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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)
Delaware
|
68-0566295
|
|
State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|
incorporation
or organization
|
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
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 | ||
ITEM
1B. UNRESOLVED STAFF COMMENTS
|
8 | ||
ITEM
2. PROPERTIES
|
8 | ||
ITEM
3. LEGAL PROCEEDINGS
|
9 | ||
ITEM
4. REMOVED AND RESERVED
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9 | ||
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 | ||
ITEM
6. SELECTED FINANCIAL DATA
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10 | ||
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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10 | ||
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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13 | ||
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
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14 | ||
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
|
15 | ||
ITEM
9A. CONTROLS AND PROCEDURES
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15 | ||
ITEM
9A(T). CONTROLS AND PROCEDURES
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15 | ||
ITEM
9B. OTHER INFORMATION
|
15 | ||
PART
III
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|||
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
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16 | ||
ITEM
11. EXECUTIVE COMPENSATION.
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17 | ||
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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18 | ||
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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19 | ||
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
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20 | ||
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.
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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:
|
||||||||
Purchase
of property and equipment, continuing operations
|
(8,400 | ) | (12,899 | ) | ||||
Cash
provided by (used in) discontinued investing activities
|
149,002 | (19,850 | ) | |||||
Net
cash provided by (used in) investing activities:
|
140,602 | (32,749 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Distribution
by non controlling entity
|
- | (110,000 | ) | |||||
(Repayments
of) Proceeds from lines of credit
|
(511,238 | ) | 321,224 | |||||
(Repayments
of) notes payable
|
(76,978 | ) | (107,069 | ) | ||||
Cash
(used in) provided by continuing financing activities
|
(588,216 | ) | 104,155 | |||||
Cash
provided by discontinued financing activities
|
27,777 | 18,608 | ||||||
Net
cash (used in) provided by financing activities
|
(560,439 | ) | 122,763 | |||||
Effect
of currency rate change on cash:
|
(40,944 | ) | (23,157 | ) | ||||
Net decrease
in cash and cash equivalents
|
(109,691 | ) | (889,532 | ) | ||||
Cash
and cash equivalents, beginning of period
|
113,539 | 1,003,071 | ||||||
Cash
and cash equivalents, end of period
|
$ | 3,847 | $ | 113,539 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during year for interest
|
$ | 367,760 | $ | 47,814 | ||||
Cash
(recoverable) paid during year for taxes
|
$ | - | $ | - | ||||
NON-CASH
TRANSACTIONS:
|
||||||||
Common
stock issued in settlement of debt
|
$ | 70,000 | $ | - | ||||
Common
stock issued for dividend payments (which the Company elected to pay in
Common stock as opposed to cash) on the Series A Convertible Preferred
Stock
|
$ | - | $ | 393,750 |
See the
accompanying notes to the consolidated financial statements
F-7
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
NOTE
A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of
Operations
Marketing
Worldwide Corporation (the "Company"), was incorporated under the laws of the
State of Delaware in July 2003. The Company is engaged in North America through
its wholly-owned subsidiaries, Marketing Worldwide LLC ("MWW"), and Colortek,
Inc. (“CT”) in the design, manufacturing, painting and distribution of
automotive accessories for motor vehicles in the automotive aftermarket industry
and provides design services for large automobile manufacturers. The
Company has a wholly owned subsidiary in Germany, Modelworxx, GmbH, which, in
February, 2010, filed insolvency in the German courts. The Company
has reclassified fiscal year ending September 30, 2009 to reflect this as
discontinued operations.
Basis of
presentation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for annual financial statements and with Form 10-K and article 8 of the
Regulation S-X of the United States Securities and Exchange Commission
(“SEC”). The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries and Variable Interest Entity
(“VIE”). All significant inter-company transactions and balances, including
those involving the VIE, have been eliminated in consolidation.
NOTE
B - SUMMARY OF ACCOUNTING POLICIES
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 uncollectible accounts receivable are recorded in the financial
statements.
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 have been rendered or no refund will be required. As of September
30, 2010 and 2009, these types of transactions are not material.
ASC
605-10 incorporates Accounting Standards Codification subtopic 605-25,
Multiple-Element Arraignments (“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.
Cash and
Cash Equivalents
The
Company considers all highly liquid debt instruments with a maturity of less
than three months at purchase to be cash equivalents. The Company did
not have any cash equivalents at September 30, 2010 and 2009. Cash
balances at financial institutions are insured by the Federal Deposit Insurance
Corporation (“FDIC”). At times, cash and cash equivalents may be
uninsured or in deposit accounts that exceed the FDIC insurance
limits. Periodically, the Company evaluates the credit worthiness of
the financial institutions and has determined the credit exposure to be
negligible.
F-8
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Warranty
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. Warranty
expense is estimated based primarily on historical experience and is reflected
in the financial statements.
Accounting for bad debt and
allowances
Bad debts
and allowances are provided based on historical experience and management's
evaluation of outstanding accounts receivable. Management evaluates past due or
delinquency of accounts receivable based on the open invoices aged on due date
basis. The allowance for doubtful accounts at September 30, 2010 and 2009
approximated $20,000 and $131,000, respectively.
Inventories
The
inventories are stated at the lower of cost or market using the first-in,
first-out method of valuation. The inventories at September 30, 2010 and 2009
are as follows:
2010
|
2009
|
|||||||
Work
in process
|
$ | 325,997 | $ | 256,862 | ||||
Finished
goods
|
78,534 | 576,980 | ||||||
Total
inventory before reserve
|
404,531 | 833,842 | ||||||
Less
inventory reserve
|
(260,131 | ) | (290,767 | ) | ||||
Net
inventory
|
$ | 144,400 | $ | 543,075 |
The
inventory reserve is determined after an exhaustive review and analysis of all
inventories on hand. The Company examines the likelihood of
salability of each inventory item, and if there is more than 6 months supply of
an item on hand, an appropriate reserve is recorded against such inventory; for
cancelled or completed programs, existing inventory is 100 % reserved
for. At September 30, 2010 and 2009 the majority of the inventory
reserve is for supply of product no longer in production or demand from existing
customers.
Long lived
assets
The
Company follows Accounting Standards Codification subtopic 360-10, Property,
Plant and Equipment (“ASC 360-10”). ASC 360-10 requires those long-lived assets
and certain identifiable intangibles held and used by the Company be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted undiscounted cash
flows. Should impairment in value be indicated, the carrying value of intangible
assets will be adjusted, based on estimates of future discounted cash flows
resulting from the use and ultimate disposition of the asset. ASC 360-10 also
requires assets to be disposed of be reported at the lower of the carrying
amount or the fair value less costs to sell.
F-9
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Property, plant and
equipment
Property,
plant and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the
straight-line method over the estimated useful lives of the assets. Gains and
losses from the retirement or disposition of property and equipment are included
in operations in the period incurred. Maintenance and repairs are
expensed as incurred.
Research and development
costs
The
Company accounts for research and development cost in accordance with Accounting
Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”).
ASC 730-10, requires research and development costs to be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Total research and development cost charged to income was immaterial for both
years ended September 30, 2010 and 2009.
Net income (loss) per
share
Basic and
diluted loss per common share is based upon the weighted average number of
common shares outstanding during the fiscal year computed under the provisions
of Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC
260-10”). All primary dilutive common shares have been excluded since
the inclusion would be anti-dilutive. Such shares consist of the following at
September 30, 2010 and 2009:
2010
|
2009
|
|||||||
Warrants
|
100,000 | 100,000 | ||||||
Options
|
1,590,000 | 1,660,000 | ||||||
Series
A preferred stock
|
20,977,000 | 20,977,000 | ||||||
Totals
|
22,667,000 | 22,737,000 |
Income
taxes
Income
taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period
enacted. A valuation allowance is provided when it is more likely
than not that a portion or all of a deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and the reversal of
deferred tax liabilities during the period in which related temporary
differences become deductible. The benefit of tax positions taken or
expected to be taken in the Company’s income tax returns are recognized in the
consolidated financial statements if such positions are more likely than not of
being sustained.
In
accordance with 740-10, the Company recognizes the financial statement benefit
of a tax position only after determining that the relevant tax authority would
more likely than not sustain the position following an audit. For tax positions
meeting this standard, the amount recognized in the financial statements is the
largest benefit that has a greater than 50 percent likelihood of being realized
upon ultimate settlement with the relevant tax authority. The Company will
classify as income tax expense any interest and penalties recognized in
accordance with ASC Topic 740. The tax years ending September 30,
2007, 2008, 2009 and 2010 are still open for review by the various tax
jurisdictions. The state tax jurisdictions the Company files
in are South Carolina, Florida, California and Michigan.
Use of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported revenues and expenses during the
reporting year. The Company deems its critical estimates to be the determination
of inventory values, the allowance for doubtful accounts, stock based
compensation, derivative liabilities, and impairment losses. Actual results
could differ from those estimates.
F-10
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Foreign
currency
The
functional currency of the Company is the U. S. dollar. When a transaction is
executed in a foreign currency, it is re-measured into U. S. dollars based on
appropriate rates of exchange in effect at the time of the transaction. At each
balance sheet date, recorded balances that are denominated in a currency other
than the functional currency of the Companies are adjusted to reflect the
current exchange rate. The related translation adjustments are
included in other comprehensive income. The resulting foreign currency
transactions gains (losses), which were not material, are included
in selling, general and administration expenses in the accompanying
consolidated statements of operations.
Fair value of financial
instruments
Cash,
accounts receivable, accounts payable and accrued expenses approximates fair
value because of their short-term nature. The fair value of notes payable and
short-term debt is estimated to approximate fair market value based on the
current rates available to companies such as MWW.
Derivative financial
instruments
Accounting
Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in
Entity’s own Equity (“ASC 815-40”) became effective for the Company on October
1, 2009. The Company’s Series A Preferred Stock has reset provisions
to the exercise price if the Company issues equity at a price less than the
exercise prices. Upon the effective date, the provisions of ASC
815-40 required a reclassification to liability based on the reset feature of
the agreements if the Company sells equity at a price below the exercise price
of the Series A Preferred Stock.
Reclassification
Certain
reclassifications have been made to conform the prior period data to the current
presentation. These reclassifications had no effect on reported net
loss.
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.
Segment
information
Accounting
Standards Codification subtopic 280-10, Segment Reporting (“ASC 280-10”)
establishes standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those segments
to be presented in interim financial reports issued to stockholders. ASC 280-10
also establishes standards for related disclosures about products and services
and geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision-making group, in
making decisions how to allocate resources and assess performance. The
information disclosed therein materially represents all of the financial
information related to the Company's principal operating segments.
The
Company has one reportable business segment which is operated in the United
States. In previous years the Company had financial activity in
Germany, but in February, 2010 the German affiliate filed bankruptcy and all
activity has been classified as discontinued operations in the presented
financial statements.
F-11
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE B - SUMMARY OF ACCOUNTING
POLICIES (CONTINUED)
Stock based
compensation
The
Company accounts for stock based awards issued to employees in accordance with
FASB guidance. Such awards consist of options to purchase common stock. The fair
value of stock based awards is determined on the grant date using a valuation
model. The fair value is recognized as compensation expense, net of estimated
forfeitures, on a straight-line basis over the service period, which is normally
the vesting period.
The
Company granted no employee options during the year ended September 30, 2010 and
490,000 employee options during the year ended September 30, 2009. The Company
recorded the fair value of the vested portion of issued employee options of
$7,797 and $111,745 for the years ended September 30, 2010 and 2009,
respectively.
Deferred
financing costs
Deferred
financing costs represent costs incurred in connection with obtaining the debt
financing. These costs are amortized to financing expenses over the
term of the related debt using the interest rate method. The amortization for
the years ending September 30, 2010 and 2009 was approximately $132,000 in each
of the two years then ended.
Recent accounting
pronouncements
In March
2010, the FASB issued new accounting guidance, under ASC Topic 605 on Revenue
Recognition. This standard provides that the milestone method
is a valid application of the proportional performance model for revenue
recognition if the milestones are substantive and there is substantive
uncertainty about whether the milestones will be
achieved. Determining whether a milestone is substantive requires
judgment that should be made at the inception of the arrangement. To
meet the definition of a substantive milestone, the consideration earned by
achieving the milestone (1) would have to be commensurate with either the level
of effort required to achieve the milestone or the enhancement in the value of
the item delivered, (2) would have to relate solely to past performance, and (3)
should be reasonable relative to all deliverables and payment terms in the
arrangement. No bifurcation of an individual milestone is allowed and
there can be more than one milestone in an arrangement. The standard
is effective for annual periods beginning on or after October 1,
2010. The Company does not believe the impact of the adoption of this
guidance will have a material effect on its financial statements.
In
April 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2010-13, “Effect of Denominating the Exercise
Price of a Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades” (“ASU 2010-13”). ASU 2010-13 addresses
the classification of a share-based payment award with an exercise price
denominated in the currency of a market in which the underlying equity security
trades. FASB Accounting Standards Codification (“ASC”) Topic 718 was amended to
clarify that a share-based payment award with an exercise price denominated in
the currency of a market in which a substantial portion of the entity’s equity
securities trade shall not be considered to contain a market, performance or
service condition. Therefore, such an award is not to be classified as a
liability if it otherwise qualifies for equity classification. The amendments in
ASU 2010-13 are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010, with early
application permitted. The adoption of this standard did not have a material
impact on the Company’s consolidated financial position and results of
operations.
In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements (ASU 2009-13) (formerly EITF 08-1, Revenue Arrangements with
Multiple Deliverables) which amends ASC Topic 605, Revenue
Recognition. This accounting update establishes a hierarchy for determining
the value of each element within a multiple deliverable arrangement. ASU
2009-13 is effective for the Company beginning October 1, 2010 and applies
to arrangements entered into on or after this date. The Company is
currently evaluating the impact that ASU 2009-13 may have on its financial
position and results of operations, and does not expect the impact, if any, to
be material.
The FASB
has issued Accounting Standards Update (ASU) No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This ASU requires some new disclosures and clarifies some existing
disclosure requirements about fair value measurement as set forth in
Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10
and now requires a reporting entity to use judgment in
F-12
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
determining
the appropriate classes of assets and liabilities and to provide disclosures
about the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. ASU 2010-06 was effective
for interim and annual reporting periods beginning after December 15, 2009, As
this standard relates specifically to disclosures, the adoption did not have an
impact on the Company’s consolidated financial position and results of
operations.
In
February 2010, the Financial Accounting Standards Board (“FASB”) issued an
accounting standard that amended certain recognition and disclosure requirements
related to subsequent events. The accounting standard requires an entity that is
an SEC filer to evaluate subsequent events through the date that the financial
statements are issued and removes the requirement that an SEC filer disclose the
date through which subsequent events have been evaluated. This guidance was
effective upon issuance. The adoption of this standard had no effect on the
Company’s condensed consolidated financial position or results of
operations.
In March
2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-11, which is
included in the Codification under ASC 815, “Derivatives and Hedging” (“ASC
815”). This update clarifies the type of embedded credit derivative
that is exempt from embedded derivative bifurcation
requirements. Only an embedded credit derivative that is related to
the subordination of one financial instrument to another qualifies for the
exemption. This guidance is effective for interim and annual
reporting periods beginning January 1, 2010. The adoption of this
standard did not have a material impact on the Company’s consolidated financial
position and results of operations.
NOTE
C - GOING CONCERN MATTERS AND TRIGGERING EVENTS
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements during the year ended September 30, 2010, the
Company incurred a loss of $2,341,725.
The
Company has incurred substantial recurring losses. The accompanying
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of assets
and satisfaction of liabilities and commitments in the normal course of
business. The Company has available cash of $3,847 at September
30, 2010, although during the year ended September 30, 2010, the
Company operating activities generated cash of $136,906. The
Company’s working capital deficiency was approximately $4,373,000 and $2,640,000
as of September 30, 2010 and 2009 respectively. The Company’s
accumulated deficit was approximately $14,400,000 and $12,200,000 as of
September 30, 2010 and 2009 respectively. In addition, the Company
has a stockholders’ deficit of approximately $6,700,000 at September 30,
2010. The Company has pledged all of its assets to Summit Financial
Resources (Summit) as security for the Summit loan agreement.
If the
Company runs out of available capital, it might be required to pursue highly
dilutive equity or debt issuances to finance its business in a difficult and
hostile market, including possible equity financings at a price per share that
might be much lower than the per share price invested by current
shareholders. No assurance can be given that any source of additional
cash would be available to the Company. If no source of additional
cash is available to the Company, then the Company would be forced to
significantly reduce the scope of its operations.
There can
be no assurance that such funding initiatives will be successful and any equity
placement could result in substantial dilution to current
stockholders. The above factors raise substantial doubt about the
Company’s ability to continue as a going concern. The accompanying
consolidated financial statements have been prepared on a going concern basis,
which contemplate the realization of assets and satisfaction of liabilities in
the normal course of business. The consolidated financial statements
do not include any adjustments relating to the recoverability of the recorded
assets or the classification of the liabilities that might be necessary should
the Company be unable to continue as a going concern.
Although
the Company has reduced cash required for future operations by reducing
operating costs and reducing staff levels, there exists a large balance of debt
from prior periods that still must be paid. The Company continues working to
manage its current liabilities while it continues to make changes in operations
to improve its cash flow and liquidity position.
F-13
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
NOTE
C - GOING CONCERN MATTERS AND TRIGGERING EVENTS (CONTINUED)
The
Company's existence is dependent upon management's ability to raise additional
financing and develop profitable operations. The Company cannot predict
whether this additional financing will be in the form of equity or
debt. The Company may not be able to obtain the
necessary additional capital on a
timely basis, on acceptable terms, or at all. If
additional financing is not available or is not available on acceptable terms,
we will have to curtail our operations. The accompanying statements do not
include any adjustments that might result should the Company be unable to
continue as a going concern.
These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. Accordingly, the accompanying consolidated financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America, which contemplates continuation of the Company
as going concern and the realization of assets and the satisfaction of
liabilities in the normal course of business. The carrying amounts of assets and
liabilities presented in the financial statements do not necessarily purport to
represent realizable or settlement values. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
NOTE
D – INTANGIBLE ASSETS
The
Company had intangible assets as a result of previous acquisition of Colortek,
Inc. The intangible assets were representative of value assigned to
an existing customer list at the time of acquisition. The Company
reviewed the list at September 30, 2010 and deemed the remaining balance or
$50,000 to be worthless. This amount was charged to operations as
impairment in the year ended September 30, 2010.
NOTE
E - PROPERTY, PLANT AND EQUIPMENT
At
September 30, 2010 and 2009, property, plant and equipment consist of the
following:
2010
|
2009
|
Range of
Estimated Life
|
||||||||||
Land
|
$ | 411,645 | $ | 411,645 | N/A | |||||||
Building
|
1,915,700 | 1,915,700 |
40
years
|
|||||||||
Office
equipment
|
79,893 | 192,497 |
3 –
7 years
|
|
||||||||
Tooling
and other
equipment
|
1,448,360 | 1,393,888 |
7 –
10 years
|
|||||||||
Vehicles
|
0 | 260,086 |
3-
5 years
|
|||||||||
Subtotal
|
3,855,598 | 4,173,816 | ||||||||||
Less
land and building impairment
|
(409,823 | ) | 0 | |||||||||
Total
|
3,445,775 | 4,173,816 | ||||||||||
Less
accumulated depreciation
|
(1,333,319 | ) | (1,270,296 | ) | ||||||||
Net
property, plant and equipment
|
$ | 2,112,456 | $ | 2,903,520 |
Depreciation
expense included as a charge to operations of $357,452 and $390,894
for the years ended September 30, 2010 and 2009, respectively.
NOTE
F - LINE OF CREDIT
At
September 30, 2008 the Company had a line of credit with a maximum borrowing
limit of $800,000 with Key Bank. Borrowings under the agreement are
collateralized by substantially all the Company's assets. At September 30, 2008,
the Company was in default on its line of credit agreement.
On
January 27, 2009, 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.
F-14
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
NOTE
F - LINE OF CREDIT (CONTINUED)
Prior to
September, 2009, the Company entered into a financing agreement with Summit
Financial Resources L.P. (Summit) for a maximum borrowing of up to $1,000,000
maturing August 31, 2010. The arrangement is based on recourse factoring of the
Company’s accounts receivables. Substantially all assets within the
consolidation group have been pledged as collateral for the Summit
facility. The financing agreement was extended for one year
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.
Under the
terms of the recourse provision, the Company is required to repurchase factored
receivables if they are not paid in full or are deemed no longer acceptable.
Accordingly, the Company has accounted for the financing agreement as a secured
borrowing arrangement and not a sale of financial assets.
As of
September 30, 2010, the advance balance due to Summit was
$209,986. The interest rate at September 30, 2010 was
4.25%.
NOTE
G - NOTES PAYABLE
As of
September 30, 2010 and 2009, notes payable consists of the
following:
2010
|
2009
|
|||||||
JCMD
Mortgage loan payable in monthly principal installments plus interest.
Note secured by first deed of trust on real property and improvements
located in Howell, MI. In addtition to the Company the JCMD General
Partners personally guarantee the loan. The note is in default.
(*)
|
$
|
669,352
|
$
|
683,165
|
||||
JCMD
Mortgage loan payable in 240 monthly principal installments plus interest.
The loan is secured by a second deed of trust on real property and
improvements located in Howell, MI. In addtition to the Company the JCMD
General Partners personally guarantee the loan The note is in default.
(*)
|
538,800
|
551,850
|
||||||
Mortgage
loan payable in monthly principal installments of approximately $5,961
with a fixed interest rate of 6.75% per annum. Note based on a
20 year amortization. Note is secured by first priority security interest
in the business property of Colortek, Inc, the Company's wholly owned
subsidiary. The note is currently in default. (**)
|
620,595
|
644,129
|
||||||
Other
|
35,214
|
40,548
|
||||||
Total |
1,863,961
|
1,919,692
|
||||||
Less
current portion
|
1,863,961
|
1,919,692
|
||||||
Long
term portion
|
$
|
-0-
|
$
|
0
|
(*) In
accordance with the Forbearance Agreement, the secured lender of the JCMD
Mortgage Loans increased the interest rate on unpaid balances to bear interest
at a floating rate of two and quarter percent (2.25%) in excess of the Bank’s
Prime Rate, and upon default shall bear interest at a rate of five and one
quarter percent (5.25%) in excess of the Bank’s Prime Rate. On
November 30, 2010, the real estate securing the mortgage loan payable was sold
and the first deed of trust was fully retired. The proceeds from the
sale of real estate did not retire the balance of the loan secured by the second
deed of trust. There is a shortfall of approximately $500,000 that
will continue to be carried as a liability until such time it is
retired. The sale of real estate for $800,000 was less than the
carrying value of $1,210,000, resulted in the Company recording an impairment
charge of approximately $410,000 for the year ended September 30,
2010.
(**) In
accordance with the mortgage loan agreement, the Company is currently in default
of certain loan covenants.
F-15
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
NOTE
H - WARRANTY LIABILITY
The
Company provides for estimated costs to fulfill customer warranty obligations
upon recognition of the related revenue in accordance with Accounting Standards
Codification subtopic 460-10, Guarantees (“ASC 460-10”) as a charge in the
current period cost of goods sold. The range for the warranty coverage for
the Company's products is up to 18 to 36 months. The Company estimates the
anticipated future costs of repairs under such warranties based on historical
experience and any known specific product information. These estimates are
reevaluated periodically by management and based on current information, are
adjusted accordingly. The Company's determination of the warranty obligation is
based on estimates and as such, actual product failure rates may differ
significantly from previous expectations. The warranty reconciliation
as of September 30, 2010 and 2009 is as follows:
2010
|
2009
|
|||||||
Warranty
liability, beginning of year
|
$ | 66,216 | $ | 126,983 | ||||
Expense
for the year
|
110,325 | 55,535 | ||||||
Amount
incurred
|
(81,542 | ) | (116,302 | ) | ||||
Warranty
liability, end of year
|
95,000 | 66,216 |
NOTE
I – OTHER CURRENT LIABILITIES
Other
current liabilities consist of the following at September 30, 2010 and
2009:
2010
|
2009
|
|||||||
Preferred
dividends payable
|
$ | 472,500 | $ | 157,500 | ||||
Consulting
fees
|
112,200 | 76,600 | ||||||
Interest
|
163,202 | 82,075 | ||||||
Payroll
and other
|
135,494 | 91,659 | ||||||
Total
|
$ | 883,396 | $ | 407,834 |
NOTE
J - CAPITAL STOCK
The
Company is authorized to issue 110,000,000 shares of stock consisting of
100,000,000 shares of common stock and 10,000,000 shares of Preferred stock,
both at par value of $.001
The Board
of Directors of the Company has the right to establish the pertaining terms of
the issuance of shares of preferred stock, such as dividend rates, liquidation
preferences, voting rights and conversion options.
Series A Preferred
stock
Payment
of Dividends: Commencing on the date of issuance of the Series A Preferred
Stock, the holders of record of shares of Series A Preferred Stock shall be
entitled to receive, out of any assets at the time legally available therefore
and as declared by the Board of Directors, dividends at the rate of nine percent
(9%) of the stated Liquidation Preference Amount (see below) per share per annum
payable quarterly.
In
accordance with Accounting Standards Codification subtopic 470-20, Debt, Debt
with Conversions and Other Options (“ASC 470-20”), the Company recognized an
imbedded beneficial conversion feature present in the Convertible Series A
Preferred Stock. The Company allocated a portion of the proceeds equal to the
fair value of that feature to additional paid-in capital. The Company recognized
and measured an aggregate of $3,500,000 of the proceeds, which is equal to the
intrinsic value of the imbedded beneficial conversion feature to additional
paid-in capital and a charge as preferred stock dividend. The fair value of
the imbedded beneficial conversion feature was determined using the
Black-Scholes Option Pricing Model which approximates the fair value measured
using the Binomial Lattice Model with the following assumptions: Dividend yield:
$-0-; Volatility: 146.64%, risk free rate: 4.55%.
F-16
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
NOTE
J - CAPITAL STOCK (CONTINUED)
The
Series A Preferred Stock includes certain redemption features allowing the
holders the right, at the holder’s option, to require the Company to redeem all
or a portion of the holder’s shares of Series A Preferred Stock upon the
occurrence of a Major Transaction or Triggering Event. Major
Transaction is defined as a consolidation or merger; sale or transfer of more
than 50% of the Company assets or transfer of more than 50% of the Company’s
common stock. A Triggering Event is defined as a lapse in the
effectiveness of the related registration statement; suspension from listing;
failure to honor for conversion or going private.
In
accordance with ASC 470-20, the Company has classified the Series A Preferred
Stock outside of permanent equity.
In June
2008, the FASB finalized ACS 815, “Determining Whether an Instrument (or
Embedded Feature) is indexed to an Entity’s Own Stock.” Under ASC 815,
instruments which do not have fixed settlement provisions are deemed to be
derivative instruments. The Company has determined that it needs to
account for these imbedded beneficial conversion feature issued to
investors in 2007 for its Series A Convertible Preferred Stock, as derivative
liabilities, and apply the provisions of ASC 815. The instruments
have a ratchet provision (that adjusts the exercise price in the event
of a subsequent offering of equity at a lower exercise
price). As a result, the ratchet provision has been accounted
for as derivative liabilities, in accordance with ASC 815. ASC
815, “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815”)
requires that the fair value of these liabilities be re-measured at the end of
every reporting period with the change in fair value reported in the
consolidated statement of operations.
The fair
value of the embedded beneficial conversion features were measured using the
Black-Scholes option pricing model which approximates the fair value measured
using the Binomial Lattice Model and the following assumptions:
September
30,
|
October
1,
|
Date
of
|
||||||||||
2010
|
2009
|
issuance
|
||||||||||
Imbedded
Beneficial Conversion Feature:
|
||||||||||||
Risk-free
rate
|
0.42 | % | 1.36 | % | 4.55 | % | ||||||
Annual
rate of dividends
|
0 | 0 | 0 | |||||||||
Volatility
|
336.73 | % | 265.79 | % | 146.64 | % | ||||||
Weighted
Average life (years)
|
1.56 | 2.56 | 5.0 | |||||||||
Fair
Value
|
$ | 1,186,670 | $ | 1,971,115 | $ | 4,554,000 |
The risk-free interest rate was based
on rates established by the Federal Reserve. The Company based
expected volatility on the historical volatility for its common
stock. The expected life of the embedded beneficial conversion
features was based on their full term. The expected dividend yield
was based upon the fact that the Company has not historically paid dividends,
and does not expect to pay dividends in the future.
ASC 815
was implemented in the first quarter of Fiscal 2010 and is reported as the
cumulative effect of a change in accounting principles. At October 1,
2009, the cumulative effect on the embedded beneficial conversion features were
recorded as decrease in accumulated deficit by $1,971,115. As of
September 30, 2010, derivative liability associated with the embedded beneficial
conversion features, were revalued, the $784,445 decrease in the derivative
liability is included as an increase of a gain on change of fair value of
derivative liabilities in the Company’s consolidated statement of operations for
the year ended September 30, 2010.
Series B Preferred
stock
On July
10, 2008, the Company filed a Certificate of Designation creating a $0.001 par
value Series B Convertible Preferred stock for 1,200,000 shares.
RANK: The
Series B Preferred Stock shall rank pari-passu as to liquidation rights and
other matters to the Company's common stock, par value $0.001 per share (the
"COMMON STOCK"). The Series B Preferred Stock shall be subordinate to and rank
junior to all indebtedness of the Company now or hereafter
outstanding.
F-17
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
NOTE
J - CAPITAL STOCK (CONTINUED)
PAYMENT
OF DIVIDENDS. If declared by the Company, dividends on the Series B Preferred
Stock shall be on a pro rata basis with the Common Stock and all other equity
securities of the Company ranking pari passu with the Common Stock as to the
payment of dividends.
VOTING
RIGHTS: The holders of Series B Preferred Stock shall have no voting rights with
the exception relating to increasing the number of outstanding shares of Series
A Preferred or modifying the rights of the Series A Preferred
Stock.
LIQUIDATION
AMOUNT: In the event of the liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, the holders of shares
of Series B Preferred Stock then outstanding shall be entitled to receive, out
of the assets of the Company available for Distribution to its stockholders, an
amount per share of Series B Preferred Stock equal to the amount distributable
with respect to that number of shares of the Common Stock into which one share
of the Series B Preferred Stock is then convertible, plus any accrued and unpaid
dividends.
CONVERSION:
At any time on or after the date of the initial issuance of the Series B
Preferred Stock, the holder of any such shares of Series B Preferred Stock may,
at such holder's option, elect to convert all or any portion of the shares of
Series B Preferred Stock held into a number of fully paid and non-assessable
shares of Common Stock for each such share of Series B Preferred Stock equal to
the quotient of: (a) the Original Issue Price, plus any accrued and unpaid
dividends thereon, divided by (b) the Conversion Price in effect as of the date
of the delivery by such holder of its notice of election to convert. The initial
Conversion Price is $16.90, subject to change for events such as stock
splits.
As of
September 30, 2010, the Company has 1,192,308 shares of Series B Preferred Stock
outstanding.
Common
stock
On
October 9, 2009, the Company issued 500,000 shares of common stock in settlement
of outstanding accounts payable of $30,000.
On
October 9, 2009, the Company issued an aggregate of 80,000 shares of common
stock in exchange for services valued at $12,000. These shares were
valued at $0.15 per share which represents the fair value of services received
which did not differ materially from the value of the stock issued.
On
February 17, 2010, the Company issued an aggregate of 1,520,000 shares of common
stock in exchange for services valued at $304,000. These shares were
valued at $0.20 per share which represents the fair value of services received
which did not differ materially from the value of the stock issued. Of the
1,520,000 shares, 600,000 shares are expected to be returned to the Company
because the agreement for the services that were contemplated when the shares
were issued has been cancelled.
On March
10, 2010, the Company issued an aggregate of 1,075,000 shares of common stock in
exchange for services valued at $118,250. These shares were valued at
$0.11 per share which represents the fair value of services received which did
not differ materially from the value of the stock issued.
On August
13, 2010, the Company issued an aggregate of 5.5 million shares of common stock
in exchange for services and retirement of debt valued at
$110,000. These shares were valued at $0.02 per share, which was the
trading price on August 13, 2010.
On August
16, 2010, the Company issued 3 million shares of common stock in partial
settlement of an intercompany debt with JCMD, the Variable Interest
Entity. This transaction was valued at $.02 per share, the value at
which the stock was trading on this date, and resulted in a $60,000 reduction in
the payable to JCMD.
On
October 20, 2008, the Company settled with Carter Securities for 300,000 shares
of the Company's common stock and the surrender of 490,000 warrants held by
Carter to purchase the Company’s common stock at $0.65 per share held by Carter
Securities, LLC.
On May
28, 2009, the Company issued 80,000 shares of the Company’s common stock in
exchange for services rendered. The shares of common stock were
valued at $24,000.
On May
29, 2009, the Company issued 785,000 shares of the Company’s common stock in
settlement of $393,750 of outstanding dividends payable to Series A Convertible
Preferred stockholders.
On June
17, 2009, the Company issued 125,000 shares of the Company’s common stock in
exchange for services rendered. The shares of common stock were
valued at $37,500.
F-18
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
NOTE
K - STOCK OPTIONS
Employee Stock
Options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees of the
Company as of September 30, 2010:
Options Exercisable
|
||||||||||||||||
Options Outstanding
|
Weighted
|
|||||||||||||||
Weighted Average
|
Average
|
|
||||||||||||||
Exercise
|
Number
|
Remaining Contractual
|
Exercise
|
Number
|
||||||||||||
Price
|
Outstanding
|
Life (Years)
|
Price
|
Exercisable
|
||||||||||||
$
0.30
|
490,000
|
6.85
|
$
|
0.30
|
430,000
|
|||||||||||
$
0.30
|
100,000
|
.86
|
$
|
0.30
|
100,000
|
|||||||||||
590,000
|
4.00
|
$
|
0.30
|
530,000
|
During
the years ended September 30, 2010 and 2009, there were no Employee Stock
Options either granted or expired or cancelled. In addition, as of
September 30, 2010, the Company has no remaining unamortized stock compensation
costs relating to the 660,000 previously issued Employee Stock
Options.
Transactions
involving options issued to employees are summarized as follows:
Weighted Average
Exercise
|
||||||||
Weighted Average
Number of Options
|
Price per
Share
|
|||||||
Outstanding
at October 1, 2008
|
660,000
|
$
|
.30
|
|||||
Granted
|
-
|
|
-
|
|||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding,
September 30, 2009
|
660,000
|
.30
|
||||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
70,000
|
.30
|
||||||
Outstanding,
September 30, 2010
|
590,000
|
$
|
.30
|
Non employee
options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to non- employees of
the Company as of September 30, 2010 and 2009:
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
Weighted Average
Remaining
|
Weighted
Average
|
Weighted
|
|||||||||||||||||||
Number
|
Contractual
|
Exercise
|
Number
|
Average
|
|||||||||||||||||
Exercise Price
|
Outstanding
|
Life (Years)
|
Price
|
Exercisable
|
Exercise Price
|
||||||||||||||||
$
|
0.10
|
1,000,000
|
3.00
|
$
|
0.10
|
1,000,000
|
$
|
0.10
|
Transactions
involving options issued to non-employees are summarized as
follows:
Weighted Average
Number of Options
|
Weighted Average
Excercise
Price per
Share
|
|||||||
Outstanding
at October 1, 2008
|
1,395,000
|
$ |
0.39
|
|||||
Granted
/ Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
(395,000)
|
1.13
|
||||||
Outstanding,
September 30, 2009
|
1,000,000
|
0.10
|
||||||
Granted
/ Exercised
|
-
|
-
|
||||||
Canceled
or exercised
|
-
|
-
|
||||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding,
September 30, 2010
|
1,000,000
|
$
|
0.10
|
There was
no intrinsic value of the options as the market value of the stock was $0.06,
which is less than the option price.
F-19
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
K STOCK OPTIONS (CONTINUED)
Warrants
The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the Company's common stock issued to non-employees of
the Company as of September 30, 2010 and 2009:
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||||
Weighted Average
Remaining
|
Weighted
Average
|
Weighted
|
|||||||||||||||||||
Number
|
Contractual
|
Exercise
|
Number
|
Average
|
|||||||||||||||||
Exercise Price
|
Outstanding
|
Life (Years)
|
Price
|
Exercisable
|
Exercise Price
|
||||||||||||||||
$
|
0.30
|
100,000
|
0.94
|
$
|
0.30
|
100,000
|
$
|
0.30
|
Transactions
involving warrants are summarized as follows:
|
Weighted Average
Number of Shares
|
Price per
Share
|
||||||
Outstanding
at October 1, 2008
|
1,590,000
|
$
|
0.69
|
|||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
(1,490,000
|
)
|
(0.72)
|
|||||
Outstanding,
September 30, 2009
|
100,000
|
0.30
|
||||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding,
September 30, 2010
|
100,000
|
$
|
0.30
|
NOTE
L - CONSOLIDATION OF VARIABLE INTEREST ENTITIES
On June
6, 2005 and August 8, 2005, JCMD Properties LLC, an entity controlled by the
Company's Chief Executive and Chief Operating officers respectively ("JCMD"),
entered into a Secured Loan Agreement with a financial institution, in
connection with the financing of real property and improvements ("property").
This agreement is guaranteed by the Company.
The
property is leased to the Company under a long term operating lease beginning on
January 1, 2005. Under the loan agreements, JCMD is obligated to make periodic
payments of principal repayments and interest. The Company has no equity
interest in JCMD or the property.
Based on
the terms of the lending agreement with the above entity, the Company determined
that JCMD was a variable interest entity ("VIE") and the Company was the primary
beneficiary under ASC 810-10 since JCMD does not have sufficient equity at risk
for the entity to finance its activities.
ASC
810-10 requires that an enterprise consolidate a VIE if that enterprise has a
variable interest that will absorb a majority of the entity's expected losses if
they occur. Accordingly, the Company adopted FIN No. 46 and consolidated JCMD as
a VIE, regardless of the Company not having an equity interest in
JCMD. Since JCMD is owned by two of the principals of MWW, MWW has
guaranteed the indebtedness of JCMD for the real estate occupied by MWW, and the
two principals of JCMD do not have the ability to repay the loan, the Company,
in accordance with ASC 810-10 has consolidated the activities of JCMD into the
presented financial statements.
Included
in the Company's consolidated balance sheets at September 30, 2010 and 2009 are
the following net assets of JCMD:
F-20
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
L - CONSOLIDATION OF VARIABLE INTEREST ENTITIES (CONTINUED)
2010
|
2009
|
|||||||
ASSETS
(JCMD)
|
||||||||
Cash
and cash equivalents
|
$
|
755
|
$
|
17,616
|
||||
Accounts
receivable, prepaid expenses and
other current assets
|
150,400
|
19,400
|
||||||
Total
current assets
|
151,155
|
37,016
|
||||||
Property,
plant and equipment, net
|
800,000
|
1,241,824
|
||||||
Total
assets
|
951,155
|
1,278,840
|
||||||
LIABILITIES:
|
|
|||||||
Current
portion of long term debt
|
1,208,152
|
1,235,015
|
||||||
Accounts
payable and accrued liabilities
|
233,251
|
82,075
|
||||||
Total
current liabilities
|
1,441,403
|
1,317090
|
||||||
Long
term debt
|
- |
-
|
||||||
Total
liabilities
|
1,441,403
|
1,317,090
|
||||||
Net
assets
|
$
|
(490,248
|
)
|
$
|
(38,250)
|
Consolidated
results of operations include the following:
2010
|
2009
|
|||||||
Revenues
|
$
|
204,000
|
$
|
156,527
|
||||
Cost
and expenses - real estate: Operating expenses
|
83,991
|
12,494
|
||||||
Depreciation
|
32,001
|
32,000
|
||||||
Impairment
loss on sale of property, plant and equipment
|
409,823
|
-
|
||||||
Interest,
net
|
130,183
|
174,582
|
||||||
Total
costs and expenses
|
655,998
|
219,076
|
||||||
Operating
(loss) income-Real estate
|
$
|
(451,998
|
)
|
$
|
(62,549)
|
On
November 30, 2010, JCMD sold the real estate for $800,000. This sale
required the recognition of an impairment loss of $409,823.
NOTE
M - FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC
825-10 defines fair value as the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and considers assumptions that market participants would
use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 825-10
establishes three levels of inputs that may be used to measure fair
value:
Level
1 - Quoted prices in active markets for identical assets or
liabilities.
Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
F-21
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
M - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed is determined based on the lowest level input that is
significant to the fair value measurement.
Items
recorded or measured at fair value on a recurring basis in the
accompanying financial statements consisted of the following items as of
September 30, 2010:
|
Fair Value Measurements at September
30, 2010 using:
|
|||||||||||||||
|
September
30,
2010
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
Liabilities:
|
||||||||||||||||
|
|
|||||||||||||||
Derivative
liability
|
$ |
1,186,670
|
$ |
1,186,670
|
The
derivative liability is measured at fair value using quoted market prices and
estimated volatility factors based on historical prices for the Company’s common
stock and are classified within Level 3 of the valuation hierarchy.
The
following table provides a summary of changes in fair value of the Company’s
Level 2 financial liabilities as of September 30, 2010:
Derivative
Liability
|
||||
Balance,
October 1, 2009
|
$
|
1,971,115
|
||
Change
in fair value at September 30, 2010
|
(784,445
|
)
|
||
Balance,
September 30, 2010
|
$
|
1,186,670
|
Level 3
Liabilities comprised of our bifurcated reset provision contained within our
Series A stock and the fair value of issued reset provisions.
NOTE
N – DISCONTINUED OPERATIONS
On
February 25, 2010, the Company discontinued operations of its wholly owned
subsidiary; MW Global Limited which owns 100% of the outstanding ownership and
economic interest in Modelworxx GmbH. The financial results of MW
Global are presented separately in the consolidated statements of operations as
discontinued operations for all periods presented. The
assets and liabilities of this business are reflected as assets and liabilities
from discontinued operations in the consolidated balance sheets for all prior
periods.
F-22
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
The
assets and liabilities of the discontinued operations as of September 30, 2010
and September 30, 2009 were as follows:
Assets:
2010
|
2009
|
|||||||
Cash
|
$
|
-
|
$
|
943
|
||||
Accounts
receivable
|
-
|
107,585
|
||||||
Inventories
|
-
|
72,835
|
||||||
Prepaid
expenses and other assets
|
-
|
3,470
|
||||||
Total current assets | - | 184,833 | ||||||
Other
assets of discontinued operations
|
-
|
178,352
|
||||||
Assets
of discontinued operations
|
$
|
-
|
$
|
363,185
|
Liabilities: | ||||||||
Accounts
payable
|
$
|
492,006
|
$
|
445,621
|
||||
Line
of credit
|
-
|
18,608
|
||||||
Liabilities
of discontinued operations
|
$
|
492,006
|
$
|
464,229
|
The
Results of Operations for the years ended September 30, 2010 and 2009 are as
follows:
2010
|
2009
|
|||||||
Sales
|
$
|
316,110
|
$
|
790,852
|
||||
Cost
of sales
|
266,556
|
837,615
|
||||||
Gross
profit (loss)
|
49,554
|
(46,763
|
)
|
|||||
Operating
Costs:
|
||||||||
Selling,
general and administrative
|
153,543
|
627,788
|
||||||
Depreciation
and amortization
|
11,639
|
42,697
|
||||||
Total
operating costs
|
165,182
|
670,485
|
||||||
Net
loss from operations
|
(115,628
|
)
|
(717,248
|
)
|
||||
Other
income (expense), net
|
(289,390
|
)
|
13,941
|
|||||
Net
loss
|
$
|
(405,018
|
)
|
$
|
(703,307
|
)
|
NOTE
O - PROVISION FOR INCOME TAXES
The
Company files income tax returns for Marketing Worldwide Corporation and its
domestic subsidiaries (MWW Automotive, LLC and Colortek, Inc.) with the Internal
Revenue Service and with various state jurisdictions, most notable Michigan. As
of September 30, 2010, the tax returns for tax years 2007 – current remain open
to examination by the Internal Revenue Service and various state
authorities.
2010
|
2009
|
|||||||
Net
operating loss carryforward
|
$ | 2,944,637 | $ | 2,038,800 | ||||
Inventory
reserve, expense for books, not on tax return
|
104,000 | (39,200 | ) | |||||
Warranty
reserve, expense for books, not on tax return
|
38,000 | (8,800 | ) | |||||
Book-tax
difference in Fixed Asset Depreciation
|
58,000 | 0 | ||||||
Sub total | 3,144,637 | 1,990,800 | ||||||
Valuation
allowance
|
(3,144,637 | ) | (1,990,800 | ) | ||||
Net
tax benefit
|
$ | 0 | $ | 0 |
F-23
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30,
2010
NOTE
O - PROVISION FOR INCOME TAXES (CONTINUED)
As of
September 30, 2010, the Company had approximately $7,361,000 of federal and
state net operating losses (“NOL”) available for income tax purposes that may be
carried forward to offset future taxable income, if any. The federal
carryforwards expire beginning in 2024.
A
reconciliation of the statutory federal income tax rate to the Company’s
effective tax rate is as follows:
As
of September 30,
|
||||||||
2010
|
2009
|
|||||||
Tax
benefit at federal statutory rate
|
(34.0) | % | (34.0) | % | ||||
State
statutory rate
|
(6.0) | % | (6.0) | % | ||||
Change
in valuation allowance
|
49.8 | % | 40.0 | % | ||||
Valuation
of imbedded derivative
|
(16.2) | % | 0 | % | ||||
Impairment
on sale of building
|
8.4 | % | 0 | % | ||||
Other
permanent items
|
(2.0) | % | 0 | % | ||||
Effective
income tax rate
|
0 | % | 0 | % |
Deferred
income taxes result from temporary differences in the recognition of income and
expenses for the financial reporting purposes and for tax purposes.
A full
valuation allowance is being maintained resulting in a net deferred tax asset of
zero until sufficient positive evidence exists to support the reversal of any
portion or all of the valuation allowance net of appropriate
reserves. Should the Company become profitable in future periods with
supportable trends; the valuation allowance will be reduced
accordingly.
NOTE
P- ECONOMIC DEPENDENCY
During
the years ended September 30, 2010 and 2009, revenues were derived from
the following customers:
Revenue
|
Accounts
Receivable
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Customer
A
|
35.3
|
%
|
28.4
|
%
|
35.05
|
%
|
20.3
|
%
|
||||||||
Customer
B
|
24.0
|
%
|
28.4
|
%
|
26.71
|
%
|
22.6
|
%
|
||||||||
Customer
C
|
20.4
|
%
|
17.4
|
%
|
21.61
|
%
|
35.3
|
%
|
||||||||
Customer
D
|
19.8
|
%
|
13.3
|
%
|
13.85
|
%
|
5.9
|
%
|
||||||||
Total
|
99.5
|
%
|
87.5
|
%
|
97.23
|
%
|
84.1
|
%
|
During the years ended September 30, 2010 and 2009, purchases were
made from the following suppliers:
Purchases
|
Accounts
Payable
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Supplier
1
|
13.11
|
%
|
17.07
|
%
|
0.26
|
%
|
8.20
|
%
|
||||||||
Supplier
2
|
12.63
|
%
|
16.50
|
%
|
2.50
|
%
|
16.46
|
%
|
||||||||
Supplier
3
|
12.09
|
%
|
11.61
|
%
|
0.00
|
%
|
0.00
|
%
|
||||||||
Supplier
4
|
12.08
|
%
|
10.93
|
%
|
3.00
|
%
|
8.93
|
%
|
||||||||
Supplier
5
|
10.74
|
%
|
10.91
|
%
|
2.85
|
%
|
13.26
|
%
|
||||||||
Total
|
60.64
|
%
|
67.02
|
%
|
8.61
|
%
|
46.85
|
%
|
NOTE
Q - COMMITMENTS AND CONTINGENCIES
Related party lease
obligations and transactions
On March
5, 2004, MWW and MWWLLC entered into five year real property lease, beginning on
January 1, 2005, with a related party (JCMD Properties LLC: See Note K) for use
of warehouse and general offices located in the city of Howell,
Michigan. The lease was terminated at the time the real estate was
sold to an unrelated party on November 30, 2010. The buyer of the
property was known to the sellers, and the buyer’s Chief Financial Officer is
the former wife of one of the partners of JCMD.
F-24
MARKETING
WORLDWIDE CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
Employment and Consulting
Agreements
The
Company has employment agreements with all of its employees. In addition to
salary and benefit provisions, the agreements include non-disclosure and
confidentiality provisions for the protection of the Company's proprietary
information.
The
Company has consulting agreements with outside contractors to provide marketing
and financial advisory services. The Agreements are generally for a term of 12
months from inception and renewable automatically from year to year unless
either the Company or Consultant terminates such engagement by written
notice.
Litigation
The
Company is 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 recorded $195,000 in their accounts as of September 30, 2010 and
expects to continue negotiations to settle this outside the legal
system.
Contingencies
The
Company previously issued 800,000 shares of its common stock to Big Apple in
exchange for investment advisory services. Subsequent to the issuance of these
shares the Company cancelled the agreement with Big Apple in accordance with the
terms of the agreement. The Company does not believe the 800,000 shares of stock
will be returned as a result of the termination of the contact, nor do they
believe there will be any additional liability to the Company on a going forward
basis.
NOTE R - SUBSEQUENT
EVENTS
Subsequent
events have been evaluated through the date of the financial statements were
issued. All appropriate subsequent event disclosures, if any have been made in
notes to our Consolidated Financial Statements.
The
Variable Interest Entity owned by JCMD and included in these consolidated
financial statements sold the only asset it owned, which was real estate that
was under a lease with the Company, for $800,000 on November 30,
2010. This sale resulted in a net loss of approximately $400,000 and
left a remaining liability to the Small Business Administration of approximately
$500,000 which is guaranteed by the Company. This sale was treated as
an impairment loss in the September 30, 2010 financial statements.
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 for the first year($80,000
annually); $7,083.34 per month for the second year($85,000 annually); $7,416.67
per month($89,000 annually) for the third, or final, year of the lease, or an
aggregate of $254,000. The Company is responsible for all property
taxes, maintenance and utilities associated with the property.
On
January 11, 2011, the Board of Directors of the Company authorized the following
issuances of common stock (Based on registered prices):
93,750
shares at $0.08 per share (valued at $7,500) to Aegis Capital Corp for
investment banking services.
365,853
shares at $0.0205 per share (valued at $7,500) to Aegis Capital Corp for
investment banking services.
94,505
shares at $0.02 per share (valued at $1,890) to Southridge Partners, II, LP for
investment banking services.
5,137,500
shares at various prices per share (valued at $472,500) to Vision Capital in
lieu of cash dividends, which were accrued as of September 30,
2010.
F-25
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
During
the fiscal year ending September 30, 2010 the Company changed accounting firms
to Marcum, LLP. There were no disagreements in accounting principles
or other relevant issues. The Company merely decided it was time to have a new
firm audit the financial statements.
ITEM
9A. CONTROLS AND PROCEDURES.
Not
applicable
ITEM 9A
(T)
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURE
We
maintain disclosure controls and procedures, as defined in Rule 13a-15(e)
promulgated under the Exchange Act that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. We carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of September
30, 2010. Based on the evaluation of these disclosure controls and procedures,
and in light of the material weaknesses found in our internal controls, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective.
MANAGEMENT
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute assurance that a
misstatement of our financial statements would be prevented or detected. Under
the supervision of our Chief Executive Officer and Chief Financial Officer, the
Company conducted an evaluation of the effectiveness of our internal control
over financial reporting as of September 30, 2010 using the criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. In its assessment of the
effectiveness of internal control over financial reporting as of September 30,
2010, we determined that control deficiencies existed that constituted material
weaknesses, as described below:
O
|
lack
of documented policies and
procedures;
|
O
|
we
have no audit committee;
|
O
|
There
is a risk of management override given that our officers have a high
degree of involvement in our day to day
operations.
|
O
|
there
is no policy on fraud and no code of ethics at this time, though we plan
to implement such policies in fiscal 2010;
and
|
O
|
There
is no effective separation of duties, which includes monitoring controls,
between the members of management.
|
Management
is currently evaluating what steps can be taken in order to address these
material weaknesses.
Accordingly,
we concluded that these control deficiencies resulted in a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected on a timely basis by the Company's
internal controls.
As a
result of the material weaknesses described above, Chief Executive Officer and
Chief Financial Officer has concluded that the Company did not maintain
effective internal control over financial reporting as of September 30, 2010
based on criteria established in Internal Control—Integrated Framework issued by
COSO.
CHANGES
IN INTERNAL CONTROLS
During
the fiscal quarter ended September 30, 2010, there were no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B.
OTHER INFORMATION.
None.
Page
15
PART
III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Michael
Winzkowski, age 59 is the sole director of MWW. At present, MWW's directors
serve without compensation for acting as directors and do not receive any
special compensation for committee participation or special
assignments.
MWW does
not have a majority of independent directors, have a separately designated audit
committee nor a person designated as an audit committee member financial expert.
MWW does not have a majority of independent board members, separately designated
audit committee or an audit committee member financial expert because the cost
of identifying, interviewing, appointing, educating, and compensating such
persons would outweigh the benefits to its stockholders at the present time. If
MWW is successful in its efforts to secure additional capital, the resources may
be available to appoint additional directors.
In August
1997, Mr. Winzkowski (age 59) became Director of the Inalfa Industries Global
Aftermarket Operations, CEO of North America and a member of the Board of
Directors. In September 2000, Mr. Winzkowski left his position with Inalfa to
serve as the President of Marketing Worldwide. Mr. Winzkowski has served as
Chief Executive Officer, President, Secretary and Director of MWW Corporation
since October 2003. Mr. Winzkowski holds a degree in chemical Bio-Engineering
and in addition studied Business, Marketing and Accounting
Administration.
He is an
accomplished commercial pilot with close to 10,000 Hrs. of flight experience,
holding European and US Commercial, Air Transport Pilot and Instrument pilot
certificates and a variety of Turboprop and Business Jet type ratings along with
his single and multi-engine ratings. Mr. Winzkowski is a member and manager of
JCMD Properties LLC. MWW moved into a new facility in Howell, Michigan as its
principal business location, which was built to suit MWW's requirements by JCMD
Properties LLC under a long term lease agreement. (See Certain Relationships and
Related Transactions). JCMD LLC was formed in the state of Michigan on December
31, 2003 as a property development and management company.
DIRECTORS,
EXECUTIVE OFFICERS
Mr.
Winzkowski and Mr. Marvin have been the members and managers of JCMD Properties
LLC since its formation.
In August
1997 Mr. Marvin (age 55) became the COO and a member of the Board of Directors
of the North American Aftermarket entity of Inalfa Industries. In November 2000,
Mr. Marvin became the Managing Director of Operations and co-owner of Marketing
Worldwide. Since October 2003, James C. Marvin has served as Chief Operating
Officer, Chief Financial Officer and Director of MWW Corporation. Mr. Marvin
attended Lake Superior and Cleary Universities majoring in Business and obtained
degrees in Business Accounting and Business Administration. Mr. Marvin is a
member and manager of JCMD Properties LLC. MWW moved into a new facility in
Howell, Michigan as its principal business location, which was built to suit
MWW's requirements by JCMD Properties LLC under a long term lease agreement.
(See Certain Relationships and Related Transactions) JCMD LLC was formed in the
state of Michigan on December 31, 2003 as a property development and management
company. Mr. Winzkowski and Mr. Marvin have been the members and managers of
JCMD LLC since its formation. Effective October, 2009, During fiscal year ending
September 30, 2010, Mr. Marvin resigned from MWW and no longer holds any
management roles within the Company.
On July
20, 2010, Marketing Worldwide Corporation appointed Charles Pinkerton as the
Company’s Chief Executive Officer. Mr. Pinkerton is 57 years old and
has over 35 years’ experience working with Fortune 500 Corporations within the
automotive, petroleum, retail and construction arenas. Within these companies,
Mr. Pinkerton has held the positions as Vice President Sales & Marketing,
Director of Business Development and Director of Operations and has established
relationships with companies such as BP, Amoco, Citgo and
others. From 1998 to 2001, in his position as Executive Vice
President of Kux Manufacturing, Inc., a supplier of automotive products for the
US market, he has established longstanding relationships with companies such as
Honda, Nissan, GM, Toyota, Ford and Mazda among others. From 2001 until joining
MWW, he served as President and CEO of Kux Architectural Products and as
Director of Business for Engineered Tax Services.
On
October 10, 2009, Marketing Worldwide Corporation (the “Company”) appointed
James E. Davis as the Company’s Chief Financial Officer. Mr. Davis replaced
James Marvin, the Company’s former Chief Financial Officer. James Davis, 55, brings 30 years of experience in different positions
in the financial and automotive sectors, including public accounting as Audit
Manager at Coopers & Lybrand. In this capacity he audited middle market
companies’ financial reporting and assisted in taking privately owned companies
public. From 1999 through 2008, Mr. Davis was the Chief Financial Officer for
the Epoch Restaurant Group and Wisne Holdings. The Epoch Restaurant
Group owned and operated six restaurants and a full service catering company.
Wisne Holdings was a real estate and investment entity specializing in a
multitude of investments for profit. The Wisne Family created Wisne
Holdings after selling Progressive Tool & Industry Company, a tier 1
automotive supplier, where Mr. Davis was the financial controller following his
engagement with Coopers & Lybrand. As Controller for Progressive Tool &
Industry Company, Mr. Davis was responsible for new business development,
banking and investor relations and financial planning and reporting. From
January 2008 through August 2009, Mr. Davis focused on troubled companies and
participated in restructuring and turnaround efforts through CFO Associates,
LLC.
Page
16
Rainer
Poertner, Executive Vice President, has served as a consultant to the Company
since its inception. Mr. Poertner has a 23-year record of accomplishments in
founding, leading and consulting with private and publicly traded companies in
the USA and Europe. As founder, CEO, Chairman and majority shareholder of two
publicly traded companies; he was responsible for managing the companies'
financial, technical and business development and secured funding for
acquisitions and corporate working capital purposes through a network of private
investors and US and overseas investment banking firms.
Section
16(a) Beneficial Ownership Reporting Compliance
MWW is
not aware of any reporting person that failed to file on a timely basis, reports
required by Section 16(a) of the Exchange Act during the most recent fiscal
year.
Code of
Ethics
MWW does
not have a code of ethics but intends to implement a code of ethics in
2011.
ITEM 11.
EXECUTIVE COMPENSATION.
The
Summary Compensation Table below identifies the compensation to the officers of
MWW.
SUMMARY
COMPENSATION TABLE
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||||
Non-
|
|||||||||||||||||||||||||||||
Name
|
Nonequity
|
qualified
|
|||||||||||||||||||||||||||
and
|
incentive
|
deferred
|
All
|
||||||||||||||||||||||||||
Principal
|
Stock
|
Option
|
plan
|
compensation
|
other
|
||||||||||||||||||||||||
Position
|
Year
|
Salary($)
|
Bonus($)
|
Awards($)
|
Awards($)
|
compensation($)
|
earnings($)
|
compensation($)
|
Total
($)
|
||||||||||||||||||||
Michael
|
2010
|
0
|
0
|
10,000
|
0
|
0
|
0
|
0
|
10,000
|
||||||||||||||||||||
Winzkowski
|
2009
|
70,000
|
0
|
0
|
0
|
0
|
0
|
0
|
70,000
|
||||||||||||||||||||
President
and Chairman of the Board
|
2008
|
130,000
|
0
|
0
|
0
|
0
|
0
|
0
|
130,000
|
||||||||||||||||||||
Charles
Pinkerton
CEO
|
2010
2009
2008
|
5,000
0
0
|
5,000
0
0
|
||||||||||||||||||||||||||
James
Davis
CFO
|
2010
2009
2008
|
100,000
5,500
0
|
16,000
0
0
|
116,000
5,500
0
|
|||||||||||||||||||||||||
James
Marvin
|
2010
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||||||||||||
COO
|
2009
|
97,000
|
0
|
0
|
0
|
0
|
0
|
0
|
97,000
|
||||||||||||||||||||
|
2008
|
130,000
|
0
|
0
|
0
|
0
|
0
|
0
|
130,000
|
MWW did
not make any option or SAR grants in its last fiscal year and has not adopted a
long term incentive compensation plan.
Page
17
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
The
following table sets forth information regarding the beneficial ownership of our
common stock and preferred stock as of September 30, 2010, by each person known
by us to be the beneficial owner of more than 5% of our outstanding shares of
common stock; o each of our officers and directors; and o all our officers and
directors as a group.
Unless
otherwise indicated, all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
Security Ownership of
Certain Beneficial Owners and Management
(1)
|
(2)
|
(3)
|
(4)
|
|||
Title of Class
|
Name and Address of Beneficial Owner
|
Amount and Nature of
Class**
|
Percent
|
|||
|
|
|
|
|||
$.001 par value
common stock
|
Michael Winzkowski
PO Box 2462,
Palm Harbor, FL 34682-2462
Mgmt.
|
4,914,800 shares (a)
(direct)
|
14%
|
|||
|
|
|
|
|||
$.001 par value
common stock
|
James C. Marvin
4772 Schafer Road
|
2,032,400 shares (b)
(direct)
|
6
%
|
|||
$.001 par value
common stock
|
Pinckney, MI 48169
Mgmt.
|
200,000 Options
(direct)
|
||||
|
|
|
|
|||
$.001 par value
Common stock
|
Vision Opportunity Master Fund Ltd.
20th West 55th
New York, NY 10019
|
3,087,478
shares (c)
|
27%
|
|||
|
|
|
|
|||
$.001 par value
Common stock
|
Bonnie A. Hollister
366 Harvard St.
Howell, MI 48843
|
2,032,400 shares
|
6
%
|
|||
|
|
|
|
|||
$.001 par value
common stock
|
Wendover Investments Limited*
5th Floor, Zephyr House,
|
4,000 shares
(direct)
|
.04
%
|
|||
$.001 par value
common stock
underlying stock
options
|
Mary Street,
Grand Cayman, Cayman Islands
BWI
|
|
|
|||
$.001
par value common stock
|
JCMD,
real estate partnership that owns the Howell real estate, and is owned by
Michael Winzkowski and James Marvin
|
3,000,000
shares
|
9%
|
|||
$.001 par value
common stock
|
Rainer Poertner
730 Oxford Avenue
|
1,732,309 shares
(direct)
|
8%
|
|||
$.001 par value
common stock
underlying stock
option
|
Marina del Rey, CA 90292
Mgmt.
|
400,000 options
(direct)
|
|
|||
|
|
|
|
|||
$.001 par value
common stock
|
All directors and officers as a group (2)
individuals)
|
5,454,800
|
16%
|
|||
|
|
|
|
|||
Series A Convertible
Preferred Stock
|
Vision Opportunity Master Fund, Ltd.(c)
20 West 55th Street, 5th Floor
New York, NY 10019
|
3,500,000
|
100%
|
Page
18
* Wendover Investments Limited owns 4,000 shares of common stock and a common
stock purchase warrant to acquire up to 1,000,000 shares of common stock at
purchase price of $.50 per share. Mr. Robert Lyons is the principal of Wendover
Investments Limited. Under Rule 13(d) (1) a person is deemed the beneficial
owner if that person has the right to acquire the securities within 60 days
pursuant to options, warrants, conversion privileges or other
rights.
**
Percentages are based upon the amount of outstanding securities at September 30,
2010, of 29,510,091 shares, plus for each person or group, any securities that
person or group has the right to acquire within 60 days pursuant to options,
warrants, conversion privileges or other rights.
(a) Does
not include 1,000 shares purchased by Ms. Johanna Winzkowski in May 2004, the
mother of Michael Winzkowski. Michael Winzkowski disclaims any beneficial
ownership of the shares referred to in the preceding sentence.
(b) Does
not include 10,000 shares purchased by Ms. Joanne Marvin or 770 shares purchased
by Mr. Scott F. Marvin in May 2004, the mother and brother of James C. Marvin,
respectively. James C. Marvin disclaims any beneficial ownership of the shares
referred to in the preceding sentence.
D
Warrants allow the holder to purchase up to 2,500,000 shares of common stock at
a price of $.70 per share until June 23, 2012; the Series E Warrants allow the
holder to purchase up to 2,500,000 shares of common stock at a price of $.85 per
share until June 23, 2012; and the Series F Warrants allow the holder to
purchase up to 2,500,000 shares of common stock at a price of $1.20 per share
until April 23, 2012. All of the Warrants sold to Vision Opportunity Master
Fund, Ltd. contain anti-dilution protection and other rights. Further, the
transaction documents provided that Vision Opportunity Master Fund, Ltd. may not
acquire common stock upon conversion of the Series A Convertible Preferred Stock
or upon exercise of any warrants to the extent that, upon conversion or exercise
the number of shares of common stock beneficially owned would exceed 9.99% of
the issued and outstanding share of common stock of MWW. On September 27, 2007,
the Fund entered into Amendment No.1 (the "Series F Amendment"), by and among
the Issuer and the Fund whereby the Series F Warrant exercise price was
reduced to $0.01 per share. All other terms and provisions of the Series F
Warrant remain unmodified and in full force and effect. On September 27, 2007,
the Fund entered into Amendment No. 1 (the "Series J Amendment"), by and among
the Issuer and the Fund whereby the Series J Warrant exercise price was reduced
to $0.50 per share and the Ownership Cap and Exercise Restriction of 9.99% was
deleted in its entirety. All other terms and provisions of the Series J Warrant
remain unmodified and in full force and effect. Subsequent to the Series J
Amendment, the Fund exercised the Series J Warrant for four million (4,000,000)
shares of Common Stock of the Issuer at an exercise price of $0.50 leaving the
Series J Warrant with one million (1,000,000) shares of Common Stock available
for exercise.
On July
11, 2008, the Company entered an Exchange Agreement with holders of Series F
Common Stock Purchase Warrants and Series J Common Stock Purchase Warrants.
Under the Exchange Agreement, the Company issued 750,000 shares of Series B
Convertible Preferred Stock for the cancellation of 3,500,000 Series A Common
Stock Purchase Warrants, 3,500,000 Series B Common Stock Purchase Warrants,
3,500,000 Series C Common Stock Purchase Warrants, 2,500,000 Series D Common
Stock Purchase Warrants, and 2,500,000 Series E Common Stock Purchase Warrants.
In addition, holders exercised 1,000,000 Series J Warrants and 2,500,000 Series
F Warrants for $525,000 in exchange for 442,308 shares of Series B Convertible
Preferred Stock.
As of
September 30, 2009, the Company has 1,192,308 shares of Series B Preferred Stock
outstanding.
On
October 1, 2003, MWW acquired 100% of the membership interests in Marketing
Worldwide LLC, a Michigan limited liability company ("MWWLLC"), in a tax-free
exchange whereby MWWLLC became a wholly owned subsidiary of MWW. Under the
Purchase Agreement, the three selling members of MWWLLC were issued 9,600,000
shares of common stock. Michael Winzkowski received 4,564,800 shares, James C.
Marvin received 4,564,800 shares and Gregory G. Green received 470,400 shares of
MWW under the Purchase Agreement. Immediately following the transaction, Michael
Winzkowski and James C. Marvin became the officers and directors of MWW. Mr.
Winzkowski and Mr. Marvin serve as members of MWW's board of directors without
compensation.
Michael
Winzkowski, James C. Marvin, Gregory G. Green, Richard O. Weed and Rainer
Poertner are defined as promoters by the Securities Act Rules since each
directly or indirectly took initiative in founding and organizing the business
of MWW. Mr. Weed served as the sole Director, President, Secretary and Treasurer
of MWW from its inception on July 21, 2003 until the effective date of the
acquisition of MWWLLC on October 1, 2003. Mr. Weed was granted a Stock Option to
purchase 250,000 shares of MWW common stock at $1.00 per share that expires
December 31, 2008 as an incentive to represent MWW as legal counsel. Mr. Weed is
a partner in Weed & Co. LLP and has provided legal services to MWW under a
Fee Agreement since August 15, 2003. Mr. Poertner has provided consulting
services to MWWLLC since April 2003 and to MWW since August 2003. Under the
Consulting Agreement with MWW dated July 1, 2005, Mr. Poertner receives $10,000
per month plus expenses, which has been increased to $15,000 per month in April
of 2007.
On March
5, 2004, MWW and MWWLLC entered into a five year real property lease, beginning
on January 1, 2005 with a related party (JCMD Properties LLC See Note K) for use
of warehouse and general offices located in the city of Howell,
Michigan. The lease was terminated at the time the real estate was
sold to an unrelated party on November 30, 2010. The buyer of the
property was known to the sellers and the buyer’s Chief Financial Officer is the
former wife of one of the partners of JCMD.
MWW does
not have any independent directors.
Page
19
The
following table sets forth fees billed to us by our auditors during the fiscal
years ended September 30, 2010 and 2009 for: (i) services rendered for the audit
of our annual financial statements and the review of our quarterly financial
statements, (ii) services by our auditor that are reasonably related to the
performance of the audit or review of our financial statements and that are not
reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.
September
30,
|
September
30,
|
||||||||
2010
|
2009
|
||||||||
(i)
|
Audit
Fees
|
$
|
143,739
|
$
|
160,393
|
||||
(ii)
|
Audit
Related Fees
|
—
|
-
|
||||||
(iii)
|
Tax
Fees
|
-
|
7,500
|
||||||
(v)
|
All
Other Fees
|
—
|
—
|
||||||
Total
fees
|
$
|
143,739
|
$
|
167,893
|
AUDIT
FEES. Consists of fees billed for professional services rendered for the audit
of the Company's consolidated financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are provided by Marcum, LLP for the June 30, 2010 quarter and September 31,
2010 year end. Prior to that, RBSM LLP provided such services in
connection with statutory and regulatory filings or engagements.
AUDIT-RELATED
FEES. Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of MWW's
consolidated financial statements and are not reported under "Audit Fees." There
were no Audit-Related services provided in fiscal 2010 or 2009.
TAX FEES.
Consists of fees billed for professional services for tax compliance, tax advice
and tax planning.
ALL OTHER
FEES. Consists of fees for products and services other than the services
reported above.
POLICY ON
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS
The
Company currently does not have a designated Audit Committee, and accordingly,
the Company's Board of Directors' policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services and
other services. Pre- approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of
services and is generally subject to a specific budget. The independent auditors
and management are required to periodically report to the Company's Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See the
financial statements listed in Item 8.
(b)
Exhibits
(a)
EXHIBIT(S) DESCRIPTION
(3)(i)
Certificate of Incorporation * (3)(ii) Bylaws *
(4)(1)
Form of Common Stock Certificate *
(4)(2)
Common Stock Purchase Warrant with Wendover Investments Limited *
(4)(3)
Stock Option Agreement with Richard O. Weed *
(5)
Opinion on Legality *****
(10)(1)
Consulting Agreement with Rainer Poertner ***
(10)(2)
Fee Agreement with Weed & Co. LLP *
(10)(3)
Purchase Agreement MWW and MWWLLC *
(10)(4)
Amendment to Purchase Agreement between MWW and MWWLLC **
(10)(5)
Employment Agreement with CEO Michael Winzkowski **
(10)(6)
Employment Agreement with COO/CFO James Marvin **
(10)(7)
Loan Agreement with Key Bank N.A. ***
(10)(8)
Amendment to Consulting Agreement with Rainer Poertner ***
(10)(10)
Real Property Lease Agreement for 11224 Lemen Road, Suite A ****
(10)(11)
Real Property Lease Agreement for 11236 Lemen Road ****
(10)(12)
Supplier and Warranty Agreement ****
Page
20
(10)(13)
Business Loan Agreement April 4, 2006 with KeyBank N.A. ******
(10)(14)
Supplier and Warranty Agreement ****
(10)(15)
Blanket Purchase Order, Non-Disclosure and Confidentiality Agreement
******
(10)(16)
Lease Agreement and Amendment to Lease Agreement with JCMD Properties, LLC
******
(10)(17)
Consulting Agreement with Rainer Poertner dated July 1, 2006 ******
(10)(18)
Waiver of Cashless Exercise Provisions in Warrant by Wendover Investments Ltd.
*******
(10)(19)
Waiver of Cashless Exercise Provisions in Stock Option by Richard O. Weed
*******
(10)(20)
Extension of Employment Agreement with Michael Winzkowski dated October 15,
2006
(10)(21)
Extension of Employment Agreement with James Marvin dated (21) Subsidiaries of
Registrant *
(31)(1)
Certification of Chief Executive Officer pursuant to Section302 of the
Sarbanes-Oxley Act of 2002.
(31)(2)
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(32)(1)
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation
S-K.
(32)(2)
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation
S-K.
*
Previously filed on February 11, 2005 as part of the Registration Statement on
Form 10-SB12G of Marketing Worldwide Corporation SEC File 0-50586 Accession
Number 1019687-4-279.
**
previously filed on August 10, 2005 as part of the Registration Statement on
Form 10-SB12G/A Amendment No. 1 of Marketing Worldwide Corporation SEC File
0-50586 Accession Number 0001019687-04-001719.
***
previously filed on November 9, 2005 as part of the Registration Statement on
Form 10-SB12G/A Amendment No. 2 of Marketing Worldwide Corporation SEC File
0-50586 Accession Number 0001019687-04-002436.
****
Previously filed on January 31, 2006 as part of the Form 10-KSB for the year
ended September 30, 2005 of Marketing Worldwide Corporation SEC File 0-50586
Accession Number 0001019687-05-000207.
*****
previously filed on March 17, 2006 as part of the Form SB-2 of Marketing
Worldwide Corporation SEC File 333-123380 Accession Number
0001019687-05-000728.
******
previously filed on September 15, 2006 as part of the Form SB-2 of Marketing
Worldwide Corporation SEC File 333-123380 Accession Number
0001019687-05-002649.
*******
previously filed on December 7, 2006 as part of the Form SB-2 of Marketing
Worldwide Corporation SEC File 333-123380 Accession Number
0001019687-05-003367.
(31)(1)
Certification of Chief Executive Officer pursuant to Section302 of the
Sarbanes-Oxley Act of 2002.
(31)(2)
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(32)(1)
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation
S-K.
(32)(2)
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation
S-K.
Page
21
Pursuant
to the requirements of section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
MARKETING
WORLDWIDE CORPORATION
|
|||
|
BY:
|
/s/
Charles Pinkerton
|
|
NAME:
Charles Pinkerton
|
|||
TITLE:
CHIEF EXECUTIVE OFFICER
|
|||
Date:
January 19, 2011
|
Pursuant
to requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
BY:
|
/s/
Charles Pinkerton
|
|
NAME:
Charles Pinkerton
|
|||
TITLE:
CHIEF EXECUTIVE OFFICER,
|
|||
SECRETARY
AND DIRECTOR
|
|||
Date:
January 19, 2011
|
|
BY:
|
/s/
James E. Davis
|
|
NAME:
James E. Davis
|
|||
TITLE:
CHIEF FINANCIAL OFFICER
|
|||
Date:
January 19, 2011
|
Page
22