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EX-31.1 - EXHIBIT 31.1 - TONNER-ONE WORLD HOLDINGS, INC.ex311.htm
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FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

For the quarterly period ended September 30, 2013

OR

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

For the transition period from ________ to ________

Commission file number 333-177992

ONE WORLD HOLDINGS, INC.
 (Exact name of registrant as specified in its charter)
                                               
Nevada
(State or other jurisdiction
of incorporation or organization)
87-0429198
(I.R.S. Employer Identification Number)

418 Bridge Crest Boulevard, Houston, Texas 77082
(Address of principal executive offices)

(866) 440-1470
(Registrant’s telephone number, including area code)

n/a
(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark whether the registrant (1) 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 [x] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [x] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [ ]
 
Accelerated Filer [ ]
 
Non-Accelerated Filer [ ]
(Do not check if a smaller
reporting company)
 
Smaller Reporting Company [x]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [x]
 
APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common units, as of the latest practicable date: 823,610,674 shares of common stock, par value $.0025 per share, outstanding as of November 18, 2013.

Transitional Small Business Disclosure Format (Check one): Yes [  ] No [x]
 
 
 
 

 

 
 
Page(s)
 PART I – FINANCIAL INFORMATION:
 
     
Item 1.
Financial Statements (unaudited):
3
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
14
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
23
     
Item 4A.
Controls and Procedures
24
   
 PART II – OTHER INFORMATION:
 
     
Item 1.
Legal Proceedings
25
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25
     
Item 3.
Defaults Upon Senior Securities
26
     
Item 4.
Mine Safety Disclosures
27
     
Item 5.
Other Information
27
     
Item 6.
Exhibits
27
     
 Signatures
30
 
 
 
2

 
 
 
Item  1. Financial Statements
 
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
 
In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
 
The results for the period ended September 30, 2013 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission for the period ended December 31, 2012.
 
 
 
3

 

 
One World Holdings, Inc.
 
(A Development Stage Company)
 
Consolidated Balance Sheets
 
September 30, 2013 and
 
December 31, 2012
 
               
               
     
September 30,
   
December 31,
 
     
2013
   
2012
 
     
(unaudited)
       
Assets
             
Current Assets
           
 
Cash
  $ 39,535     $ 2,147  
 
Prepaid Consulting Services
    1,367,287       549,147  
 
Prepaid Inventory
    130,390       -  
Total Current Assets
    1,537,212       551,294  
                   
Other Assets
               
 
Manufacturing Equipment
    70,000       70,000  
 
Prepaid Consulting Services - Long Term
    14,833       168,479  
Total Other Assets
    84,833       238,479  
Total Assets
  $ 1,622,045     $ 789,773  
                   
Liabilities and Stockholders' Equity
               
                   
Current Liabilities
               
 
Convertible Debentures
  $ 306,653     $ 408,719  
 
Notes Payable - Related Party
    179,000       87,000  
 
Current Portion of Long Term Debt
    18,720       45,189  
 
Due to Shareholder
    195,921       12,964  
 
Derivative Liability
    1,490,455       -  
 
Customer Deposits
    -       5,362  
 
Accounts Payable and Accrued Liabilities
    757,179       599,672  
 
Accounts Payable - Related Party
    19,598       19,598  
 
Accrued Interest Payable
    98,850       81,867  
Total Current Liabilities
    3,066,376       1,260,371  
                   
Long Term Liabilities
               
 
Long Term Debt, net of unamortized discount
    23,378       42,762  
Total Liabilities
    3,089,754       1,303,133  
                   
Commitments and Congingencies
               
                   
Stockholders' Equity (Deficit)
               
 
Preferred Stock; $0.001 par value, 10,000,000 shares authorized, zero shares issued and outstanding
    -       -  
                   
 
Unissued preferred stock 200,000 shares
    200       -  
                   
 
Common Stock; $0.0025 par value, 1.5 Billion shares authorized, 409,662,824 and 67,067,829 shares issued and outstanding
    1,024,158       167,670  
                   
 
Unissued Common Stock, 313,000,000 and 18,125,000 shares
    782,500       45,312  
                   
 
Additional Paid-In Capital
    3,627,998       2,150,546  
                   
 
Deficit accumulated during the development stage
    (6,902,565 )     (2,876,888 )
Total Stockholders' Equity (Deficit)
    (1,467,709 )     (513,360 )
Total Liabilities & Stockholder's Equity (Deficit)
  $ 1,622,045     $ 789,773  
                   
The accompanying notes are an integral part of these financial statements
         

 
4

 

One World Holdings, Inc.
 
(A Development Stage Company)
 
Consolidated Statements of Operations
 
For the Three Months Ending September 30, 2013 and 2012 and,
 
For the Nine Months Ending September 30, 2013 and 2012 and,
 
and for the Period from Inception October 1, 2010 to September30, 2013
 
(unaudited)
 
                               
                           
October 1,2010
 
                           
(Inception)
 
                           
to
 
   
3 Months Ending September 30,
   
9 Months Ending September 30,
   
September 30,
 
   
2013
   
2012
   
2013
   
2012
   
2013
 
                               
Revenue
  $ -     $ -     $ -     $ -     $ -  
Total Revenue
    -       -       -       -       -  
                                         
Operating Expense
                                       
General and Administrative
                                       
     Professional Fees
    43,000       73,192       43,000       115,772       92,236  
     Consulting Fees
    21,654       57,537       106,782       272,192       443,368  
     Contract Labor
    126,854       52,716       232,633       60,115       717,452  
     Salary Expense
    70,500       70,500       211,500       211,500       564,000  
     Marketing & Advertising
    42,891       18,441       125,956       29,534       220,485  
     Computer & Internet Fees
    10,825       4,658       22,811       12,072       92,562  
     Research & Development
    1,725       -       76,021       29,226       219,000  
     Other
    19,761       13,025       63,902       37,233       203,972  
     Stock Compensation
    253,058       -       652,006       -       1,707,440  
Total General & Administrative Expenses
    590,269       290,069       1,534,611       767,644       4,260,515  
                                         
Other Expenses
                                       
     Interest Expense
    182,084       24,489       302,962       62,195       422,279  
     Recapitalization
    -       -       -       -       31,667  
     Loss on Derivative
    1,188,211       -       1,311,620       -       1,311,620  
     Loss on Debt Settlement
    579,310       -       876,484       -       876,484  
Total Other Expenses
    1,949,605       24,489       2,491,066       62,195       2,642,050  
                                         
Operating Income (Loss) before tax provision (Benefit)
    (2,539,874 )     (314,558 )     (4,025,677 )     (829,839 )     (6,902,565 )
                                         
Tax Provision (Benefit)
    -       -       -       -       -  
Net Loss
  $ (2,539,874 )   $ (314,558 )   $ (4,025,677 )   $ (829,839 )   $ (6,902,565 )
                                         
Net Loss per Common Share (Basic)
  $ (0.01 )   $ (0.01 )   $ (0.03 )   $ (0.01 )        
                                         
Weighted Average Shares (Basic & Diluted)
    280,029,330       58,931,029       145,153,317       58,931,029          
                                         
The accompanying notes are an integral part of these financial statements

 
5

 

One World Holdings, Inc.
 
(A Development Stage Company)
 
Statements of Changes in Stockholders' Equity
 
For the Period from Inception; October 1, 2010 to September 30, 2013
 
         
                                                         
Deficit
       
                                                         
Accumulated
       
   
Common Stock
   
Unissued Common Stock
   
Preferred Stock
   
Unissued Preferred Stock
   
Additional
   
During the
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Paid-In Capital
   
Development Stage
   
Total
 
Balance at October 1, 2010
    -     $ -       -     $ -       -     $ -       -     $ -     $ -     $ -     $ -  
                                                                                         
Founder's Shares
    8,785,399       21,963       -       -       -       -       -       -       (16,215 )     -       5,748  
                                                                                         
Warrants issued for Debt Obligation
    -       -       -       -       -       -       -       -       17,648       -       17,648  
                                                                                         
Common Stock issued for Debt Obligation
    1,834,272       4,586       -       -       -       -       -       -       14,238       -       18,824  
                                                                                         
Net Loss
    -       -       -       -       -       -       -       -       -       (134,882 )     (134,882 )
Balance at December 31, 2010
    10,619,671       26,549       -       -       -       -       -       -       15,671       (134,882 )     (92,662 )
                                                                                         
Common Stock issued for cash in private placement net of $10,000 of offering costs
    8,295,053       20,738       -       -       -       -       -       -       179,262       -       200,000  
                                                                                         
Common Stock issued for Warrant Exercise
    3,439,260       8,598       -       -       -       -       -       -       81,402       -       90,000  
                                                                                         
Common Stock issued for Services
    28,705,757       71,764       767,500       1,919       -       -       -       -       705,117       -       778,800  
                                                                                         
Warrants issued for Debt Origination
    -       -       -       -       -       -       -       -       8,824       -       8,824  
                                                                                         
Common Stock issued for Debt Origination
    2,445,696       6,114       -       -       -       -       -       -       23,298       -       29,412  
                                                                                         
Common Stock issued in merger and recapitalization transaction
    5,425,592       13,565       -       -       -       -       -       -       (13,565 )     -       -  
                                                                                         
Obligation forgiven under consulting agreements with Related Parties
    -       -       -       -       -       -       -       -       200,500       -       200,500  
                                                                                         
Net Loss
    -       -       -       -       -       -       -       -       -       (1,483,733 )     (1,483,733 )
Balance at December 31, 2011
    58,931,029       147,328       767,500       1,919       -       -       -       -       1,200,509       (1,618,615 )     (268,859 )
                                                                                         
Unissued Common Stock Issued
    767,500       1,919       (767,500 )     (1,919 )     -       -       -       -       -       -       -  
                                                                                         
Common Stock issued for Services
    7,369,300       18,423       18,125,000       45,312       -       -       -       -       950,037       -       1,013,772  
                                                                                         
Net Loss
    -       -       -       -       -       -       -       -       -       (1,258,273 )     (1,258,273 )
Balance at December 31, 2012
    67,067,829       167,670       18,125,000       45,312       -       -       -       -       2,150,546       (2,876,888 )     (513,360 )
                                                                                         
Unissued Common Stock Issued (unaudited)
    18,125,000       45,312       (18,125,000 )     (45,312 )     -       -       -       -       -       -       -  
                                                                                         
Common Stock issued for Services (unaudited)
    1,500,000       3,750       -       -       -       -       -       -       56,250       -       60,000  
                                                                                         
Common Stock issued for Debt Conversion (unaudited)
    275,450       689       2,998,695       7,497       -       -       -       -       242,728       -       250,914  
                                                                                         
Preferred Stock issued for Cash (unaudited)
    -       -       -       -       -       -       200,000       200       99,800       -       100,000  
                                                                                         
Net Loss (unaudited)
    -       -       -       -       -       -       -       -       -       (621,933 )     (621,933 )
Balance at March 31, 2013 (unaudited)
    86,968,279       217,421       2,998,695       7,497       -       -       200,000       200       2,549,324       (3,498,821 )     (724,379 )
                                                                                         
Unissued Common Stock Issued (unaudited)
    2,998,695       7,497       (2,998,695 )     (7,497 )     -       -       -       -       -       -       -  
                                                                                         
Common Stock issued for Services (unaudited)
    5,050,000       12,625       -       -       -       -       -       -       37,875       -       50,500  
                                                                                         
Common Stock issued for Debt Conversion (unaudited)
    5,293,833       13,234       3,125,000       7,813       -       -       -       -       145,319       -       166,366  
                                                                                         
Net Loss (unaudited)
    -       -       -       -       -       -       -       -       -       (863,871 )     (863,871 )
Balance at June 30, 2013 (unaudited)
    100,310,807       250,777       3,125,000       7,813       -       -       200,000       200       2,732,518       (4,362,692 )     (1,371,384 )
                                                                                         
Unissued Common Stock Issued (unaudited)
    3,125,000       7,813       (3,125,000 )     (7,813 )     -       -       -       -       -       -       -  
                                                                                         
Common Stock issued for Services (unaudited)
    72,200,000       180,500       313,000,000       782,500       -       -       -       -       243,000       -       1,206,000  
                                                                                      -  
Common Stock issued for Debt Conversion (unaudited)
    234,027,017       585,068       -       -       -       -       -       -       652,480       -       1,237,548  
                                                                                         
Net Loss (unaudited)
    -       -       -       -       -       -       -       -       -       (2,539,873 )     (2,539,873 )
Balance at September 30, 2013 (unaudited)
    409,662,824     $ 1,024,158       313,000,000     $ 782,500       -     $ -       200,000     $ 200     $ 3,627,998     $ (6,902,565 )   $ (1,467,709 )
                                                                                         
                                                                                         
The accompanying notes are an integral part of these financial statements

 
6

 

One World Holdings, Inc.
 
(A Development Stage Company)
 
Consolidated Statements of Cash Flows
 
For the Nine Months Ending September 30, 2013 and 2012
 
and for the Period from Inception October 1, 2010 to September 30, 2013
 
(unaudited)
 
               
October 1, 2010
 
               
(Inception)
 
               
to
 
   
9 Months Ending September 30,
   
September 30,
 
   
2013
   
2012
   
2013
 
                   
Cash Flows From Operating Activities
                 
Net loss
  $ (4,025,679 )   $ (829,839 )   $ (6,902,565 )
     Adjustments to reconcile net cash used by operations;
                       
Amortization of Discount on Notes Payable
    203,919       13,687       236,576  
Common Stock Issued for Services
    652,006       272,192       1,732,700  
Forgiveness of Obligations by Related Parties
    -       -       200,500  
Recapitalization incurred by increase in Notes Payable
    -       -       31,667  
Loss on Derivative Liability Valuation
    1,311,620       -       1,311,620  
Loss on Extinguishment of Debt     876,484       -       876,484  
     Changes in Assets and Liabilities
                       
Customer Deposits
    (5,362 )     2,173       -  
Prepaid Inventories
    (130,390 )     -       (130,390 )
Accounts Payable & Accrued Liabilities
    157,507       239,430       729,179  
Accounts Payable - Related Parties
    -       -       19,598  
Accrued Interest Payable
    76,859       48,508       158,726  
Net cash used by operating activities
    (883,036 )     (253,849 )     (1,735,905 )
                         
Cash Flows From Investing Activities
                       
Purchase of Manufacturing Equipment
    -       -       (42,000 )
Cash received in Recapitalization
    -       -       2,333  
Net cash provided (used) by investing activities
    -       -       (39,667 )
                         
Cash Flows From Financing Activities
                       
Bank Overdraft
    -       1,095       -  
Payment to Convertible Debentures
    (534 )     -       (1,315 )
Proceeds from Convertible Debentures
    526,000       232,000       935,500  
Proceeds from Notes Payable
    -       -       -  
Proceeds from Notes Payable - Related Parties
    131,500       33,000       184,500  
Proceeds from Long Term Debt
    -       -       130,000  
Payments on Notes Payable
    (19,500 )     -       (19,500 )
Proceeds from Common Stock - Private Placement net of Expenses
    100,000       -       300,000  
Proceeds from Warrant Exercise
    -       -       90,000  
Proceeds from Advances from Shareholders
    182,958       4,560       216,022  
Repayments on Advances from Shareholders
    -       -       (20,100 )
Net cash provided from financing activities
    920,424       270,655       1,815,107  
                         
Net increase in cash
    37,388       16,806       39,535  
Cash, beginning of period
    2,147       6       -  
Cash, end of period
  $ 39,535     $ 16,812     $ 39,535  
                         
Supplemental Disclosures
                       
                         
Income taxes paid
  $ -     $ -     $ 3,733  
Cash interest paid
  $ -     $ -     $ -  
                         
The accompanying notes are an integral part of these financial statements

 
 
7

 
 
ONE WORLD HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
(1)           Basis of Presentation
 
In the opinion of management, the accompanying unaudited consolidated financial statements of One World Holdings, Inc. (“we” or the “Company”) contain the adjustments, all of which are of a normal recurring nature, necessary to present fairly our financial position at December 31, 2012 and September 30, 2013 and the results of operations for the nine months ended September 30, 2012 and 2013, respectively, with the cash flows for each of the nine months ended September 30, 2012 and 2013, in conformity with U.S. generally accepted accounting principles.
 
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. Operating results for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013.
 
(2)           Organization, Nature of Business
 
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 on January 14, 2011 OWDPI was incorporated in the State of Texas.  National Fuel and Energy, Inc. (a Texas Corporation) is a fully-owned subsidiary of the Company that was in dormant state at December 31, 2012 and 2011, and for the period from inception, October 1, 2010, to September 30, 2013.  The accompanying consolidated financial statements are presented as if OWDPI was a corporation from inception.
 
(3)           Reclassifications
 
Certain items in the 2012 consolidated financial statements have been reclassified to conform to the 2013 consolidated financial statements’ presentation.
 
(4)           Going Concern Consideration
 
 The Company has incurred losses from operating activities of $ 6,902,565 since inception, has limited financial resources and a working capital deficit of $1,529,164, at September 30, 2013. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's consolidated financial statements for the period from inception, October 1, 2010, to September 30, 2013, 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. The Company currently has losses accumulated in the development stage of $6,902,565, through September 30, 2013. 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.
 
 
 
8

 
 
(5)           Convertible Debentures
 
 During the period from October 10, 2011 to June 30, 2012, the Company issued various Convertible Debentures in the total amount of $176,000. During the nine months ended September 30, 2013, the Company issued various Convertible Debentures in the total amount of $763,500. The debentures bear simple interest of 8% to 15% per annum with maturities ranging from nine months to one year.  The outstanding principal and interest of the debenture is convertible into shares of common stock at a fixed conversion price ranging from $0.02 to  $0.04 per share in addition to variable discounted pricing based on the Bloomberg closing bid price or a discount of the market price.  The conversion rate was based upon the market price of the Company's common stock as determined by reference to recent cash sales.
 
Following is an analysis of the convertible debentures outstanding as of September 30, 2013 and 2012:
 
Description
Date of Agreement
Cost basis at Conversion
Original Amount
Unpaid principal balance
Term
Interest Rate
Debenture 1
8/24/2011
0.04
100,000
1,000
12 Months
16%
Debenture 2
10/10/2011
0.04
25,000
25,000
12 Months
16%
Debenture 3
12/20/2011
0.04
6,000
5,466
12 Months
16%
Debenture 4
    2/17/2012
0.04
10,000
10,000
12 Months
16%
Debenture 5
      3/9/2012
0.04
5,000
5,000
12 Months
16%
Debenture 6
    3/19/2012
0.04
5,000
5,000
12 Months
16%
Debenture 7
4/29/2012
0.04
5,000
5,000
12 Months
16%
Debenture 8
4/25/2012
0.04
10,000
10,000
12 Months
16%
Debenture 9
7/20/2012
0.04
62,000
45,000
12 Months
16%
  Debenture 10
7/29/2012
0.04
10,000
10,000
12 Months
16%
  Debenture 11
8/09/2012
0.04
15,000
15,000
12 Months
16%
             
At September 30, 2012
253,000
136,466
   

 
Description
Date of Agreement
Cost basis at Conversion
Original Amount
Unpaid principal balance
Term
Interest Rate
Debenture 12
10/9/2012
0.04
5,000
5,000
12 Months
14%
Debenture 13
10/31/2012
0.04
12,500
12,500
12 Months
14%
Debenture 14
11/20/2012
0.04
2,000
2,000
12 Months
14%
Debenture 15
11/20/2012
0.04
5,000
5,000
12 Months
14%
Debenture 16
12/11/12
0.04
2,500
2,500
12 Months
14%
Debenture 17
12/29/12
0.04
2,500
2,500
12 Months
14%
Debenture 18
1/5/13
0.04
2,500
2,500
12 Months
14%
Debenture 19
2/21/13
0.04
2,500
2,500
12 Months
14%
Debenture 20
4/19/13
Variable
32,500
32,500
12 Months
8%
Debenture 21
5/28/13
Variable
47,500
47,500
 9 Months
8%
Debenture 22
7/11/13
Variable
21,500
21,500
12 Months
8%
Debenture 23
7/23/13
Variable
62,000
62,000
9 Months
8%
Debenture 24
7/26/13
Variable
78,500
78,500
12 Months
8%
Debenture 25
8/2/13
Variable
21,500
21,500
12 Months
8%
Debenture 26
9/23/13
Variable
25,000
25,000
11 Months
8%
Debenture 27
8/30/13
Variable
37,500
37,500
12 Months
15%
Debenture 28
8/14/13
0.02
100,000
100,000
12 Months
14%
Debenture 29
9/4/13
Variable
50,000
50,000
12 Months
8%
At September 30, 2013
510,500
10,500
   

 
 
9

 
 
 
Under the terms of the 14% Convertible Debentures, the interest rate is increased to 16% if the Company fails to make payments when due. As of September 30, 2013, the Company had failed to make required payments on convertible debentures totaling $136,466.
 
As of September 30, 2013, the Company allowed securities transfers on debentures various debentures, and issued new debentures totaling $396,000 to eight note holders.  Various debentures were converted either in full or partially totaling $208,610 which resulted in a derivative liability of $1,490,455 and a loss on debt settlement of $579,310 for the three months ended September 30, 2013.  We evaluated the financing transactions 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. The Company elected to recognize the notes under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the notes in their entirety at fair value, with changes in fair value recognized in earnings. The Company 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 three month period ended September 30, 2013, the Company recognized $182,084 as interest expense. The derivative liability is adjusted periodically according to the stock price fluctuations. At the time of conversion, any remaining derivative liability will be charged to additional paid-in capital. For purpose of determining the fair value of the note, the Company used the Black Scholes option valuation model.
 
The significant assumptions used in the Black Scholes valuation are as follows:
 
Stock prices at valuation ranging from: $0.0019 to $0.004
 
Conversion prices ranging from $.00095 to 0.002
 
Years to Maturity %: from .004 to 1.00
 
Risk free rates ranging from: .01 to 1.0
 
Volatility ranging from: 166.2 to 762.7
 
The change in derivative liability recognized in the financial statements for the three month period ended September 30, 2013 was $1,193,984.
 
(6)           Advances from shareholder
 
Since its inception, the Company has relied on notes payable and advances from a shareholder to fund its ongoing operations. These advances have no specified repayment terms and no stated rate of interest. All advances are considered by the Company to be due on demand.  At September 30, 2013 and December 31, 2012 the advances from individuals were $195,921 and $12,964, respectively.
 
 
 
10

 
 
(7)           Stockholders' Deficit
 
 During the period from June 30, 2013 to September 30, 2013 the Company issued 385,200,000 shares of stock to consultants and 234,027,017 shares for conversion of various convertible debentures.  As of September 30, 2013, 200,000 shares of preferred stock and 313,000,000 shares of common stock remain unissued.
 
   
Shares
   
Shares
         
Cash
   
Services and
       
Description
 
Issued
   
Unissued
   
Value
   
Proceeds
   
Incentive
   
Total
 
at December 31, 2012
    767,500       (767,500 )     -       -       -       -  
                                                 
Shares issued for services to consultants, management and directors and employees
      1,500,000       -       0.04       -       60,000       60,000  
                                                 
Unissued shares for debt conversion
    275,450       2,998,695               -               -  
                                                 
Unissued Class A Preferred stock
    -       200,000       0.5       100,000               100,000  
                                                 
Issuances of shares unissued at
                                               
March 31, 2013
    18,125,000       (18,125,000 )                                
                                                 
at March 31, 2013
    86,968,279       2,998,695               464,708       2,064,820       2,529,528  


                                 
 
 
Shares issued for services to
    5,050,000       -       0.01       -       50,500       50,500  
  consultants, management and
                                               
  directors and employee
                                               
                                                 
Unissued shares for debt conversion
    5,293,833       3,125,000               -       -       -  
                                                 
Unissued Class A Preferred stock
    -               -       -       -       -  
                                                 
Issuances of shares unissued at
                                               
June 30, 2013
    2,998,695       (2,998,695 )                                
                                                 
June 30, 2013
    100,310,807       3,125,000               464,708       2,115,320       2,580,028  
                                                 

                                 
 
 
Shares issued for services to
                                   
  consultants, management and
    72,200,000       313,000,000       -       -       963,000       963.000  
  directors and employee
                                               
                                                 
Shares issued for debt conversion
    234,027,017                       -       585,068       585,068  
                                                 
Unissued Class A Preferred stock
    -               -       -       -       -  
                                                 
Issuances of shares unissued at
                                               
September 30, 2013
    3,125,000       (3,125,000 )                                
                                                 
September at September 30, 2013
    409,662,824       313,000,000                       3,663,388       4,128,096  
 
 
 
11

 

 
(8)           Consulting Agreements
 
The Company has 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 most are based on issuances of shares in exchange for services.
 
Under the consulting agreements that provide for share issuances, shares were generally issued at the inception of the agreements for services provided between January 1, 2011 and September 30, 2013. There were no specified performance requirements and no provision in the agreements for return of the shares.  At September 30, 2013, the compensation associated with the shares was $1,707,440. Compensation expense is calculated based on price of stock on the effective date of agreement and amortized over the period over which the services are provided to the Company. At September 30, 2013, the unamortized compensation associated with the shares was $1,382,420 reported as current and long-term prepaid consulting services on the balance sheet.
 
 For the nine months ended September, 2013 and 2012, the compensation associated with the shares recognized and expensed was $652,006 and $214,655; and $1,707,440 for the period from inception, October 1, 2010, to September 30, 2013; and the remaining unamortized expense of $1,367,287 is reported under prepaid consulting services.
 
 (9)           Related Party Transactions
 
 Since its inception, the Company has operated without rent from the home of its Chairman and Chief Executive Officer. The value of the rent is believed by management to be immaterial to the consolidated financial statements.
 
Daniel Melton Media, Inc. owned by Corinda Melton, the Company CEO and a shareholder, and Trent Daniel, a shareholder, performed graphic design and web related services for the company and received $1,050 for the period ending September 30, 2013, and $34,180 for the period from inception, October 1, 2010 to September 30, 2013.
 
In addition, Daniel Melton Media, Inc. advanced to the Company $33,064 for the period from inception, October 1, 2010 to September 30, 2013. These funds are reflected on the balance sheet under balances due to shareholders.
 
The Company paid Trent Daniel, a shareholder, for contract services related to fund raising, marketing, graphic design, business and relationship development. The payments totaled $133,918 for the nine months ended September 30, 2013, $34,521 during the nine months ended September 30, 2012 and $243,156 for the period from inception October 1, 2010 to September 30, 2013.
 
The Company issued two six-month promissory notes to shareholders, Curtis and Janet Threat totaling $107,000 for the nine months ended September 30, 2013.  The notes carry an interest rate of 16% and have no penalty or default clauses.
 
 
 
12

 

 
As of September 30, 2013, the Company had issued and unissued shares of stock to the following related parties:
 
Stockholder
Shares issued
Unissued
Shares
Value ($)
Relationship
Nature of Services
Henderson J. Smith, Jr.
2,674,980
-
30,000
Brother-in-law of company founder Trent Daniel
Business Development services
Sarah Marie Daniel
1,389,280
-
45,000
Wife of company founder Trent Daniel
Creative writing services
Nedra Hall
1,007,140
-
35,000
Sister-in-law of company founder Trent Daniel
Bookkeeping services
Bradley Melton
8,929,405
 
105,700
Son of Corinda Melton, CEO
Purchased shares and provided business development services
Sherman Walker
601,440
-
18,772
Brother of Corinda Melton, CEO
Purchased  shares for cash
Wilma Delaney
10,187,852
30,000,000
113,000
Director and sister of Corinda Melton, CEO
Director related services
Robert Hines
6,452,132
25,000,000
113,000
Director
Director related services and financial consulting
       
           
Stacey McBride-Irby
18,881,738
82,000,000
410,750
Chief Product Development Officer
Cash purchase and company employee
Corinda Melton
10,707,465
-
265,580
CEO
Employee
           
Trent Daniel
9,077,434
85,000,000 
240,580
Founder
Marketing and relationship development services

 (11)           Subsequent Events
 
The Company has evaluated events subsequent to September 30, 2013, pursuant to ASC Topic 855 to include the following:
 
On October 18, 2013, a convertible debenture entered into with Asher Enterprises dated 4/19/13 for $32.5k was paid off by the Company.
 
On October 14, 2013 the Company entered into an 8% $37,500 convertible debenture with Asher Enterprises. Conversions are based on variable pricing at 44% discount to market.
 
 
 
13

 
 
On October 3, 2013 the Company entered into a 12 month 8% $7,500 convertible debenture with Chevelle Freeman. Conversions are based on variable pricing at 44% discount to market.
 
On October 3, 2013 the Company entered into a 12 month 14% $50,000 convertible debenture with Cynthia Gibbs.  Conversions are based on a fixed rate of $0.002.
 
On October 2, 2013 the Company entered into a 12 month 14% $75,000 convertible debenture with Clara Batiste.  Conversions are based on a fixed rate of $0.002.
 
On October 25, 2013 the Company entered into a securities transfer agreement and convertible debenture with LG Capital Funding, for a $50,000 promissory note to Curtis and Janet Threat dated 4/2/13.  The debenture is for 12 months with an 8% interest rate.  Conversions are based on a 50% discount to market.
 
On October 23, 2013 the Company entered into a 6% redeemable convertible debenture with Gel Properties under a private investment with provisions for funding up to $155k over a 24 month period.  An upfront investment of $50,000 was funded to the company on 10/25/13.  The remaining 105,000 is to be funded in $35,000 tranches and secured by the note holder with cash.  Conversions are based on a 40% discount to market.
 
On October 25, 2013 the Company entered into a 12 month 8% $52,000 convertible debenture with LG Capital funding.  Conversions are based on a 50% discount to market.
 
On October 3, 2013 the company entered into a consulting arrangement with Carol Litchhult for business consulting services.  The agreement provides for 1 million shares of free trading stock to be issued under the Company’s Stock Incentive plan and 1.5 million shares of restricted common stock.
 
On October 1, 2013 the Company entered into a 12 month agreement with Jason Carter for business and relationship consulting services.  The agreement provided for 3million shares of free trading stock under the Company’s Stock Incentive plan and 5million shares of restricted stock.
 
Subsequent to September 30, 2013 the Company issued 90,487,850 shares of stock as a result of conversions of outstanding convertible debt.
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
 As used in this 10Q, references to the “Company,” “One World,” “we,” “our” or “us” refer to One World Holdings, Inc., unless the context otherwise indicates.
 
 INTRODUCTION
 
Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying consolidated financial statements and related notes to help provide an understanding of our financial condition, the changes in our financial condition and the results of operations.
 
Some of the key factors which could cause our future financial results and performance to vary from those expected include:
 
           •           our ability to meet production and sales goals;
 
 
 
14

 
 
           •           our ability to raise adequate capital to fund operations;
 
           •           market developments affecting, and other changes in, the demand for our products or the introduction of competing products;
 
           •           increases in the price of raw materials used in the production of our dolls;
 
           •           our ability to develop and market our businesses at a level necessary to implement our business strategy and our ability to finance our development;
 
           •           the condition of the capital markets generally, which will be affected by interest rates, foreign currency fluctuations and general economic conditions;
 
           •           the political and economic climate in the foreign or domestic jurisdictions in which we conduct business; and
 
           •           other United States or foreign regulatory or legislative developments which affect the demand for our products generally or increase the cost for our products.
 
The information contained in this annual report, including the information set forth under the heading “Risk Factors”, identifies additional factors that could cause our results or performance to differ materially from those we express in our forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions and, therefore, the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements which are included in this annual report and the exhibits and other documents incorporated herein by reference, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved.
 
General
 
One World Holdings, Inc. (“Holdings”, a Nevada Corporation, formerly known as Environmental Safeguards, Inc.), is a Houston based development stage company with plans to release a line of mainstream multicultural dolls aimed at high-end collectors and young pre-teen girls. The Company’s operations are conducted through its wholly-owned subsidiary, The One World Doll Project, Inc., a Texas Corporation (OWDPI).  In this discussion Holdings and OWDPI are collectively referred to as “One World”. For the first year of operations, One World will be focused on direct sales and Internet sales and we will not require a storefront for operations.  Manufacturing of our dolls will be outsourced to a physical plant facility in the People’s Republic of China owned by a third-party manufacturer we have selected.
 
Results of Operations
 
During the period from inception, October 1, 2010, to September 30, 2013, substantially all of our efforts have been focused on fundraising, developing a management team and positioning the Company to manufacture our dolls.
 
 
 
15

 
 
 Results of Operations For The Three and Nine-Month Periods Ended September 30, 2013 Compared To The Three and Nine-Month Period Ended September 30, 2012.
 
 Professional fees decreased during both the three and nine-months ended September 30, 2013, vis-à-vis the comparable 2012 periods.  The decrease in professional fees relates primarily to the decrease in legal and accounting services in connection with quarterly reviews versus annual reports.
 
Consulting fees also decreased during both the three and nine-months ended September 30, 2013, vis-à-vis the comparable 2012 periods.  Consulting fees were incurred primarily in the form of stock issuances to consultants. We have hired over 20 consultants from time to time to help us establish and market our Company and our products.  Certain consultants had consulting agreements that provided for share issuances, which shares were issued at the inception of the agreements.  Accordingly, the compensation associated with the shares was recognized over the life of the consulting agreement, based on the estimated fair value of the shares issued.   The number of consultants receiving stock for their services has decreased over the past periods.  The Company will continue to incur consulting fees in the future, but such fees are expected to be at reduced levels and fewer fees are expected to be paid with stock versus cash.
 
 The services of a variety of consultants have been integral in developing our business model, furthering our business and ensuring the successful pursuit of our goals.  Our consultants have contributed a wide variety of different services to us.  These services can be classified into several different categories, as follows:
 
1.      Business model development and implementation which consists of advice, counsel and services in the areas of fund raising strategy, corporate structure, hiring needs, office space acquisition and corporate governance;
 
2.      Financial and accounting which consists of advice, counsel and services in the areas of developing financial models and corporate accounting systems, corporate structure, quarterly reviews, various day to day accounting and bookkeeping;
 
3.      Product development which consists of advice and counsel in the areas of manufacturer selections, development process, engineering reviews, prototype development and testing, quality control, logistical support, safety standards compliance and physical packaging design; and
 
4.      Marketing and promotions which consists of advice, counsel and services in the areas of videography, photography, graphic design, printing, marketing and public relations activities, strategic market research and planning, website development and IT support.
 
Contract labor expenses significantly increased during both the three and nine-months ended September 30, 2013, vis-à-vis the comparable 2012 periods.  We have spent $232,633 on such expenses through September 30, 2013 while only spending $60,115 year-to-date by September 30, 2012. Contract labor expenses refer to payments to our management and support team. Contract labor fees will continue as primary expenses in future periods, and the Company currently expects the expenses to be at similar levels for the near term. However, such fees may increase as the Company matures.
 
 
 
16

 
 
We experienced reduced research and development expenses for the three and nine-month periods ended September 30, 2013 due to the initial sculpture design, development and testing of the doll prototypes. We expect to incur additional research and development costs relating to the release of our first five doll designs. We have spent $76,021 on such expenses through September 30, 2013.  This is primarily due to the Company transitioning from pre-production to production phase of operations.
 
There was no change in our salary expenses during the relevant comparable periods which are year-to-date $211,500. Salary expense was associated with fees paid and accrued for officer salaries pursuant to certain employment agreements.
 
Marketing and advertising expenses significantly increased during the three and nine-month periods ended September 30, 2013 compared to the 2012 periods. We have spent $125,956 on such expenses through September 30, 2013 and plan to spend an additional $300,000 on an extensive media marketing and advertising campaign once the capital to fund such a campaign is raised and the dolls are ready for release to the doll collector and public markets.
 
Interest expense continues to rise due to the fact that we are substantially debt financing our operations in the absence of revenues.  The year-to-date expenses through September 30, 2013 were $302,932 compared to only $62,195 in 2012. The increase has been steady as reflected in the quarterly numbers in 2012 and 2013.
 
Our net loss has substantially increased since September 30, 2012 to $4,025,677.  The increase in net loss is principally due to the commencement of losses on derivatives in connection with our issued of convertible debentures.
 
Liquidity and Capital Resources
 
As of September 30, 2013, we had total assets of $1,622,045, consisting substantially of current and long-term prepaid consulting fees, which were primarily paid for by the issuance of our common equity. We have limited other assets, such as cash of $39,535, $130,390 prepaid toward production of doll inventory and approximately $70,000 of molds to produce dolls.
 
We had total liabilities of $3,089,754 as of September 30, 2013, which included current liabilities of $3,066,176, consisting substantially of convertible debentures, notes payable to related parties, and accrued interest payable.
 
We had negative working capital in excess of $1 million and total losses accumulated during the development stage of $6,902,565.
 
We rely on cash provided by financing activities primarily in the form of convertible debentures, notes and occasional stock private placements.
 
Liabilities and Commitments
 
Please refer to Note 5 of our financial statements herein.  As of September 30, 2013, the Company allowed securities transfers on various debentures, and issued new debentures totaling $371,000, which resulted in a derivative liability of $1,490,455 and a loss on debt settlement of $876,484.
 
 
 
17

 
 
 
Need For Funding And Prior Sources of Capital
 
The Company has incurred losses from operations since inception, has limited financial resources, has a negative working capital position at September 30, 2013 and has total losses of $4,025,677 as of September 30, 2013. The losses to date represent costs incurred primarily to pay the management team and individuals engaged by the Company to design and develop the Company’s dolls, to negotiate and coordinate the production of the dolls and to develop the marketing strategy to promote the doll line to doll collectors and public markets. From inception, through September 30, 2013, the Company has recorded $4,260,515 of expense applicable to administrative expenses, consisting primarily of professional fees and management and consulting services. While professional fees have been paid substantially in cash, the majority of management and consulting costs have been paid through the issuance of common stock.
 
The Company’s primary sources of capital since inception have come from either private placement sales of common stock, the issuance of debt or advances from individuals. From inception, through September 30, 2013, the Company had received net cash from financing activities totaling $1,815,107, the vast majority of which flowed from proceeds from convertible debentures, notes payable and private placements.
 
We estimate that we are currently using approximately $32,230 per month in our operations.  We believe that our capital requirements for the next 12 months will be approximately $1.5 million. Our capital requirements include $300,000 for capital expenditures (product testing, 3rd party inspections, tooling, office furnishing and product warehousing), manufacturing costs and $1.2 million for marketing, public relations, and general and administrative costs (inventory purchases, staff expansion, legal and accounting fees and general office expenses).  We anticipate meeting our capital requirements by raising funds through a combination of private placements of our common stock and/or issuances of notes payable to private investors.  We currently depend primarily on in-kind arrangements and proceeds from the sale of convertible debentures for our month-to-month capital needs.
 
After a market for our common stock develops, which we hope will develop during the mid to late 2013, we plan to raise funds through a private offering of our common stock to accredited investors.  We can provide no assurances that a market for our common stock will ever develop however.  We hope that at such time, if ever, as a market develops for our common stock, we will be in a better position to raise funds through private offerings because we believe that purchasers are more likely to purchase convertible securities in companies which have a public market for their securities.  We anticipate being significantly dependent on third party funding and capital raised through private placements, until such time, if ever, as our operations generate sufficient revenue to support our operating expenses.
 
We currently do not have the financing to implement the strategies discussed herein and throughout this report.  Although we do not have definitive plans to obtain such funds, after a market for our common stock develops, we plan to seek to raise funds through a private offering of our common stock and/or notes payable to accredited investors.  We currently have no commitments or letters of intent with any third party, and we are not currently under negotiations with any third party related to a private offering to accredited investors.
 
 
 
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 Should we be unable to obtain the capital necessary to fund our expected future working capital needs, we would scale back on marketing, operational and administrative requirements, resulting in slower growth.  The amount that we would have to scale back spending would correlate to any deficiency in funding.  Such a funding shortage would likely result in an extremely limited budget for advertising and non-essential staff and consultants; however, we would still anticipate meeting our production and product launch deadlines, but we would produce less product initially.  If we are able to raise more than $1.5 million during the 12 months following our common stock being listed on the Over-The-Counter Bulletin Board, we expect such capital to increase our marketing efforts and production capabilities.
 
 Our business plan currently anticipates our first sales of dolls to begin and our first inventory expenditures to occur in the third quarter of 2013, funding permitting; however, we anticipate a loss from operations in 2013.  We hope to raise needed equity or debt financing. The sale of our common stock through any future private offering will have a dilutive impact on existing common stockholders.
 
Since inception we have primarily relied upon in-kind arrangements with various consultants pursuant to which we agreed to issue such consultants shares of common stock in lieu of payment of cash consideration. Services provided by such consultants include media and public relations, business development, product fulfillment, television advertising production, financial, management, corporate compliance, business advisory and employment recruitment consulting services.  We also previously issued certain of our officers and Directors shares of common stock in lieu of the payment of cash consideration.   As of September 30, 2013, we had expensed in excess of $1 million in connection with common stock issued for services rendered.
 
 Plan of Operations and Related Risks
 
We are currently implementing our plan to manufacture and market our line of dolls in the United States. We currently have two sets of prototypes of our dolls on hand, each set consisting of two collectible dolls, and five fashion dolls.
 
All equipment needed for manufacturing and production except for molds and tooling is owned and operated by our third-party manufacturer.  Therefore, we will have no production equipment needs or expenditures other than the production molds and tooling.  We have invested $70,000 in these molds and tooling as of September 30, 2013 and anticipate that an additional money will be invested in these items as we pursue our business plan.  These molds will remain our sole property.  These molds and tooling will be stored in our manufacturer’s warehouse. The molds and tooling can be shipped or transferred as needed if we should ever choose to use a different manufacturer.
 
As described above, we believe that our capital requirements for the next 12 months will be approximately $1.5 million.  If we are able to raise this amount of capital, we anticipate using the funds as follows:
 
Use of Funds
           
Capital Expenditures:
           
Production/Tooling/Warehousing
 
$
126,000
       
Furnishings/Improvements
 
$
24,000
       
Cost of Capital
 
$
150,000
       
           
$
300,000
 
                 
Working Capital
               
Administrative/Office Expense:
 
$
80,000
         
Inventory Purchases
 
$
250,000
         
Staff Expansion
 
$
350,000
         
Audit/Board/Legal
 
$
200,000
         
Marketing and PR Activities
 
$
320,000
         
           
$
1,200,000
 
                 
 
 
 
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Target Market According to childstats.org, there are 25 million children in the U.S. between the ages of 6-11. Our first year goal is to capture at least 0.73% (182,500) of this market and to obtain at least 2.36% (590,000) of this market by the end of year three. The percentage of 0.73%  for year one has been calculated based on the amount of dolls One World intends to manufacture and sell (200,000) upon funding.  Our target for year three of 2.36% is based upon implementing the Company’s marketing and public relations plan upon funding, which includes repeat customers.
 
 With a primary focus on African-American broadcast and print outlets, we believe we can quickly capture a significant portion of the African-American target market.  In order to accomplish this, we will maintain two first year marketing and public relations focal points.  The first will be African-American mass media, and the second will be through web and social media.
 
Business Strategy Our goal is to be the leading provider of multi-cultural doll products to the specialty, affinity, and mass merchandise retail marketplace through a focus on direct and online sales models.  Key elements of our strategy include:
 
           1.           Developing a strong online presence for One World by focusing our core sales on internet and catalog sales, we believe we will be able to capture our market while eliminating the “eye level competition” we would face in the retail stores.
 
           2.           Driving business by utilizing the celebrity of our lead doll designer to promote the products globally. We will be conducting a major global Public Relations (“PR”) campaign around Stacey McBride-Irby, our doll creator.
 
           3.           Using the power of celebrity partners and PR to develop relationships with major store chains and affinity organizations.  In year two, we intend to conduct celebrity VIP meet and greets to introduce and promote One World to major store chains.
 
Product Launch and Implementation.   One World is expected to be nationally introduced to consumers in the fourth quarter of 2013 largely through a very comprehensive, strategic, and highly targeted public relations effort.  We will use a national media relations campaign to launch the Company and our products, emphasizing the creative background and depth of our business team and the cultural impact of our products.  Our marketing campaign will include major print, online and broadcast news media.  Other grassroots and social media campaigns will be coordinated and directed at the creation of a significant groundswell of interest and word-of-mouth buzz.
 
 
 
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To begin our entry into the market place, we two of our first five doll designs in in the third quarter of 2013.  In the third quarter of 2013, we also plan to begin our mass marketing and public relations campaign around the initial designs, funding permitting. Our ability to implement this campaign will depend on our ability to raise adequate capital.
 
 In order to produce the highest quality dolls we have engaged a third-party manufacturer in China to manufacture our initial inventory of dolls, taking advantage of its experience and more than 25 million square feet of production and warehousing space.  Our manufacturer’s client base include some of the world’s biggest toy and game developers including Mattel, Fisher-Price, MGA Entertainment, Lego, Hasbro, Playskool, MTV, Lionel, Disney and many more.
 
 Manufacturing is dependent on a third-party manufacturer.  We will be dependent on a third-party manufacturer, and if our relationship with the manufacturer is harmed or if they independently encounter difficulties in the manufacturing of our dolls, we could experience product defects, production delays, cost overruns or an inability to fulfill orders on a timely basis, any of which could adversely affect our business, financial condition and results of operations.
 
In the future, we may depend on multiple third-party manufacturers. Our manufacturers will develop, provide and use the tools, dies and molds that we own to manufacture our products. We have limited control over the manufacturing processes themselves. As a result, any difficulties encountered by the third-party manufacturers that result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis could adversely affect our business, financial condition and results of operations.
 
Manufacturing operations will be outside of the United States, subjecting the Company to risks common to international operations. We will use a third-party manufacturer located principally in China which may subject us to the risks normally associated with international operations, including; political instability, civil unrest and economic instability; greater difficulty enforcing intellectual property rights and weaker laws protecting such rights; complications in complying with laws in varying jurisdictions and changes in governmental policies; greater difficulty and expenses associated with recovering from natural disasters; transportation delays and interruptions; the potential imposition of tariffs; and challenges to the pricing of intercompany transactions made by taxing authorities in the United States, with potential increases in income taxes.
 
Our reliance on external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary. However, if we are prevented from obtaining products or components for a material portion of our product line due to political, labor or other factors beyond our control, our operations will be disrupted while alternative sources of products are secured. Also, the imposition of trade sanctions by the United States against a class of products imported by us from China, or the loss of “normal trade relation” status by China, could significantly increase our cost of products imported from that nation. Because of the importance of our international sourcing of manufacturing to our business, our financial condition and results of operations could be significantly and adversely affected if any of the risks described above occurred.
 
 
 
21

 
 
Production Process.  The production process for the units will take approximately 10 weeks from the time that tooling, engineering specifications and prototypes have been approved. Once production starts, we anticipate having the capacity to produce up to 40,000 dolls per week, as our needs require. We have already completed the production first steps and are now in the process of testing the tooling. This is estimated to take roughly 5-7 weeks and is planned to put us on track to start full scale production in the fourth quarter of 2013, funding permitting.
 
Manufacturing issues that may affect our planned production time frame are typically experienced during the early stages of the production process and many of those early stage activities have been completed successfully. Accordingly, we do not anticipate any significant delaying factors unless they occur at the production (assembly line) stage. These factors and their contingencies have been vetted by our manufacturer and based on their production experience, clientele and success in the market place we believe that our manufacturer has adequately planned for these factors and is capable of addressing them to our satisfaction.
 
If the need arises for us to fulfill rush orders, we believe that our manufacturer can increase production with limited out-of-pocket cost to us, other than the increased shipping costs that would occur from air shipping as opposed to normal sea lane shipping.
 
Quality Control Measures.  Our manufacturer provides inspection services.  However, as an additional level of protection, prior to the release of the first few shipments of our product, we plan to use a third party inspector located in China to ensure that we are compliant with all safety requirements associated with the age grading for our products.  Our third-party inspector will perform tests of our product for the presence of unsafe chemicals or heavy metals and tests for unsafe physical attributes of our product.  Our products will comply with EN-71-1 standards for toy safety established by the European Committee for Standardization and can be sold in the US, Europe, and Canada.
 
Shipping.  Product is purchased FOB (Freight-on-Board) common carrier and is our property once each shipment is transferred to a selected air or ocean carrier.
 
Inventory/Warehousing. Initially, inventory will be maintained at a corporate warehouse that we plan to lease in the fourth quarter of 2013, funding permitting.  Inventory will be tracked using a computerized database.
 
Distribution.  We will distribute our products from a corporate warehouse in Houston, Texas. We will implement a fulfillment and delivery system that we will use to record and track all orders placed via our online point of sale system and we expect to have those orders fulfilled and shipped within 48 hours of order receipt.
 
 
 
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Costs.  Our costs are consistent with customary industry practices and will include three main costing phases: pre-production, production and post-production.  The pre-production phase is a setup process that involves development of all tools and equipment needed to produce the dolls and their accessories including clothes, shoes, jewelry as well as face painting masks.  This setup phase bears the greatest amount of up-front costs but should provide us everything needed to produce multiple dolls and accessories from the same set of tools.  Our molds and other tooling are developed from high yield metals and synthetics that we believe will yield hundreds of thousands of units before needing replacement. The Company has estimated the yield capacity of the molds by taking into consideration the past experience of management and certain engineering estimates provided by Early Light.  Additionally, Early Light has warranted our molds for a minimum of 400,000 units.  We have invested $70,000 in these molds and tooling, as of September 30, 2013 and anticipate that an additional $50,000 will be invested in these items.  We do not yet have a committed source of funding to cover this anticipated capital expenditure.
 
The second phase, production, will include the actual production, assembly and packaging of the dolls. This process will also include testing of the dolls for safety requirements set by the U.S. government. The third phase will include shipping and further safety and hazards testing. In the event that any safety requirements are not met, there are risks of delays in getting the dolls to market in the expected timeframe.   We do not yet have a committed source of funding to finance the second or third phases described above.
 
Trademarks, Copyrights and Patents. We anticipate most of our products being sold under trademarks, trade names, and copyrights, and some products may incorporate patented devices or designs. Such intellectual property could become significant assets in that they will provide product recognition.  We intend on seeking patent, trademark, or copyright protection covering our products.  We will use our best efforts to ensure the rights to these properties are adequately protected, but there can be no assurance that our rights can be successfully asserted in the future or will not be invalidated, circumvented, or challenged.
 
Government Regulations.  Any dolls we sell in the United States will be subject to the provisions of the Consumer Product Safety Act, the Federal Hazardous Substances Act, and the Consumer Product Safety Improvement Act of 2008, and may also be subject to the requirements of the Flammable Fabrics Act or the Food, Drug, and Cosmetics Act, and the regulations promulgated pursuant to such statutes. These statutes ban from the market consumer products that fail to comply with applicable product safety regulations. The Consumer Product Safety Commission (“CPSC”) may require the recall, repurchase, replacement, or repair of any such banned products or products that otherwise create a substantial risk of injury and may seek penalties for regulatory noncompliance under certain circumstances.  Similar laws exist in some states and in many international markets.
 
We will attempt to maintain a high level of quality control to help ensure compliance with various federal, state, and applicable foreign product safety requirements, if any.  We may in the future, however, experience issues in products that result in recalls, withdrawals, or replacements of products. A product recall could have a material adverse effect on our results of operations and financial condition.  A product recall could also negatively affect our reputation and the sales of our other products.
 
 Off Balance Sheet Arrangements – We have no off-balance sheet arrangements.
 
 ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
 
 
 
23

 
 
ITEM 4. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our principal executive officer and principal financial officer, Ms. Melton, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Ms. Melton concluded that because of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2013.
 
(b) Management’s annual report on internal control over financial reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  “Internal Control Over Financial Reporting” is defined in Exchange Act Rules 13a -15(f) and 15d - 5(f) as a process designed by, or under the supervision of, an issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by an issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It includes those policies and procedures that:
 
           •           pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of an issuer;
 
           •           provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
 
           •           provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material adverse effect on the financial statements.
 
During September 2013, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2013 based on the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management concluded that our internal control over financial reporting as of September 30, 2013 was not effective.  Management identified the following material weaknesses as of September 30, 2013:
 
 
 
24

 
 
           •           There existed a lack of segregation of duties in regard to the Company’s financial reporting, procedures for depositing of funds, procedures for cash disbursements, procedures for checkbook entries, period close procedures, and procedures for financial statement preparation.
 
Our management is not aware that the material weakness in our internal control over financial reporting causes them to believe that any material inaccuracies or errors existed in our financial statement as of September 30, 2013, however certain items in the 2012 consolidated financial statements have been reclassified to conform to the 2013 consolidated financial statements’ presentation.   We are not aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement of omission in any report we have filed with or submitted to the Commission.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
 
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
 
Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this report.
 
(c) Changes in internal control over financial reporting
 
There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II — OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
To the best knowledge of the officers and directors, the Company is not a party to any legal proceeding or litigation.
 
Item 1A.  Risk Factors.
 
Not required.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
During the nine month period ended September 30, 2013, the Company issued a total of 637,469,995 shares of common stock which includes 391,750,000 shares of common stock issued for services and 245,719,995 shares in connection with note conversions. The Company also paid off a convertible debenture to Asher Enterprises for $32,500 and issued convertible debentures to various note holders of which $191,000 is was still outstanding at the end of the period.  These debenture may be converted at the holder’s discretion into our common stock at an exercise price based on the market price of our common stock.
 
 
 
25

 
 
The securities described above were issued to consultants under an exemption from registration provided by Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder.  The issuance of the securities did not involve a “public offering” based upon the following factors: (i) the issuance of the securities were isolated private transactions; (ii) a limited number of securities were issued to offerees in separate transactions; (iii) there was no public solicitation; and (iv) the securities were issued as “restricted securities” pursuant to Rule 144 of the Securities Act.
 
All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering.  Each investor represented that they were accredited investors, as defined in Rule 501 of Regulation D and, there was no general solicitation or general advertising used to market the securities.  We made available to each investor with disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information.  All securities issued were restricted with an appropriate restrictive legend on certificates for notes and warrants issued stating that the securities (and underlying shares) have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.
 
Item 3. Defaults Upon Senior Securities.
 
At September 30, 2013, the Company was in default on its long-term debt due its failure to make payments due under the terms of debt agreements.  Holders of notes did not express desire to declare entire principal balances due immediately, and note balances are reported with original maturities.
 
On July 21, 2011, the Company received proceeds under a $20,000 short-term note payable to an individual who is also a shareholder of the Company. This note is uncollateralized, and bears interest of 15% per year. The Company is currently in default on this note and is subject to legal costs of up to $10,600, which are considered a default fee under the terms of the note. As of the date of this filing, the note has not been demanded, however, the default fee is currently recorded on the balance sheet as part of accrued liabilities, and interest on the outstanding principal continues to be expensed monthly.
 
On July 21, 2011, the Company assumed accounts payable to former officers and directors totaling $34,000. These accounts payable were converted to uncollateralized notes payable that bear interest of 16% per year and were due July 21, 2012. These notes are recorded on the Balance Sheets under notes payable – related parties under current liabilities. The notes are currently in default and interest is currently being expensed monthly. Under the terms of these notes payable, there are no additional fees or costs associated with default by the Company.
 
On February 24, 2012, the Company entered into a promissory note in the total amount of $33,000, with Stacey McBride Irby, a Director of the Company. The note has a sixty-day maturity, and bears interest of 15% per year starting on September 21, 2011. The Company is currently in default on this note and is subject to legal costs of up to $7,590, which are considered a default fee under the terms of the note. As of the date of this filing, the note has not been demanded, however, the default fee is currently recorded on the balance sheet as part of accrued liabilities, and interest on the outstanding principal continues to be expensed monthly.
 
 
 
26

 
 
 
No
 
Item 4. Mine Safety Disclosures.
 
None, not applicable.
 
Item 5. Other Information.
 
None; not applicable.
 
Item 6. Exhibits.
 
The following Exhibits have been previously filed in the below referenced filings or have been attached hereto, and in any case, as is stated on the cover of this Report, all of the below Exhibits are incorporated herein by reference.
 
2.1           Share Exchange Agreement (Incorporated by reference from Exhibit 2.1 to Form S-1/A filed with the SEC on February 13, 2012)
 
3.1           Articles of Incorporation, as amended. (Incorporated by reference from Exhibit 3.1 to Form 10-KSB filed with SEC on June 30, 1998)
 
 
 
27

 
 
3.2           Certificate of Designations of Series A Preferred Stock (September 10, 1993) (Incorporated by reference from Exhibit 3.2 to Form S-1/A filed with the SEC on September 27, 2012)
 
3.3           Certificate of Designations of Series B and C Preferred Stock (December 19, 1997) (Incorporated by reference from Exhibits 4.1 and 4.2 to Form 8-K filed with the SEC on December 30, 1997)
 
3.4           Certificate of Designations of Series D Preferred Stock (August 31, 2000) (Incorporated by reference from Exhibit 3.4 to Form S-1/A filed with the SEC on September 27, 2012)
 
3.5           Certificate of Amendment to Articles of Incorporation (dated July 15, 2011) (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with SEC on November 10, 2011)
 
3.6           Certificate of Change filed Pursuant to NRS 78.209 (filed July 26, 2011) (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with SEC on November 10, 2011)
 
3.7            Bylaws (Incorporated by reference from Exhibit 3.2 to Form 10-KSB filed with SEC on June 30, 1998)
 
3.8            Certificate of Amendment to Articles of Incorporation (dated July 31, 2013)
 
5.1            Opinion and consent of The Law Office of Rodney E. Moton LLC re: the legality of the shares being registered
 
10.1          Share and Debt Cancellation Agreement (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)
 
10.2           Employment Agreement with Stacey McBride-Irby (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)
 
10.3          Employment Agreement with Corinda Joanne Melton (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)
 
10.4           14% Convertible Debenture with Michael and Jacquelyn Emmers, dated August 24, 2011 (Incorporated by reference from Exhibit 10.4 to Form S-1/A filed with the SEC on February 13, 2012)
 
10.5           14% Convertible Debenture with Heath O’Neal Redwine, dated September 27, 2011 (Incorporated by reference from Exhibit 10.5 to Form S-1/A filed with the SEC on February 13, 2012)
 
10.6           14% Convertible Debenture with Carolyn Austin, dated October 10, 2011 (Incorporated by reference from Exhibit 10.6 to Form S-1/A filed with the SEC on February 13, 2012)
 
10.7           14% Convertible Debenture with William and Barbara Pharr, dated December 20, 2011 (Incorporated by reference from Exhibit 10.7 to Form S-1/A filed with the SEC on September 27, 2012)
 
 
 
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10.8           Consulting Agreement with Trent Daniel, dated February 1, 2011 (Incorporated by reference from Exhibit 10.7 to Form S-1/A filed with the SEC on February 13, 2012)
 
10.9           Promissory Note (as amended)($40,000 with Bradley D. Melton, dated June 30, 2011) and Security Agreement (Incorporated by reference from Exhibit 10.9 to Form S-1/A filed with the SEC on November 6, 2012)
 
10.10         Promissory Note ($33,000) with Stacey McBride-Irby, dated February 24, 2012 (Incorporated by reference from Exhibit 10.9 to Form S-1/A filed with the SEC on November 6, 2012)
 
10.11         Consulting Agreement with Robert Hines, dated April 1, 2011 (Incorporated by reference from Exhibit 10.9 to Form S-1/A filed with the SEC on November 6, 2012)
 
21.1           Subsidiaries of One World Holdings, Inc. (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)
 
This 10-Q                      
 
31.1           Certification of principal executive officer and principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by Corinda Joanne Melton
 
32.1           Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by Corinda Joanne Melton
 

101.INS                      XBRL Instance Document*
 
101.PRE.                      XBRL Taxonomy Extension Presentation Linkbase*
 
101.LAB                      XBRL Taxonomy Extension Label Linkbase*
 
101.DEF                      XBRL Taxonomy Extension Definition Linkbase*
 
101.CAL                      XBRL Taxonomy Extension Calculation Linkbase*
 
101.SCH                      XBRL Taxonomy Extension Schema*
 
 
*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are 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.
 
Dated: November 19, 2013
 
ONE WORLD HOLDINGS, INC.
 
 By: /s/ Corinda Joanne Melton
 
Corinda Joanne Melton, Chief Executive Officer and Director (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer)
 
 

 
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