesting $416,000 and alleging the Company's breach of contract and failure to deliver 22,545,900 shares of common stock pursuant to requested conversions of two promissory notes totaling $65,403. On September 9, 2015, both parties agreed to a settlement of $130,000 in the form of seven payments. There are currently two remaining payments due under the agreement.
Note 16 – Operating Lease
We lease our offices pursuant to an operating lease that commenced December 1, 2013 and expires in December 2019. The lease currently has a monthly payment of $4,214, and beginning on December 1, 2016, the monthly payment increases to $4,407 and will increase incrementally through the end of the term. Rent expense for the years ended December 31, 2015 and 2014 was $49,736 and $40,713, respectively. Future payments for the operating lease are as follows: 2016 - $50,560; 2017 – $52,883; 2018 - $55,044; and 2019 - $57,208.
Note 17 – Subsequent Events
Subsequent to December 31. 2015, we issued a total of 25,285,602 shares of our common stock for conversion of debt principal of $39,000 and accrued interest payable of $1,355.
Subsequent to December 31, 2015, we received total proceeds of $260,000 from convertible debentures.
Subsequent to December 31, 2015, we received net proceeds of $98,727 from short-term notes payable.
Effective January 1, 2016, we cancelled 20,000 shares of Series AA Preferred Stock upon the resignation of a Director.
On March 3, 2016, the holders with the power to vote more than a majority of the outstanding common stock of the Company approved an amendment to the Company's Articles of Incorporation to effect the authorized share increase in our common stock from 500,000,000 shares to two billion (2,000,000,000) shares of common stock. The amendment became effective on April 8, 2016.
On March 3, 2016, the name of the Company was changed from One World Holdings, Inc. to Tonner-One World Holdings, Inc.
On January 20, 2016, the Company created Tonner-One World, Inc. ("TOW"), a wholly owned subsidiary, for the purpose of taking initial steps to begin production of dolls under the combined Tonner-One World name.