TONNER-ONE WORLD HOLDINGS, INC. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - TONNER-ONE WORLD HOLDINGS, INC.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - TONNER-ONE WORLD HOLDINGS, INC.	ex312.htm
EX-31.1 - EXHIBIT 31.1 - TONNER-ONE WORLD HOLDINGS, INC.	ex311.htm
EX-32 - EXHIBIT 32 - TONNER-ONE WORLD HOLDINGS, INC.	ex32.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended March 31, 2015

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

For the transition period from _____ to _____.

Commission File No. 001-13869

ONE WORLD HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		87-0429198
(State or Other Jurisdiction Of Incorporation or Organization)		(I.R.S. Employer Identification Number)

14515 Briarhills Parkway, Suite 105, Houston, Texas		77077
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code (281) 940-8534

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by checkmark 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 checkmark 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-3 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

Yes ¨ No x

As of May 19, 2015 there were 275,764,727 outstanding shares of the registrant’s common stock.

ONE WORLD HOLDINGS, INC.

FORM 10-Q INDEX

QUARTER ENDED MARCH 31, 2015

	Page Number

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2015 (Unaudited) and December 31, 2014	3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2015 and 2014 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 (Unaudited)	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	21
Item 4. Controls and Procedures	21

PART II – OTHER INFORMATION
Item 1. Legal Proceedings	22
Item 1A. Risk Factors	22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3. Defaults Upon Senior Securities	23
Item 4. Mine Safety Disclosures	23
Item 5. Other Information	23
Item 6. Exhibits	23
Signature Page

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ONE WORLD HOLDINGS, INC.

Condensed Consolidated Balance Sheets


	March 31, 2015 (Unaudited)			December 31, 2014
ASSETS

Current assets:
Cash	$	8,455		$	604
Accounts receivable		1,126			9,140
Inventories		194,690			189,234
Prepaid consulting services		67,500			93,442
Prepaid expenses and other current assets		50,594			58,646
Total current assets		322,365			351,066

Long-term prepaid consulting services		22,500			22,500
Property and equipment, net		49,000			52,500
Other assets		2,701			2,701

Total	$	396,566		$	428,767

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable and accrued expenses	$	1,291,487		$	1,310,881
Accrued interest payable		347,766			277,264
Convertible debentures, net of discount		1,725,339			1,359,680
Derivative liability		13,137,648			2,718,652
Notes payable		120,328			120,328
Current portion of long-term debt, net of discount		25,065			22,598
Stockholder advances		475,439			569,439
Total current liabilities		17,123,072			6,378,842

Long-term debt, net of current portion and discount		16,212			9,800

Total liabilities		17,139,284			6,388,642

Commitments and contingencies

Stockholders’ deficit:
Preferred stock, $0.001 par value, 10,000,000 shares authorized: Series AA, 80,000 shares issued and outstanding		80			80
Series BB, 186,000 shares issued and outstanding		186			186
Common stock; $0.0025 par value, 500,000,000 shares authorized, 251,253,580 and 170,767,039 shares issued and outstanding, respectively		628,134			426,918
Additional paid-in capital		10,417,603			10,274,683
Accumulated deficit		(27,788,721	)		(16,661,742	)
Total stockholders’ deficit		(16,742,718	)		(5,959,875	)

	$	396,566		$	428,767

See accompanying notes to condensed consolidated financial statements

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ONE WORLD HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
	2015			2014

Sales	$	739		$	2,293

Cost of sales		1,068			3,010

Gross deficit		(329	)		(717	)

Operating expenses:
Selling, general and administrative		491,823			545,771
Research and development		2,412			1,290
Depreciation		3,500			3,500

Total operating expenses		497,735			550,561

Loss from operations		(498,064	)		(551,278	)

Other income (expense):
Interest expense		(666,949	)		(414,947	)
Gain (loss) on derivative liability		(9,942,205	)		166,080
Gain (loss) on debt settlement		(19,761	)		45,830

Total other expense		(10,628,915	)		(203,037	)

Loss before income taxes		(11,126,979	)		(754,315	)
Provision for income taxes		-			-

Net loss	$	(11,126,979	)	$	(754,315	)

Net loss per common share – basic and diluted	$	(0.05	)	$	(0.52	)

Weighted average number of common shares outstanding – basic and diluted		226,639,181			1,448,401

See accompanying notes to condensed consolidated financial statements

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ONE WORLD HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(11,126,979	)	$	(754,315	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		3,500			3,500
Amortization of debt discount to interest expense		480,338			298,173
Interest expense added to stockholder advances		28,460			-
Common stock issued for services		600			35,000
(Gain) loss on derivative liability		9,942,205			(166,080	)
(Gain) loss on debt settlement		19,761			(45,830	)
Changes in operating assets and liabilities:
Accounts receivable		8,014			-
Inventories		(5,456	)		1,798
Prepaid consulting services		25,942			202,467
Prepaid expenses and other current assets		8,052			4,313
Accounts payable and accrued expenses		(19,394	)		157,749
Accrued interest payable		72,071			49,707

Net cash used in operating activities		(562,886	)		(213,518	)

Cash flows from investing activities		-			-

Net cash provided by investing activities		-			-

Cash flows from financing activities:
Proceeds from convertible debentures		758,587			251,000
Proceeds from notes payable		-			30,000
Proceeds from stockholder advances		11,000			-
Payments on convertible debentures		(193,850	)		(64,567	)
Payments on stockholder advances		(5,000	)		(5,000	)

Net cash provided by financing activities		570,737			211,433

Net increase (decrease) in cash		7,851			(2,085	)
Cash, beginning of the period		604			6,456

Cash, end of the period	$	8,455		$	4,371

See accompanying notes to condensed consolidated financial statements

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ONE WORLD HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2015

(Unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF FINANCIAL STATEMENT PRESENTATION

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. The accompanying consolidated financial statements are presented as if OWDPI was a corporation from inception. 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. Additionally, on July 21, 2011, we completed a reverse merger whereby OWDPI was recapitalized and became the reporting entity for accounting purposes. In October 2013, we received our first shipment of dolls from our manufacturer and commenced sales of dolls.

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.

Interim Financial Information

The interim financial information of the Company as of March 31, 2015 and for the three months ended March 31, 2015 is unaudited, and the balance sheet as of December 31, 2014 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial statements. Accordingly, they omit or condense notes and certain other information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in Note 2 to the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014. In the opinion of management, all adjustments necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2015. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014.

Certain amounts in the condensed consolidated financial statements for the three months ended March 31, 2014 have been reclassified to conform to the current year presentation.

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NOTE 2 – GOING CONCERN

The Company has incurred operating losses since inception, only recently began sales of its dolls, and has limited financial resources and a working capital deficit of $16,800,707 at March 31, 2015. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's condensed 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 $27,788,721 and a total stockholders’ deficit of $16,742,718 at March 31, 2015. The working capital deficit, accumulated deficit and total stockholders’ deficit resulted primarily from the significant derivative liability and debt recorded at March 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 condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3 – 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 March 31, 2015 and December 31, 2014, we believe the amounts reported for cash, accounts payable and accrued expenses, accrued interest payable, and notes payable approximate fair value because of the short-term nature of these financial instruments.

We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) 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.

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Liabilities measured at fair value on a recurring basis are as follows at March 31, 2015:

	Total		Level 1		Level 2		Level 3

Derivative liability	$	13,137,648	$	-	$	-	$	13,137,648
Convertible debentures		1,725,339		-		-		1,725,339
Current portion of long-term debt		25,065		-		-		25,065
Long-term debt, net of current portion		16,212		-		-		16,212

Total liabilities measured at fair value	$	14,904,264	$	-	$	-	$	14,904,264

NOTE 4 – 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 period.

The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period 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 period. Common stock equivalents are not included in the diluted loss per share calculation when their effect is anti-dilutive.

Since we had no dilutive effect of stock options and warrants for the three months ended March 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.

At March 31, 2015, we had outstanding stock options and warrants for a total of 4,977,267 shares of common stock that would have a potential dilutive effect on our calculation of income (loss) per share.

NOTE 5 – CONVERTIBLE DEBENTURES AND DERIVATIVE LIABILITY

Through March 31, 2015, we have financed our operations primarily through the issuance of various convertible debentures. For the three months ended March 31, 2015, we received cash proceeds of $758,587 from the issuance of new convertible debentures. We also issued a new convertible debenture with the transfer of $128,460 from stockholder advances.

The debentures are generally unsecured and bear interest ranging from 6% to 22% per annum, with maturities ranging from two 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 $0.0025 to $30.00 per share or variable discounted pricing based on the market price of the Company’s common stock as defined in the debt agreement.

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 with variable conversion prices 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 and debt discount representing the imputed interest associated with the embedded derivative.

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For those convertible debentures with fixed conversion prices, we recorded a beneficial conversion feature at the inception of the debt to additional paid-in capital and to debt discount where the conversion price was less that the market price of the stock.

The debt discount is amortized over the life of the note and recognized as interest expense. For the three months ended March 31, 2015 and 2014, we amortized debt discount of $480,338 and $298,173, respectively, to interest expense. The derivative liability is adjusted periodically according to the stock price fluctuations and was $13,137,648 and $2,718,652 at March 31, 2015 and December 31, 2014, respectively. For purpose of estimating the fair value of the convertible debentures, we used the Black Scholes option valuation model.

At March 31, 2015, the convertible debentures and related accrued interest payable were convertible into approximately 2,047,943,000 shares of our common stock. Based on the assumptions used to estimate the fair value of the derivative liability at March 31, 2015 and assuming all lenders convert the notes payable at the March 31, 2015 conversion prices, the Company would have insufficient authorized shares of common stock to complete the debt conversions.

As of March 31, 2015, several of the convertible debentures are delinquent. We believe we have good relationships with most debenture holders, and continue to have discussions with them regarding the extension of maturity dates or settlement of amounts due.

For purpose of determining 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 March 31, 2015 are as follows:


Stock price on the valuation date	$	0.0076
Conversion price for the debt	$	0.0015 - $0.0057
Dividend yield		0.00	%
Years to maturity		0.25 – 1.43
Risk free rate		.03% - .41	%
Expected volatility		301.53% - 436.70	%

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.

During the three months ended March 31, 2015, the Company had the following activity in its derivative liability account:


Derivative liability at December 31, 2014	$	2,718,652
Addition to liability for new debt issued		721,575
Elimination of liability on conversion		(244,784	)
Change in fair value		9,942,205

Derivative liability at March 31, 2015	$	13,137,648

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NOTE 6 – NOTES PAYABLE

As of March 31, 2015, we had short-term notes payable to seven individuals or companies totalling $120,328. These notes are unsecured, payable to non-related parties and bear interest ranging from 0% to 16% per annum.

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 March 31, 2015, stockholder advances totalled $475,439.

NOTE 8 – LONG-TERM DEBT

Our long-term debt consisted the following at March 31, 2015:

Long-term convertible debentures, net of discount of $32,301 (see Note 5)	$	13,721

Long-term note payable, net of discount of $2,444		27,556

Total		41,277
Current portion		25,065

Long-term debt	$	16,212

The long-term note payable is an unsecured note payable of $30,000 to an individual due July 30, 2016, with interest at 14% per annum. Payment terms for the note payable are $350 per month for six months and $698 per month for sixty months, including interest. We are in default on the note payable at March 31, 2015 due to our failure to make timely payments in accordance with the terms of the note agreement.

NOTE 9 – STOCKHOLDERS’ DEFICIT

We currently have 10,000,000 shares of $0.001 par value preferred stock authorized and 500,000,000 shares of $0.0025 par value common stock authorized.

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.

We have also authorized the issuance of up to 1,000,000 shares of Series BB Preferred Stock. Among other things, the Series BB Preferred Stock allows holders thereof voting rights 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 common shares 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.

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During the three months ended March 31, 2015, we issued a total of 80,486,541 shares of our common stock with a total value of $296,036 for conversion of debt.

As of March 31, 2015, we had several convertible debentures and related accrued interest payable that were convertible into approximately 2,047,943,000 shares of our common stock. We had 500,000,000 common shares authorized and 251,253,580 common shares issued and outstanding. We will be required to increase the number of authorized shares of common stock in the event all convertible debt is converted into shares of our common stock.

NOTE 10 – STOCK OPTIONS AND WARRANTS

During the three months ended March 31, 2015, we did not issue any new stock options or warrants.

The following table summarizes the stock option and warrant activity during the three months ended March 31, 2015:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contract Term

Outstanding at December 31, 2014		4,977,267	$	0.03
Granted		-
Exercised		-
Expired or cancelled		-

Outstanding, vested and exercisable at March 31, 2015		4,977,267	$	0.03	4.00

In May 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.

NOTE 11 – PREPAID CONSULTING SERVICES

We have entered into various consulting agreements for financial and business development services to the Company, including agreements with our officers and directors. Certain of these consulting agreements provide for cash compensation to the consultants; however, most are based on issuances of shares of our common stock 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. There generally are no specified performance requirements and no provision in the agreements for return of the shares. During the three months ended March 31, 2015, total compensation expense paid in common shares was $25,942. 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. As of March 31, 2015, the unamortized compensation was $90,000, $67,500 reported as a current asset, prepaid consulting services, and $22,500 reported as a long-term assets, long-term prepaid consulting services, on our condensed consolidated balance sheet.

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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 three months ended March 31, 2015.

In addition to compensation expense paid in stock, we had the following amounts paid for consulting and professional fees to related parties during the three months ended March 31, 2015:

Founder, stockholder	$	60,072

Family of officers and directors		64,803

Total related parties	$	124,875

As of March 31, 2015, we had convertible debentures of $5,000, $46,600 and $8,000, which are further discussed in Note 5, payable to three family members of our executive officers. The outstanding principal and interest are convertible into shares of our common stock at a conversion prices ranging from $0.01 to $30 per share.

Accrued interest payable to these related parties totaled $19,518 at March 31, 2015.

As of March 31, 2015, we had stockholder advances payable to related parties totaling $90,164.

NOTE 13 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

During the three months ended March 31, 2015, we made no cash payments for income taxes.

During the three months ended March 31, 2015, we made cash payments for interest totaling $70,187.

During the three months ended March 31, 2015, we had the following non-cash financing and investing activities:

Increased additional paid-in capital and debt discount by $48,100 for beneficial conversion feature of convertible notes payable.

Increased debt discount and derivative liability by $721,575.

Decreased stockholder advances and increased convertible debentures by $128,460.

Decreased accrued interest payable by $1,569, decreased convertible debentures by $59,925, decreased debt discount by $30,603, decreased derivative liability by $244,784, increased common stock by $201,216 and increased additional paid-in capital by $94,820 for common shares issued in conversion of debt.

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NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements issued during the three months ended March 31, 2015 and through the date of the filing of this report that we believe are applicable to or would have a material impact on our consolidated financial statements.

NOTE 15 – CONTINGENCIES

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business, including claims relating to our past due debt. 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 seeks, among other relief, judgment against us in the amount of $57,627. We are currently evaluating a response to this motion and intend to defend our interests vigorously.

NOTE 16 – SUBSEQUENT EVENTS

To fund our operations subsequent to March 31, 2015, we incurred additional indebtedness totaling $106,660, consisting of five convertible debentures totaling $96,660 and one short-term note payable of $12,000.

Subsequent to March 31, 2015, we issued a total of 24,511,147 shares of our common stock for debt conversions of $23,300 principal and $4,162 accrued interest payable.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this Quarterly Report on Form 10-Q, 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 condensed 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 our operations.

Some of the key factors that could cause our future financial results and performance to vary from our expectations include:

·	our ability to meet production and sales goals;

·	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 Quarterly Report 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 that are included in this Quarterly 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.

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General

One World Holdings, Inc. (“Holdings”, a Nevada Corporation, formerly known as Environmental Safeguards, Inc.), is a Houston based company that recently released a line of mainstream multicultural dolls aimed at high-end collectors and young pre-teen girls. Our operations are conducted through our 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” or “Company”. We commenced sales in October 2013. For the first year of operations, we focused on direct sales and Internet sales and did not require a storefront for operations. Manufacturing of our dolls is outsourced to a physical plant facility in the People’s Republic of China owned by a third-party manufacturer we have selected. We have purchased the requisite molds and equipment to manufacture our dolls and their accessories. Warehousing of our merchandise inventories and fulfillment of orders here in the United States is handled by a third-party center in Houston, Texas.

Going Concern Uncertainty

Results of Operations

Sales

We had total sales of $739 and $2,293 for the three months ended March 31, 2015 and 2014, respectively. The sales of our dolls are seasonal, with lower sales levels expected for the first quarter of each calendar year.

Cost of Sales

Our cost of sales includes the cost to manufacture our dolls, inbound shipping costs to the United States and handling, fulfillment and outbound shipping costs incurred by our warehouse and fulfillment center. Low levels of sales or promotional pricing of our dolls can result in these costs exceeding our sales in any particular period. Cost of sales for the three months ended March 31, 2015 and 2014 were $1,068 and 3,010, respectively, resulting in a gross loss for each period.

Operating Expenses

Our selling, general and administrative expenses decreased $53,948 to $491,823 in the three months ended March 31, 2015 from $545,771 in the three months ended March 31, 2014. The decrease in these expenses in the current year is due to primarily to a decrease in compensation expense paid in shares of our common stock in the current year. We have hired several consultants from time to time to help us establish and market the Company and our products. In addition, a substantial portion of the compensation paid to officers and directors has been in shares of our common stock, which we have valued at current market prices. Certain consultants have consulting agreements that provided for share issuances, which shares were issued at the inception of the agreements. Accordingly, the compensation based on the current market prices of the shares issued is recognized over the life of the consulting agreements.

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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:

·	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;

·	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;

·	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

·	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.

Our research and development expenses are currently not material to our business and totalled $2,412 and $1,299 for the three months ended March 31, 2015 and 2014, respectively.

Depreciation expense is currently not material to our operations. Our only depreciable assets are currently our molds and equipment to manufacture our dolls and their accessories. Depreciation expense was $3,500 for each of the three-month periods ended March 31, 2015 and 2014.

Other Income (Expense)

Our other expense is comprised of interest expense and the gains or losses associated with accounting for the change in our derivative liability calculated for the variable conversion feature of certain of our convertible debentures and for the loss on debt settlement calculated upon conversion of debt to shares of our common stock. Our interest expense also includes the amortization of debt discount calculated at the inception of the convertible debentures and recorded with the related derivative liability.

Interest expense increased to $666,948 in the three months ended March 31, 2015 from $414,947 in the three months ended March 31, 2014. The increase in interest expense in the current year results primarily from the increase in our outstanding debt and amortization of debt discount on our convertible debt to interest expense as discussed above.

Loss on derivative liability was $9,942,206 for the three months ended March 31, 2015 compared to a gain of $166,080 for the three months ended March 31, 2014. The gain or loss on derivative liability will fluctuate each period depending on the market price of our common stock, volatility and other valuation inputs, and the fluctuation may be material.

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Loss on debt settlement was $19,761 for the three months ended March 31, 2015 compared to a gain on debt settlement of $45,830 for the three months ended March 31, 2014. The gain or loss on debt settlement results from issuing our common shares in conversion of debt and eliminating corresponding derivative liabilities and debt discount. The gain or loss on debt settlement will fluctuate each period depending on the amount of debt settled through conversion to common stock, the market price of our common stock, volatility and other valuation inputs, and the fluctuation may be material.

Net Loss

As a result of the factors discussed above, our net loss increased to $11,126,979 for the three months ended March 31, 2015 from $754,315 for the three months ended March 31, 2014.

Liquidity and Capital Resources

As of March 31, 2015, we had total current assets of $322,365, including cash of $8,455, accounts receivable of $1,126, inventories of $194,690 and other current assets totalling $118,094.

We had total current liabilities of $17,123,072 and a working capital deficit of $16,800,707 at March 31, 2015. In addition, we had accumulated losses from inception of $27,788,721 and had a total stockholders’ deficit of $16,742,718 at March 31, 2015. Our working capital deficit, accumulated deficit and total stockholders’ deficit as of March 31, 2015 were materially impacted by our non-cash derivative liability of $13,137,648.

We do not have sufficient cash at March 31, 2015 to fund future operations. We rely on cash provided by financing activities primarily in the form of convertible debentures, notes and advances from our stockholders. We also have paid substantial consulting fees through the issuance of shares of our common stock, reducing the need for cash to pay these obligations. We believe, however, that we will be required to pay our consultants more in cash as we move forward with our operating plan.

Net cash used in operating activities was $562,886 for the three months ended March 31, 2015 as a result of our net loss of $11,126,979, an increase in inventories of $5,456 and a decrease in accounts payable and accrued expenses of $19,394, partially offset by non-cash expenses totaling $10,474,864, decreases in accounts receivable of $8,014, prepaid consulting services of $25,942 and prepaid assets and other current assets of $8,052, and an increase in accrued interest payable of $72,071.

Net cash used in operating activities was $213,518 for the three months ended March 31, 2014 as a result of our net loss of $754,315 and non-cash gains totaling $211,910, partially offset by non-cash expenses totaling $336,673, decreases of inventories of $1,798, prepaid consulting services of $202,467 and prepaid expenses and other current assets of $4,313, and increases in accounts payable and accrued expenses of $157,749 and accrued interest payable of $49,707.

During the three months ended March 31, 2015 and 2014, we had no net cash provided by or used in investing activities.

During the three months ended March 31, 2015, net cash provided by financing activities was $570,737, comprised of proceeds from convertible debentures of $758,587 and proceeds from stockholder advances of $11,000, partially offset by payments on convertible debentures of $193,850 and payments on stockholder advances of $5,000.

During the three months ended March 31, 2014, net cash provided by financing activities was $211,433, comprised of proceeds from convertible debentures of $251,000 and proceeds from notes payable of $30,000, partially offset by payments on convertible debentures of $64,567 and payments on stockholder advances of $5,000.

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We have incurred losses from operations since inception, have limited financial resources, and at March 31, 2015, have a negative working capital position, an accumulated deficit of $27,788,721 and a total stockholders’ deficit of $16,742,718. The losses to date represent costs incurred primarily to pay the management team and individuals engaged by us to design and develop our 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. We have also incurred significant 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 shares of our common stock. Our working capital deficit, accumulated deficit and total stockholders’ deficit as of March 31, 2015 were materially impacted by our non-cash derivative liability of $13,137,648.

Our primary sources of capital since inception have come from either private placement sales of our common stock, the issuance of debt or advances from individuals. We will be dependent on these sources in the future.

We believe that our operating expenses will increase over the next 12 months and estimate that our capital requirements for the next 12 months will exceed $1.5 million. Our estimated 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 2015, we plan to raise funds through a private offering of our common stock to accredited investors. However, we can provide no assurances that a market for our common stock will ever develop. 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 that 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.

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.

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.

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Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies that we believe are the most important to aid in fully understanding our financial results are the following:

Inventories

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

Prepaid Consulting Services

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

Property and Equipment

Property and equipment is stated at cost and consists of molds and equipment used by our manufacturer to produce dolls and their accessories, including clothes, shoes, jewelry, as well as face painting masks. Because we currently are unable to project the number of units to be manufactured from our molds, our property and equipment is depreciated over an estimated useful life of five years using the straight-line method.

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. Our revenues are recorded net of returns and allowances.

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.

Advertising

Advertising costs are non-direct in nature, and are expensed in the periods in which the advertising takes place.

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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 March 31, 2015, we believe the amounts reported for cash, accounts payable and accrued expenses, accrued interest payable, and notes payable approximate fair value because of the short-term nature of these financial instruments.

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

Liabilities measured at fair value on a recurring basis are as follows at March 31, 2015:

	Total		Level 1		Level 2		Level 3

Derivative liability	$	13,137,648	$	-	$	-	$	13,137,648
Convertible debentures		1,725,339		-		-		1,725,339
Current portion of long-term debt		25,065		-		-		25,065
Long-term debt, net of current portion		16,212		-		-		16,212

Total liabilities measured at fair value	$	14,904,264	$	-	$	-	$	14,904,264

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 period.

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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.

New Accounting Pronouncements

See the notes to our condensed consolidated financial statements for a discussion of new accounting pronouncements.

Off Balance Sheet Commitments

We lease approximately 1,852 square feet of office space in one building located at 14515 Briar Hills Parkway, Suite 105, Houston, Texas 77077. The lease currently has a monthly payment of $3,802 and expires in December 2019. Beginning on December 1, 2015, the monthly payment will increase to $3,925, and will increase incrementally through the end of the lease. We expect that the current leased premises will be satisfactory until the future growth of our business operations necessitates an increase in office space.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2015. Based on that evaluation, our principal executive officer and chief financial officer concluded that the disclosure controls and procedures employed at the Company were not effective to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

We continue to operate with a limited number of accounting and financial personnel. Although we added the services of a contract Chief Financial Officer during 2014, we have been unable to implement proper segregation of duties over certain accounting and financial reporting processes, including review procedures for key accounting schedules and timely and proper documentation of material transactions and agreements. We believe these control deficiencies represent material weaknesses in internal control over financial reporting.

Despite the material weaknesses in financial reporting noted above, we believe that our consolidated financial statements included in this report fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.

We are committed to the establishment of effective internal controls over financial reporting and will place emphasis on quarterly and year-end closing procedures, timely documentation and internal review of accounting and financial reporting consequences of material contracts and agreements, and enhanced review of all schedules and account analyses by experienced accounting department personnel or independent consultants.

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Changes in Internal Control Over Financial Reporting

Other than the matter discussed above, there was no change in our internal control over financial reporting during the fiscal quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

As of the date of this filing, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on April 14, 2015 (the “2014 Form 10-K”). The Risk Factors set forth in the 2014 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2014 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

Recent Sales of Unregistered Securities

From April 2, 2015 through April 28, 2015 we issued five convertible debentures (the “Debentures”) for a total of $96,660. The Debentures mature between six months and one year from the date of issuance and bear interest at rates ranging from fourteen percent (14%) to fifteen percent (15%) per annum. The Debentures are convertible into the Company’s common stock at various defined conversion rates, including a 50% discount on the lowest trading price of the Company’s common stock during the twenty days prior to conversion, a 50% discount on the trading price of the Company’s common stock on the trading day prior to conversion, and a fixed conversion price of $0.001 per share.

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All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Section 4(a)(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

As indicated in Note 5 to our condensed consolidated financial statements, several of our convertible debentures are delinquent as of March 31, 2015. We believe we have good relationships with most debenture holders, and continue to have discussions with them regarding the extension of maturity dates or settlement of amounts due.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14.*

31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14*

32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.*

101.INS	XBRL Instance**
101.SCH	XBRL Schema**
101.CAL	XBRL Calculations**
101.DEF	XBRL Definitions**
101.LAB	XBRL Label**
101.PRE	XBRL Presentation**

*Filed herewith.

** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

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SIGNATURES

Pursuant to the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ONE WORLD HOLDINGS, INC.

Date: May 19, 2015	By:	/s/ Corinda Joanne Melton
		Name: Corinda Joanne Melton
		Title: President and Chief Executive Officer

Date: May 19, 2015	By:	/s/ Dennis P. Gauger
		Name: Dennis P. Gauger
		Title: Chief Financial Officer

TONNER-ONE WORLD HOLDINGS, INC. - FORM 10-Q - May 19, 2015

Attached files

TONNER-ONE WORLD HOLDINGS, INC. Reports