Attached files
| file | filename |
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| EX-32.2 - MARKETING WORLDWIDE CORP | v208038_ex32-2.htm |
| EX-31.1 - MARKETING WORLDWIDE CORP | v208038_ex31-1.htm |
| EX-31.2 - MARKETING WORLDWIDE CORP | v208038_ex31-2.htm |
| EX-32.1 - MARKETING WORLDWIDE CORP | v208038_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x Annual Report Under
Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended September 30, 2010
o Transition Report Under
Section 13 or 15(d) of the Securities Exchange
Act of
1934 For the transition period _______ to ________
COMMISSION
FILE NUMBER 000-50586
MARKETING
WORLDWIDE CORPORATION
(Name of
small business issuer in its charter)
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Delaware
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68-0566295
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State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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incorporation
or organization
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2212
Grand Commerce Drive, Howell, MI 48855
(Address
of principal executive offices) (Zip Code)
(Issuer's
telephone number) (517) 540-0045
SECURITIES
REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
$.001 PAR
VALUE COMMON STOCK
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o. No x.
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
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 o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
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 o
Accelerated filer o
Non-accelerated
filer o
Smaller reporting company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
The
aggregate market value of the Registrant's common stock held by non-affiliates
(as defined by Rule 12b-2 of the Exchange Act) computed by reference to the
average bid and asked price of such common equity on March 31, 2010 was
$1,225,818.
At
January 13, 2011, there were 35,201,699 shares of $.001 par value common
stock issued and outstanding.
TABLE OF
CONTENTS
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PAGE
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PART
I
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ITEM
1. BUSINESS
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1
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ITEM
1A. RISK FACTORS
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4 | ||
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ITEM
1B. UNRESOLVED STAFF COMMENTS
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8 | ||
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ITEM
2. PROPERTIES
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8 | ||
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ITEM
3. LEGAL PROCEEDINGS
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9 | ||
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ITEM
4. REMOVED AND RESERVED
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9 | ||
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PART
II
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ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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9 | ||
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ITEM
6. SELECTED FINANCIAL DATA
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10 | ||
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ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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10 | ||
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ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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13 | ||
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ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
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14 | ||
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ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
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15 | ||
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ITEM
9A. CONTROLS AND PROCEDURES
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15 | ||
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ITEM
9A(T). CONTROLS AND PROCEDURES
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15 | ||
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ITEM
9B. OTHER INFORMATION
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15 | ||
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PART
III
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ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
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16 | ||
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ITEM
11. EXECUTIVE COMPENSATION.
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17 | ||
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ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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18 | ||
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ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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19 | ||
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ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
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20 | ||
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PART
IV
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ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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20 |
PART
I
ITEM 1.
BUSINESS
This
Annual Report on Form 10-K (including the section regarding Management's
Discussion and Analysis of Financial Condition and Results of Operations)
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements using terminology such as "can", "may", "believe", "designated to",
"will", "expect", "plan", "anticipate", "estimate", "potential" or "continue",
or the negative thereof or other comparable terminology regarding beliefs,
plans, expectations or intentions regarding the future. You should read
statements that contain these words carefully because they:
o discuss
our future expectations;
o contain
projections of our future results of operations or of our financial
condition; and
o state
other "forward-looking" information.
We
believe it is important to communicate our expectations. However, forward
looking statements involve risks and uncertainties and our actual results and
the timing of certain events could differ materially from those discussed in
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors," "Business" and elsewhere in this report. All
forward-looking statements and risk factors included in this document are made
as of the date hereof, based on information available to us as of the date
thereof, and we assume no obligations to update any forward-looking statement or
risk factor, unless we are required to do so by law.
Marketing
Worldwide Corporation
Marketing
Worldwide Corporation, a Delaware corporation ("MWWC” "We" "Us" "Our" or the
"Company"), was incorporated on July 21, 2003. MWWC's headquarters are in
Howell, Michigan. MWWC operates through the holding company structure and
conducts its business operations through our wholly owned subsidiaries Colortek,
Inc. (“CT”) and Marketing Worldwide, LLC (“MWW”).
In
previous reporting periods, the Company had a 100 % German subsidiary,
Modelworxx, GmbH (“MWX”). As the direct result from the world-wide
economic recession, MWX was forced to file insolvency in the German legal
system. This filing was done in February, 2010 and MWWC has not been
provided any final determination from the German courts. The Company
reported this transaction as discontinued operations in the reported financial
statements.
Marketing
Worldwide, LLC (“MWW”)
MWW is a
complete design, manufacturer and fulfillment business providing accessories for
the customization of vehicles and delivers its products to large global
automobile manufacturers and certain Vehicle Processing Centers primarily in
North America. MWW operates in a 23,000 square foot leased building
in Howell Michigan.
The
primary automotive accessory products provided by MWW are blow-molded spoilers
(bridge and lip), extruded body-side moldings, and carbon-fiber seat
heaters. We have identified new business partners to drive more
product sales and expect fiscal year 2011 to be greater than 2010.
MWW’s
accessory programs are sold directly to vehicle processing centers and
distributors located primarily in North America. These vehicle processing
centers and distributors receive a continuous stream of new vehicles from the
foreign and domestic automobile manufacturers for accessorization,
customization, and subsequently, distribution into the domestic dealer
distribution network. Distributors also sell MWW’s accessories directly to their
dealers and end customers.
The
vehicle processing centers and distributors submit purchase orders to MWW and/or
its wholly owned subsidiaries for the delivery of accessories programs for
specific types of vehicles. An accessory program refers to the complete package
of goods and services related to a single accessory for a particular type of
vehicle.
MWW's
business model empowers its customers to make the selection of various
accessories (sold by MWW) later in the production cycle, thus improving time to
market for their automobiles and faster reaction to the dynamically changing
demand of its customers. The principal MWW products sold during the last two
fiscal years include Automotive Body Components such as:
* Rear
Deck Spoilers
* Running
Boards
* Body
Side Moldings
*
Stainless Steel Exhaust Systems
* Side
skirts or front ends
* Carbon
Fiber Seat Heater Systems
* Lights
and Fixtures
Page
1
Several
of the vehicles MWW currently provides accessories to are changing models next
year and will provide additional growth opportunities. MWW is also
negotiating to provide fulfillment activities for new customers, meaning MWW
will receive, store and ship products that are designed and manufactured by
other unrelated companies.
Colortek,
Inc. (“CT”)
CT is a
Class A Original Equipment painting facility and operates in a 46,000 square
foot owned building in Baroda, which is in South Western Michigan. We invested
approximately $2 million into this paint facility and expect the majority of our
future growth to come from this business. We have restructured the
management of this subsidiary and have successfully gained more business
opportunities than ever before. CT is aggressively beginning to
diversify to non-automotive paint applications (household goods and construction
equipment) which we believe will help stabilize the Company going
forward.
RECENT
DEVELOPMENTS
In
September, 2009, the Company entered into a new loan agreement with Summit
Financial to borrow up to $1,000,000. MWW pledged all of its inventory,
equipment, accounts receivable, chattel paper, instruments, and letters of
credit, documents, deposit accounts, investment property, money, rights to
payment and general intangibles to secure the Loan. The financing arrangement
expires on August 31, 2011, unless extended by both parties.
Effective
February, 2010, the Company’s German subsidiary, ModelWorxx GmbH filed
insolvency. The Company has not received final resolution of this
matter from the German courts. The net liabilities of the 100 % owned
subsidiary are included in the reported consolidated financial statements of the
Company. The income and expense accounts of ModelWorxx have been
reclassified and its operations has been treated as a loss from discontinued
operations in these consolidated financial statements.
As part
of the continued restructuring of the Company, the Board hired a new Chief
Executive Officer, Charles Pinkerton, to further and accelerate the turnaround
efforts. To date, the Company has reduced labor by 40 % and occupancy
cost by 50 %. Under the new leadership of Mr. Pinkerton, the Company
has increased new revenue opportunities ten-fold.
PRODUCTS
IN DEVELOPMENT
During
2010, MWW expanded its presence in color body side moldings and seat heaters,
both of which can be installed either by the vehicle processing centers or the
retail dealer. MWW expects that installation at the vehicle processing center
and dealership level will increase the market penetration rates.
In
January 2009 MWW was awarded the 4Runner running board program for Toyota
Canada. This program launched in September of 2009 and should
continue through 2014.
In
December of 2009 the new Yaris HB package was approved by Southeast Toyota which
included a spoiler, interior trim, lighted door sills and the new Bongiovi
Acoustics sound system embedded in a special built JVC stereo
system.
During
the spring and summer of 2009 a full line of newly designed carbon fiber seat
heater systems was developed and launched in July 2009. This expands the product
line to 7 configurations, expanding the spectrum of applications in different
vehicles.
In
addition to its internal development programs, MWW is in various stages of joint
program developments on a number of new programs with several other suppliers.
These development efforts were undertaken to expand our product offering and
customer base, while reducing our development costs. These products are either
currently being designed, prototyped or in various stages of tooling with
expected launch dates in the second or third quarter of fiscal year
2011.
Colortek,
Inc. is currently negotiating to provide painting services to the household
goods and construction industry, along with the expansion into the domestic
automakers offerings. Colortek satisfies a niche market where low
volume painting of Class A quality is necessary.
THE
MARKET
The
global automobile accessory market is highly fragmented and not dominated by a
few large participants. Competitive pressures among vehicle manufacturers have
evolved so that the manufacturers add options to their vehicles at the vehicle
processing centers and not during the initial manufacturing process at the
assembly line. In addition many manufacturers have switched to smaller vehicle
production runs which can be accommodated by MWW’s business model. These options
packages are commonly referred to as "port installed" or "dealer installed"
option packages. MWW accessory programs are a crucial part of the option
packages installed at the vehicle processing centers in North America.
Accordingly, MWW receives its revenue directly from the vehicle processing
centers and not from the automobile manufacturers or the automotive
dealer.
Page
2
The
vehicle processing centers, which MWW sells to, do not design or manufacture the
option packages. Instead, they have well-trained employees who install virtually
any accessory for all vehicles they distribute. As such, any vehicle received by
the vehicle processing centers can be accessorized before it goes into the
respective domestic retail dealer distribution network. MWW's accessory programs
that are sold to the vehicle processing centers include the individual
components, parts, installation instructions and training, fixtures, templates,
and warranty.
Vehicle
manufacturers and the vehicle processing centers rely on MWW to propose, design,
manufacture and deliver the accessory programs. The vehicle processing centers
operate under quality control programs similar or equal to the manufacturer's
on-line production facilities. Therefore, process stability, quality control
issues and other related procedures are a crucial component of a successful
relationship with the processing centers. The vehicle processing centers that
will market particular vehicles into the dealer network are responsible for
requesting, approving, and ultimately paying for the accessory
programs.
A large
part of the fulfillment program is enhanced by the fact that MWW owns CT, the
Class A paint facility. MWW, through its relationship with CT,
provides painted products to their customers at the Vehicle Processing Centers
as well as through other customers. CT has continued developing its
own customers independent of MWW and MWW’s customers, hence providing more
diversification.
MAJOR
CUSTOMERS
MWW's
major customers in North America are the Toyota Vehicle Processing Centers.
Other customers include the foreign and domestic automobile manufactures, as
well as a variety of tier 2 and tier 3 manufacturers to the auto
industry.
Colortek
paints for MWW as well as several tier one and two
companies. Continued growth is expected to be achieved from the
Colortek niche Class A paint facility.
For the
year ended September 2010, MWW was dependent upon four (4) customers for 99.5%
of its revenue. Customer #1, Customer #2, Customer #3, and Customer #4
represented 35.3%, 24%, 20.4% and 19.8% of revenue, respectively. Moreover,
97.2% of our accounts receivable at September 30, 2010 were due from these four
(4) customers. For the year ended September 30, 2009, MWW was dependent upon
four customers for 87.5% of its revenue. Customer #1, Customer #2, Customer #3,
and Customer #4 represented 28.4%, 28.4%, 17.4%, and 13.3% of revenue,
respectively. Moreover, 84.1% of our accounts receivable at September 30, 2009
were due from four customers.
PRODUCT
WARRANTIES
MWW
generally warranties its products to be free from material defects and to
conform to material specifications for a period of three (3) years. MWW has not
experienced significant returns to date. MWW suppliers provide warranties for
each product manufactured covering manufacturing defects for the same period
that MWW offers to its customers. Therefore, a majority of the claims made under
product warranties by MWW's customers are covered by our supplier partners and
sub-suppliers.
TECHNOLOGY
MWW has
an experienced design team whose members have launched successful programs with
a variety of customers. MWW applies the latest design tools and
technologies during this process and covers the entire range of the design
process from the initial sketch to computer aided design (“CAD”), full size clay
modeling to fully functional show cars to finally preparing automobiles for
production. This experience is expected to accelerate the development of
accessory programs for sale in the European and North American
markets.
PORTABLE
DIGITIZING SYSTEM
In order
to produce its products and at the same time expedite the design and
development, MWW uses the latest in digital recognition and design technology.
Digital recognition refers to the use of up to date digital imaging equipment to
capture data for manipulation, using CAD programs to assist the process. MWW
uses portable equipment to obtain surface and/or component data acceptable for
CAD, either in the field or at the processing center's location. This allows MWW
to create highly accurate full-scale parts that can be used for development,
presentations and sales and marketing, should the CAD data for a particular
vehicle not be available in advance.
SOURCING
All MWW
contract suppliers and production facilities are original equipment
manufacturers, approved and certified by the International Standards
Organization ("ISO") with the ISO 9000 certification. ISO 9000 certification
refers to the objectively measurable set of quality management standards and
guidelines that form the basis for establishing quality management systems
adopted by the ISO. The ISO is a non-governmental organization comprised of the
national standards institutes of 146 countries. The facilities have been
strategically selected to minimize transportation cost and logistics. Suppliers
are required to participate in quality assurance audits and submit the
appropriate documentation for the components it processes for MWW.
Page
3
SUPPLIERS
MWW has
established relationships with a group of global suppliers that deliver quality
materials for the production of add-on components to MWW. MWW
believes there are numerous sources for the raw materials used in its products
and a loss of any of these suppliers would not impact MWW’s performance
negatively. For the year ended September 30, 2010, MWW had 5
suppliers that aggregating 60.64% represented greater than 10% of our total
purchases. Supplier 1, Supplier 2, Supplier 3, Supplier 4, Supplier 5
represented 13.11%, 12.63%, 12.09%, 12.08% and 10.74% of purchases made from
suppliers respectively. For the year ended September 30, 2009, MWW
made 67.02% of its purchases from five suppliers; Supplier 1, Supplier 2,
Supplier 3, Supplier 4, Supplier 5 represented 17.07%, 16.50%, 11.61%, 10.93%,
and 10.91% respectively.
COMPETITION
The
general aftermarket automotive industry is highly competitive. In MWW's market
niche, defined as selling directly to the vehicle processing centers,
competition is somewhat limited and is occasionally represented by smaller
divisions of larger companies. MWW competes for a share of the overall global
automotive aftermarket and potential new customers. In general, competition is
based on proprietary product design capabilities and product quality, features,
price and satisfactory after sale support. MWW's competitors include companies
that offer a broad range of products and services, such as urethane molded
parts, running boards, ground effects, and design.
The
competitive landscape has changed during the last twelve months, the market is
more fragmented than ever before, a number of competitors have ceased to exist
and consolidation is ongoing. MWW has entered into several strategic alliances
with Tier 1 companies. During the next twelve months a clearer picture of main
competitors will emerge again.
MWW
believes that its competitive edge lies in its extensive resources in design,
engineering and sales. MWW focuses on the expansion of its internal capabilities
and improved utilization of resources between its headquarters and its wholly
owned subsidiaries and the careful cultivation of long-term relationships, in
contrast to simply selling products to multiple anonymous customers. By making
sure MWW customers will remain satisfied clients, MWW is not only stabilizing
and growing its client roster and assuring revenue growth, but also
simultaneously building and maintaining barriers of entry for
competitors.
MWW spent
many years cultivating the relationships that led to (i) the design work for
BMW, Rolls Royce and Mini automobiles and (ii) the sale of accessory programs to
the vehicle processing centers for Toyota, Hyundai and KIA vehicles. As part of
the process, MWW built a strong commercial relationship with the automotive
manufacturers that supply MWW with the advance data required to develop new
products in a timely fashion for new Toyota, Hyundai and KIA vehicle models.
With this information, MWW can prepare new programs for its customers and make
those products available at the launch of new automobile models and have them
correspond to the 3-5 year life cycles of each vehicle model. Moreover, as MWW
manages its supplier and customer relationships effectively, it is creating
significant barriers of entry for competitors. MWW expects to establish similar
relationships with additional foreign and domestic manufacturers in future
periods.
PROPRIETARY
RIGHTS
MWW
primarily relies upon a combination of trade secret laws, nondisclosure
agreements and purchase order forms to establish and protect proprietary rights
in the design of its products and in the products. However, it may be possible
for third parties to develop similar products independently, provided they have
not violated any contractual agreements or intellectual property
laws.
COST OF
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
The
Company currently has no costs associated with compliance with environmental
regulations. However, there can be no assurances that we will not incur such
costs with our paint facilities in the future.
EMPLOYEES
MWW has
an elastic work-force, with as few as 15 employees, and as many as 50 employees,
depending on the number of projects currently being worked on. Management
believes that the structure of its workforce allows MWW to scale its overhead
according to the scope of its design, tooling, assembly and manufacturing
requirements throughout the year. MWW plans to add employees in the
future.
ITEM
1A. RISK FACTORS
RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS AND THE MARKET PRICE OF OUR
SECURITIES.
If any of
the following material risks actually occur, our business, financial condition,
or results of operations could be materially adversely affected, the trading
prices and volume of our common stock could decline, and you could lose all or
part of your investment. You should buy shares of Marketing Worldwide
Corporation common stock only if you can afford to lose your entire
investment.
Page
4
Our
success is dependent on the creative, technical, financial, administrative,
logistical, design, engineering, manufacturing and other contributions of the
current employees and officers of the Company. Founders of Marketing
Worldwide Corporation, Michael Winzkowski and James Marvin have taken on
different roles. Winzkowski has relinquished the role of CEO and is
now active as Chairman of the Board and President of MWW. Mr. Marvin
has resigned and no longer has any management activities at
MWW. These individuals originally established the relationships with
our customers and suppliers and have turned this role over to the new CEO,
Charles Pinkerton and CFO, James Davis. The loss of either Pinkerton or Davis
could cause a disruption in our operations that could cause a decline in the
level of revenue and the operating margins reported by the company. In the short
term, it would be difficult to duplicate the relationships, industry experience,
and creativity of Mr. Pinkerton and Mr. Davis. The loss of one or both might
substantially reduce our revenues and growth potential.
OUR
RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED BY
GLOBAL ECONOMIC AND FINANCIAL MARKETS CONDITIONS.
Current
global economic and financial markets conditions, including severe disruptions
in the credit markets and the prolonged global economic recession has materially
and adversely affected our results of operations and financial condition. These
conditions have also materially impacted our customers, suppliers and other
parties with which we do business. Economic and financial market conditions that
adversely affect our customers cause them to terminate existing purchase orders
or to reduce the volume of products they purchase from us in the future. We have
seen a decline in certain volumes over the last year, but are now seeing an
increase due to what appears to be a strengthening economic environment. In
connection with the sale of products, we normally do not require collateral as
security for customer receivables and do not purchase credit insurance. We may
have significant balances owing from customers that operate in cyclical
industries and under leveraged conditions that may impair the collectability of
those receivables.
Failure
to collect a significant portion of amounts due on those receivables could have
a material adverse effect on our results of operations and financial condition.
Adverse economic and financial markets conditions may also cause our suppliers
to be unable to meet their commitments to us or may cause suppliers to make
changes in the credit terms they extend to us, such as shortening the required
payment period for outstanding accounts receivable or reducing the maximum
amount of trade credit available to us. Changes of this type could significantly
affect our liquidity and could have a material adverse effect on our results of
operations and financial condition. If we are unable to successfully anticipate
changing economic and financial market conditions, we may be unable to
effectively plan for and respond to those changes, and our business could be
negatively affected. We have been fortunate in that we have not had
any significant negative effect from not being able to collect on our
billings.
OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED SUBSTANTIAL DOUBT
ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY
TO OBTAIN FUTURE
FINANCING.
In their
report dated January 13, 2011, our independent registered public accounting firm
stated that our financial statements for the year ended September 30, 2010 were
prepared assuming that we would continue as a going concern, and that they have
substantial doubt about our ability to continue as a going concern. Our
auditors' doubts are based on our recurring net losses, deficits in cash flows
from operations and stockholders’ deficiency. We continue to experience net
operating losses. Our ability to continue as a going concern is subject to our
ability to generate a profit and/or obtain necessary funding from outside
sources, including by the sale of our securities, or obtaining loans from
financial institutions, where possible. Our continued net operating losses and
our auditors' doubts increase the difficulty of our meeting such goals and our
efforts to continue as a going concern may not prove successful.
OUR
BUSINESS DEPENDS ON OUR DESIGNS, BUT WE HAVE NOT SOUGHT COPYRIGHT OR PATENT
PROTECTION FOR ALL OUR PRODUCTS. IF OUR UNPROTECTED ACCESSORY PROGRAMS BECOME
WIDELY AVAILABLE BECAUSE WE FAILED TO USE CERTAIN LEGAL MEANS TO PROTECT OUR
DESIGNS, IT MAY HURT OUR BUSINESS.
Our
success is dependent, in part, upon the designs for our principal products such
as our rear deck spoilers, body-side moldings, carbon fiber seat heaters, and
expanding the paint shop business levels. We have not taken steps to obtain
copyright or patent protection for all of our designs. Instead, we mostly rely
on confidentiality agreements with our customers, employees, vendors and
consultants to protect our proprietary technology. If our unprotected accessory
programs become widely available because we did not adequately protect the
designs, intellectual property and trade secrets, it may cause a material
adverse change in our business, financial condition and results of
operations.
WE DO NOT
HAVE LONG-TERM WRITTEN AGREEMENTS WITH OUR KEY CUSTOMERS OR KEY SUPPLIERS;
THEREFORE, OUR REVENUE STREAM AND OUR SUPPLY CHAIN ARE SUBJECT TO GREATER
UNCERTAINTY.
The
vehicle processing centers for Toyota, are all key customers. These customers
issue short term contracts (12 months) or blanket purchase orders to us that
remain open during the life of an accessory program or the extended
term.
Page
5
The
customer then places delivery releases against these blanket purchase orders or
short term agreements generally in 30 day intervals. However, none of our key
customers have any binding obligations beyond payment of our most recent
purchase order and adherence to the terms and conditions of the blanket purchase
order or short term agreement. The lack of long-term written agreements that
specify a fixed dollar amount of the total purchase amount for our accessory
programs or services means that we cannot predict with any certainty that these
customers will generate a specific level of revenue in any specific accounting
period. Our blanket purchase orders or short term agreements with customers
provide for a fixed per unit cost, but do not contain any fixed purchase
commitments for a specific dollar amount. A delivery release under the blanket
purchase order does specify the dollar amount to be paid by our customer for
that release. We record revenue when products are shipped, legal title has
passed, and all our significant obligations have been satisfied.
We cannot
predict with certainty that we will be able to replace a significant customer or
significant supplier without a decline in our revenue and net income. Stated
differently, we have to constantly justify our value proposition to our
customers and our suppliers because even though the per unit price of our
accessory programs is covered in the blanket purchase order, our customers are
not obligated to buy the goods and services specified in the blanket purchase
order. On the positive side their relative freedom to stop dealing with us keeps
us in close contact with them. On the negative side, their freedom to stop
dealing with us means that our revenue and our ability to generate revenue is in
constant jeopardy, as well as difficult to predict with certainty.
WE USE
PAINT AND PLASTIC MATERIALS. OUR BUSINESS COULD BE AFFECTED BY
ENVIROMENTAL RISKS.
Colortek,
Inc. is a paint company using abrasives and paint solvents. Although
we have approval from the governmental agencies to paint, there is no guaranty
that laws won’t change to adversely affect us, nor is there absolute certainty
we will continue to operate without interference from governmental agencies or
environmental groups.
We have
not experienced any issues as yet, however the potential exists we may in the
future.
LOSS OF
FACILITIES COULD IMPAIR OUR ABILITY TO PROVIDE PRODUCTS TO OUR
CUSTOMERS.
As in
most businesses, if we lost both our facilities in Howell and Baroda Michigan,
we would be in a short term bind. The Howell facility would cause
less disruption, as we could easily move our offices and the fulfillment
activities elsewhere in quick fashion.
Loss of
the Baroda facility would require us to rebuild, which we could do with the
insurance coverage we maintain. In the short term, we would transfer
painting to one of our strategic partners until we got the facility back up and
running.
Although
the Baroda facility is more critical, we feel the likelihood of a total disaster
is remote. Our insurance and strategic relationships with other paint
facilities should provide continuity of the supply chain to our
customers.
ADVERSE
RULING FROM THE BANKRUPTCY JUDGE IN GERMANY COULD NEGATIVELY IMPACT OUR BUSINESS
AND CASH FLOW.
As
mentioned throughout this filing, our German subsidiary filed for insolvency in
February, 2010. We have not received any adverse notifications from
the bankruptcy court or judge and have no reason to believe we will, but the
possibility exists that we could receive an adverse ruling.
If we
were to receive an adverse ruling, we would challenge it through the legal
systems available to us.
LOSS OF
MAJOR SUPPLIERS COULD AFFECT OUR ABILITY TO GET PRODUCT.
We have a
concentration of risk with a few suppliers providing most of our product
requirements. If we were to lose anyone of them, this could
negatively impact our ability to get product on a timely basis. We
have an internal policy to have back-up suppliers to our major product
offerings, and are moving in the direction of having a back-up for each of our
suppliers.
WARRANTY
CLAIMS COULD ADVERSLY IMPACT OUR FINANCIAL POSITION IF OUR CUSTOMERS REQUIRE A
RECALL OF VEHICLES DUE TO PRODUCTS WE PROVIDE.
We review
warranty reserves on a regular basis and record expense as deemed appropriate
for the products sold to our customers. We also purchase product
liability insurance to cover large claims.
We
believe the risk, although it exists, is minimal as the primary products we sell
(plastic rear-deck spoilers, plastic body-side moldings and electric seat
heaters) are not likely to give birth to a large massive recall. In
any event, we do provide a reserve in our financial statements plus we feel we
would have a claim against the actual manufacturer of the product should a
massive recall initiative be instituted, which we believe would reduce our
financial risk.
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6
CONTINUED
INCREASES IN PETROLEUM COSTS COULD ADVERSELY IMPACT OUR COST
STRUCTURE.
Considering
we use paint, which is petroleum based, and ship products via trucks that use
gasoline for power, we are at risk of seeing higher costs as petroleum costs
increase. Although we have not seen this as yet, we recognize this as
a possible risk.
WE ARE
VULNERABLE BECAUSE OF OUR CUSTOMER CONCENTRATION, BUT THERE IS NO GUARANTY THAT
WE CAN ADD CUSTOMERS. FAILURE TO ADD NEW CUSTOMERS MAY LIMIT OUR REVENUE IN
FUTURE PERIODS.
Our
revenue depends on a few key customers, the loss of which would have a negative
impact on our revenues and results from operations.
Our
annual operating results are likely to fluctuate significantly in the future as
a result of our dependence on our four or five major customers.
Moreover,
the actual purchasing decisions of our customers are often outside our control.
Consequently, our customer's purchase decisions are influenced by factors beyond
our control, like general economic conditions and economic conditions specific
to the automobile industry.
Further,
since the majority of our revenue is from four or five key customers instead of
from a multitude of individual customers, a significant change in the amount or
timing of purchase decisions by a single customer creates a wider fluctuation in
our operating results for any given accounting period.
WE HAVE
PLEDGED ALL OF OUR ASSETS TO ONE CREDITOR. OUR BUSINESS COULD BE AFFECTED BY OUR
RELATIONSHIP WITH THIS CREDITOR.
In
September, 2009, we entered into a new loan agreement with Summit Financial to
borrow up to $1,000,000. MWW pledged all of its inventory, equipment, accounts
receivable, chattel paper, instruments, and letters of credit, documents,
deposit accounts, investment property, money, rights to payment and general
intangibles to secure the Loan. If we are unable to renew the Loan when it comes
due or find other sources of capital, the lender could foreclose on all of our
assets. This would have a material adverse effect on our financial condition and
results from operations.
MANAGEMENT
INTENDS TO INCREASE REVENUE THROUGH ACQUISITIONS FINANCED WITH EQUITY WHICH WILL
DECREASE THE EQUITY PERCENTAGE OF THE COMPANY OWNED BY EXISTING
STOCKHOLDERS.
Management
may consider increasing the Company's revenues through additional acquisitions
of other operations in the automotive accessory industry. We have no plans for a
reverse merger, change in control or spin off. The Company currently has no
plans to engage in a transaction with an entity outside the automotive industry.
Management is aware of several operating companies in the automotive accessory
market that are candidates for additional merger or acquisition. While we may
consider financing any business combination with common stock, we do not expect
any business combination to result in a change in control or constitute a
reverse merger.
WE LACK
INDEPENDENT DIRECTORS WHICH LIMITS THE NATURE AND TYPE OF GUIDANCE GIVEN BY THE
BOARD TO THE MANAGEMENT TEAM AND MAY AFFECT THE PRICE OF OUR STOCK.
Shareholders
should be aware of and familiar with the recent issues concerning corporate
governance and lack of independent directors as a specific topic. Our two
directors are not independent because they are employed by the Company. The OTC
Bulletin Board does not have any listing requirements concerning the
independence of a company's board of directors.
THREE
STOCKHOLDERS WITH 21% OF THE COMMON STOCK ARE THE CONTROLLING OFFICERS AND
DIRECTORS. THEREFORE, INVESTORS WILL HAVE LITTLE OR NO CONTROL OVER MANAGEMENT
OR MATTERS THAT REQUIRE STOCKHOLDER APPROVAL.
Our
Chairman of the Board owns 13% of the issued and outstanding shares of common
stock of the Company. Moreover, because of the voting power, several
key stockholders can effectively elect the board of directors and vote to amend
the Company's certificate of incorporation. Investors should be aware that the
voting power of these two stockholders can be exercised in a manner that
delivers economic benefit of all stockholders or may be exercised in a manner
that does not deliver the same economic benefit to all
stockholders.
Page
7
THERE IS
A GRADUALLY EMERGING PUBLIC MARKET FOR MWW'S SECURITIES AND YOU MAY HAVE
DIFFICULTIES TO LIQUIDATE YOUR INVESTMENT.
Trading
volume of MWW stock (MWWC.OB) has been increasing, with a closing ask price of
$0.02 on December 31, 2010. If a market for MWW's common stock continues to
develop slowly; the stock price may be volatile. No assurance can be given that
any market for MWW's common stock will be maintained. The sale of "unregistered"
and "restricted" shares of common stock pursuant to Rule 144 of the Securities
Act Rules by members of management or others may have a substantial adverse
impact on any such market.
WE HAVE
IDENTIFIED WEAKNESSES IN OUR INTERNAL CONTROLS.
Our
management has concluded that our internal control over financial reporting was
not effective as of September 30, 2010, as a result of several material
weaknesses in our internal control over financial reporting. Descriptions of the
material weaknesses are included in Item 9A (T), "Control and Procedures", in
this Form 10-K.
As a
result of these material weaknesses, we performed additional work to obtain
reasonable assurance regarding the reliability of our financial statements, have
hired a CPA as our new CFO to manage the financial department and financial
statement process. However, the remaining material weaknesses could
result in a misstatement of substantially all accounts and disclosures, which
would result in a misstatement of annual or interim financial statements that
would not be prevented or detected. Errors in our financial statements could
require a restatement or prevent us from timely filing our periodic reports with
the Securities and Exchange Commission ("SEC"). Additionally, ineffective
internal control over financial reporting could cause investors to lose
confidence in our reported financial information.
Our
inability to remediate all weaknesses or any additional material weaknesses that
may be identified in the future could, among other things, cause us to fail to
timely file our periodic reports with the SEC and require us to incur additional
costs and divert management resources. Additionally, the effectiveness of our or
any system of disclosure controls and procedures is subject to inherent
limitations, and therefore we cannot be certain that our internal control over
financial reporting or our disclosure controls and procedures will prevent or
detect future errors or fraud in connection with our financial
statements.
ITEM
1B. UNRESOLVED STAFF COMMENTS
We have
received no written comments regarding our periodic or current reports from the
staff of the Securities and Exchange Commission that were issued 180 days or
more preceding the end of our 2010 fiscal year and that remained
unresolved.
ITEM 2.
PROPERTIES
MWW's
principal executive office is located at 2212 Grand Commerce Dr., Howell, MI
48855. The facility has three truck wells, two ground doors, a technical
development enclosure, 20 foot ceilings, additional office space and more
parking. The land for the executive office consists of 2.3 acres. The building
is approximately 24,000 square feet.
The
facility was built to suit MWW's requirements and specifications. JCMD, the
Limited Liability Company owned by the previous two founders of MWW, built the
facility and leased the property to MWW under the terms of a three year lease
agreement. JCMD borrowed funds to build the facility, and due to the
downturn in the overall economic environment and MWW’s inability to remain
current on the rent payments to JCMD, JCMD was not able to continue making its
mortgage payments and defaulted on the loan. JCMD negotiated the sale
of the real estate to a third party, whom has entered into a lease agreement
with MWW. The Company entered into a three (3) year lease with
the buyer of the property described above. The general terms of the
lease calls for monthly payments beginning December 1, 2010 of $6,666.67
($80,000 annually) for the first year; $7,083.34 ($85,000 annually) per month
for the second year; $7,416.67 ($89,000 annually) per month for the third, or
final, year of the lease. The total rent due over the three year
period is $254,000. The Company is responsible for all property taxes,
maintenance and utilities associated with the property.
Page
8
Our
subsidiary, Colortek, Inc. has a 42,000 square foot facility on 20 acres located
in Baroda, Michigan. The facility is owned by MWW and is financed by Edgewater
Bank. The mortgage is scheduled for a balloon payment in July of 2013. The
Mortgage note balance at September 30, 2010 was $620,595 with a 180 month term
and a fixed interest rate of 6.75%. The current monthly payment is $5,962. In
accordance with the mortgage loan agreement, we are currently in
default.
We
believe that our current office space and facilities are sufficient to meet our
present and near term expansion needs and do not anticipate any difficulty
securing alternative or additional space, as needed, on terms acceptable to
us.
ITEM 3.
LEGAL PROCEEDINGS.
The
Company is sometimes subject to certain legal proceedings and claims, which
arise in the ordinary course of its business. Although occasional adverse
decisions or settlements may occur, the Company believes that the final
disposition of such matters should not have a material adverse effect on its
financial position, results of operations or liquidity.
On
October 19, 2010, the Company was served a Complaint from one of its suppliers
that a loan in the amount of $217,000 was due and payable. The
Company has this recorded in their accounts as of September 30, 2010 and expects
to continue negotiations to settle this outside the legal system.
ITEM 4.
REMOVED AND RESERVED
PART
II
ITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
At
January 13, 2011, there were 35,201,699 shares of common stock issued and
outstanding. There are 1,690,000 shares of common stock that are subject to
outstanding options and warrants to purchase common stock. On December 31, 2010
the closing ask price of our common stock was $0.02 per share.
The
common stock of MWW commenced trading on the OTCBB on September 14, 2006. The
following table sets forth, for the calendar quarters indicated, the reported
high and low bid quotations per share of the Common Stock as reported on the
OTCBB. Such quotations reflect inter-dealer quotations without retail
mark-up, markdowns or commissions, and may not necessarily represent actual
transactions.
|
High
|
Low
|
|||||||
|
FISCAL
YEAR ENDED SEPTEMBER 30, 2010
|
||||||||
|
Fourth
Quarter
|
$ | 0.13 | $ | 0.02 | ||||
|
Third
Quarter
|
0.12 | 0.02 | ||||||
|
Second
Quarter
|
0.28 | 0.06 | ||||||
|
First
Quarter
|
0.30 | 0.08 | ||||||
|
FISCAL
YEAR ENDED September 30, 2009
|
||||||||
|
Fourth
Quarter
|
0.55 | 0.06 | ||||||
|
Third
Quarter
|
0.30 | 0.05 | ||||||
|
Second
Quarter
|
0.30 | 0.05 | ||||||
|
First
Quarter
|
0.45 | 0.05 | ||||||
At
January 4, 2011 MWW had 51 common stockholders of record and the share price was
$0.02. MWW has not declared any cash dividends on its common equity for the last
two years. It is unlikely that MWW will pay dividends on its common equity in
the future and is likely to retain earnings and issue additional common equity
in the future.
Page
9
ITEM
6. SELECTED FINANCIAL DATA
The
Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange
Act and is not required to provide the information required under this
item.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
The
following discussion and analysis should be read in conjunction with our
financial statements. This discussion should not be construed to imply that the
results discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future.
GENERAL
OVERVIEW
MWW
operates in a niche market of the supply chain for new passenger motor vehicles
primarily in the United States and Canada. MWW participates in the design of new
automobiles and the building of show cars and is a designer and manufacturer of
accessories for the customization of cars, sport utility vehicles and light
trucks.
MWW's
revenues are derived through the sales of its products and services to large
automotive companies. As a consequence, MWW is dependent upon the acceptance of
its products in the first instance by the automotive industry. As a result of
this dependence MWW's business is vulnerable to actions which impact the
automotive industry in general, including but not limited to, current fuel
costs, and new environmental regulations. Growth opportunities for the Company
include expanding its geographical coverage and increasing its penetration of
existing markets through internal growth and expanding into new product markets,
adding additional customers and acquiring companies in its core industry that
supplement and compliment the currently existing capabilities.
Challenges
currently facing the Company include managing its growth and controlling costs.
Escalating costs of audits, Sarbanes-Oxley compliance, health care and
commercial insurance are also challenges for the Company at this
time.
The
following specific factors could affect our revenues and earnings in a
particular quarter or over several quarterly or annual periods:
·
Ability
to continue increasing sales opportunities
·
Ability
to convert sales opportunities to actual revenue
·
Ability
to continue controlling our selling, general and administrative
costs
·
Ability
to obtain funding adequate to satisfy past obligations and grow future
opportunities
The
requirements for our products are complex, and before buying them, customers
spend a great deal of time reviewing and testing them. Our customers' evaluation
and purchase cycles do not necessarily match our report periods, and if by the
end of any quarter or year we have not sold enough new products, our orders and
revenues could fall below our plan for a period of time. Like many companies in
the automotive accessory industry, a large proportion of our business is
attributable to our largest customers. As a result, if any order, and especially
a large order, is delayed beyond the end of a fiscal period, our orders and
revenue for that period could be below our plan.
The
accounting rules we are required to follow permit us to recognize revenue only
when certain criteria are met.
CRITICAL
ACCOUNTING POLICIES
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect our reported assets, liabilities, revenues, and expenses
and the disclosure of contingent assets and liabilities. We base our estimates
and judgments on historical experience and on various others assumptions we
believe to be reasonable under the circumstances. Future events, however, may
differ markedly from our current expectations and assumptions. While
there are a number of significant accounting policies affecting our consolidated
financial statements; we believe the following critical accounting policies
involve the most complex, difficult and subjective estimates and
judgments:
o Accounting
for variable interest entities
o Revenue
recognition
o Inventories
o Allowance
for doubtful accounts
o Stock
based compensation
o
Derivative
liabilities
Page
10
ACCOUNTING
FOR VARIABLE INTEREST ENTITIES
Accounting
Standards Codification subtopic 810-10, Consolidation (“ASC 810-10”) discusses
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity risk for the
entity to finance its activities without additional subordinated financial
support. ASC 810-10 requires the consolidation of these entities, known as
variable interest entities, by the primary beneficiary of the
entity. The primary beneficiary is the entity, if any, that will
absorb a majority of the entities expected losses, receive a majority of the
entity’s expected residual returns or both.
Pursuant
to the effective date of a related party lease obligation, the Company adopted
ASC 810-10. This resulted in the consolidation of one variable
interest entity (VIE) of which the Company is considered the primary
beneficiary. The Company’s variable interest in this VIE is the
result of providing certain secured debt mortgage guarantees on behalf of a
limited liability company that leases warehouse and general offices located in
the city of Howell, Michigan.
REVENUE
RECOGNITION
For
revenue from products and services, the Company recognizes revenue in accordance
with Accounting Standards Codification subtopic 605-10, Revenue Recognition
(“ASC 605-10”). ASC 605-10 requires that four basic criteria must be
met before revenue can be recognized; (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services have been rendered; (3) the
selling price is fixed and determinable; and (4) collectability is reasonably
assured. Determination of criteria (3) and (4) are based on
management’s judgments regarding the fixed nature of the selling prices of the
products delivered/services rendered and the collectability of those
amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded.
The
Company defers any revenue for which the product has not been delivered or
services has not been rendered or is subject to refund until such time that the
Company and the customer jointly determine that the product has been delivered
or services has been rendered or no refund will be required.
ASC
605-10 incorporates Accounting Standards Codification subtopic 605-25,
Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses
accounting for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect
of implementing 605-25 on the Company’s financial position and results of
operations was not significant.
Revenues
on the sale of products, net of estimated costs of returns and allowance, are
recognized at the time products are shipped to customers, legal title has
passed, and all significant contractual obligations of the Company have been
satisfied. Products are generally sold on open accounts under credit terms
customary to the geographic region of distribution. The Company performs ongoing
credit evaluations of the customers and generally does not require collateral to
secure the accounts receivable.
The
Company generally warrants its products to be free from material defects and to
conform to material specifications for a period of three (3) years. The cost of
replacing defective products and product returns have been immaterial and within
management's expectations. In the future, when the company deems warranty
reserves are appropriate that such costs will be accrued to reflect anticipated
warranty costs.
INVENTORIES
We value
our inventories, which consist primarily of automotive body components, at the
lower of cost or market. Cost is determined on the weighted average cost method
and includes the cost of merchandise and freight. A periodic review of inventory
quantities on hand is performed in order to determine if inventory is properly
valued at the lower of cost or market. Factors related to current inventories
such as future consumer demand and trends in MWW's core business, current aging,
and current and anticipated wholesale discounts, and class or type of inventory
is analyzed to determine estimated net realizable values. A provision is
recorded to reduce the cost of inventories to the estimated net realizable
values, if required. Any significant unanticipated changes in the factors noted
above could have a significant impact on the value of our inventories and our
reported operating results.
ALLOWANCE
FOR UNCOLLECTIBLE ACCOUNTS
We are
required to estimate the collectability of our trade receivables. A considerable
amount of judgment is required in assessing the realization of these receivables
including the current creditworthiness of each customer and related aging of the
past due balances. In order to assess the collectability of these receivables,
we perform ongoing credit evaluations of our customers' financial condition.
Through these evaluations we may become aware of a situation where a customer
may not be able to meet its financial obligations due to deterioration of its
financial viability, credit ratings or bankruptcy. The reserve requirements are
based on the best facts available to us and are reevaluated and adjusted as
additional information is received.
Our
reserves are also based on amounts determined by using percentages applied to
certain aged receivable categories. These percentages are determined by a
variety of factors including, but are not limited to, current economic trends,
historical payment and bad debt write-off experience. We are not able to predict
changes in the financial condition of our customers and if circumstances
related to our customers deteriorate, our estimates of the recoverability of our
receivables could be materially affected and we may be required to record
additional allowances. Alternatively, if we provided more allowances than are
ultimately required, we may reverse a portion of such provisions in future
periods based on our actual collection experience. There was $20,000 and
$131,000 allowance for doubtful accounts at September 30, 2010 and 2009,
respectively.
Page
11
STOCK
BASED COMPENSATION
At times
we issue stock in exchange for payment of certain liabilities or payment of
services, including employees in the form of compensation or professional
service providers in the form of consulting or other fees. We value
the stock issued at the price in which it is trading on the open
market.
DERIVATIVE
LIABILITIES
The
Company has issued 3,500,000 Series A Preferred Stock. The Preferred
Stock includes a reset provision to the exercise price whereby the Company
periodically has to determine the value and include such adjustments in the
financial statements. This reset provision is essentially an anti-dilution
feature protecting the Series A Preferred Stockholders. The Company
utilized The Black-Scholes formula for determining the value, which approximates
the fair value using the Binomial Lattice Model.
COMPARISON
OF THE YEAR ENDED SEPTEMBER 30, 2010 TO THE YEAR ENDED SEPTEMBER 30,
2009
Revenues
Net
revenues were approximately $4.0 million for the year ended September 30, 2010.
Our revenues increased approximately $300,000 from the year ended September 30,
2009. This 8% increase is attributable to the fact we are focusing on our
core business, which includes painting, seat heaters, spoilers and body-side
moldings. The Company is quoting on numerous paint projects and
working on new Toyota programs for the 2011 and 2012 programs that are expected
to provide continued revenue growth.
GROSS
PROFIT
Management
improved MWW's gross profit margin as a percentage of revenues by .68% compared
to the prior year. For the fiscal year ended September 30, 2010, MWW's gross
profit was $1,142,616 (28.39%) compared to $ 1,030,180 (27.71%) for the fiscal
year ended September 30, 2009. MWW sold a greater percentage of its
higher margin products in 2010 than in 2009. Further, our successful efforts to
reduce manufacturing costs contributed to higher margins. MWW's gross profit
margin is influenced by a number of factors and gross margin may fluctuate based
on changes in the cost of supplies and product mix.
The
primary components of cost of sales are direct labor and cost of parts and
materials. The Company has reduced head count which has driven the
improvement in gross profit. The cost of parts and materials have been
consistent from year to year.
OPERATING
EXPENSES
Selling,
general, and administrative expenses were $3,129,648 (77.77 % of revenues) in
2010 compared to $3,007,767 (80.92 % of revenues) during 2009. The decrease in
costs as a percent of revenues is attributable to management’s stringent efforts
to reduce overhead costs.
Significant
components of operating expenses consist of professional fees, salaries, and
impairment losses. The Company is reducing head count which is
driving the decrease in the cost as a percentage of revenue in
2010.
OTHER
INCOME (EXPENSES)
Financing
expenses were $367,760 in 2010 compared to $271,938 during 2009. The increase is
due to forbearance charges by our bank while in default of our real estate
mortgage plus the change on the working capital portion of our debt from a
traditional bank to a factoring company. The factoring company
charges a much higher rate on the borrowings.
LIQUIDITY
AND CAPITAL RESOURCES
As of
September 30, 2010 we had working capital deficit of $4,373,032. We reported
positive cash flow from operating activities of $351,089, positive cash flow
from investing activities of $140,602 and negative cash flow from financing of
($560,439).
The
negative cash flow from operating activities consists of $2,341,725 net loss,
net with $381,509 depreciation and amortization expenses, $132,293 in
amortization of deferred financing costs, $582,049 stock based compensation and
$421,175 decrease in accounts receivable, $398,675 decrease in inventory,
$15,236 decrease in other assets, $675,996 increase in accounts payable, net
with $189,347 decrease in other current liabilities
Positive
cash flow from investing activities of $140,602 occurred primarily from the
disposal of various assets.
Page
12
On
January 27, 2009, the Key Bank notified the Company it was in default of its
obligations under the line of credit agreement and commercial mortgage loan
secured by second deed of trust on real property to JCMD Properties, LLC. The
notification is declaring the debt obligations in default and is therefore
entitling the lender to exercise certain rights and remedies, including but not
limited to, increasing the interest rate to the default rate and demanding
immediate repayment in full of the principal, interest and interest swap
outstanding liability. Further, the lender notified the Company that
the line of credit maturing on February 1, 2009 will not be renewed and no
further advances are available on the line of credit. As discussed in
Note B, the Company has entered into a Forbearance Agreement through August 31,
2009. As of September 30, 2009, the Key Bank line of credit was repaid through
the Company securing the below financing with Summit Financial Resources,
L.P.
In
September, 2009, Marketing Worldwide, LLC entered into a financing agreement
with Summit Financial Resources L.P. (Summit) for a maximum borrowing of up to
$1 million maturing August 31, 2010. The arrangement is based on recourse
factoring of the Company’s accounts receivables. Substantially all assets of
Marketing Worldwide, LLC have been pledged as collateral for the Summit
facility. Marketing Worldwide Corp., has guaranteed the financing arrangement.
The financing arrangement has been extended through August 31,
2011.
Under the
arrangement, Summit typically advances to the Company 75% of the total amount of
accounts receivable factored. Summit retains 25% of the outstanding factored
accounts receivable as a reserve, which it holds until the customer pays the
factored invoice to Summit. The cost of funds for the accounts receivable
portion of the borrowings with Summit includes: (a) a collateral management fee
of 0.65% of the face amount of factored accounts receivable for each period of
fifteen days, or portion thereof, that the factored accounts receivable remains
outstanding until payment in full is applied and (b) interest charged at the
Wall Street Journal prime rate plus 1% divided by 360. The Summit
default rate is the Wall Street Journal prime rate plus 10%. The Company may be
obligated to purchase the receivable back from Summit at the end of 90
days.
MWW
expects its regular capital expenditures to be approximately $160,000 for fiscal
2011. These anticipated expenditures are for continued investments in tooling
and equipment used in our business.
The
independent registered public accounting firm’s report on our September 30, 2010
financial statements included in this Form 10-K states that our difficulty in
generating sufficient cash flow to meet our obligations and sustain operations
raise substantial doubts about the our ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
The
Company has reduced cash required for operations by reducing operating costs and
reducing staff levels. In addition, the Company is working to manage its current
liabilities while it continues to make changes in operations to improve its cash
flow and liquidity position.
The
Company's existence is dependent upon management's ability to continue
developing profitable business opportunities and their ability to obtain
adequate financing to fund anticipated growth.
The
Company's existence is dependent upon management's ability to raise additional
financing and develop profitable operations. Additional financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. However, the trading price of
our common stock and the downturn in the U.S. stock and debt markets could make
it more difficult to obtain financing through the issuance of equity or debt
securities. Further, if we issue additional equity or debt securities,
stockholders may experience additional dilution or the new equity securities may
have rights, preferences or privileges senior to those of existing holders of
our common stock. If additional financing is not available or is not available
on acceptable terms, we will have to curtail our operations
RECENT
ACCOUNTING PRONOUNCEMENTS
For
information regarding recent accounting pronouncements and their effect on the
Company, see “Recent Accounting Pronouncements” in Note A of the Notes to
Consolidated Financial Statements contained herein.
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company does not maintain off-balance sheet arrangements nor does it participate
in non-exchange traded contracts requiring fair value accounting
treatment.
INFLATION
The
effect of inflation on the Company's revenue and operating results was not
significant.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
Company is a smaller reporting company as defined by Rule 12b-2 under the
Exchange Act and is not required to provide the information required under this
item.
Page
13
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
See pages
F-1 through F-24 following:
MARKETING
WORLDWIDE CORPORATION
SEPTEMBER
30, 2010
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
CONTENTS
|
PAGE
NO.
|
||
|
Reports
of Independent Registered Public Accounting Firms
|
F-1 – F-2 | ||
|
Consolidated
Balance Sheets at September 30, 2010 and 2009
|
F-3 | ||
|
Consolidated
Statements of Operations and Comprehensive Loss for the Years
Ended September 30, 2010 and 2009
|
F-4 | ||
|
Consolidated
Statement of Stockholders’ Deficiency for the Two Years Ended
September 30, 2010 and 2009
|
F-5 – F-6 | ||
|
Consolidated
Statements of Cash Flows for the Years Ended September 2010 and
2009
|
F-7 | ||
|
Notes
to the Consolidated Financial Statements
|
F-8
–
F-25
|
Page
14
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
of
Marketing Worldwide Corporation
We have audited the
accompanying
consolidated balance sheet
of Marketing Worldwide Corporation (the “Company”) as of September 30, 2010, and the related consolidated statements of operations
comprehensive loss, stockholders’ deficiency and cash flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial
position of Marketing Worldwide Corporation, as of September 30, 2010, and the results of its operations
and comprehensive loss
and its cash flows for the
year then ended in conformity with accounting principles generally
accepted in the
United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company’s working capital deficiency and substantial
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management’s plans concerning these matters are
also discussed in Note C to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/
Marcum LLP
New York,
NY
January
19, 2011
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Marketing
Worldwide Corporation
Howell,
Michigan
We have
audited the accompanying consolidated balance sheet of Marketing Worldwide
Corporation as of September 30, 2009, and the related consolidated statements of
operations, deficiency in stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based upon our audit.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated balance sheet referred to above presents fairly,
in all material respects, the financial position of Marketing Worldwide
Corporation as of September 30, 2009 and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. As discussed in Note C, the Company
has a
generated negative cash outflows from operating activities, experienced
recurring
net operating losses, is in default of loan certain covenants, and is dependent
on securing additional equity and debt financing to support its business
efforts. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to this matter are
described in Note C. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
|
New
York, New York
|
/s/
R B S M LLP
|
||
|
January
13, 2010, except for the effects of the retrospective reclassification of
the discontinued operations discussed in the Note N, as to which date is
January 18,
2011.
|
|||
F-2
|
MARKETING
WORLDWIDE CORPORATION
|
||
|
CONSOLIDATED
BALANCE SHEETS
|
|
September
30,
|
||||||||
|
2010
|
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 3,847 | $ | 113,539 | ||||
|
Accounts
receivable, net
|
315,919 | 737,094 | ||||||
|
Inventories,
net
|
144,400 | 543,075 | ||||||
| Current assets of discontinued operations | - | 184,833 | ||||||
|
Other
current assets
|
9,328 | 24,564 | ||||||
|
Total
current assets
|
473,494 | 1,603,105 | ||||||
|
Property,
plant and equipment, net
|
2,112,457 | 2,903,520 | ||||||
|
Other
assets:
|
||||||||
|
Intangible
assets, net
|
- | 80,000 | ||||||
|
Capitalized
finance costs, net of accumulated amortization of $456,008 and
$323,715
|
205,457 | 337,750 | ||||||
|
Other
assets, net
|
19,400 | 19,400 | ||||||
|
Other
assets of discontinued operations
|
- | 178,352 | ||||||
|
Total
other assets
|
224,857 | 615,502 | ||||||
|
Total
assets
|
$ | 2,810,808 | $ | 5,122,127 | ||||
|
LIABILITIES
AND DEFICIENCY IN STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Finance
company lines of credit
|
$ | 209,986 | $ | 721,224 | ||||
|
Notes
payable , current portion
|
1,863,961 | 1,919,692 | ||||||
|
Accounts
payable
|
1,302,177 | 663,586 | ||||||
|
Warranty
liability
|
95,000 | 66,216 | ||||||
|
Other
current liabilities
|
883,396 | 407,834 | ||||||
|
Current
liabilities of discontinued operations
|
492,006 | 464,229 | ||||||
|
Total
current liabilities
|
4,846,526 | 4,242,781 | ||||||
|
Long
term debt:
|
||||||||
|
Derivative
liability
|
1,186,670 | - | ||||||
|
Other
|
-
|
21,247 | ||||||
|
Total
liabilities
|
6,033,196 | 4,264,028 | ||||||
|
Series
A convertible preferred stock, $0.001 par value; 3,500,000 shares issued
and outstanding
|
3,499,950 | 3,499,950 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
Deficiency
|
||||||||
|
Series
B convertible preferred stock, $0.001 par value, 10,000,000 shares
authorized; 1,192,308 shares issued and outstanding as of September 30,
2010 and 2009
|
1,192 | 1,192 | ||||||
|
Common
stock, $0.001 par value, 100,000,000 shares authorized; 29,510,091 and
17,835,091 shares issued and outstanding as of September 30, 2010 and
2009, respectively
|
29,510 | 17,835 | ||||||
|
Additional
paid in capital
|
8,244,895 | 9,639,388 | ||||||
|
Deficit
|
(14,358,814 | ) | (12,154,087 | ) | ||||
|
Accumulated
other comprehensive (loss)
|
(148,873 | ) | (107,929 | ) | ||||
|
Total
Marketing Worldwide Corporation Stockholders’ Deficiency
|
(6,232,090 | ) | (2,603,601 | ) | ||||
|
Non-controlling
interest
|
(490,248 | ) | (38,250 | ) | ||||
|
Total
Stockholders’ Deficiency
|
(6,722,338 | ) | (2,641,851 | ) | ||||
|
Total
Liabilities and Stockholders’ Deficiency
|
$ | 2,810,808 | $ | 5,122,127 | ||||
See the
accompanying notes to the consolidated financial statements
F-3
|
MARKETING
WORLDWIDE CORPORATION
|
||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
||
|
YEARS
ENDED SEPTEMBER 30, 2010 AND 2009
|
|
2010
|
2009
|
|||||||
|
|
||||||||
|
Revenues
|
$ | 4,024,351 | $ | 3,717,089 | ||||
|
Cost
of goods sold
|
2,881,735 | 2,686,909 | ||||||
|
Gross
profit
|
1,142,616 | 1,030,180 | ||||||
|
Operating
expenses:
|
||||||||
|
Selling,
general and administrative expenses
|
3,129,648 | 3,007,767 | ||||||
|
Impairment
loss on property, plant and equipment
|
409,823 | - | ||||||
|
Impairment
loss on customer list (intangible asset)
|
50,000 | |||||||
|
Loss
of disposal of equipment
|
727 | 33,260 | ||||||
|
Total
operating expenses
|
3,590,198 | 3,041,027 | ||||||
|
Loss
from operations
|
(2,447,582 | ) | (2,010,847 | ) | ||||
|
Gain
on change in fair value of derivative liability
|
784,445 | - | ||||||
|
Financing
expenses
|
(367,760 | ) | (271,938 | ) | ||||
|
Other
income (expense), net
|
94,190 | 46,172 | ||||||
|
Loss
from continuing operations
|
(1,936,707 | ) | (2,236,613 | ) | ||||
|
Loss
from discontinued operations
|
(405,018 | ) | (703,307 | ) | ||||
|
Net
Loss
|
(2,341,725 | ) | (2,939,920 | ) | ||||
|
(Loss)
Income attributable to Non-controlling interest
|
(451,998 | ) | (62,548 | ) | ||||
|
Loss
attributable to Company
|
(1,889,727 | ) | (2,877,372 | ) | ||||
|
Preferred
stock dividend
|
(315,000 | ) | (315,000 | ) | ||||
|
NET
LOSS AVAILABLE TO COMMON STOCKHOLDERS
|
$ | (2,204,727 | ) | $ | (3,192,372 | ) | ||
|
Loss
per common share, basic and diluted
|
||||||||
|
Continuing
operations
|
$ | (0.09 | ) | $ | (0.15 | ) | ||
|
Discontinued
operations
|
(0.02 | ) | (0.04 | ) | ||||
|
Totals
|
$ | (0.11 | ) | $ | (0.19 | ) | ||
|
Weighted
average common stock outstanding
|
||||||||
|
Basic
and diluted
|
21,002,981 | 17,138,146 | ||||||
|
Comprehensive
loss:
|
||||||||
|
Net
Loss
|
$ | (2,341,725 | ) | $ | (2,939,920 | ) | ||
|
Foreign
currency translation loss
|
(40,944 | ) | (23,157 | ) | ||||
|
Comprehensive
loss
|
$ | (2,382,669 | ) | $ | (2,963,077 | ) | ||
|
Comprehensive
loss attributable to non
|
||||||||
|
Controlling
interest
|
(451,998 | ) | (62,548 | ) | ||||
|
Comprehensive
loss attributable to Company
|
$ | (1,930,671 | ) | $ | (2,900,529 | ) | ||
See the
accompanying notes to the consolidated financial statements
F-4
|
MARKETING
WORLDWIDE CORPORATION
|
||||||||||
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' DEFICIENCY
|
||||||||||
|
TWO
YEARS ENDED SEPTEMBER 30, 2010
|
|
Additional
|
Non
|
Other
|
||||||||||||||||||||||||||||||||||
|
Preferred
stock
|
Common
stock
|
Paid
in
|
Controlling
|
Comprehensive
|
Accum
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Interest
|
Loss
|
Deficit
|
Total
|
||||||||||||||||||||||||||||
|
Balance,
October 1, 2008
|
1,192,308 | $ | 1,192 | 16,545,091 | $ | 16,545 | $ | 8,993,683 | 134,298 | $ | (84,772 | ) | $ | (8,961,715 | ) | $ | 99,231 | |||||||||||||||||||
|
Common
stock issued in settlement of debt
|
- | - | 300,000 | 300 | 79,700 | - | - | - | 80,000 | |||||||||||||||||||||||||||
|
Common
stock issued for services rendered at $0.30 per share
|
- | - | 205,000 | 205 | 61,295 | - | - | - | 61,500 | |||||||||||||||||||||||||||
|
Common
stock issued in settlement of cumulative preferred stock
dividend
|
- | - | 785,000 | 785 | 392,965 | - | - | - | 393,750 | |||||||||||||||||||||||||||
|
Fair
value of vested options
|
- | - | - | 111,745 | - | - | - | 111,745 | ||||||||||||||||||||||||||||
|
Foreign
currency translation
|
- | - | - | - | - | - | (23,157 | ) | - | (23,157 | ) | |||||||||||||||||||||||||
|
Distribution
of non controlling entity
|
- | - | - | - | - | (110,000 | ) | - | (110,000 | ) | ||||||||||||||||||||||||||
|
Effective
of adoption of Accounting Standards Codification subtopic
810-10
|
- | - | - | - | - | - | - | 38,250 | 38,250 | |||||||||||||||||||||||||||
| Preferred Stock Dividend | (315,000 | ) | (315,000 | ) | ||||||||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (62,548 | ) | - | (2,877,372 | ) | (2,939,920 | ) | ||||||||||||||||||||||||
|
Balance,
September 30, 2009
|
1,192,308 | $ | 1,192 | $ | 17,835,091 | $ | 17,835 | $ | 9,639,388 | $ | (38,250 | ) | $ | (107,929 | ) | $ | (12,154,087 | ) | $ | (2,641,851 | ) | |||||||||||||||
See the
accompanying notes to the consolidated financial statements
F-5
|
MARKETING
WORLDWIDE CORPORATION
|
|||||||||
|
CONSOLIDATED
STATEMENT OF DEFICIENY IN STOCKHOLDERS'
EQUITY
|
|||||||||
|
TWO
YEARS ENDED SEPTEMBER 30, 2010
|
|
Additional
|
Non-
|
|||||||||||||||||||||||||||||||||||
|
Preferred
stock
|
Common
stock
|
Paid
in
|
Controlling
|
Other
|
Accumulated
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Interest
|
Comprehensive
|
Deficit
|
Total
|
||||||||||||||||||||||||||||
|
Balance
forward
|
1,192,308 | $ | 1,192 | 17,835,091 | $ | 17,835 | $ | 9,639,388 | $ | (38,250 | ) | $ | (107,929 | ) | $ | (12,154,087 | ) | $ | (2,641,851 | ) | ||||||||||||||||
|
Effective
of adoption of Accounting Standards Codification subtopic 815-40,
reclassification on equity – linked financial instruments to derivative
liabilities
|
- | - | - | - | (1,971,115 | ) | - | - | - | (1,971,115 | ) | |||||||||||||||||||||||||
|
Common
stock issued in settlement of debt
|
- | - | 500,000 | 500 | 29,500 | - | - | - | 30,000 | |||||||||||||||||||||||||||
|
Common
stock issued for services rendered at $0.15 per share
|
- | - | 80,000 | 80 | 11,920 | - | - | - | 12,000 | |||||||||||||||||||||||||||
|
Common
stock issued for service rendered at $0.20 per share
|
- | - | 1,520,000 | 1,520 | 302,480 | - | - | - | 304,000 | |||||||||||||||||||||||||||
|
Common
stock issued for service rendered at $0.11 per share
|
- | - | 1,075,000 | 1,075 | 117,175 | - | - | - | 118,250 | |||||||||||||||||||||||||||
|
Fair
Value of vested options
|
7,797 | 7,797 | ||||||||||||||||||||||||||||||||||
|
Beneficial
conversion feature relating to issuance of convertible
debt
|
6,250 | 6,250 | ||||||||||||||||||||||||||||||||||
|
Foreign
currency translation
|
- | - | - | - | - | - | (40,944 | ) | - | (40,944 | ) | |||||||||||||||||||||||||
|
Common
stock issued for service rendered at $0.02 per share
|
- | - | 3,500,000 | 3,500 | 66,500 | - | - | - | 70,000 | |||||||||||||||||||||||||||
|
Common
stock issued in settlement of debt at $0.02 per share
|
- | - | 2,000,000 | 2,000 | 38,000 | - | - | - | 40,000 | |||||||||||||||||||||||||||
|
Common
stock issued in settlement of debt at $0.02 per share –
JCMD
|
* | - | 3,000,000 | 3,000 | (3,000 | ) | - | - | - | - | ||||||||||||||||||||||||||
| Preferred Stock Dividend | (315,000 | ) | (315,000 | ) | ||||||||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (451,998 | ) | - | (1,889,727 | ) | (2,341,725 | ) | ||||||||||||||||||||||||
|
Balance,
September 30, 2010
|
1,192,308 | $ | 1,192 | 29,510,091 | $ | 29,510 | $ | 8,244,895 | $ | (490,248 | ) | $ | (148,873 | ) | $ | (14,358,814 | ) | $ | (6,722,338 | ) | ||||||||||||||||
See the
accompanying notes to the consolidated financial
statements
F-6
|
MARKETING
WORLDWIDE CORPORATION
|
||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||
|
YEARS
ENDED SEPTEMBER 30, 2010 AND 2009
|
|
2010
|
2009
|
|||||||
|
|
||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
loss attributable to continuing operations
|
$ | (1,936,707 | ) | $ | (2,236,613 | ) | ||
|
Loss
from discontinued operations
|
(405,018 | ) | (703,307 | ) | ||||
| Net Loss | (2,341,725 | ) | (2,939,920 | ) | ||||
|
Adjustments
to reconcile net loss to cash used
in operations:
|
||||||||
|
Depreciation
and amortization
|
381,509 | 390,894 | ||||||
|
Loss
on disposal of property, plant and equipment, net
|
727 | 33,260 | ||||||
|
Impairment
loss on customer list
|
50,000 | - | ||||||
|
Beneficial
conversion feature attributable to convertible debt
|
6,250 | - | ||||||
|
Amortization
of deferred financing costs
|
132,293 | 132,293 | ||||||
| Impairment loss on sale of property | 409,823 | - | ||||||
|
Change
in fair value of derivative liability
|
(784,445 | ) | - | |||||
|
Fair
value of vested employee options
|
7,797 | 111,745 | ||||||
|
Common
stock issued for services rendered
|
504,250 | 61,500 | ||||||
|
(Increase)
decrease in:
|
||||||||
|
Accounts
receivable
|
421,173 | 182,601 | ||||||
|
Inventories
|
398,675 | 489,217 | ||||||
|
Other
current assets
|
15,236 | 260,093 | ||||||
|
Other
assets
|
- | 8,930 | ||||||
|
Increase
(decrease) in:
|
||||||||
|
Accounts
payable
|
675,996 | 165,440 | ||||||
|
Other
current liabilities
|
189,347 | (195,300 | ) | |||||
|
Cash
provided by (used in) continuing operating activities
|
136,906 | (1,299,247 | ) | |||||
|
Cash
provided by discontinued operating operations
|
214,183 | 342,858 | ||||||
|
Net
cash provided by (used in) operating activities:
|
351,089 | (956,389 | ) | |||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||