One World (OWOO) 10-Q 2013 Q2 Quarterly report

FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 333-177992

ONE WORLD HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization) 87-0429198 (I.R.S. Employer Identification Number)

418 Bridge Crest Boulevard, Houston, Texas 77082

(Address of principal executive offices)

(866) 440-1470

(Registrant’s telephone number, including area code)

n/a

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

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [x] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common units, as of the latest practicable date: 253,255,217 shares of common stock, par value $.0025 per share, outstanding as of August 13, 2013.

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

ONE WORLD HOLDINGS, INC.

- INDEX -

			Page(s)
PART I – FINANCIAL INFORMATION:
Item 1.	Financial Statements (unaudited):		F-1
	Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012		F-2
	Unaudited Consolidated Statements of Operations for the three months and six months ended June 30, 2013 and 2012 and for the period from inception,October 1, 2010, to June 30, 2013		F-3
	Unaudited Consolidated Statements of Stockholders’ Deficit for the six months ended June 30, 2013 and 2012 and for the period from inception,October 1, 2010, to June 30, 2013		F-4
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 and for the period from inception,October 1, 2010, to June 30, 2013		F-5
	Notes to Consolidated Financial Statements (Unaudited)		F-6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		11
Item 4A.	Controls and Procedures		11
PART II – OTHER INFORMATION:
Item 1.		Legal Proceedings	13
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.		Defaults Upon Senior Securities	13
Item 4.		Mine Safety Disclosures	14
Item 5.		Other Information	14
Item 6.		Exhibits	14
Signatures			16

1

Item  1. Financial Statements

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.

The results for the period ended June 30, 2013 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission for the period ended December 31, 2012.

F-1

ONE WORLD HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2013 AND DECEMBER 31, 2012
	June 30,
	2013			December 31,
	(UNAUDITED)			2012
ASSETS
Current assets
Cash and cash equivalents	$	115		$	2,147
Prepaid consulting services		371,121			549,147
Prepaid Inventory		30,000			-
Total current assets		401,236			551,294
Manufacturing equipment (molds to produce dolls)		70,000			70,000
Prepaid consulting services, long-term		58,057			168,479
Total assets	$	529,293		$	789,773
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Convertible debentures	$	335,188		$	408,719
Notes payable		10,000			-
Notes payable – related parties		194,000			87,000
Current portion of long-term debt		60,501			45,189
Due to shareholder		106,538			12,964
Derivative liability		296,471			-
Customer deposits		4,366			5,362
Accounts payable and accrued liabilities		725,658			599,672
Accounts payable – related parties		19,598			19,598
Accrued interest payable		111,911			81,867
Total current liabilities		1,864,231			1,260,371
Long-term debt, $130,000 and $130,000 face value, net of unamortized discount of $33,053 and $42,049		36,446			42,762
Total liabilities		1,900,677			1,303,133
Commitments and contingencies
Stockholders' deficit
Preferred stock: $0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding		-			-
Unissued preferred stock 200,000 shares		200			-
Common stock: $0.0025 par value, 700,000,000 shares authorized, 100,310,807 and 67,067,829 shares issued and outstanding		250,777			167,670
Unissued common stock, 3,125,000 and 18,125,000 shares		7,813			45,312
Additional paid-in capital		2,732,518			2,150,546
Losses accumulated in the development stage		(4,362,692	)		(2,876,888	)
Total stockholders’ deficit		(1,371,384	)		(513,360	)
Total liabilities and stockholders’ deficit	$	529,293		$	789,773
The accompanying notes are an integral part of these consolidated financial statements

F-2

ONE WORLD HOLDINGS, INC. (A DEVELOPMENT STAGE COMPANY) UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2013 AND 2012 AND FOR THE PERIOD FROM INCEPTION, OCTOBER 1, 2010, TO JUNE 30, 2013
													Inception,
													October 1, 2010
	FOR THE THREE MONTHS ENDED JUNE 30,						FOR THE SIX MONTHS ENDED JUNE 30,						To June 30,
	2013			2012			2013			2012			2013
General and administrative expenses:
Professional fees	$	58,699		$	16,119		$	85,128		$	58,699		$	470,950
Consulting fees		210,557			79,696			398,948			214,655			1,454,382
Contract labor		59,051			3,802			105,779			7,399			590,598
Salary expense		70,500			70,500			141,000			141,000			493,500
Marketing and advertising		51,652			1,755			83,065			11,093			177,594
Computer and internet charges		4,495			4,211			11,986			7,414			81,737
Research and development		73,546			787			74,296			29,226			217,275
Other		27,894			11,428			44,141			24,213			184,211
Total general and administrative expenses		556,394			188,298			944,343			493,699			3,670,247
Other expenses:
Interest expense		75,485			26,838			120,878			37,706			240,195
Recapitalization expense		-			-			-			-			31,667
Loss on derivative		113,266			-			123,409			-			123,409
Loss on debt settlement		118,726			-			297,174			-			297,174
Total other expenses		307,477			26,838			541,461			37,706			692,445
Provision for federal income taxes		-			-			-			-			-
Net loss	$	(863,871	)	$	(215,136	)	$	(1,485,804	)	$	(531,405	)	$	(4,362,692	)
Net loss per share - basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.01	)
Weighted average shares outstanding - basic and diluted		89,054,506			58,931,029			90,635,458			58,931,029

The accompanying notes are an integral part of these consolidated  financial statements

F-3

ONE WORLD HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND FOR THE PERIOD
FROM INCEPTION, OCTOBER 1, 2010 TO JUNE 30, 2013
																						Losses
					Unissued										Unissued				Additional			Accumulated in
	Common Stock				Common stock						Preferred Stock				Preferred stock				Paid-in			the Development
	Shares		Amount		Shares			Amount			Shares		Amount		Shares		Amount		Capital			Stage			Total
Balance at October 1, 2010		-	$	-	-			$	-			-	$	-		-	$	-	$	-		$	-		$	-
Founders’ shares		8,785,399		21,963	-				-			-		-		-		-		(16,215	)		-			5,748
Warrants issued for debt origination		-		-	-				-			-		-		-		-		17,648			-			17,648
Common stock issued for debt origination		1,834,272		4,586	-				-			-		-		-		-		14,238			-			18,824
																								��
Net loss		-		-		-			-			-		-		-		-		-			(134,882	)		(134,882	)
Balance as December, 31, 2010		10,619,671		26,549		-			-			-		-		-		-		15,671			(134,882	)		(92,662	)
Common stock issued for cash in private placement, net of $10,000		8,295,053		20,738		-			-			-		-		-		-		179,262			-			200,000
Common stock issued for warrant exercise		3,439,260		8,598		-			-			-		-		-		-		81,402			-			90,000
Common stock issued for services		28,705,757		71,764		767,500			1,919			-		-		-		-		705,117			-			778,800
Warrants issued for debt origination						-			-			-		-		-		-		8,824			-			8,824
Common stock issued for debt origination		2,445,696		6,114		-			-			-		-		-		-		23,298			-			29,412
Common stock issued in merger and recapitalization transaction		5,425,592		13,565		-			-			-		-		-		-		(13,565	)		-			-
Obligation forgiven under consulting agreements with related parties		-		-		-			-			-		-		-		-		200,500			-			200,500
Net loss		-		-		-			-			-		-		-		-		-			(1,483,733	)		(1,483,733	)
Balance as Decemeber 31, 2011		58,931,029		147,328		767,500			1,919			-		-		-		-		1,200,509			(1,618,615	)		(268,859	)
Unissued common stock issued		767,500		1,919		(767,500	)		(1,919	)		-		-		-		-		-			-			-
Common stock issuance for services		7,369,300		18,423		18,125,000			45,312			-		-		-		-		950,037			-			1,013,772
Net loss		-		-		-			-			-		-		-		-		-			(1,258,273	)		(1,258,273	)
Balance as Decemeber 31, 2012		67,067,829		167,670		18,125,000			45,312			-		-		-		-		2,150,546			(2,876,888	)		(513,360	)
Unissued common stock issued		18,125,000		45,312		(18,125,000	)		(45,312	)		-		-		-		-		-			-			-
Common stock issued for services		1,500,000		3,750		-			-			-		-		-		-		56,250			-			60,000
Common stock issued for debt conversion		275,450		689		2,998,695			7,497			-		-		-		-		242,728			-			250,914
Preferred stock issued for cash		-		-		-			-			-		-		200,000		200		99,800			-			100,000
Net loss		-		-		-			-			-		-		-		-		-			(621,933	)		(621,933	)
Balance as March 31, 2013		86,968,279		217,421		2,998,695			7,497			-		-		200,000		200		2,549,324			(3,498,821	)		(724,379	)
Unissued common stock issued		2,998,695		7,497		(2,998,695	)		(7,497	)		-		-		-		-		-			-			-
Common stock issued for services		5,050,000		12,625		-			-			-		-		-		-		37,875			-			50,500
Common stock issued for debt conversion		5,293,833		13,234		3,125,000			7,813			-		-		-		-		145,319			-			166,366
Net loss		-		-		-			-			-		-		-		-		-			(863,871	)		(863,871	)
Balance at June 30, 2013		100,310,807	$	250,777		3,125,000		$	7,813			-	$	-		200,000	$	200	$	2,732,518		$	(4,362,692	)	$	(1,371,384	)
The accompanying notes are an integral part of these consolidated financial statements

F-4

ONE WORLD HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 AND FOR THE PERIOD
FROM INCEPTION, OCTOBER 1, 2010, TO JUNE 30, 2013
							Inception,
	Six Months			Six Months			October 1, 2010
	Ended June 30,			Ended June 30,			to June 30,
	2013			2012			2013
Cash flows from operating activities:
Net loss	$	(1,485,804	)	$	(531,405	)	$	(4,362,692	)
Adjustments to reconcile net loss to net cash used by operations
Amortization of discount on notes payable		79,684			9,109			112,343
Common stock issuance for services		-			214,655			1,080,694
Forgiveness of obligations by related parties		-			-			200,500
Recapitalization expense incurred through increase in notes payable		-			-			31,667
Loss on derivative liability valuation		123,408			-			123,408
Changes in operating assets and liabilities:
Customer deposits		(996	)		2,742			4,366
Prepaid inventories		(30,000	)		-			(30,000	)
Prepaid and other assets		398,948			-			398,948
Gain on extinguishment of debt		297,173			-			297,173
Accounts payable and accrued liabilities		111,461			202,698			683,133
Accounts payable – related parties		-			-			19,598
Accrued interest payable		58,520			28,597			140,387
Net cash used by operating activities		(447,606	)		(73,604	)		(1,300,475	)
Cash flows from investing activities:
Purchase of manufacturing equipment		-			-			(42,000	)
Cash received in recapitalization		-			-			2,333
Net cash used by investing activities		-			-			(39,667	)
Cash flows from financing activities:
Bank overdraft		-			1,050			-
Payment to convertible debentures		-			-			(781	)
Proceeds from convertible debentures		135,000			35,000			544,500
Proceeds from notes payable		10,000			33,000			10,000
Proceeds from notes payable – related parties		126,500			-			179,500
Proceeds from long-term debt		-			-			130,000
Payments on notes payable		(19,500	)		-			(19,500	)
Proceeds from issuance of common stock in a private placement, net of expenses		100,000			-			300,000
Proceeds from warrant exercise		-			-			90,000
Proceeds from advances from shareholders		93,574			4,560			126,638
Repayments on advances from shareholders		-			-			(20,100	)
Net cash provided by financing activities		445,574			73,610			(1,340,257	)
Net increase (decrease) in cash and cash equivalents		(2,032	)		6			115
Cash and cash equivalents at beginning of period		2,147			6			-
Cash and cash equivalents at end of period	$	115		$	12		$	115
Interest paid	$	-		$	-		$	3,733
Income taxes paid	$	-		$	-		$	-

The accompanying notes are an integral part of these consolidated financial statements.

F-5

ONE WORLD HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements of One World Holdings, Inc. (“we” or the “Company”) contain the adjustments, all of which are of a normal recurring nature, necessary to present fairly our financial position at December 31, 2012 and June 30, 2013 and the results of operations for the six months ended June 30, 2012 and 2013, respectively, with the cash flows for each of the six months ended June 30, 2012 and 2013, in conformity with U.S. generally accepted accounting principles.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013.

(2) Organization, Nature of Business

One World Holdings, Inc. (the "Company"), a Nevada Corporation, is a Houston based company focused on doll design and marketing. Substantially all of the Company's operations are conducted through its wholly-owned subsidiary, The One World Doll Project, Inc. (a Texas Corporation - "OWDPI").  OWDPI began operations on October 1, 2010, and on January 14, 2011 OWDPI was incorporated in the State of Texas.  National Fuel and Energy, Inc. (a Texas Corporation) is a fully-owned subsidiary of the Company that was in dormant state at December 31, 2012 and 2011, and for the period from inception, October 1, 2010, to June 30, 2013.  The accompanying consolidated financial statements are presented as if OWDPI was a corporation from inception.

(3) Reclassifications

Certain items in the 2012 consolidated financial statements have been reclassified to conform to the 2013 consolidated financial statements’ presentation.

(4) Going Concern Consideration

The Company has incurred losses from operating activities of $ 4,362,692 since inception, has limited financial resources and a working capital deficit of $1,462,995 at June 30, 2013. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's consolidated financial statements for the period from inception, October 1, 2010, to June 30, 2013, have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company currently has losses accumulated in the development stage of $4,362,692, through June 30, 2013. The Company's ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and, ultimately, achieve profitable operations. Management’s plans to address the Company’s continuing existence include obtaining debt or equity funding from private or institutional sources or obtaining loans from financial institutions and individuals, where possible. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(5) Convertible Debentures

During the period from August 24, 2011 to June 30, 2012, the Company issued various Convertible Debentures in the total amount of $176,000. During the six months ended June 30, 2013, the Company issued various Convertible Debentures in the total amount of $135,000. All debentures bear simple interest of 14% per annum with a one year maturity.  The outstanding principal and interest of the debenture is convertible into shares of common stock at a conversion price of $0.04 per share.  The conversion rate was based upon the market price of the Company's common stock as determined by reference to recent cash sales.  The Directors of the Company have approved the registration of 120% of the shares of common stock issuable upon conversion of the principal amount of the debentures issued in the year ending December 31, 2011 to allow for conversion of principal and interest on such debentures into shares of common stock.

F-6

ONE WORLD HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Convertible Debentures, continued

Following is an analysis of the convertible debentures outstanding as of June 30, 2013 and 2012:

Description	Date of Agreement	Cost basis at Conversion	Original Amount	Unpaid principal balance	Term	Interest Rate
Debenture 1	8/24/2011	0.04	100,000	61,356	12 Months	16%
Debenture 2	9/27/2011	0.04	10,000	0	12 Months	16%
Debenture 3	10/10/2011	0.04	25,000	25,000	12 Months	16%
Debenture 4	12/20/2011	0.04	6,000	6,000	12 Months	16%
Debenture 5	2/17/2012	0.04	10,000	10,000	12 Months	16%
Debenture 6	3/9/2012	0.04	5,000	5,000	12 Months	16%
Debenture 7	3/19/2012	0.04	5,000	5,000	12 Months	16%
Debenture 8	4/29/2012	0.04	5,000	5,000	12 Months	16%
Debenture 9	4/25/2012	0.04	10,000	10,000	12 Months	16%
At June 30, 2012			176,000	127,356

Description	Date of Agreement	Cost basis at Conversion	Original Amount	Unpaid principal balance	Term	Interest Rate
Debenture 10	7/1/2012	0.04	25,000	12,333	12 Months	14%
Debenture 11	7/1/2012	0.04	25,000	0	12 Months	14%
Debenture 12	7/21/2012	0.04	25,000	19,500	12 Months	14%
Debenture 13	7/20/2012	0.04	62,000	62,000	12 Months	14%
Debenture 14	7/29/2012	0.04	10,000	10,000	12 Months	14%
Debenture 15	9/28/2012	0.04	25,000	25,000	12 Months	14%
Debenture 16	9/01/2012	0.04	10,000	10,000	12 Months	14%
Debenture 17	8/09/2012	0.04	15,000	21,400	12 Months	14%
Debenture 18	10/9/2012	0.04	5,000	5,000	12 Months	14%
Debenture 19	10/31/2012	0.04	12,500	12,500	12 Months	14%
Debenture 20	11/20/2012	0.04	5,000	5,000	12 Months	14%
Debenture 21	11/20/2012	0.04	2,000	2,000	12 Months	14%
Debenture 22	11/20/2012	0.04	2,000	2,000	12 Months	14%
Debenture 23	11/20/2012	0.04	5,000	5,000	12 Months	14%
Debenture 24	12/11/12	0.04	2,500	2,500	12 Months	14%
Debenture 25	12/29/12	0.04	2,500	2,500	12 Months	14%
Debenture 26	1/5/13	0.04	2,500	2,500	12 Months	14%
Debenture 27	1/6/13	0.04	50,000	50,000	12 Months	14%
Debenture 28	2/21/13	0.04	2,500	2,500	12 Months	14%
Debenture 29	4/19/13	Variable	32,500	32,500	12 Months	8%
Debenture 30	5/28/13	Variable	47,500	47,500	9 Months	8%
At June 30, 2013			544,500	459,089

Under the terms of the Convertible Debentures, the interest rate is increased to 16% if the Company fails to make payments when due. As of June 30, 2013, the Company had failed to make required payments on convertible debentures totaling $66,000.

On January 18, 2013 debenture 2 totaling $9,219 was converted to 275,450 shares of common stock.

As of June 30, 2013, the Company allowed securities transfers on debentures 1,10,11,12 and 17, and issued new debentures 29 and 30 totaling $190,000 to nine note holders.  Debenture 11 in the amount of $25,000 was converted in full and partial conversions totaling $93,074 occurred which resulted in a derivative liability of $296,471 and a loss on debt settlement of $297,174.  We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes were not afforded the

F-7

ONE WORLD HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Convertible Debentures, continued

exemption for conventional convertible instruments due to their variable conversion rates. The notes have no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the notes under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the notes in their entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The debt discount is amortized over the life of the note and recognized as interest expense. For the period ended June 30, 2013, the Company recognized $36,208 as interest expense. The derivative liability is adjusted periodically according to the stock price fluctuations. At the time of conversion, any remaining derivative liability will be charged to additional paid-in capital. For purpose of determining the fair value of the note, the Company used the Black Scholes option valuation model.

The significant assumptions used in the Black Scholes valuation are as follows:

	Stock price at valuation $		Conversion Price $		Years to Maturity %		Risk Free Rate %		Volatility %
Debenture 1		0.003 - 0.004		0.015 – 0.002		.25		0.080 – 0.040		182.1 – 339.5
Debenture 10		0.019 - 0.004		0.008 – 0.004		.27		0.060 – 0.040		298.0 – 339.5
Debenture 12		0.019 - 0.004		0.004 – 0.002		.25		0.050 – 0.040		270.1 – 339.5
Debenture 17		0.031 - 0.004		0.016 – 0.002		.25		0.060 – 0.040		273.5 – 339.5
Debenture 29		0.030 - 0.004		0.015 – 0.002		.25		0.080 – 0.040		182.1 – 339.5
Debenture 30		0.030 - 0.004		0.030 – 0.004		.25		0.120 – 0.040		295.0 – 339.5

The change in derivative liability recognized in the financial statements as of June 30, 2013 was $296,471.

(6) Advances from shareholder

Since its inception, the Company has relied on notes payable and advances from a shareholder to fund its ongoing operations. These advances have no specified repayment terms and no stated rate of interest. All advances are considered by the Company to be due on demand.  At June 30, 2013 and December 31, 2012 the advances from individuals were $106,539 and $12,964, respectively.

F-8

ONE WORLD HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (7) Stockholders' Deficit

During the period from March 31, 2013 to June 30, 2013 the Company issued 5,050,000 shares of stock to consultants and 5,293,833 shares for conversion of various convertible debentures.  As of June 30, 2013, 200,000 shares of preferred stock remain unissued.

	Shares		Shares					Cash		Services and
Description	Issued		Unissued			Value		Proceeds		Incentive		Total
at December 31, 2012		767,500		(767,500	) $	$	-	$	-	$	-	$	-
Shares issued for services to consultants, management and directors and employees		1,500,000		-			.04000		-		60,000		60,000
Unissued shares for debt conversion		275,450		2,998,695					-				-
Unissued Class A Preferred stock		-		200,000			.50000		100,000				100,000
Issuances of shares unissued
at March 31, 2013		18,125,000		(18,125,000	)

March 31, 2013	86,968,279	2,998,695					464,708		2,064,820		2,529,528
Shares issued for services to   consultants, management and   directors and employees	5,050,000	-			.01000		-		50,500		50,500
Unissued shares for debt conversion	5,293,833	3,125,000					-		-		-
Unissued Class A Preferred stock	-	-			-		-		-		-
Issuances of shares unissued
at June 30, 2013	2,998,695	(2,998,695	)
June 30, 2013	100,310,807	3,125,000		$		$	464,708	$	2,115,320	$	2,580,028

(8) Consulting Agreements

The Company has entered into various consulting agreements for financial and business development services to the Company. Certain of these consulting agreements provide for cash compensation to the consultants; however most are based on issuances of shares in exchange for services.

Under the consulting agreements that provide for share issuances, shares were generally issued at the inception of the agreements for services provided between January 1, 2011 and June 30, 2013. There were no specified performance requirements and no provision in the agreements for return of the shares.  At June 30, 2013, the compensation associated with the shares was $1,909,072. Compensation expense is calculated based on price of stock on the effective date of agreement and amortized over the period over which the services are provided to the Company. At June 30, 2013, the unamortized compensation associated with the shares was $429,178 reported as current and long-term prepaid consulting services on the balance sheet.

For the six months ended June, 2013 and 2012, the compensation associated with the shares recognized and expensed was $398,948 and $214,655; and $1,454,382 for the period from inception, October 1, 2010, to June 30, 2013; and the remaining unamortized expense of $429,178 is reported under unamortized portion of stock issued for services.

(9) Related Party Transactions

Since its inception, the Company has operated without rent from the home of its Chairman and Chief Executive Officer. The value of the rent is believed by management to be immaterial to the consolidated financial statements.

Daniel Melton Media, Inc. owned by Corinda Melton, the Company CEO and a shareholder, and Trent Daniel, a shareholder, performed graphic design and web related services for the company and received $1,050 for the period ending June 30, 2013, and $34,180 for the period from inception, October 1, 2010 to June 30, 2013.

In addition, Daniel Melton Media, Inc. advanced to the Company $33,064 for the period from inception, October 1, 2010 to June 30, 2013. These funds are reflected on the balance sheet under balances due to shareholders.

F-9

ONE WORLD HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) Related Party Transactions, continued

The Company paid Trent Daniel, a shareholder, for contract services related to marketing, graphic design, business and relationship development. The payments totaled $84,473 for the six months ended June 30, 2013, $12,831 during the six months ended June 30, 2012 and $246,413 for the period from inception October 1, 2010 to June 30, 2013.

The Company issued two six-month promissory notes to shareholders, Curtis and Janet Threat totaling $107,000 for the six months ended June 30, 2014.  The notes carry an interest rate of 16% and have no penalty or default clauses.

As of June 30, 2013, the Company had issued and unissued shares of stock to the following related parties:

Stockholder	Shares issued		Unissued Shares		Value ($)		Relationship	Nature of Services
Henderson J. Smith, Jr.		2,674,980		-		30,000	Brother-in-law of company founder Trent Daniel	Business Development services
Sarah Marie Daniel		1,389,280		-		45,000	Wife of company founder Trent Daniel	Creative writing services
Nedra Hall		1,007,140		-		35,000	Sister-in-law of company founder Trent Daniel	Bookkeeping services
Bradley Melton		3,929,405				93,200	Son of Corinda Melton, CEO	Purchased shares and provided business development services
Sherman Walker		601,440		-		18,772	Brother of Corinda Melton, CEO	Purchased  shares for cash
Wilma Delaney		687,852		-		18,000	Director and sister of Corinda Melton, CEO	Director related services
Robert Hines		1,452,132		-		38,000	Director	Director related services and financial consulting
Stacey McBride-Irby		6,381,738		-		167,000	Chief Product Development Officer	Cash purchase and company employee
Corinda Melton		4,707,965		-		3,080	CEO	Employee
Trent Daniel		9,077,434				202,668	Founder	Marketing and relationship development services

(10) Non-Cash Investing and Financing Activities

Following is analysis of non-cash investing and financing activities during the six months ended June 30, 2013 and 2012, and for the period from inception, October 1, 2010, to June 30, 2013:

							Inception,
	Six Months			Six Months			October 1, 2010
	Ended			Ended			to June 30,
	June 30, 2013			June 30, 2012			2013
Debt discount associated with long-term debt
issuance		$	33,053		$	51,194		$	65,289
Debt discount associated with derivative liability     in accounts payable		$	116,901		$	-		$	144,901

F-10

ONE WORLD HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) Subsequent Events

The Company has evaluated events subsequent to June 30, 2013, pursuant to ASC Topic 855 to include the following:

In July 2013, the Company issued Securities Transfer agreements totaling $140,000 to three note holders and transferring four convertible debentures.

In July 2013, the Company issued 57,827,516 shares of stock related to conversions of notes for various securities purchase agreements.

In August 2013, the Company issued 21,791,894 shares of stock related to conversions of notes for various securities purchase agreements.

In July 2013, the Company issued 65,200,000 shares of stock to related parties for consulting and contract services.

On July 19, 2013 the Company issued 5,000,000 shares of stock as compensation for a one year consulting agreement, and a two-year consulting contract payable in cash based on an 8% consulting fee for financing for the Company.

In July 2013, the Company received $79,000 in shareholder advances.

On July 1, 2013 the Company issued a nine month $35,000 convertible note bearing a 10% interest rate with payments of $7,500 per month and a variable conversion price.

On July 11, 2013 the Company issued a $21,500 convertible note bearing a 12% interest rate with a one-year term and variable conversion price.

On July 11, 2013 the Company issued a $50,000 promissory note bearing a 12% interest rate with a one-year term and variable conversion price.

On July 23, 2013 the Company issued a $62,000 one- year convertible note bearing an 8% interest rate with a variable conversion price.

On July 26, 2013 the Company issued a $78,500 one- year convertible note bearing an 8% interest rate with a variable conversion price.

On July 31, 2013 the Company increased its authorized shares to 710,000,000 including 700,000,000 common shares at .0025 par value and 10,000,000 preferred shares at .0001 par value.

F-11

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

As used in this 10Q, references to the “Company,” “One World,” “we,” “our” or “us” refer to One World Holdings, Inc., unless the context otherwise indicates.

INTRODUCTION

Management's discussion and analysis of financial condition and results of operations is provided as a supplement to the accompanying consolidated financial statements and related notes to help provide an understanding of our financial condition, the changes in our financial condition and the results of operations.

Some of the key factors which could cause our future financial results and performance to vary from those expected include:

 our ability to meet production and sales goals;

 our ability to raise adequate capital to fund operations;

 market developments affecting, and other changes in, the demand for our products or the introduction of competing products;

 increases in the price of raw materials used in the production of our dolls;

 our ability to develop and market our businesses at a level necessary to implement our business strategy and our ability to finance our development;

 the condition of the capital markets generally, which will be affected by interest rates, foreign currency fluctuations and general economic conditions;

 the political and economic climate in the foreign or domestic jurisdictions in which we conduct business; and

 other United States or foreign regulatory or legislative developments which affect the demand for our products generally or increase the cost for our products.

The information contained in this annual report, including the information set forth under the heading “Risk Factors”, identifies additional factors that could cause our results or performance to differ materially from those we express in our forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions and, therefore, the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements which are included in this annual report and the exhibits and other documents incorporated herein by reference, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved.

General

One World Holdings, Inc. (“Holdings”, a Nevada Corporation, formerly known as Environmental Safeguards, Inc.), is a Houston based development stage company with plans to release a line of mainstream multicultural dolls aimed at high-end collectors and young pre-teen girls. The Company’s operations are conducted through its wholly-owned subsidiary, The One World Doll Project, Inc., a Texas Corporation (OWDPI).  In this discussion Holdings and OWDPI are collectively referred to as “One World”. For the first year of operations, One World will be focused on direct sales and Internet sales and we will not require a storefront for operations.  Manufacturing of our dolls will be outsourced to a physical plant facility in the People’s Republic of China owned by a third-party manufacturer we have selected.

2

Results of Operations

During the period from inception, October 1, 2010, to June 30, 2013, substantially all of our efforts have been focused on fundraising, developing a management team and positioning the Company to manufacture our dolls.  

Results of Operations For The Three and Six-Month Periods Ended June 30, 2013 Compared To The Three and Six-Month Period Ended June 30, 2012.

Professional fees increased during both the three and six-months ended June 30, 2013, vis-à-vis the comparable 2012 periods.  The increase in professional fees relates primarily to the increase in legal and accounting services in connection with our first ever annual and quarterly reports.

Consulting fees also increased during both the three and six-months ended June 30, 2013, vis-à-vis the comparable 2012 periods.  Consulting fees were incurred primarily in the form of stock issuances to consultants. We have hired over 20 consultants from time to time to help us establish and market our Company and our products.  Certain consultants had consulting agreements that provided for share issuances, which shares were issued at the inception of the agreements.  Accordingly, the compensation associated with the shares was recognized over the life of the consulting agreement, based on the estimated fair value of the shares issued.   The number of consultants has generally increased in the past periods.  The Company will continue to incur consulting fees in the future, but such fees are expected to be at reduced levels.

The services of a variety of consultants have been integral in developing our business model, furthering our business and ensuring the successful pursuit of our goals.  Our consultants have contributed a wide variety of different services to us.  These services can be classified into several different categories, as follows:

1.      Business model development and implementation which consists of advice, counsel and services in the areas of fund raising strategy, corporate structure, hiring needs, office space acquisition and corporate governance;

2.      Financial and accounting which consists of advice, counsel and services in the areas of developing financial models and corporate accounting systems, corporate structure, quarterly reviews, various day to day accounting and bookkeeping;

3.      Product development which consists of advice and counsel in the areas of manufacturer selections, development process, engineering reviews, prototype development and testing, quality control, logistical support, safety standards compliance and physical packaging design; and

4.      Marketing and promotions which consists of advice, counsel and services in the areas of videography, photography, graphic design, printing, marketing and public relations activities, strategic market research and planning, website development and IT support.

3

Contract labor expenses significantly increased during both the three and six-months ended June 30, 2013, vis-à-vis the comparable 2012 periods.  We have spent $105,779 on such expenses through June 30, 2013 while only spending $7,399 year-to-date by June 30, 2012. Contract labor expenses refer to payments to our management team. Contract labor fees will continue as primary expenses in future periods, and the Company currently expects the expenses to be at similar levels for the near term. However, such fees may increase as the Company matures.

We incurred increased research and development expenses for the three and six-month periods ended June 30, 2013 due to the initial sculpture design, development and testing of the doll prototypes. We expect to incur additional research and development costs relating to the release of our first five doll designs. We have spent $74,296 on such expenses through June 30, 2013, almost all of which were during the most recent quarter.

There was no change in our salary expenses during the relevant comparable periods which are year-to-date $141,000. Salary expense was associated with fees paid and accrued for officer salaries pursuant to certain employment agreements.

Marketing and advertising expenses significantly increased during the three and six-month periods ended June 30, 2013 compared to the 2012 periods. We have spent $83,065 on such expenses through June 30, 2013 and plan to spend an additional $300,000 on an extensive media marketing and advertising campaign once the capital to fund such a campaign is raised and the dolls are ready for release to the doll collector and public markets.

Interest expense continues to rise due to the fact that we are substantially debt financing our operations in the absence of revenues.  The year-to-date expenses through June 30, 2013 were $120,878 compared to only $37,706 in 2012. The increase has been steady as reflected in the quarterly numbers in 2012 and 2013.

Our net loss has nearly tripled since June 30, 2012 to $1,485,804.The increase in net loss is principally due to the commencement of losses on derivatives in connection with our issued of convertible debentures.

4

Liquidity and Capital Resources

As of June 30, 2013, we had total assets of $529,293, consisting substantially of current and long-term prepaid consulting fees, which were primarily paid for by the issuance of our common equity. We have limited other assets, such as cash of $115, $30,000 prepaid toward production of doll inventory and approximately $70,000 of molds to produce dolls.

We had total liabilities of $1,900,677 as of June 30, 2013, which included current liabilities of $1,864,231, consisting substantially of convertible debentures, notes payable to related parties, and accrued interest payable. 

We had negative working capital in excess of $1 million and total losses accumulated during the development stage of $4,362,692.

We rely on cash provided by financing activities primarily in the form of convertible debentures, notes and occasional stock private placements.

Liabilities and Commitments

5

Please refer to Note 5 of our financial statements herein.  As of June 30, 2013, the Company allowed securities transfers on debentures 1,10,11,12 and 17, and issued new debentures 29 and 30 totaling $190,000 to nine note holders.  Debenture 11 in the amount of $25,000 was converted in full and partial conversions totaling $93,074 occurred which resulted in a derivative liability of $296,471 and a loss on debt settlement of $297,174.

Need For Funding And Prior Sources of Capital

The Company has incurred losses from operations since inception, has limited financial resources, has a negative working capital position at June 30, 2013 and has total losses accumulated in the development stage of $4,362,692 as of June 30, 2013. The losses to date represent costs incurred primarily to pay the management team and individuals engaged by the Company to design and develop the Company’s dolls, to negotiate and coordinate the production of the dolls and to develop the marketing strategy to promote the doll line to doll collectors and public markets. From inception, through June 30, 2013, the Company has recorded $3,670,247 of expense applicable to administrative expenses, consisting primarily of professional fees and management and consulting services. While professional fees have been paid substantially in cash, the majority of management and consulting costs have been paid through the issuance of common stock.

The Company’s primary sources of capital since inception have come from either private placement sales of common stock, the issuance of debt or advances from individuals. From inception, through June 30, 2013, the Company had received net cash from financing activities totaling $1,340,258, the vast majority of which flowed from proceeds from convertible debentures, notes payable and private placements.

We estimate that we are currently using approximately $31,300 per month in our operations.  We believe that our capital requirements for the next 12 months will be approximately $1.5 million. Our capital requirements include $300,000 for capital expenditures (product testing, 3rd party inspections, tooling, office furnishing and product warehousing), manufacturing costs and $1.2 million for marketing, public relations, and general and administrative costs (inventory purchases, staff expansion, legal and accounting fees and general office expenses).  We anticipate meeting our capital requirements by raising funds through a combination of private placements of our common stock and/or issuances of notes payable to private investors.  We currently depend primarily on in-kind arrangements and proceeds from the sale of convertible debentures for our month-to-month capital needs.  

After a market for our common stock develops, which we hope will develop during the mid to late 2013, we plan to raise funds through a private offering of our common stock to accredited investors.  We can provide no assurances that a market for our common stock will ever develop however.  We hope that at such time, if ever, as a market develops for our common stock, we will be in a better position to raise funds through private offerings because we believe that purchasers are more likely to purchase convertible securities in companies which have a public market for their securities.  We anticipate being significantly dependent on third party funding and capital raised through private placements, until such time, if ever, as our operations generate sufficient revenue to support our operating expenses.

We currently do not have the financing to implement the strategies discussed herein and throughout this report.  Although we do not have definitive plans to obtain such funds, after a market for our common stock develops, we plan to seek to raise funds through a private offering of our common stock and/or notes payable to accredited investors.  We currently have no commitments or letters of intent with any third party, and we are not currently under negotiations with any third party related to a private offering to accredited investors.

6

Should we be unable to obtain the capital necessary to fund our expected future working capital needs, we would scale back on marketing, operational and administrative requirements, resulting in slower growth.  The amount that we would have to scale back spending would correlate to any deficiency in funding.  Such a funding shortage would likely result in an extremely limited budget for advertising and non-essential staff and consultants; however, we would still anticipate meeting our production and product launch deadlines, but we would produce less product initially.  If we are able to raise more than $1.5 million during the 12 months following our common stock being listed on the Over-The-Counter Bulletin Board, we expect such capital to increase our marketing efforts and production capabilities.

Our business plan currently anticipates our first sales of dolls to begin and our first inventory expenditures to occur in the third quarter of 2013, funding permitting; however, we anticipate a loss from operations in 2013.  We hope to raise needed equity or debt financing. The sale of our common stock through any future private offering will have a dilutive impact on existing common stockholders.

Since inception we have primarily relied upon in-kind arrangements with various consultants pursuant to which we agreed to issue such consultants shares of common stock in lieu of payment of cash consideration. Services provided by such consultants include media and public relations, business development, product fulfillment, television advertising production, financial, management, corporate compliance, business advisory and employment recruitment consulting services.  We also previously issued certain of our officers and Directors shares of common stock in lieu of the payment of cash consideration.   As of June 30, 2013, we had expensed in excess of $1 million in connection with common stock issued for services rendered.

Plan of Operations and Related Risks

We are currently implementing our plan to manufacture and market our line of dolls in the United States. We currently have two sets of prototypes of our dolls on hand, each set consisting of two collectible dolls, and five fashion dolls.

All equipment needed for manufacturing and production except for molds and tooling is owned and operated by our third-party manufacturer.  Therefore, we will have no production equipment needs or expenditures other than the production molds and tooling.  We have invested $70,000 in these molds and tooling as of June 30, 2013 and anticipate that an additional $50,000 will be invested in these items that will remain our sole property.  These molds and tooling will be stored in our manufacturer’s warehouse. The molds and tooling can be shipped or transferred as needed if we should ever choose to use a different manufacturer.

As described above, we believe that our capital requirements for the next 12 months will be approximately $1.5 million.  If we are able to raise this amount of capital, we anticipate using the funds as follows:

7

Use of Funds
Capital Expenditures:
Production/Tooling/Warehousing	$	126,000
Furnishings/Improvements	$	24,000
Cost of Capital	$	150,000
			$	300,000
Working Capital
Administrative/Office Expense:	$	80,000
Inventory Purchases	$	250,000
Staff Expansion	$	350,000
Audit/Board/Legal	$	200,000
Marketing and PR Activities	$	320,000
			$	1,200,000

Target MarketAccording to childstats.org, there are 25 million children in the U.S. between the ages of 6-11. Our first year goal is to capture at least 0.73% (182,500) of this market and to obtain at least 2.36% (590,000) of this market by the end of year three. The percentage of 0.73%  for year one has been calculated based on the amount of dolls One World intends to manufacture and sell (200,000) upon funding.  Our target for year three of 2.36% is based upon implementing the Company’s marketing and public relations plan upon funding, which includes repeat customers.

With a primary focus on African-American broadcast and print outlets, we believe we can quickly capture a significant portion of the African-American target market.  In order to accomplish this, we will maintain two first year marketing and public relations focal points.  The first will be African-American mass media, and the second will be through web and social media. 

Business Strategy Our goal is to be the leading provider of multi-cultural doll products to the specialty, affinity, and mass merchandise retail marketplace through a focus on direct and online sales models.  Key elements of our strategy include:

1. Developing a strong online presence for One World by focusing our core sales on internet and catalog sales, we believe we will be able to capture our market while eliminating the “eye level competition” we would face in the retail stores.

2. Driving business by utilizing the celebrity of our lead doll designer to promote the products globally. We will be conducting a major global Public Relations (“PR”) campaign around Stacey McBride-Irby, our doll creator.

3. Using the power of celebrity partners and PR to develop relationships with major store chains and affinity organizations.  In year two,we intend to conduct celebrity VIP meet and greets to introduce and promote One World to major store chains.

Product Launch and Implementation   One World is expected to be nationally introduced to consumers in the first half of 2013 largely through a very comprehensive, strategic, and highly targeted public relations effort.  We will use a national media relations campaign to launch the Company and our products, emphasizing the creative background and depth of our business team and the cultural impact of our products.  Our marketing campaign will include major print, online and broadcast news media.  Other grassroots and social media campaigns will be coordinated and directed at the creation of a significant groundswell of interest and word-of-mouth buzz.

To begin our entry into the market place, we anticipate releasing our first five doll designs in in the third quarter of 2013.  In the third quarter of 2013, we also plan to begin our mass marketing and public relations campaign around the initial designs, funding permitting. Our ability to implement this campaign will depend on our ability to raise adequate capital. 

8

In order to produce the highest quality dolls we have engaged a third-party manufacturer in China to manufacture our initial inventory of dolls, taking advantage of its experience and more than 25 million square feet of production and warehousing space.  Our manufacturer’s client base include some of the world’s biggest toy and game developers including Mattel, Fisher-Price, MGA Entertainment, Lego, Hasbro, Playskool, MTV, Lionel, Disney and many more.

Manufacturing is dependent on a third-party manufacturer.  We will be dependent on a third-party manufacturer, and if our relationship with the manufacturer is harmed or if they independently encounter difficulties in the manufacturing of our dolls, we could experience product defects, production delays, cost overruns or an inability to fulfill orders on a timely basis, any of which could adversely affect our business, financial condition and results of operations.

In the future, we may depend on multiple third-party manufacturers. Our manufacturers will develop, provide and use the tools, dies and molds that we own to manufacture our products. We have limited control over the manufacturing processes themselves. As a result, any difficulties encountered by the third-party manufacturers that result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis could adversely affect our business, financial condition and results of operations.

Manufacturing operations will be outside of the United States, subjecting the Company to risks common to international operations.We will use a third-party manufacturer located principally in China which may subject us to the risks normally associated with international operations, including; political instability, civil unrest and economic instability; greater difficulty enforcing intellectual property rights and weaker laws protecting such rights; complications in complying with laws in varying jurisdictions and changes in governmental policies; greater difficulty and expenses associated with recovering from natural disasters; transportation delays and interruptions; the potential imposition of tariffs; and challenges to the pricing of intercompany transactions made by taxing authorities in the United States, with potential increases in income taxes.

Our reliance on external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary. However, if we are prevented from obtaining products or components for a material portion of our product line due to political, labor or other factors beyond our control, our operations will be disrupted while alternative sources of products are secured. Also, the imposition of trade sanctions by the United States against a class of products imported by us from China, or the loss of “normal trade relation” status by China, could significantly increase our cost of products imported from that nation. Because of the importance of our international sourcing of manufacturing to our business, our financial condition and results of operations could be significantly and adversely affected if any of the risks described above occurred.

Production Process.  The production process for the units will take approximately 10 weeks from the time that tooling, engineering specifications and prototypes have been approved. Once production starts, we anticipate having the capacity to produce up to 40,000 dolls per week, as our needs require. We have already completed the production first steps and are now in the process of testing the tooling. This is estimated to take roughly 5-7 weeks and is planned to put us on track to start full scale production in the fourth quarter of 2013, funding permitting.

Manufacturing issues that may affect our planned production time frame are typically experienced during the early stages of the production process and many of those early stage activities have been completed successfully. Accordingly, we do not anticipate any significant delaying factors unless they occur at the production (assembly line) stage. These factors and their contingencies have been vetted by our manufacturer and based on their production experience, clientele and success in the market place we believe that our manufacturer has adequately planned for these factors and is capable of addressing them to our satisfaction.

9

If the need arises for us to fulfill rush orders, we believe that our manufacturer can increase production with limited out-of-pocket cost to us, other than the increased shipping costs that would occur from air shipping as opposed to normal sea lane shipping.

Quality Control Measures.  Our manufacturer provides inspection services.  However, as an additional level of protection, prior to the release of the first few shipments of our product, we plan to use a third party inspector located in China to ensure that we are compliant with all safety requirements associated with the age grading for our products.  Our third-party inspector will perform tests of our product for the presence of unsafe chemicals or heavy metals and tests for unsafe physical attributes of our product.  Our products will comply with EN-71-1 standards for toy safety established by the European Committee for Standardization and can be sold in the US, Europe, and Canada.

Shipping.  Product is purchased FOB (Freight-on-Board) common carrier and is our property once each shipment is transferred to a selected air or ocean carrier.

Inventory/Warehousing. Initially, inventory will be maintained at a corporate warehouse that we plan to lease in the fourth quarter of 2013, funding permitting.  Inventory will be tracked using a computerized database.

Distribution.  We will distribute our products from a corporate warehouse in Houston, Texas. We will implement a fulfillment and delivery system that we will use to record and track all orders placed via our online point of sale system and we expect to have those orders fulfilled and shipped within 48 hours of order receipt.

Costs.  Our costs are consistent with customary industry practices and will include three main costing phases: pre-production, production and post-production.  The pre-production phase is a setup process that involves development of all tools and equipment needed to produce the dolls and their accessories including clothes, shoes, jewelry as well as face painting masks.  This setup phase bears the greatest amount of up-front costs but should provide us everything needed to produce multiple dolls and accessories from the same set of tools.  Our molds and other tooling are developed from high yield metals and synthetics that we believe will yield hundreds of thousands of units before needing replacement. The Company has estimated the yield capacity of the molds by taking into consideration the past experience of management and certain engineering estimates provided by Early Light.  Additionally, Early Light has warranted our molds for a minimum of 400,000 units.  We have invested $70,000 in these molds and tooling, as of June 30, 2013 and anticipate that an additional $50,000 will be invested in these items.  We do not yet have a committed source of funding to cover this anticipated capital expenditure.

The second phase, production, will include the actual production, assembly and packaging of the dolls. This process will also include testing of the dolls for safety requirements set by the U.S. government. The third phase will include shipping and further safety and hazards testing. In the event that any safety requirements are not met, there are risks of delays in getting the dolls to market in the expected timeframe.   We do not yet have a committed source of funding to finance the second or third phases described above.

Trademarks, Copyrights and PatentsWe anticipate most of our products being sold under trademarks, trade names, and copyrights, and some products may incorporate patented devices or designs. Such intellectual property could become significant assets in that they will provide product recognition.  We intend on seeking patent, trademark, or copyright protection covering our products.  We will use our best efforts to ensure the rights to these properties are adequately protected, but there can be no assurance that our rights can be successfully asserted in the future or will not be invalidated, circumvented, or challenged.

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Government Regulations.  Any dolls we sell in the United States will be subject to the provisions of the Consumer Product Safety Act, the Federal Hazardous Substances Act, and the Consumer Product Safety Improvement Act of 2008, and may also be subject to the requirements of the Flammable Fabrics Act or the Food, Drug, and Cosmetics Act, and the regulations promulgated pursuant to such statutes. These statutes ban from the market consumer products that fail to comply with applicable product safety regulations. The Consumer Product Safety Commission (“CPSC”) may require the recall, repurchase, replacement, or repair of any such banned products or products that otherwise create a substantial risk of injury and may seek penalties for regulatory noncompliance under certain circumstances.  Similar laws exist in some states and in many international markets.

We will attempt to maintain a high level of quality control to help ensure compliance with various federal, state, and applicable foreign product safety requirements, if any.  We may in the future, however, experience issues in products that result in recalls, withdrawals, or replacements of products. A product recall could have a material adverse effect on our results of operations and financial condition.  A product recall could also negatively affect our reputation and the sales of our other products.

Off Balance Sheet Arrangements – We have no off-balance sheet arrangements.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, Ms. Melton, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Ms. Melton concluded that because of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2013.

(b) Management’s annual report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  “Internal Control Over Financial Reporting” is defined in Exchange Act Rules 13a -15(f) and 15d - 5(f) as a process designed by, or under the supervision of, an issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by an issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It includes those policies and procedures that:

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	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of an issuer;
	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and

 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material adverse effect on the financial statements.

During June 2013, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2013 based on the framework set forth in the report entitled Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management concluded that our internal control over financial reporting as of June 30, 2013 was not effective.  Management identified the following material weaknesses as of June 30, 2013:

 There existed a lack of segregation of duties in regard to the Company’s financial reporting, procedures for depositing of funds, procedures for cash disbursements, procedures for checkbook entries, period close procedures, and procedures for financial statement preparation.

Our management is not aware that the material weakness in our internal control over financial reporting causes them to believe that any material inaccuracies or errors existed in our financial statement as of June 30, 2013, however certain items in the 2012 consolidated financial statements have been reclassified to conform to the 2013 consolidated financial statements’ presentation.   We are not aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement of omission in any report we have filed with or submitted to the Commission.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this report.

(c) Changes in internal control over financial reporting

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

To the best knowledge of the officers and directors, the Company is not a party to any legal proceeding or litigation.

Item 1A.  Risk Factors.

Not required.

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

During the six month period ended June 30, 2013, the Company issued a total of 15,117,978 shares of common stock as follows: 5,050,000 shares of common stock to Anubis Partners, LLC for consulting services. In addition, during the period, the Company also issued 5,293,833 shares in connection with note conversions for notes held by 8 parties and conversion of convertible debentures held by 5 persons. The Company also issued $80,000 in convertible debentures to Asher Enterprises which may be converted at the holder’s discretion into our common stock at an exercise price based on the market price of our common stock.

The securities described above were issued to consultants under an exemption from registration provided by Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder.  The issuance of the securities did not involve a “public offering” based upon the following factors: (i) the issuance of the securities were isolated private transactions; (ii) a limited number of securities were issued to offerees in separate transactions; (iii) there was no public solicitation; and (iv) the securities were issued as “restricted securities” pursuant to Rule 144 of the Securities Act.

All of the issuances of securities described above were restricted share issuances and deemed to be exempt from registration in reliance on Rule 506 of Regulation D and/or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering.  Each investor represented that they were accredited investors, as defined in Rule 501 of Regulation D and, there was no general solicitation or general advertising used to market the securities.  We made available to each investor with disclosure of all aspects of our business, including providing the investor with press releases, access to our auditors, and other financial, business, and corporate information.  All securities issued were restricted with an appropriate restrictive legend on certificates for notes and warrants issued stating that the securities (and underlying shares) have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.

Item 3. Defaults Upon Senior Securities.

At June 30, 2013, the Company was in default on its long-term debt due its failure to make payments due under the terms of debt agreements.  Holders of notes did not express desire to declare entire principal balances due immediately, and note balances are reported with original maturities.

On July 21, 2011, the Company received proceeds under a $20,000 short-term note payable to an individual who is also a shareholder of the Company. This note is uncollateralized, and bears interest of 15% per year. The Company is currently in default on this note and is subject to legal costs of up to $10,600, which are considered a default fee under the terms of the note. As of the date of this filing, the note has not been demanded, however, the default fee is currently recorded on the balance sheet as part of accrued liabilities, and interest on the outstanding principal continues to be expensed monthly.

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On July 21, 2011, the Company assumed accounts payable to former officers and directors totaling $34,000. These accounts payable were converted to uncollateralized notes payable that bear interest of 16% per year and were due July 21, 2012. These notes are recorded on the Balance Sheets under notes payable – related parties under current liabilities. The notes are currently in default and interest is currently being expensed monthly. Under the terms of these notes payable, there are no additional fees or costs associated with default by the Company.

On February 24, 2012, the Company entered into a promissory note in the total amount of $33,000, with Stacey McBride Irby, a Director of the Company. The note has a sixty-day maturity, and bears interest of 15% per year starting on September 21, 2011. The Company is currently in default on this note and is subject to legal costs of up to $7,590, which are considered a default fee under the terms of the note. As of the date of this filing, the note has not been demanded, however, the default fee is currently recorded on the balance sheet as part of accrued liabilities, and interest on the outstanding principal continues to be expensed monthly.

Item 4. Mine Safety Disclosures.

None, not applicable.

Item 5. Other Information.

None; not applicable.

Item 6. Exhibits.

The following Exhibits have been previously filed in the below referenced filings or have been attached hereto, and in any case, as is stated on the cover of this Report, all of the below Exhibits are incorporated herein by reference.

2.1	Share Exchange Agreement (Incorporated by reference from Exhibit 2.1 to Form S-1/A filed with the SEC on February 13, 2012)
3.1	Articles of Incorporation, as amended. (Incorporated by reference from Exhibit 3.1 to Form 10-KSB filed with SEC on June 30, 1998)
3.2	Certificate of Designations of Series A Preferred Stock (September 10, 1993) (Incorporated by reference from Exhibit 3.2 to Form S-1/A filed with the SEC on September 27, 2012)
3.3	Certificate of Designations of Series B and C Preferred Stock (December 19, 1997) (Incorporated by reference from Exhibits 4.1 and 4.2 to Form 8-K filed with the SEC on December 30, 1997)
3.4	Certificate of Designations of Series D Preferred Stock (August 31, 2000) (Incorporated by reference from Exhibit 3.4 to Form S-1/A filed with the SEC on September 27, 2012)
3.5	Certificate of Amendment to Articles of Incorporation (dated July 15, 2011) (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with SEC on November 10, 2011)
3.6	Certificate of Change filed Pursuant to NRS 78.209 (filed July 26, 2011) (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with SEC on November 10, 2011)

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3.7 3.8	Bylaws (Incorporated by reference from Exhibit 3.2 to Form 10-KSB filed with SEC on June 30, 1998) Certificate of Amendment to Articles of Incorporation (dated July 31, 2013)
5.1	Opinion and consent of The Law Office of Rodney E. Moton LLC re: the legality of the shares being registered
10.1	Share and Debt Cancellation Agreement (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)
10.2	Employment Agreement with Stacey McBride-Irby (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)
10.3	Employment Agreement with Corinda Joanne Melton (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)
10.4	14% Convertible Debenture with Michael and Jacquelyn Emmers, dated August 24, 2011 (Incorporated by reference from Exhibit 10.4 to Form S-1/A filed with the SEC on February 13, 2012)
10.5	14% Convertible Debenture with Heath O’Neal Redwine, dated September 27, 2011 (Incorporated by reference from Exhibit 10.5 to Form S-1/A filed with the SEC on February 13, 2012)
10.6	14% Convertible Debenture with Carolyn Austin, dated October 10, 2011 (Incorporated by reference from Exhibit 10.6 to Form S-1/A filed with the SEC on February 13, 2012)
10.7	14% Convertible Debenture with William and Barbara Pharr, dated December 20, 2011 (Incorporated by reference from Exhibit 10.7 to Form S-1/A filed with the SEC on September 27, 2012)
10.8	Consulting Agreement with Trent Daniel, dated February 1, 2011 (Incorporated by reference from Exhibit 10.7 to Form S-1/A filed with the SEC on February 13, 2012)

10.9	Promissory Note (as amended)($40,000 with Bradley D. Melton, dated June 30, 2011) and Security Agreement (Incorporated by reference from Exhibit 10.9 to Form S-1/A filed with the SEC on November 6, 2012)
10.10	Promissory Note ($33,000) with Stacey McBride-Irby, dated February 24, 2012 (Incorporated by reference from Exhibit 10.9 to Form S-1/A filed with the SEC on November 6, 2012)
10.11	Consulting Agreement with Robert Hines, dated April 1, 2011 (Incorporated by reference from Exhibit 10.9 to Form S-1/A filed with the SEC on November 6, 2012)
21.1	Subsidiaries of One World Holdings, Inc. (Incorporated by reference from Exhibit 2.1 to Form S-1 filed with the SEC on November 10, 2011)

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This 10-Q
31.1	Certification of principal executive officer and principal financial officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by Corinda Joanne Melton
32.1	Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by Corinda Joanne Melton

101.INS	XBRL Instance Document*
101.PRE.	XBRL Taxonomy Extension Presentation Linkbase*
101.LAB	XBRL Taxonomy Extension Label Linkbase*
101.DEF	XBRL Taxonomy Extension Definition Linkbase*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase*
101.SCH	XBRL Taxonomy Extension Schema*

*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: August 19, 2013

ONE WORLD HOLDINGS, INC.

By: /s/ Corinda Joanne Melton

Corinda Joanne Melton, Chief Executive Officer and Director (Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer)

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