Attached files
file | filename |
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EX-32.2 - MARKETING WORLDWIDE CORP | v211459_ex32-2.htm |
EX-31.2 - MARKETING WORLDWIDE CORP | v211459_ex31-2.htm |
EX-31.1 - MARKETING WORLDWIDE CORP | v211459_ex31-1.htm |
EX-32.1 - MARKETING WORLDWIDE CORP | v211459_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(Mark
one)
x
|
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended December 31, 2010
|
¨
|
TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ______________ to _____________
Commission
File Number: 000-50586
MARKETING
WORLDWIDE CORPORATION
(Exact
name of registrant as specified in its charter)
DELAWARE
|
68-0566295
|
|
(State
of incorporation)
|
(IRS
Employer ID Number)
|
2212
GRAND COMMERCE DR.
HOWELL,
MICHIGAN 48855
(Address
of principal executive offices)
631-444-
8090
(Registrant's
telephone number, including area code)
NOT
APPLICABLE
(Former
name, former address and former fiscal year,
if
changed since last report)
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. x
Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act:
Large
accelerated filer
|
¨
|
Accelerated
filer ¨
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company x
|
(Do
not check if a smaller reporting
|
||
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes x No
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date, February 11,
2011: 37,202,199
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
Form 10-Q
for the Quarter ended December 31, 2010
Table of
Contents
PAGE
|
|
PART
I - FINANCIAL INFORMATION
|
|
ITEM
1 - FINANCIAL STATEMENTS
|
|
Condensed
Consolidated Balance Sheets as of December 31, 2010 (unaudited) and
September 30, 2010
|
F-1
|
Condensed
Consolidated Statements of Operations for the three months ended December
31, 2010 and 2009 (unaudited)
|
F-2
|
Condensed
Consolidated Statements of Cash Flows for the three months ended December
31, 2010 and 2009 (unaudited)
|
F-3
|
Notes
to unaudited Condensed Consolidated Financial Statements
(unaudited)
|
F-4
|
ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
2
|
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
10
|
ITEM
4T - CONTROLS AND PROCEDURES
|
10
|
PART
II - OTHER INFORMATION
|
10
|
ITEM
1 - LEGAL PROCEEDINGS
|
10
|
ITEM
1A – RISK FACTORS
|
10
|
ITEM
2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
10
|
ITEM
3 - DEFAULTS UPON SENIOR SECURITIES
|
10
|
ITEM
5 - OTHER INFORMATION
|
11
|
ITEM
6 - EXHIBITS
|
11
|
SIGNATURES
|
13
|
Page
1
MARKETING
WORLDWIDE CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
December 31,
|
September 30,
|
|||||||
2010
|
2010
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 33,056 | $ | 3,847 | ||||
Accounts
receivable, net
|
183,069 | 315,919 | ||||||
Inventories,
net
|
148,122 | 144,400 | ||||||
Other
current assets
|
- | 9,328 | ||||||
Total
current assets
|
364,247 | 473,494 | ||||||
Property,
plant and equipment, net
|
1,249,423 | 2,112,457 | ||||||
Other
assets:
|
||||||||
Capitalized
finance costs, net
|
172,112 | 205,457 | ||||||
Other
assets, net
|
- | 19,400 | ||||||
Total
other assets
|
172,112 | 224,857 | ||||||
Total
assets
|
$ | 1,785,782 | $ | 2,810,808 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
||||||||
Current
liabilities:
|
||||||||
Finance
Company line of credit
|
$ | 106,583 | $ | 209,986 | ||||
Notes
payable, current portion
|
1,124,660 | 1,863,961 | ||||||
Accounts
payable
|
1,286,621 | 1,302,177 | ||||||
Warranty
liability
|
95,000 | 95,000 | ||||||
Other
current liabilities
|
999,505 | 883,396 | ||||||
Current
liabilities of discontinued operations
|
492,006 | 492,006 | ||||||
Total
current liabilities
|
4,104,375 | 4,846,526 | ||||||
Long
term debt:
|
||||||||
Derivative
liability
|
414,343 | 1,186,670 | ||||||
Total
liabilities
|
4,518,718 | 6,033,196 | ||||||
Commitments
and contingencies
|
||||||||
Temporary
equity:
|
||||||||
Series
A convertible preferred stock, $0.001 par value; 3,500,000 shares issued
and outstanding
|
3,499,950 | 3,499,950 | ||||||
Permanent
equity:
|
||||||||
Stockholders'
Deficiency
|
||||||||
Series
B convertible preferred stock, $0.001 par value, 10,000,000 authorized;
1,192,308 shares issued and outstanding as of December 31, 2010 and
September 30, 2010
|
1,192 | 1,192 | ||||||
Common
stock, $0.001 par value, 100,000,000 shares authorized; 31,510,591 and
29,510,091 shares issued and outstanding as of December 31, 2010 and
September 30, 2010, respectively
|
31,510 | 29,510 | ||||||
Additional
paid in capital
|
8,284,859 | 8,244,894 | ||||||
Deficit
|
(13,945,974 | ) | (14,358,814 | ) | ||||
Accumulated
other comprehensive loss
|
(148,873 | ) | (148,873 | ) | ||||
Total
Marketing Worldwide Corporation stockholders' deficiency
|
(5,777,286 | ) | (6,232,090 | ) | ||||
Non
controlling interest
|
(455,600 | ) | (490,248 | ) | ||||
Total
stockholders' deficiency
|
(6,232,886 | ) | (6,722,338 | ) | ||||
Total
Liabilities and Stockholders' Deficiency
|
$ | 1,785,782 | $ | 2,810,808 |
See the
accompanying notes to the unaudited condensed consolidated financial
statements
F-1
MARKETING
WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended December 31,
|
||||||||
2010
|
2009
|
|||||||
Revenue
|
$ | 594,509 | $ | 1,192,166 | ||||
Cost
of goods sold
|
450,485 | 830,418 | ||||||
Gross
profit
|
144,024 | 361,748 | ||||||
Operating
expenses:
|
||||||||
Selling,
general and administrative expenses
|
327,226 | 773,395 | ||||||
Loss
from operations
|
(183,202 | ) | (411,647 | ) | ||||
Gain
(loss) on change in fair value of derivative liability
|
772,327 | (3,660,957 | ) | |||||
Financing
expenses
|
(70,808 | ) | (114,558 | ) | ||||
Loss
on disposal of assets
|
- | (7,567 | ) | |||||
Other
income (expense), net
|
7,921 | 17,754 | ||||||
Income
(Loss) from continuing operations
|
526,238 | (4,176,975 | ) | |||||
Loss
from discontinued operations
|
- | (112,138 | ) | |||||
Net
Income (Loss)
|
526,238 | (4,289,113 | ) | |||||
Income
attributable to Non-controlling interest
|
34,648 | 19,460 | ||||||
Income
(loss) attributable to Company
|
491,590 | (4,308,573 | ) | |||||
Preferred
stock dividend
|
(78,750 | ) | (78,750 | ) | ||||
NET
INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
|
$ | 412,840 | $ | (4,387,323 | ) | |||
Income
(loss) per common share, basic and diluted:
|
||||||||
Continuing
operations
|
$ | 0.01 | $ | (0.23 | ) | |||
Discontinued
operations
|
- | $ | (0.01 | ) | ||||
Total
|
$ | 0.01 | $ | (0.24 | ) | |||
Weighted
average common stock outstanding
|
||||||||
Basic
and diluted
|
31,205,743 | 18,358,352 | ||||||
Comprehensive
loss:
|
||||||||
Net
income (loss)
|
$ | 526,238 | $ | (4,289,113 | ) | |||
Foreign
currency translation, income
|
- | 27,456 | ||||||
Comprehensive
income (loss) attributable to the Company
|
526,238 | (4,210,657 | ) | |||||
Comprehensive
income attributable to non controlling interest
|
(34,648 | ) | (19,460 | ) | ||||
Comprehensive
income ( loss) attributable to Marketing Worldwide
Corporation
|
$ | 491,590 | $ | (4,230,117 | ) |
See the
accompanying notes to the unaudited condensed consolidated financial
statements
F-2
MARKETING
WORLDWIDE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE
MONTHS ENDED DECEMBER 30, 2010 AND 2009
(unaudited)
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss) attributable to continuing operations
|
$ | 526,238 | $ | (4,176,975 | ) | |||
Loss
from discontinued operations
|
- | (112,138 | ) | |||||
Net
income (loss)
|
526,238 | (4,289,113 | ) | |||||
Adjustments
to reconcile net income (loss) to cash (provided by)
operations:
|
||||||||
Depreciation
and amortization
|
65,868 | 85,827 | ||||||
Amortization
of deferred financing costs
|
33,345 | 33,345 | ||||||
Loss
on disposal of assets, net
|
7,567 | |||||||
Change
in fair value of derivative liability
|
(772,327 | ) | 3,660,957 | |||||
Fair
value of vested employee options
|
1,965 | 1,965 | ||||||
Common
stock issued for services rendered
|
40,000 | 12,000 | ||||||
Interest
in non controlling entity
|
- | (38,250 | ) | |||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
132,850 | 243,305 | ||||||
Inventory
|
(3,722 | ) | 55,061 | |||||
Other
current assets
|
9,328 | (255 | ) | |||||
Other
assets
|
19,400 | - | ||||||
Increase
(decrease) in:
|
||||||||
Accounts
payable
|
45,141 | 371,954 | ||||||
Other
current liabilities
|
37,359 | (49,374 | ) | |||||
Cash
provided by continuing operating activities
|
135,445 | 94,989 | ||||||
Cash
provided discontinued operating operations
|
- | 139,416 | ||||||
Net
cash provided by operating activities:
|
135,445 | 234,405 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase
of property and equipment, continuing operations
|
(2,834 | ) | - | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayments
of lines of credit
|
(103,403 | ) | (110,763 | ) | ||||
Repayments
of notes payable and capital leases
|
- | (24,827 | ) | |||||
Cash
used in continuing financing activities
|
(103,403 | ) | (135,590 | ) | ||||
Cash
used in discontinued financing activities
|
- | (18,608 | ) | |||||
Net
cash used in financing activities
|
(103,403 | ) | (154,198 | ) | ||||
Effect
of currency rate change on cash:
|
- | 27,456 | ||||||
Net
increase in cash and cash equivalents
|
29,209 | 107,663 | ||||||
Cash
and cash equivalents, beginning of period
|
3,847 | 114,482 | ||||||
Cash
and cash equivalents, end of period
|
33,056 | $ | 222,145 | |||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during year for interest
|
$ | 70,808 | $ | 87,173 | ||||
NON-CASH
TRANSACTIONS:
|
||||||||
Common
stock issued in settlement of debt
|
$ | - | $ | 78,950 | ||||
Settlement
of debt via sale of property
|
$ | 739,301 | - | |||||
Accounts
payable settled via sale of property
|
$ | 60,699 | - | |||||
Dividends
declared
|
$ | 78,750 | $ | 78,750 |
See the
accompanying notes to the unaudited condensed consolidated financial
statements
F-3
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 ended September 30, 2009 to reflect this as
discontinued operations.
Basis of
presentation
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the
opinion of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included. Accordingly,
the results from operations for the three month period ended December 31, 2010,
are not necessarily indicative of the results that may be expected for the year
ending September 30, 2011. The unaudited condensed consolidated financial
statements should be read in conjunction with the September 30, 2010 financial
statements and footnotes thereto included in the Company's SEC Form 10-K. The
Company has evaluated and included subsequent events through the filing date of
this Form 10-Q.
The
unaudited condensed 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 SIGNIFICANT ACCOUNTING POLICIES
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.
F-4
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Such
shares consist of the following at December 31, 2010 and 2009:
2010
|
2009
|
|||||||
Convertible
debt
|
312,500 | - | ||||||
Conversion
of Series A preferred stock
|
22,616,981 | 20,588,235 | ||||||
Warrants
|
100,000 | 100,000 | ||||||
Options
|
1,590,000 | 1,660,000 | ||||||
Totals
|
24,619,481 | 22,348,235 |
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 which were
not material during the three months ending December 31, 2010 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.
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 entity’s expected losses, receive a
majority of the entity's expected residual returns, or
both.
F-5
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
The
Variable Interest Entity included in these consolidated financial statements
sold the only asset it owned, which was real estate subject to a lease with the
Company, for $800,000 on November 30, 2010. This sale resulted in
a 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 loss was recorded as an impairment loss in the
September 30, 2010 financial statements.
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 three month periods ended December 31, 2010 and 2009 was approximately
$33,345 in each of the periods .
Recent accounting
pronouncements
In
December 2010, ASU Update No. 2010-28, Intangibles—Goodwill and Other (Topic
350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units
with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues
Task Force), addresses questions about entities that have reporting units with
zero or negative carrying amounts. The amendments in this Update modify Step 1
of the goodwill impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is required to perform
Step 2 of the goodwill impairment test if it is more likely than not that a
goodwill impairment exists. In determining whether it is more likely than not
that goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that impairment may exist. The
qualitative factors are consistent with the existing guidance and examples in
paragraph 350-20-35-30, which requires that goodwill of a reporting unit be
tested for impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. As a result, current GAAP will be improved
by eliminating an entity’s ability to assert that a reporting unit is not
required to perform Step 2 because the carrying amount of the reporting unit is
zero or negative despite the existence of qualitative factors that indicate the
goodwill is more likely than not impaired. As a result, goodwill impairments may
be reported sooner than under current practice. ASU Update no. 2010-28 is
effective for fiscal years, and interim periods within those years, beginning
after Dec. 15, 2010. Early adoption is not permitted. The adoption of ASU
2010-20 is not expected to have a material effect on our financial
statements.
F-6
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In July
2010, the FASB issued Accounting Standards Update 2010-20 which amends
“Receivables” (Topic 310). ASU 2010-20 is intended to provide additional
information to assist financial statement users in assessing an entity’s risk
exposures and evaluating the adequacy of allowances for credit losses. The
disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures
about activity that occurs during a reporting period are effective for interim
and annual reporting periods beginning on or after December 15, 2010. The
amendments in ASU 2010-20 encourage, but do not require, comparative disclosures
for earlier reporting periods that ended before initial adoption. However, an
entity should provide comparative disclosures for those reporting periods ending
after initial adoption. The Company did not have a significant impact on its
financial statements with the adoption of ASU 2010-20.
There
were various other updates recently issued, most of which represented technical
corrections to the accounting literature or application to specific industries
and are not expected to a have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
NOTE
C - GOING CONCERN MATTERS AND TRIGGERING EVENTS
The
accompanying unaudited condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
shown in the accompanying unaudited condensed consolidated financial statements
during the three month period ended December 31, 2010, the Company incurred an
operating loss of approximately $183,000.
The
Company has incurred substantial recurring losses. The accompanying
unaudited 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 approximately
$33,000 at December 31, 2010, although during the three months ended
December 31, 2010, the Company’s operating activities generated cash
of approximately $75,000. The Company’s working capital
deficiency was approximately $3,740,000 and $4,373,000 as of December 31, 2010
and September 30, 2010, respectively. The Company’s accumulated
deficit was approximately $13,900,000 and $14,400,000 as of December 31, 2010
and September 30, 2010, respectively. In addition, the Company has a
stockholders’ deficit of approximately $6,200,000 at December 31,
2010. The Company has pledged all of its assets to Summit Financial
Resources (Summit) as security for the Summit loan agreement.
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.
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. CT currently has submitted quotes for new business
opportunities aggregating approximately $7 million in revenue.
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.
The above
factors raise substantial doubt about the Company’s ability to continue as a
going concern. 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-7
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
D – INVENTORIES
Inventories
The
inventories at December 31, 2010 and September 30, 2010 are as
follows:
December 31,
2010
|
September 30,
2010
|
|||||||
Work
in process
|
$ | 77,278 | $ | 65,866 | ||||
Finished
goods
|
70,844 | 78,534 | ||||||
Totals
|
$ | 148,122 | $ | 144,400 |
NOTE
E - COMMITMENTS AND CONTINGENCIES
Related party lease
obligations and transactions
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.
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 $6,667 for the first year($80,000
annually); $7,083 per month for the second year ($85,000 annually); $7,417 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.
F-8
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
E - COMMITMENTS AND CONTINGENCIES (continued)
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 F - LINE OF
CREDIT
In
August, 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.
F-9
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
F - LINE OF CREDIT (continued)
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
December 31, 2010, the advance balance due to Summit was $106,583 The
interest rate at December 31, 2010 was 4.25%.
NOTE
G - NOTES PAYABLE
At
December 31, 2010 and September 30, 2010, notes payable consists of the
following:
December 31,
2010
|
September 30, 2010
|
|||||||
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 addition to the Company the JCMD General
Partners personally guarantee the loan.
|
$ | - | $ | 669,352 | ||||
JCMD
Mortgage loan payable in 240 monthly principal installments plus interest.
The loan was secured by a second deed of trust on real property and
improvements located in Howell, MI. In addition to the Company the JCMD
General Partners personally guarantee the loan The note is in default.
(*)
|
489,755 | 538,800 | ||||||
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. (**)
|
608,621 | 620,595 | ||||||
Other
|
26,284 | 35,214 | ||||||
Total
|
1,124,660 | 1,863,961 | ||||||
Less
current portion
|
1,124,660 | 1,863,961 | ||||||
Long
term portion
|
$ | -0- | $ | 0 |
F-10
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
G - NOTES PAYABLE (continued)
(*) 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 $490,000 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.
NOTE
H – OTHER CURRENT LIABILITIES
Other
current liabilities consist of the following at December 31, 2010 and September
30, 2010:
December 31,
2010
|
September 30,
2010
|
|||||||
Preferred
dividends payable
|
$ | 551,250 | $ | 472,500 | ||||
Consulting
fees
|
125,700 | 112,200 | ||||||
Interest
|
159,277 | 163,202 | ||||||
Payroll
and other
|
163,278 | 135,494 | ||||||
Totals
|
$ | 999,505 | $ | 883,396 |
NOTE
I - 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-11
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 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:
December 31,
|
September 30,
|
Date of
|
||||||||||
2010
|
2010
|
issuance
|
||||||||||
Imbedded
Conversion Feature:
|
||||||||||||
Risk-free
rate
|
0.42 | % | 0.42 | % | 4.55 | % | ||||||
Annual
rate of dividends
|
0 | 0 | 0 | |||||||||
Volatility
|
372.13 | % | 336.73 | % | 146.64 | % | ||||||
Weighted
Average life (years)
|
1.31 | 1.56 | 5.0 | |||||||||
Fair
Value
|
$ | 414,343 | $ | 1,186,670 | $ | 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
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 conversion feature was recorded as decrease in
accumulated deficit of $1,971,115. As of December 31, 2010,
derivative liability associated with the embedded conversion features, was
revalued, the $772,327 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 three
month period ended December 31, 2010.
F-12
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
I - CAPITAL STOCK (continued)
Series B Preferred
stock
As of
December 31, 2010, the Company has 1,192,308 shares of Series B Preferred Stock
outstanding.
Common
stock
On
October 25, 2010, the Company issued 2,000,000 shares of common stock in
exchange for services valued at $40,000. These shares were valued at
$0.02 per share, which was the trading price on October 25,
2010.
F-13
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
J - STOCK OPTIONS
Employee Stock
Options
The
Company granted no employee options during the three month period ended December
31, 2010. The Company recorded the fair value of the vested portion of issued
employee options of $1,965 for the three month periods ended December 31, 2010
and 2009, respectively.
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 December 31, 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
|
6.65
|
$
|
0.30
|
490,000
|
|||||||||||
$ |
0.30
|
100,000
|
.67
|
$
|
0.30
|
100,000
|
|||||||||||
590,000
|
3.66
|
$
|
0.30
|
590,000
|
During
the three month period ended December 31, 2010 and 2009, there were no Employee
Stock Options either granted or expired or cancelled. In addition, as
of December 31, 2010, the Company has no remaining unamortized stock
compensation costs relating to the 590,000 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,
September 30, 2010
|
590,000
|
$
|
.30
|
|||
Granted
|
-
|
-
|
||||
Exercised
|
-
|
-
|
||||
Canceled
or expired
|
-
|
-
|
||||
Outstanding,
December 31, 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 December 31, 2010:
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 | .00 | $ | 0.10 | 1,000,000 | $ | 0.10 |
F-14
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
J - STOCK OPTIONS (continued)
Weighted Average
Number of Options
|
Weighted Average
Excercise
Price per
Share
|
|||||||
Outstanding,
September 30, 2010
|
1,000,000
|
$
|
0.10
|
|||||
Granted
/ Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding,
December 31, 2010
|
1,000,000
|
$
|
0.10
|
There was
no intrinsic value of the options as the market value of the stock was $0.02,
which is less than the option price.
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 December 31, 2010:
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 | 0.75 | $ | 0.30 | 100,000 | $ | 0.30 |
|
Weighted Average
Number of Shares
|
Price per
Share
|
||||||
Outstanding,
September 30, 2010
|
100,000
|
0.30
|
||||||
Granted
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Canceled
or expired
|
-
|
-
|
||||||
Outstanding,
December 31, 2010
|
100,000
|
$
|
0.30
|
NOTE
K - CONSOLIDATION OF VARIABLE INTEREST ENTITIES
On June
6, 2005 and August 8, 2005, JCMD Properties LLC, an entity controlled by the
Company's former 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.
F-15
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
K - CONSOLIDATION OF VARIABLE INTEREST ENTITIES (continued)
The
property was 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, the Company determined that JCMD was a
variable interest entity ("VIE") and the Company was the primary beneficiary
under ASC 810-10 since JCMD did 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 former 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 December 31, 2010 and September
30, 2010 are the following net assets of JCMD:
December
31,
2010
|
September
30,
2010
|
|||||||
ASSETS
(JCMD)
|
||||||||
Cash
and cash equivalents
|
$
|
-
|
$
|
755
|
||||
Accounts
receivable, prepaid expenses and other current assets
|
193,433
|
150,400
|
||||||
Total
current assets
|
193,433
|
151,155
|
||||||
Property,
plant and equipment, net
|
-
|
800,000
|
||||||
Total
assets
|
193,433
|
951,155
|
||||||
LIABILITIES:
|
|
|||||||
Current
portion of long term debt
|
489,755
|
1,208,152
|
||||||
Accounts
payable and accrued liabilities
|
159,277
|
233,251
|
||||||
Total
current liabilities
|
649,032
|
1,441,403
|
||||||
Total
liabilities
|
649,032
|
1,441,403
|
||||||
Net
assets
|
$
|
(455,599
|
)
|
$
|
(490,248
|
) |
F-16
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
K - CONSOLIDATION OF VARIABLE INTEREST ENTITIES (continued)
Consolidated
results of operations include the following for the three months ended December
31, 2010 and 2009:
December
31,
2010
|
December
31,
2009
|
|||||||
Revenues
|
$
|
34,000
|
$
|
51,000
|
||||
Cost
and expenses - real estate: Operating expenses, net
|
9,766
|
2,763
|
||||||
Depreciation
|
-
|
8,000
|
||||||
Interest,
net
|
(10,414
|
20,777
|
||||||
Total
costs and expenses
|
(648
|
) |
31,540
|
|||||
Operating
income-Real estate
|
$
|
34,649
|
$
|
19,460
|
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 loss was recorded
as an impairment loss in the September 30, 2010 financial
statements.
NOTE
L - 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.
To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the
F-17
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
L - FAIR VALUE OF FINANCIAL INSTRUMENTS(continued)
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 unaudited condensed consolidated financial statements
consisted of the following items as of December 31, 2010:
|
Fair Value Measurements at December
31, 2010 using:
|
|||||||||||||||
|
December
31,
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
|
$
|
414,343
|
$
|
414,343
|
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 is classified within Level 3 of the valuation hierarchy.
The
following table provides a summary of changes in fair value of the Company’s
Level 3 financial liabilities as of December 31, 2010:
Derivative
Liability
|
||||
Balance,
October 1, 2010
|
$
|
1,186,670
|
||
Change
in fair value at December 31, 2010
|
(772,327
|
) | ||
Balance,
December 31, 2010
|
$
|
414,343
|
Level 3
Liabilities comprised of our bifurcated reset provision contained within our
Series A stock and the fair value of issued reset provisions.
NOTE
M – 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 unaudited condensed 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-18
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
M – DISCONTINUED OPERATIONS (continued)
The
assets and liabilities of the discontinued operations as of December 31, 2010
and September 30, 2010 were as follows:
Assets:
December 31,
2010
|
September 30,
2010
|
|||||||
Cash
|
$
|
-
|
$
|
-
|
||||
Accounts
receivable
|
-
|
-
|
||||||
Inventories
|
-
|
-
|
||||||
Prepaid
expenses and other assets
|
-
|
-
|
||||||
Total
current assets
|
-
|
-
|
||||||
Other
assets of discontinued operations
|
-
|
-
|
||||||
Assets
of discontinued operations
|
$
|
-
|
$
|
-
|
||||
Liabilities:
|
||||||||
Accounts
payable
|
$
|
492,006
|
$
|
492,006
|
||||
Line
of credit
|
-
|
-
|
||||||
Liabilities
of discontinued operations
|
$
|
492,006
|
$
|
492,006
|
The
Results of Operations for the three month periods ended December 31, 2010 and
2009 are as follows:
December
31,
2010
|
December
31,
2009
|
|||||||
Sales
|
$
|
-
|
$
|
316,110
|
||||
Cost
of sales
|
-
|
266,556
|
||||||
Gross
profit (loss)
|
-
|
49,554
|
||||||
Operating
Costs:
|
||||||||
Selling,
general and administrative
|
-
|
153,543
|
||||||
Depreciation
and amortization
|
-
|
11,639
|
||||||
Total
operating costs
|
-
|
165,182
|
||||||
Net
loss from operations
|
-
|
(115,628
|
)
|
|||||
Other
income (expense), net
|
-
|
4,126
|
||||||
Net
loss
|
$
|
$
|
(112,138
|
)
|
NOTE
N - SUBSEQUENT EVENTS
Subsequent
events have been evaluated through the date the financial statements were
issued. All appropriate subsequent event disclosures, if any have been made in
notes to our Consolidated Financial Statements.
On
January 11, 2011, the Board of Directors of the Company authorized the following
issuances of common stock .
93,750
shares at $0.08 per share (valued at $7,500) to Aegis Capital Corp for
investment banking services.
F-19
MARKETING
WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
N - SUBSEQUENT EVENTS (continued)
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, or $0.092 per share) to
Vision Capital in lieu of cash dividends, which were accrued as of September 30,
2010.
F-20
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
THIS
REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS IN THIS REPORT ARE INDICATED BY WORDS SUCH AS "ANTICIPATES,"
"EXPECTS," "BELIEVES," "INTENDS," "PLANS," "ESTIMATES," "PROJECTS" AND SIMILAR
EXPRESSIONS. THESE STATEMENTS REPRESENT OUR EXPECTATIONS BASED ON CURRENT
INFORMATION AND ASSUMPTIONS. FORWARD-LOOKING STATEMENTS ARE INHERENTLY SUBJECT
TO RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE WHICH ARE ANTICIPATED OR PROJECTED AS A RESULT OF CERTAIN RISKS
AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO A NUMBER OF FACTORS, SUCH AS
ECONOMIC AND MARKET CONDITIONS; THE PERFORMANCE OF THE AUTOMOTIVE AFTERMARKET
SECTOR; CHANGES IN BUSINESS RELATIONSHIPS WITH OUR MAJOR CUSTOMERS AND IN THE
TIMING, SIZE AND CONTINUATION OF OUR CUSTOMERS' PROGRAMS; THE ABILITY OF OUR
CUSTOMERS TO ACHIEVE THEIR PROJECTED SALES; COMPETITIVE PRODUCT AND PRICING
PRESSURES; INCREASES IN PRODUCTION OR MATERIAL COSTS THAT CANNOT BE RECOUPED IN
PRODUCT PRICING; SUCCESSFUL INTEGRATION OF ACQUIRED BUSINESSES; PRODUCT
LIABILITY, AS WELL AS OTHER RISKS AND UNCERTAINTIES, SUCH AS THOSE
DESCRIBED
UNDER
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND THOSE DETAILED
HEREIN AND FROM TIME TO TIME IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION. THOSE FORWARD-LOOKING STATEMENTS ARE MADE ONLY AS OF THE DATE
HEREOF, AND WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE THE FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
INCLUDED ELSEWHERE IN THIS FORM 10-Q
BUSINESS
OVERVIEW
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 unaudited
condensed consolidated 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.
Page
2
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
Several
of the vehicles MWW currently provides accessories to are changing models this
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. CT currently has submitted quotes for new business
opportunities aggregating approximately $7 million in revenue.
RECENT
DEVELOPMENTS
In
August, 2009, the Company entered into a 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.
Page
3
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 have been treated as a loss from discontinued
operations in these unaudited condensed 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.
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
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. Though its strategic alliances,
Colortek has currently quoted approximately $7 million of new
business.
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.
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.
Page
4
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.
OPERATING
ACTIVITIES. During the three months ended December 31, 2010, we provided
$135,445 of cash flow in operations, which was primarily the result of an
intense collection effort of accounts receivables.
INVESTING
ACTIVITIES. During the three months ended December 31 2010, net cash use from
investing activities was $2,834 for the purchase of equipment.
FINANCING
ACTIVITIES. During the three months ended December 31, 2010, net cash flow used
in financing activities amounted to $103,403. The net cash flow from our
operating activities and the sale of the property was used primarily to pay down
our line of credity.
MWW
expects its regular capital expenditures to be approximately $160,000 for fiscal
2011. These anticipated expenditures are for continued investments in property,
tooling, and equipment used in our business. We have not identified
the sources of funds to fund this capital need.
The
independent auditors report on our September 30, 2010 financial statements
states that our difficulty in generating sufficient cash flow to meet our
obligations and sustain operations raises substantial doubts about the our
ability to continue as a going concern. These unaudited condensed
consolidated financial statements as of December 31, 2010 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 develop profitable
operations. In addition, at December 31, 2010, the Company was in default on
certain secured credit facilities.
As of
December 31, 2010, we had a working capital deficit of approximately
$3,700,000. Although the Company has reduced various overhead costs,
it will be necessary to obtain equity investments to fund future
projects.
RESULTS
OF OPERATIONS
COMPARISON
OF THREE MONTHS ENDED DECEMBER 31, 2010 TO THE THREE MONTHS ENDED DECEMBER 31,
2009:
Page
5
Revenues
Net
revenues were approximately $600,000 for the first quarter ended December 31,
2010. Our revenues decreased approximately $600,000 from the first quarter ended
December 31, 2009. This 50% decrease is due to changing vehicle models
which is normal when new models are going to be launched and customers are not
accessorizing existing models in their effort to reduce inventory
levels. We are currently in the design phase of creating new spoilers
and body-side moldings for the new vehicles expecting to be launched this
summer. 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
MWW's
gross profit margin as a percentage of revenues are relatively flat for the
three months ended December 31, 2010 and 2009. We are quoting on
higher profit margin products for 2011 and expect an improvement in margins as
we get further into 2011.
The
primary components of cost of sales are direct labor and cost of parts and
materials. The Company has reduced head count which has stabilized
gross profit. The cost of parts and materials have been consistent from year to
year.
OPERATING
EXPENSES
Selling,
general, and administrative expenses were $327,226 (55 % of revenues) for the
first quarter ended December 31,2010 compared to $773,395 (65 % of revenues)
during the same quarter ended December 31,2009. 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
business insurances. The Company is reducing head count which is
driving the decrease in the cost as a percentage of revenue in fiscal
2011.
OTHER
INCOME (EXPENSES)
Financing
expenses were $70,808 and $114,558 for the three month periods ending December
31, 2010 and 2009, respectively. This decrease is due primarily to the
elimination of the bank debt on the building in Howell Michigan and the reduced
borrowing levels against our line of credit
LIQUIDITY
AND CAPITAL RESOURCES
As of
December 31, 2010 we had working capital deficit of approximately $3,700,000. We
reported positive cash flow from operating activities of $135,445, negative cash
flow from investing activities of $2,834 and negative cash flow from financing
of $103,403 due primarily to the pay down on our line of credit.
Page
6
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.
GAIN ON
CHANGE IN FAIR VALUE OF DERVIATIVE LIABILITY. As described in
our accompanying financial statements, our Series A Preferred Stock has certain
reset provisions. On October 1, 2009 in accordance with Accounting
Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in
Entity’s Own Equity (“ASC 815-40”) we recorded the initial fair value of the
reset provision as a liability with an offset to equity and subsequently mark to
market the reset provision liability at each reporting cycle.
At
December 31, 2010, the reset provision liability fair value decreased from
$1,186,670 at September 30, 2010 to $414,343 resulting in non-cash income in the
current period of $772,327. The changes in the market price of our
common stock has affected the fair value of the reset provision
liability.
NET
INCOME increased by $4,800,162 to income of $526,238 from a loss of
($4,289,113). The increase was primarily attributed to the gain on the change of
fair value of the derivative liability during the three months ended December
31, 2010 as compared to a loss of $3,660,957 for the same period last
year.
LIQUIDITY
AND GOING CONCERN
The
independent registered public accounting firm’s report on our September 30, 2010
year end financial statements 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 accompanying unaudited condensed 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.
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. CT currently has submitted quotes for new business
opportunities aggregating approximately $7 million in revenue.
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.
Page
7
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
liability
|
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 used to lease warehouse and general offices
located in the city of Howell, Michigan. On November 30, 2010, the
VIE sold the property for $800,000, which was approximately $500,000 less than
the outstanding indebtedness. Because the Company is a guarantor of
this remaining debt, we are continuing to include the VIE in our financial
statements.
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.
Page
8
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
are 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. The allowance for doubtful
accounts was approximately $20,000 at December 31, 2010 and September 30,
2010.
STOCK-BASED
COMPENSATION
The
Company has adopted the fair value provisions for share-based awards pursuant to
ASC 718-10, using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in 2006 includes (a)
compensation cost for all share-based awards granted prior to, but not yet
vested as of January 1, 2006, based on the attribution method and grant date
fair value estimated in accordance with the original provisions of ASC 718-10,
and (b) compensation cost for all share-based awards granted subsequent to
January 1, 2006, based on the grant-date fair value estimated in accordance with
the provisions of ASC 718-10, all recognized on a straight line basis as the
requisite service periods are rendered.
Page
9
DERIVATIVE
LIABILTY
Accounting
Standards Codification subtopic 815-40, Derivatives and Hedging,; Contracts in
Entity’s own Equity (“ASC 815-40”) became effective for the Company on January
1, 2010. 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.
We have
identified the policies discussed as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations is discussed throughout
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," where such policies affect our reported and expected financial
results. For a detailed discussion on the application of these and other
accounting policies see the Notes to the Financial Statements of our Report on
Form 10K. Note that our preparation of this Quarterly Report on Form 10-Q
requires us to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
OFF-BALANCE
SHEET ARRANGEMENTS
We do not
have any off-balance sheet arrangements.
ITEM 3. –
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.
ITEM 4.
Controls and Procedures
a)
Evaluation of Disclosure Controls and Procedures. As of December 31, 2010, the
Company's management carried out an evaluation, under the supervision of the
Company's Chief Executive Officer and the Chief Financial Officer of the
effectiveness of the design and operation of the Company's system of disclosure
controls and procedures pursuant to the Securities and Exchange Act, Rule
13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of
these disclosure controls and procedures, and in light of the material
weaknesses previously found in our internal controls, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were not effective.
b)
Changes in internal controls. There were no changes in internal controls over
financial reporting, known to the Chief Executive Officer or Chief Financial
Officer that occurred during the period covered by this report that has
materially affected, or is likely to materially effect, the Company's internal
control over financial reporting.
PART II -
OTHER INFORMATION
ITEM 1.
Legal Proceedings
There are
no current legal proceedings.
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3.
Defaults upon Senior Securities
None.
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10
ITEM 5.
Other Information
None.
ITEM 6.
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 ****
(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
******
1(0)(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.
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11
******
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
12
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:
February 13, 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/
MICHAEL WINZKOWSKI
|
|
NAME:
MICHAEL WINZKOWSKI
|
||
TITLE:
PRESIDENT, CHAIRMAN OF THE BOARD,
|
||
SECRETARY
AND SOLE DIRECTOR
|
||
Date:
February 13, 2011
|
||
BY:
|
/s/
JAMES E. DAVIS
|
|
NAME:
JAMES E. DAVIS
|
||
TITLE:
CHIEF FINANCIAL OFFICER
|
||
Date:
February 13, 2011
|
BY:
|
/s/
CHARLES PINKERTON
|
|
NAME:
CHARLES PINKERTON
|
||
TITLE:
CHIEF EXECUTIVE OFFICER
|
||
Date:
February 13, 2011
|
Page
13