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 September 30, 2014
 
¨ 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 November 12, 2014 there were 48,869,166 outstanding shares of the registrant’s common stock.


 
1

 



FORM 10-Q INDEX
QUARTER ENDED SEPTEMBER 30, 2014
 
Page Number
   
 
 
   
 
 




Item 1. Financial Statements

ONE WORLD HOLDINGS, INC.
Condensed Consolidated Balance Sheets

   
September 30, 2014
       
   
(Unaudited)
   
December 31, 2013
 
ASSETS
           
             
Current assets:
           
Cash
  $ 89,299     $ 6,456  
Inventories
    133,941       146,488  
Prepaid consulting services
    248,356       380,860  
Prepaid expenses and other current assets
    12,860       21,570  
Total current assets
    484,456       555,374  
                 
Property and equipment, net
    56,000       66,500  
Other assets
    2,701       2,701  
                 
Total
  $ 543,157     $ 624,575  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
                 
Current liabilities:
               
Accounts payable and accrued expenses
  $ 1,110,855     $ 870,291  
Accrued interest payable
    240,951       113,369  
Convertible debentures, net of discount
    1,191,953       592,095  
Derivative liability
    2,642,968       2,104,849  
Notes payable
    116,000       91,000  
Current portion of long-term debt, net of discount
    20,245       13,979  
Stockholder advances
    544,439       405,939  
Total current liabilities
    5,867,411       4,191,522  
                 
Long-term debt, net of current portion and discount
    14,548       9,106  
                 
Total liabilities
    5,881,959       4,200,628  
                 
Commitments and contingencies
               
                 
Stockholders’ deficit:
               
Preferred stock, $0.001 par value, 10,000,000 shares authorized:
Series AA, 80,000 and 0 shares issued and outstanding, respectively
    80       -  
Series BB, 186,000 and 0 shares issued and outstanding, respectively
    186       -  
Common stock; $0.0025 par value, 500,000,000 shares authorized, 29,435,392 and 1,224,590 shares issued and outstanding, respectively
    73,589       3,061  
Unissued common stock, 0 and 39,668 shares, respectively
    -       99  
Additional paid-in capital
    10,561,914       6,146,595  
Accumulated deficit
    (15,974,571 )     (9,725,808 )
Total stockholders’ deficit
    (5,338,802 )     (3,576,053 )
                 
    $ 543,157     $ 624,575  
 
See accompanying notes to condensed consolidated financial statements




Condensed Consolidated Statements of Operations
(Unaudited)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Sales
  $ 5,692     $ -     $ 34,860     $ -  
                                 
Cost of sales
    13,988       -       34,861       -  
                                 
Gross deficit
    (8,296 )     -       (1 )     -  
                                 
Operating expenses:
                               
Selling, general and administrative
    550,805       588,544       3,583,083       1,458,590  
Research and development
    93,268       1,725       101,890       76,021  
Depreciation
    3,500       -       10,500       -  
                                 
Total operating expenses
    647,573       590,269       3,695,473       1,534,611  
                                 
Loss from operations
    (655,869 )     (590,269 )     (3,695,474 )     (1,534,611 )
                                 
Other income (expense):
                               
Interest expense
    (465,311 )     (182,084 )     (1,728,367 )     (302,962 )
Loss on derivative liability
    (513,535 )     (1,188,211 )     (354,442 )     (1,311,620 )
Gain (loss) on debt settlement
    67,661       (579,310 )     (470,480 )     (876,484 )
                                 
Total other expense
    (911,185 )     (1,949,605 )     (2,553,289 )     (2,491,066 )
                                 
Loss before income taxes
    (1,567,054 )     (2,539,874 )     (6,248,763 )     (4,025,677 )
Provision for income taxes
    -       -       -       -  
                                 
Net loss
  $ (1,567,054 )   $ (2,539,874 )   $ (6,248,763 )   $ (4,025,677 )
                                 
Net loss per common share – basic and diluted
  $ (0.06 )   $ (6.80 )   $ (0.36 )   $ (20.80 )
                                 
Weighted average number of common shares
   outstanding – basic and diluted
    25,635,511       373,373       17,238,381       193,538  
 
See accompanying notes to condensed consolidated financial statements

 

Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
   
Nine Months Ended
September 30,
 
   
2014
   
2013
 
Cash flows from operating activities:
           
Net loss
  $ (6,248,763 )   $ (4,025,677 )
Adjustments to reconcile net loss to net cash used in
operating activities:
               
Depreciation expense
    10,500       -  
Amortization of debt discount to interest expense
    1,068,942       203,919  
Preferred stock issued for services
    80       -  
Common stock issued for services
    2,750       652,006  
Warrants issued for interest expense
    394,860       -  
Stock options issued for services
    240,000       -  
Notes payable issued for services
    35,000       -  
(Gain) loss on derivative liability
    354,442       1,311,620  
(Gain) loss on debt settlement
    470,480       876,484  
Changes in operating assets and liabilities:
               
Decrease in inventories
    12,547       -  
Decrease in prepaid consulting services
    2,230,849       -  
(Increase) decrease in prepaid assets and other current assets
    8,710       (135,752 )
Increase in accounts payable and accrued expenses
    240,564       157,505  
Increase in accrued interest payable
    163,580       76,859  
                 
Net cash used in operating activities
    (1,015,459 )     (883,036 )
                 
Cash flows from investing activities
    -       -  
                 
Net cash provided by investing activities
    -       -  
                 
Cash flows from financing activities:
               
Proceeds from convertible debentures
    997,235       526,000  
Proceeds from notes payable
    25,000       131,500  
Proceeds from issuance of stock
    -       100,000  
Proceeds from stockholder advances
    188,500       182,958  
Payments on convertible debentures
    (107,433 )     (534 )
Payments on notes payable
    (5,000 )     (19,500 )
                 
Net cash provided by financing activities
    1,098,302       920,424  
                 
Net increase in cash
    82,843       37,388  
Cash, beginning of the period
    6,456       2,147  
                 
Cash, end of the period
  $ 89,299     $ 39,535  
 
See accompanying notes to condensed consolidated financial statements


Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2014
(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.

Reverse Stock Split and Increase in the Number of Authorized Common Shares

Stockholders holding a majority of the voting power of the outstanding voting stock of the Company, as well as the Company’s Board of Directors, acted by written consent to approve an amendment to the Company’s Articles of Incorporation dated December 30, 2013 to (a) effect a reverse stock split of the Company’s common stock by a ratio of one-for-seven hundred fifty (1:750) and (b) reduce the number of authorized shares of common stock from 1,500,000,000 to 50,000,000.  The Financial Industry Regulatory Authority (“FINRA”) approved the reverse stock split effective January 13, 2014.  The reverse stock split has been given retroactive effect in our consolidated financial statements.

Subsequently on September 24, 2014, stockholders holding a majority of the voting power of the outstanding voting stock of the Company, as well as the Company’s Board of Directors, acted by written consent to approve an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 500,000,000.

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 September 30, 2014 and for the three months and nine months ended September 30, 2014 and 2013 is unaudited, and the balance sheet as of December 31, 2013 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 Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.  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 and nine months ended September 30, 2014 are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2014.  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, 2013.

 
Certain amounts in the condensed consolidated financial statements for the three months and nine months ended September 30, 2013 have been reclassified to conform to the current year presentation.

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 $5,382,955 at September 30, 2014.  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 $15,974,571 and a total stockholders’ deficit of $5,338,802 at September 30, 2014. The Company's ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and, ultimately, achieve profitable operations.  Management’s plans to address the Company’s continuing existence include obtaining debt or equity funding from private or institutional sources or obtaining loans from financial institutions and individuals, where possible.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 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 September 30, 2014 and December 31, 2013, 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.

Liabilities measured at fair value on a recurring basis are as follows at September 30, 2014:
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
   Derivative liability
  $ 2,642,968     $ -     $ -     $ 2,642,968  
   Convertible debentures
    1,191,953       -       -       1,191,953  
   Current portion of long-term debt
    20,245       -       -       20,245  
   Long-term debt, net of current portion
    14,548       -       -       14,548  
                                 
   Total liabilities measured at fair value
  $ 3,869,714     $ -     $ -     $ 3,869,714  
                                 

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 and nine months ended September 30, 2014 and 2013, our basic weighted average number of common shares outstanding is the same as our diluted weighted average number of common shares outstanding.

At September 30, 2014, 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

Through September 30, 2014, we have financed our operations through the issuance of various convertible debentures.  For the nine months ended September 30, 2014, we received cash proceeds of $997,235 from the issuance of new convertible debentures.  We also issued new convertible debentures for $95,000 in services, the transfer of $50,000 from stockholder advances, the transfer of accrued interest payable of $30,731 and original issue discount of $46,000.

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.


 
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.

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 nine months ended September 30, 2014 and 2013, we amortized debt discount of $1,068,942 and $203,919, respectively, to interest expense.  The derivative liability is adjusted periodically according to the stock price fluctuations and was $2,642,968 and $2,104,849 at September 30, 2014 and December 31, 2013, respectively.  For purpose of estimating the fair value of the convertible debentures, we used the Black Scholes option valuation model.

At September 30, 2014, the convertible debentures and related accrued interest payable were convertible into approximately 241,019,000 shares of our common stock.

As of September 30, 2014, several of the convertible debentures are delinquent.  We believe we have good relationships with the debenture holders, and continue to have discussions with them regarding the extension of maturity dates.

During the nine months ended September 30, 2014, we had the following activity in the accounts related to the convertible debentures:

   
 
Derivative
Liability
   
 
Debt
Discount
   
Gain (Loss) on
Derivative
Liability
   
Gain on Extinguishment
of Debt
   
 
Interest
Expense
 
                               
Balance at December 31, 2013
  $ 2,104,849     $ (408,194 )                  
Adjustment to derivative liability
    (1,093,610 )     -     $ 1,093,610     $ -     $ -  
New debt – debt discount
    2,208,054       (801,502 )     (1,448,052 )     -       -  
New debt – original issue discount
    -       (4,500 )     -       -       -  
New debt – beneficial conversion feature
    -       (730,073 )     -       -       -  
Amortization of debt discount to interest
   expense
    -       1,061,124       -       -       (1,061,124 )
Debt conversions and repayments
    (576,325 )     95,175       -       (470,480 )     -  
                                         
Balance at September 30, 2014
  $ 2,642,968     $ (787,970 )   $ 354,442     $ (470,480 )   $ (1,061,124 )




In estimating the fair value of the derivatives and calculating the adjustment to the derivative liability as of September 30, 2014, we used the Black-Scholes pricing model with the following range of assumptions:

       
Market price of stock
  $ 0.0189  
Risk-free interest rate
    0.02% – 0.58 %
Expected life in years
    0.25 – 1.93  
Dividend yield
    0 %
Expected volatility
    266.99% – 514.66 %

NOTE 6 – NOTES PAYABLE

As of September 30, 2014, we had short-term notes payable to six individuals totalling $116,000.  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 September 30, 2014, stockholder advances totalled  $544,439.

NOTE 8 – LONG-TERM DEBT

Our long-term debt consisted the following at September 30, 2014:
 
Long-term convertible debentures,
   net of discount of $58,109 (see Note 5)
  $ 8,891  
         
Long-term note payable, net of discount of $4,098
    25,902  
         
Total
    34,793  
Current portion
    20,245  
         
Long-term debt
  $ 14,548  

 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 September 30, 2014 due to our failure to make timely payments in accordance with the terms of the note agreement.



NOTE 9 – STOCKHOLDERS’ DEFICIT

As discussed in Note 1, stockholders holding a majority of the voting power of the our outstanding voting stock, as well as our Board of Directors, approved an amendment to our Articles of Incorporation dated December 30, 2013 to (a) effect a reverse stock split of our common stock by a ratio of one-for-seven hundred fifty (1:750) and (b) reduce the number of authorized shares of common stock from 1,500,000,000 to 50,000,000.  The Financial Industry Regulatory Authority (“FINRA”) approved the reverse stock split effective January 13, 2014, and the reverse stock split has been given retroactive effect in our consolidated financial statements for all periods presented.

Subsequently on September 24, 2014, stockholders holding a majority of the voting power of the outstanding voting stock of the Company, as well as the Company’s Board of Directors, acted by written consent to approve an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 500,000,000.

During the nine months ended September 30, 2014, we issued a total of 37,510,802 shares of our common stock: 39,668 shares at par value for 39,668 unissued common shares; 388 shares valued at $1 for rounding in the reverse stock split; 20,740,000 shares valued at $2,038,345 for services; and 16,730,746 shares with a total value of $1,082,656 for conversion of debt.   We also cancelled 9,300,000 shares of common stock, valued at par value of $23,250, when exchanged by officers and one of our founders for 186,000 shares of Series BB Preferred Stock.

On June 13, 2014, the Company filed a Certificate of Designations, Preferences and Rights (the “Certificate”) with the Nevada Secretary of State to establish a class of preferred stock designated as Series AA Preferred Stock (the “Series AA Preferred Stock”), and has authorized the issuance of up to 1,000,000 shares of such 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.

On June 19, 2014, 20,000 shares of Series AA Preferred Stock were issued to each of the four members of the Company’s Board of Directors for services and valued at par value totaling $80.

On July 31, 2014, the Company filed a Certificate of Designations, Preferences and Rights (the “Certificate”) with the Nevada Secretary of State to establish a class of preferred stock designated as Series BB Preferred Stock (the “Series BB Preferred Stock”), and has authorized the issuance of up to 1,000,000 shares of such 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.

On August 15, 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.

NOTE 10 – STOCK OPTIONS AND WARRANTS

During the nine months ended September 30, 2014, we issued warrants to purchase 1,977,267 shares of our common stock to a lender.  The warrants are exercisable for a period of five years at an exercise price of $0.06 per share.  We estimated the value of the warrants using the Black-Scholes pricing model at $394,860 and included this amount in interest expense.

 
During the nine months ended September 30, 2014, we issued options to purchase 3,000,000 shares of our common stock to a consultant.  The options are exercisable for a period of five years at an exercise price of $0.01 per share.  We estimated the value of the options using the Black-Scholes pricing model at $240,000 and included this amount in selling, general and administrative expenses.

The following table summarizes the stock option and warrant activity during the nine months ended September 30, 2014:
   
 
 
Options
   
Weighted Average
Exercise
Price
 
Weighted Average Remaining Contract Term
               
Outstanding at December 31, 2013
    -          
Granted
    4,977,267     $ 0.03    
Exercised
    -            
Expired or cancelled
    -            
                   
Outstanding, vested and exercisable
   at September 30, 2014
    4,977,267     $ 0.03  
 
4.50

In estimating the fair value of the stock options and warrants issued during the nine months ended September 30, 2014, we used the Black-Scholes pricing model with the following range of assumptions:

   
   
Risk-free interest rate
1.58 – 1.75%
Expected life in years
5.0
Dividend yield
0%
Expected volatility
552.0%

On May 12, 2014, the Board of Directors of the Company adopted and approved the One World Holdings Inc. 2014 Stock Option and Stock Award Plan (the “Plan”).  Also, the holders of a majority of the Company’s outstanding common stock voted to approve and authorize adoption of the Plan.  A total of 2,000,000 shares of our common stock are available for issuance under the Plan.  Under the Plan, we may issue options, including incentive stock options and non-statutory stock options, restricted stock grants, or stock appreciation rights.  Awards under the Plan may be granted to employees, consultants, directors and individuals who meet the requirements defined in the Plan.

NOTE 11 – PREPAID CONSULTING SERVICES

We have entered into various consulting agreements for financial and business development services to the Company.  Certain of these consulting agreements provide for cash compensation to the consultants; however, 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 were no specified performance requirements and no provision in the agreements for return of the shares.  During the nine months ended September 30, 2014, total compensation expense paid in common shares was $2,230,850.  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 September 30, 2014, the unamortized compensation was $248,356, reported as a current asset, prepaid consulting services, on our consolidated balance sheet.


 
NOTE 12– RELATED PARTY TRANSACTIONS

Several of the consulting agreements discussed in Note 11 are with related parties.  Related parties consist primarily of our executive officers, directors and individuals affiliated through family relationships with our officers and directors.  Compensation expense paid in common shares to related parties was $1,639,775 during the nine months ended September 30, 2014.

In addition to compensation expense paid in stock, we had the following amounts paid for consulting and professional fees to related parties during the nine months ended September 30, 2014:

Founder, stockholder
  $ 108,287  
         
Family of officers and directors
    182,597  
         
Total related parties
  $ 290,884  

As of September 30, 2014, we had convertible debentures of $5,000, $12,500, $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 $20,895 at September 30, 2014.

NOTE 13 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

During the nine months ended September 30, 2014, we made no cash payments for income taxes.

During the nine months ended September 30, 2014 and 2013, we made cash payments for interest totaling $64,277.

During the nine months ended September 30, 2014, we had the following non-cash financing and investing activities:

 
·
Increased convertible debentures and prepaid consulting services by $60,000.

 
·
Increased additional paid-in capital and debt discount by $730,073 for beneficial conversion feature of convertible notes payable.

 
·
Increased common stock and decreased additional paid-in capital by $1 for rounding up of shares in reverse stock split.

 
·
Increased debt discount and derivative liability by $760,002.

 
·
Decreased unissued common stock and increased common stock by $99.


 
 
·
Decreased stockholder advances and increased convertible debentures by $50,000.

 
·
Increased prepaid consulting services by $2,038,345, increased common stock by $51,850 and increased additional paid-in capital by $1,986,495 for common shares issued for services.

 
·
Decreased accrued interest payable by $5,267, decreased convertible debentures by $140,463, decreased debt discount by $69,700, decreased derivative liability by $475,341, increased common stock by $41,828 and increased additional paid-in capital by $1,040,828 for common shares issued in conversion of debt.

 
·
Decreased accrued interest payable and increased convertible debentures by $30,731for accrued interest payable added to debt principal.

 
·
Increased Series BB Preferred stock by $186, decreased common stock by $23,250 and increased additional paid-in capital by $23,064 for issuance of Series BB Preferred shares for common shares.

NOTE 14 – RECENT ACCOUNTING PRONOUNCEMENTS

In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The amendments in this Update remove the financial statement distinction between development stage entities and other reporting entities from U.S. generally accepted accounting principles (“GAAP”).  In addition, the amendments eliminate the requirements for development stage entities to: (1) present inception-to-date information in the statements of income, cash flows and shareholder equity; (2) label the financial statements as those of a development stage entity; (3) disclose a description of the development stage activities in which the entity is engaged; and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

For public entities, the amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein.  Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued.  The Company adopted the provisions of ASU No. 2014-10 during its third fiscal quarter ended September 30, 2014, with no material impact on its consolidated financial statements.

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



NOTE 15 – SUBSEQUENT EVENTS

To fund our operations subsequent to September 30, 2014, we incurred additional indebtedness totaling $68,000, consisting of convertible debentures totaling $50,000 and stockholder advances of $18,000.

Subsequent to September 30, 2014, we issued a total of 19,433,774 shares of our common stock for debt conversions of $34,825.
 
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.





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 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 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 that 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 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 will be handled by a third-party center in Houston, Texas.
 
We were invited to showcase The Prettie Girls! Dolls to over 300 HEB store managers in September, and expanded the number of HEB stores placing orders to 119, representing a total order amount of approximately $37,000 as of September 30, 2014.  These orders shipped subsequent to September 30, 2014, resulting in year-to-date sales income through November 12, 2014 of approximately $72,000.
 
Going Concern Uncertainty

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 $5,382,955 at September 30, 2014.  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 $15,974,571 and a total stockholders’ deficit of $5,338,802 at September 30, 2014. 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.

Results of Operations

Sales

Sales of our dolls began in October 2013, and we had total sales of $5,692 for the three months ended September 30, 2014 and $34,860 for the nine months ended September 30, 2014.

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 September 30, 2014 was $13,988, resulting in a gross loss for the period of $8,296.  Cost of sales for the nine months ended September 30, 2014 was $34,861, resulting in a gross loss for the period of $1.

Operating Expenses

Our selling, general and administrative expenses decreased $37,739 to $550,805 in the three months ended September 30, 2014 from $588,544 in the three months ended September 30, 2013.  Our selling, general and administrative expenses increased $2,124,493 to $3,583,083 in the nine months ended September 30, 2014 from $1,458,590 in the nine months ended September 30, 2013.The increase in these expenses in the current year is due to primarily to common stock and stock options issued for services, an increase in the activities incurred to market the sales of our dolls, and ongoing efforts to raise necessary funding.  Marketing and advertising expenses and contract services increased substantially over levels in the prior 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 had 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 was recognized over the life of the consulting agreements.

 

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 increased $91,543 to $93,268 for the three months ended September 30, 2014 from $1,725 for the three months ended September 30, 2013.  Our research and development expenses increased $25,869 to $101,890 for the nine months ended September 30, 2014 from $76,021 for the nine months ended September 30, 2013.  The increase in research and development expenses in the current year is due to our continued development and introduction to the market of new dolls.

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, and we began to depreciate them in the fourth quarter of 2013.  Depreciation expense was $3,500 and $10,500 for the three months and nine months ended September 30, 2014, respectively.

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 $465,311 in the three months ended September 30, 2014 from $182,084 in the three months ended September 30, 2013, and increased to $1,728,367 in the nine months ended September 30, 2014 from $302,962 in the nine months ended September 30, 2013.  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 $513,535 for the three months ended September 30, 2014 compared to a loss of $1,188,211 for the three months ended September 30, 2013.  In the nine months ended September 30, 2014, loss on derivative liability was $354,442 compared to a loss of $1,311,620 in the nine months ended September 30, 2013.  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.

 Gain on debt settlement was $67,661 for the three months ended September 30, 2014 compared to a loss on debt settlement of $579,310 for the three months ended September 30, 2013.  Loss on debt settlement was $470,480 and $876,484 for the nine months ended September 30, 2014 and 2013, respectively.  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 decreased to $1,567,054 for the three months ended September 30, 2014 from $2,539,874 for the three months ended September 30, 2013, and increased to $6,248,763 for the nine months ended September 30, 2014 from $4,025,677 for the nine months ended September 30, 2013.

Liquidity and Capital Resources

As of September 30, 2014, we had total current assets of $484,456, a significant portion of which consisted of prepaid consulting fees that were paid for by the issuance of shares of our common stock and amortized over the life of the underlying consulting agreements.  We have limited other current assets, including cash of $89,299, inventories of $133,941 and prepaid and other current assets of $12,860.

We had total current liabilities of $5,867,411 and a working capital deficit of $5,382,955 at September 30, 2014.  In addition, we had accumulated losses from inception of $15,974,571 and had a total stockholders’ deficit of $5,338,802 at September 30, 2014.

We do not have sufficient cash at September 30, 2014 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 $1,015,459 for the nine months ended September 30, 2014 as a result of our net loss of $6,248,763, partially offset by non-cash expenses totaling $2,577,054, decreases in inventories of $12,547, prepaid consulting services of $2,230,849 and prepaid assets and other current assets of $8,710, and increases in accounts payable and accrued expenses of $240,564 and accrued interest payable of $163,580.



Net cash used in operating activities was $883,036 for the nine months ended September 30, 2013 as a result of our net loss of $4,025,677 and increase in prepaid assets and other current assets of $135,752, partially offset by non-cash expenses totaling $3,044,029, and increases in accounts payable and accrued expenses of $157,505 and accrued interest payable of $76,859.

During the nine months ended September 30, 2014 and 2013, we had no net cash provided by or used in investing activities.

During the nine months ended September 30, 2014, net cash provided by financing activities was $1,098,302, comprised of proceeds from convertible debentures of $997,235, proceeds from notes payable of $25,000 and net proceeds from stockholder advances of $188,500, partially offset by payments on convertible debentures of $107,433 and payments on notes payable of $5,000.

During the nine months ended September 30, 2013, net cash provided by financing activities was $920,424, comprised of proceeds from convertible debentures of $526,000, proceeds from notes payable of $131,500, proceeds from the issuance of stock of $100,000, and net proceeds from stockholder advances of $182,958, partially offset by payments on convertible debentures of $534 and payments on notes payable of $19,500.

We have incurred losses from operations since inception, have limited financial resources, and at September 30, 2014, have a negative working capital position, an accumulated deficit of $15,974,571 and a total stockholders’ deficit of $5,338,802.  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 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.  

Plan of Operations and Related Risks

Sales of our dolls began in October 2013.  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, 2014 and anticipate that additional funds 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.

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.

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.  

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 September 30, 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.

Assets and liabilities measured at fair value on a recurring basis are as follows at September 30, 2014:

   
Total
   
Level 1
   
Level 2
   
Level 3
 
                         
   Derivative liability
  $ 2,642,968     $ -     $ -     $ 2,642,968  
   Convertible debentures
    1,191,953       -       -       1,191,953  
   Current portion of long-term debt
    20,245       -       -       20,245  
   Long-term debt, net of current portion
    14,548       -       -       14,548  
                                 
   Total liabilities measured at fair value
  $ 3,869,714     $ -     $ -     $ 3,869,714  
                                 

Income (Loss) per Share

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

The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year plus the common stock equivalents that would arise from the exercise of stock options and warrants outstanding, using the treasury stock method and the average market price per share during the year.  Common stock equivalents are not included in the diluted loss per share calculation when their effect is anti-dilutive.

Since we had no dilutive effect of stock options and warrants for the three months and nine months ended September 30, 2014 and 2013, our basic weighted average number of common shares outstanding is the same as our diluted weighted average number of common shares outstanding.

Income Taxes

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



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 three-year lease has a monthly payment of $2,546.50 from December 1, 2013 through November 30, 2014, $2,623.67 from December 1, 2014 through November 30, 2015, and $2,700.83 from December 1, 2015 through November 30, 2016.  We expect that the current leased premises will be satisfactory until the future growth of our business operations necessitates an increase in office space.


Not Applicable.


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 September 30, 2014.  Based on that evaluation, our principal executive officer and chief financial officer concluded that the disclosure controls and procedures employed at the Company were effective to ensure 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.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





We are not a party to any material legal proceedings, nor have any material proceedings been terminated during the nine months ended September 30, 2014.
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.

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, 2013, filed with the SEC on April 14, 2014. (the “2013 Form 10-K”).  The Risk Factors set forth in the 2013 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 2013 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.


Recent Sales of Unregistered Securities
 
During the three months ended September 30, 2014, we issued a total of 12,855,062 shares of our common stock: 4,200,000 shares valued at $378,000 for services and 8,655,062 shares with a total value of $131,551 for conversion of debt.   We also cancelled 9,300,000 shares of common stock, valued at par value of $23,250, when exchanged by officers and one of our founders for 186,000 shares of Series BB Preferred Stock.

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 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.
 

 
On July 31, 2014, the Company filed a Certificate of Designations, Preferences and Rights (the “Certificate”) with the Nevada Secretary of State to establish a class of preferred stock designated as Series BB Preferred Stock (the “Series BB Preferred Stock”), and has authorized the issuance of up to 1,000,000 shares of such 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.

On August 15, 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.

The issuance of the shares of Series BB Preferred Stock was made in reliance upon an exemption from registration pursuant to Section 4(a)(2) under the Securities Act. The Company’s reliance upon Section 4(a)(2) of the Securities Act was based in part upon the following factors: (a) the issuance of the securities was in connection with isolated private transactions which did not involve any public offering; (b) there were a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the securities took place directly between the offeree and the Company.
 

As indicated in Note 5 to our condensed consolidated financial statements, several of our convertible debentures are delinquent as of September 30, 2014.  We believe we have good relationships with the debenture holders, and continue to have discussions with them regarding the extension of maturity dates.


Not applicable.


On September 24, 2014, stockholders holding a majority of the voting power of the outstanding voting stock of the Company, as well as the Company’s Board of Directors, acted by written consent to approve an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of common stock from 50,000,000 to 500,000,000.
 
Item 6.  Exhibits

Exhibit No.
Description                                             
   
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 March 31, 1998).
 
 
 
   
3.2
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).
   
3.3
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).
   
3.4
Bylaws (Incorporated by reference from Exhibit 3.2 to Form 10-KSB filed with SEC on March 31, 1998).
   
3.5
Amended and Restated Bylaws (Incorporated by reference from Exhibit 3.9 to Form 8-K filed with the SEC on June 20, 2014).
   
3.6
Certificate of Amendment to Articles of Incorporation, dated September 4, 2014 (Incorporated by reference from Exhibit 3.1 to Form 8-K filed with the SEC on September 30, 2014.
   
3.7
Certificate of Designation of Rights, Preferences and Privileges for Series AA Preferred Stock (incorporated by reference from Exhibit 3.8 to Form 8-K filed with the SEC on June 20, 2014).
   
3.8
Certificate of Designation of Rights, Preferences and Privileges for Series BB Preferred Stock (Incorporated by reference from Exhibit 3.7 to Form 10-Q filed with the SEC on August 14, 2014).
   
10.1
Form of 14% Convertible Debenture (Incorporated by reference from Exhibit 10.7 to Form 10-K filed with SEC on April 14, 2014).
   
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.

 
 
 
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:           November 12, 2014
By:
/s/ Corinda Joanne Melton
   
Name:  Corinda Joanne Melton
   
Title:  President and Chief Executive Officer
     
Date:           November 12, 2014
By:
/s/ Dennis P. Gauger
   
Name:  Dennis P. Gauger
   
Title:  Chief Financial Officer
     
     
   
 

 
28

 




EXHIBIT 31.1
 
CERTIFICATION
 
 
I, Corinda J. Melton, certify that:
 
1.   I have reviewed this Quarterly Report of One World Holdings, Inc. on Form 10-Q for the period ending September 30, 2014;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:           November 12, 2014
By: /s/ Corinda Joanne Melton
 
      Corinda Joanne Melton
 
      President and Chief Executive Officer
      (Principal Executive Officer)

 
 

 




EXHIBIT 31.2
 
CERTIFICATION
 
 
I, Dennis P. Gauger, certify that:
 
1.   I have reviewed this Quarterly Report of One World Holdings, Inc. on Form 10-Q for the period ending September 30, 2014;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c)  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:           November 12, 2014
By: /s/ Dennis P. Gauger
 
      Dennis P. Gauger
 
      Chief Financial Officer
 
      (Principal Accounting and Financial Officer)

 
 

 




EXHIBIT 32
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of One World Holdings, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Corinda Joanne Melton, Chief Executive Officer, and Dennis P. Gauger, Chief Financial Officer, on the date indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

1.           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
   
   
   
Date:  November 12, 2014
By: /s/ Corinda Joanne Melton
 
      Corinda Joanne Melton
 
      President and Chief Executive Officer
 
      (Principal Executive Officer)


 
   
   
   
Date:  November 12, 2014
By: /s/ Dennis P. Gauger
 
      Dennis P. Gauger
 
      Chief Financial Officer
 
      (Principal Accounting and Financial Officer)
 
 
A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to One World Holdings, Inc. and will be retained by One World Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.