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, 2008
|_| 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)
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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 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 18, 2009: 16,845,091
MARKETING WORLDWIDE CORPORATION
Form 10-Q for the Quarter ended December 31, 2008
Table of Contents
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS 2
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 21
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
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ITEM 4 - CONTROLS AND PROCEDURES 25
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 26
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ITEM 2 - RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS 26
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ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 26
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
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ITEM 5 - OTHER INFORMATION 26
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ITEM 6 - EXHIBITS 27
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SIGNATURES 28
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Page 1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
2008 2008
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 776,793 $ 1,003,071
Accounts receivable 1,073,679 1,150,871
Inventories 985,421 1,107,478
Deferred income taxes 131,366 188,271
Other current assets 70,943 102,577
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Total current assets 3,038,202 3,552,268
Property, plant and equipment, net 3,369,267 3,456,624
Other assets:
Other intangible assets 102,500 110,000
Capitalized finance costs, net 436,698 470,043
Other assets, net 71,579 71,412
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Total assets $ 7,018,246 $ 7,660,347
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Bank line of credits $ 648,963 $ 400,000
Notes payable and capital leases, current portion 1,343,809 122,920
Accounts payable 876,535 865,058
Warranty liability 126,983 126,983
Other current liabilities 595,870 621,117
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Total current liabilities 3,592,160 2,136,078
Long term debt:
Notes payable, long term 643,505 1,886,858
Capital leases, long term 32,303 38,230
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Total liabilities 4,267,968 4,061,166
Interest in non-controlling entity -- 134,298
Series A convertible preferred stock, $0.001 par value;
3,500,000 shares issued and outstanding 3,499,950 3,499,950
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, 2008 and September 30, 2008 1,192 1,192
Common stock, $0.001 par value, 100,000,000 shares authorized;
16,845,091 and 16,545,091 shares issued and outstanding as of
December 31, 2008 and September 30, 2008, respectively 16,845 16,545
Additional paid in capital 9,139,087 8,993,683
Accumulated Deficit (9,819,986) (8,961,715)
Accumulated other comprehensive income (loss) (86,810) (84,772)
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Total stockholders' (deficiency) (749,672) (35,067)
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Total Liabilities and Stockholders' (Deficiency) $ 7,018,246 $ 7,660,347
=========== ===========
See the accompanying notes to the unaudited condensed consolidated financial statements
Page 2
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MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended December 31,
2008 2007
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Sales, net $ 1,143,994 $ 2,396,864
Services 252,166 336,058
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Total revenue 1,396,160 2,732,922
Cost of sales:
Cost of goods sold 794,145 1,413,785
Cost of services provided 126,129 224,279
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Total cost of sales 920,274 1,638,064
Gross profit 475,886 1,094,858
Operating expenses:
Selling, general and administrative expenses 1,155,115 1,349,771
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Loss from operations (679,229) (254,913)
Financing expenses (232,647) (120,711)
Other income (expense), net 17,307 7,435
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Loss before provision for income taxes (894,569) (368,189)
Provision for income taxes (benefit) -- (4,388)
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Loss before non-controlling entity interest (894,569) (363,801)
Loss (Income) from non-controlling entity interest 36,298 (9,158)
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NET LOSS $ (858,271) $ (372,959)
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Loss per share, basic $ (0.05) $ (0.02)
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Loss per share, fully diluted $ (0.05) $ (0.02)
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Weighted average common stock outstanding
Basic 16,698,352 15,763,080
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Fully Diluted 16,698,352 15,763,080
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Comprehensive loss:
Net Loss $ (858,271) $ (372,959)
Foreign currency translation loss (2,038) 4,192
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Comprehensive loss $ (860,309) $ (368,767)
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See the accompanying notes to the unaudited condensed consolidated financial statements
Page 3
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MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended December 31,
2008 2007
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (858,271) $ (372,959)
Adjustments to reconcile net income (loss) to cash (used in)
operations:
Depreciation and amortization 107,035 98,454
Amortization of deferred financing costs 33,345 33,346
Fair value of vested employee options 65,704 --
Interest in non controlling entity (36,298) 9,158
(Increase) decrease in:
Accounts receivable 77,192 (251,092)
Inventory 122,057 (235,134)
Other current assets 88,539 (20,037)
Other assets (167) 144,664
Increase (decrease) in:
Accounts payable 91,477 471,252
Other current liabilities (25,247) (77,577)
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Net cash used in operating activities: (334,634) (199,925)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (12,178) (456,371)
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Net cash used in investing activities: (12,178) (456,371)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution by non controlling entity (98,000) --
Proceeds from common stock subscription -- 2,000,000
Proceeds from (repayments of) lines of credit 248,963 (600,000)
Proceeds from (repayments of) notes payable and capital
leases (28,391) (31,708)
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Net cash provided by financing activities 122,572 1,368,292
Effect of currency rate change on cash: (2,038) 4,192
Net (decrease)increase in cash and cash equivalents (226,278) 716,188
Cash and cash equivalents, beginning of period 1,003,071 2,270,313
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Cash and cash equivalents, end of period $ 776,793 $ 2,986,501
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 30,345 $ 44,099
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Cash paid during year for taxes $ -- $ --
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NON-CASH TRANSACTIONS:
Common stock issued in settlement of debt $ 80,000 $ --
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See the accompanying notes to the unaudited condensed consolidated financial statements
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MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
GENERAL
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 30, 2008, are not necessarily indicative of the results that may be
expected for the year ended September 30, 2009. The unaudited condensed
consolidated financial statements should be read in conjunction with the
September 30, 2008 financial statements and footnotes thereto included in the
Company's SEC Form 10K.
BUSINESS AND BASIS OF PRESENTATION
Marketing Worldwide Corporation (the "Company", "Registrant" or "MWW"), is
incorporated under the laws of the State of Delaware in July 2003. The Company
is engaged, through its wholly-owned subsidiary, Marketing Worldwide LLC
("MWWLLC"), in the design, import and distribution of automotive accessories for
motor vehicles in the automotive aftermarket industry and provides design
services for large automobile manufacturers. The Company operates the wholly
owned subsidiary Colortek, Inc in Baroda Michigan and Modelworxx GmbH in Munich,
Germany.
The consolidated financial statements include the accounts of the Registrant and
its wholly-owned subsidiaries, Marketing Worldwide LLC, Colortek, Inc., MW
Global Limited which owns 100% of the outstanding ownership and economical
interest in Modelworxx GmbH. Effective January 1, 2005, the consolidated
financial Statements also include a variable interest entity (VIE) of which the
LLC is the primary beneficiary as further described in Note H. All significant
inter-company transactions and balances, including those involving the VIE, have
been eliminated in consolidation.
REVENUE RECOGNITION
For revenue from products and services, the Company recognizes revenue in
accordance with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 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 have been rendered or no refund will be required.
On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition. The staff updated and revised the existing revenue
recognition in Topic 13, Revenue Recognition, to make its interpretive guidance
consistent with current accounting guidance, principally EITF Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." Also, SAB 104 incorporates
portions of the Revenue Recognition in Financial Statements - Frequently Asked
Questions and Answers document that the SEC staff considered relevant and
rescinds the remainder. The company's revenue recognition policies are
consistent with this guidance; therefore, this guidance will not have an
immediate impact on the company's consolidated financial statements.
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.
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MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash and cash
equivalents. The Company places its cash and temporary cash investments with
credit quality institutions. At times, such investments may be in excess of
applicable government mandated insurance limit.
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. There was no allowance for doubtful accounts at December 31,
2008 and September 30, 2008.
INVENTORIES
The inventory consists of work in process and finished goods substantially ready
for resale purposes. The Company purchases the merchandise on delivered duty
paid basis. The amounts for cost of goods sold during the three month periods
ended December 31, 2008 and 2007 are removed from inventory on weighted average
cost method.
LONG LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards No. 144
("SFAS 144"). The Statement 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. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Depreciation and amortization
are calculated using the straight-line method over the estimated useful lives of
the assets. Tools, office equipment, automobiles, furniture and fixtures, and
building are depreciated over 2-year to 40-year lives. Assets acquired under
capitalized lease arrangements are recorded at the present value of the minimum
lease payments. Gains and losses from the retirement or disposition of property
and equipment are included in operations in the period incurred.
ADVERTISING
The Company follows the policy of charging the cost of advertising to expenses
as incurred. For the three month periods ended December 31, 2008 and 2007,
advertising costs were not material to the statement of income.
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MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
The Company accounts for research and development cost in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No 2 ("SFAS 2"), "Accounting for Research and Development Costs".
Under SFAS 2, all research and development costs must 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 costs charged to income were $6,992 and $2,573
for the three months ended December 31, 2008 and 2007, respectively.
BASIC AND DILUTED 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 SFAS No. 128, Earnings Per Share. Common share equivalents
totaling 1,100,000 and 10,490,000 at December 31, 2008 and 2007, respectively,
were not considered as they would be anti-dilutive and had no impact on loss per
share for any periods presented.
INCOME TAXES
The Company follows SFAS No. 109, "ACCOUNTING FOR INCOME TAXES" (SFAS No. 109)
for recording the provision for income taxes. Deferred tax assets and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes ("FIN 48"), on October 1, 2007. Previously, the
Company had accounted for tax contingencies in accordance with SFAS No. 5,
Accounting for Contingencies. As required by Interpretation 48, which clarifies
SFAS No. 109, Accounting for Income Taxes, 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.
At the adoption date, the Company applied Interpretation 48 to all tax positions
for which the statute of limitations remained open. The adoption of FIN 48 did
not have a material impact in the financial statements during the year ended
September 30, 2008 or the three months ended December 31, 2008.
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. Actual results could differ from those estimates.
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MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130;
"Reporting Comprehensive Income" (SFAS) No. 130 establishes standards for the
reporting and displaying of comprehensive income and its components.
Comprehensive income is defined as the change in equity of a business during a
period from transactions and other events and circumstances from non-owners
sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. SFAS No. 130
requires other comprehensive income (loss) to include foreign currency
translation adjustments and unrealized gains and losses on available for sale
securities.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company accounts for derivative financial instruments and hedging activities
in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities (as amended)"
(SFAS 133). In accordance with this standard, derivative instruments are
recorded on the balance sheet as either an asset or liability measured at its
fair value. Changes in the fair value of derivative instruments are either
recognized in income immediately to offset the gain or loss on the hedged item,
or deferred and recorded in Stockholders' Equity as a component of Accumulated
other comprehensive (loss) income. The ineffective portion of the change in fair
value of a hedge is recognized in income immediately. The Company has designated
an interest rate swap that effectively fixes the floating prime-based interest
rate on a mortgage obligation as a cash flow hedge. See Note E for more
information on the Company's interest rate swap.
FUNCTIONAL CURRENCY
The functional currency of the Companies 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 resulting foreign currency transactions gains
(losses) are included in general and administrative expenses in the accompanying
consolidated statements of operations.
RECLASSIFICATION
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported net
income (loss).
ACCOUNTING FOR VARIABLE INTEREST ENTITIES
In December 2003, the FASB issued a revision to FASB Interpretation ("FIN") No.
46, "Consolidation of Variable Interest Entities" (FIN No. 46R). FIN No. 46R
clarifies the application of ARB No. 51, "Consolidated Financial Statements," to
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. FIN No. 46R 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.
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MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Pursuant to the effective date of a related party lease obligation, the Company
adopted FIN 46R on January 1, 2005. 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
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") 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. SFAS 131 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 segment.
STOCK BASED COMPENSATION
Effective for the year beginning January 1, 2006, the Company has adopted SFAS
123 (R) "Share-Based Payment" which supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and eliminates the intrinsic value method that
was provided in SFAS 123 for accounting of stock-based compensation to
employees. The Company made no employee stock-based compensation grants before
December 31, 2005 and therefore has no unrecognized stock compensation related
liabilities or expense unvested or vested prior to 2006.
The Company did not grant employee options during the three month periods ended
December 31, 2008 and 2007. The Company recorded the fair value of the vested
portion of previously issued employee options of $65,704 for the three months
ended December 31, 2008.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141(R), "BUSINESS COMBINATIONS"
("SFAS No. 141(R)"), which establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141(R) is effective as of the beginning of the
first fiscal year beginning on or after December 15, 2008. Earlier adoption is
prohibited and the Company is currently evaluating the effect, if any that the
adoption will have on its consolidated financial position, results of operations
or cash flows.
In December 2007, the FASB issued SFAS No. 160, "NON-CONTROLLING INTEREST IN
CONSOLIDATED FINANCIAL STATEMENTS, AN AMENDMENT OF ARB NO. 51" ("SFAS No. 160"),
which will change the accounting and reporting for minority interests, which
will be recharacterized as non-controlling interests and classified as a
component of equity within the consolidated balance sheets. SFAS No. 160 is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited and the Company is currently
evaluating the effect, if any that the adoption will have on its consolidated
financial position, results of operations or cash flows.
Page 9
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In June 2007, the Accounting Standards Executive Committee issued Statement of
Position 07-1, "Clarification of the Scope of the Audit and Accounting Guide
Investment Companies and Accounting by Parent Companies and Equity Method
Investors for Investments in Investment Companies" ("SOP 07-1"). SOP 07-1
provides guidance for determining whether an entity is within the scope of the
AICPA Audit and Accounting Guide Investment Companies (the "Audit Guide"). SOP
07-1 was originally determined to be effective for fiscal years beginning on or
after December 15, 2007, however, on February 6, 2008, FASB issued a final Staff
Position indefinitely deferring the effective date and prohibiting early
adoption of SOP 07-1 while addressing implementation issues.
In June 2007, the FASB ratified the consensus in EITF Issue No. 07-3,
"Accounting for Nonrefundable Advance Payments for Goods or Services to be Used
in Future Research and Development Activities" (EITF 07-3), which requires that
nonrefundable advance payments for goods or services that will be used or
rendered for future research and development (R&D) activities be deferred and
amortized over the period that the goods are delivered or the related services
are performed, subject to an assessment of recoverability. EITF 07-3 will be
effective for fiscal years beginning after December 15, 2007. The Company does
not expect that the adoption of EITF 07-3 will have a material impact on its
consolidated financial position, results of operations or cash flows.
In December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
"Accounting for Collaborative Arrangements" (EITF 07-1). EITF 07-1 defines
collaborative arrangements and requires collaborators to present the result of
activities for which they act as the principal on a gross basis and report any
payments received from (made to) the other collaborators based on other
applicable authoritative accounting literature, and in the absence of other
applicable authoritative literature, on a reasonable, rational and consistent
accounting policy is to be elected. EITF 07-1 also provides for disclosures
regarding the nature and purpose of the arrangement, the entity's rights and
obligations, the accounting policy for the arrangement and the income statement
classification and amounts arising from the agreement. EITF 07-1 will be
effective for fiscal years beginning after December 15, 2008, which will be the
Company's fiscal year 2009, and will be applied as a change in accounting
principle retrospectively for all collaborative arrangements existing as of the
effective date. The Company has not yet evaluated the potential impact of
adopting EITF 07-1 on its consolidated financial position, results of operations
or cash flows.
In March 2008, the FASB" issued SFAS No. 161, "DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - AN AMENDMENT TO FASB STATEMENT NO. 133"
("SFAS No. 161"). SFAS No. 161 is intended to improve financial standards for
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity's financial
position, financial performance, and cash flows. Entities are required to
provide enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years beginning after November 15, 2008, with early
adoption encouraged. The Company is currently evaluating the impact of SFAS No.
161, if any, will have on its consolidated financial position, results of
operations or cash flows.
In April 2008, the FASB issued FSP No. SFAS No. 142-3,"DETERMINATION OF THE
USEFUL LIFE OF INTANGIBLE ASSETS". This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142,"GOODWILL AND
OTHER INTANGIBLE ASSETS". The Company is required to adopt FSP 142-3 on
September 1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3 for
determining the useful life of a recognized intangible asset shall be applied
prospectively to intangible assets acquired after adoption, and the disclosure
requirements shall be applied prospectively to all intangible assets recognized
as of, and subsequent to, adoption. The Company is currently evaluating the
impact of FSP 142-3 on its consolidated financial position, results of
operations or cash flows.
In May 2008, the FASB issued SFAS No. 162, "THE HIERARCHY OF GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES" ("SFAS No. 162"). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the GAAP
hierarchy). SFAS No. 162 will become effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Page 10
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Section 411, "The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles." The Company does not expect the adoption of
SFAS No. 162 to have a material effect on its consolidated financial position,
results of operations or cash flows.
In May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1,
"ACCOUNTING FOR CONVERTIBLE DEBT INSTRUMENTS THAT MAY BE SETTLED IN CASH UPON
CONVERSION (INCLUDING PARTIAL CASH SETTLEMENT)" ("FSP APB 14-1"). FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is
effective for fiscal years beginning after December 15, 2008 on a retroactive
basis. The Company is currently evaluating the potential impact, if any, of the
adoption of FSP APB 14-1 on its consolidated financial position, results of
operations or cash flows.
In June 2008, the FASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1,
"DETERMINING WHETHER INSTRUMENTS GRANTED IN SHARE-BASED PAYMENT TRANSACTIONS ARE
PARTICIPATING SECURITIES." Under the FSP, unvested share-based payment awards
that contain rights to receive non-forfeitable dividends (whether paid or
unpaid) are participating securities, and should be included in the two-class
method of computing EPS. The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years. The Company does not
expect the adoption of FSP EITF No. 03-6-1 to have a material effect on its
consolidated financial position, results of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed
by management to, have a material impact on the Company's present or future
consolidated financial statements.
NOTE B - GOING CONCERN
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, 2008, the Company incurred a loss of
$858,271. These factors among others may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
The Company's existence is dependent upon management's ability to develop
profitable operations. At September 30, 2008, the Company was in default on its
line of credit agreement with its primary secured lender. On January 27, 2009,
the primary secured lender notified the Company it was in default of its
obligations under the line of credit agreement and commercial mortgage loan
secured by first 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 of January 27, 2009, the interest rate
on the line of credit and commercial loan was increased to Prime plus 4.00% and
2.75%, respectively.
Management is devoting substantially all of its efforts to developing new
markets for its products in the United States and Europe and reducing costs of
operations and there can be no assurance that the Company's efforts will be
successful and no assurance can be given that management's actions will result
in profitable operations. In order to improve the Company's liquidity, the
Company's management is actively pursuing additional equity financing through
discussions with investment bankers and private investors. There can be no
assurance the Company will be successful in its effort to secure additional
equity financing.
The accompanying statements do not include any adjustments that might result
should the Company be unable to continue as a going concern.
Page 11
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE C - BANK LINE OF CREDIT
Effective June 2, 2008, the Company's credit line was modified to maximum
borrowing limit of $800,000 with Key Bank. The credit facility is set up with an
annual renewal provision. The existing credit facility expired on February 1,
2009.
Borrowings under the agreement are collateralized by substantially all the
Company's assets. The Company was required to maintain an operating cash flow to
fixed charge ratio of 1.5 to 1 at year end. As of September 30, 2008, the
Company was in violation of the fixed charge ratio and change of ownership
covenant.
As of December 31, 2008, the line of credit remains in default with an
outstanding principal balance of $600,000 (see Note K).
In addition, the Company has established a credit facility in Germany for a
maximum borrowing limit of 35,000 Euro plus 10,000 Euro overdraft protection
($49,331 and $14,094 USD, respectively) with open expiry date. Interest is at
9.5% per year for the credit facility and 4.5% for overdraft protection. The
Credit facility is guaranteed by the President of the Company's subsidiary,
Modelworxx GmbH.
NOTE D - NOTES PAYABLE
As of December 31, 2008 and September 30, 2008, notes payable consists of the
following:
December 31, September 30,
2008 2008
Guarantee for the 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. The JCMD General
Partners personally guaranty the loan. The note is in
default. (See Note K). $ 697,939 $ 703,324
Guarantee for the 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. The JCMD General
Partners personally guaranty the loan The note
is in default. 568,062 573,328
Mortgage loan payable in monthly principal installments of $5,633 with a
fixed interest rate of 5.98% 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
664,261 670,602
Note payable in monthly payments of $1,857.54 per month including
interest at 7.25% per annum, unsecured 27,374 32,689
---------- ----------
1,957,636 1,979,943
Less current portion 1,314,131 93,085
---------- ----------
Long term portion $ 643,505 $1,886,858
Payments for notes payable, including the JCMD loans, for the next five years
ending December 31, are as follows:
|
Page 12
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE D - NOTES PAYABLE (CONTINUED)
Year ended December 31,
2009 $1,314,131
2010 38,198
2011 29,850
2012 32,254
2013 127,899
After 415,304
----------
Total $1,957,636
|
NOTE E CAPITAL LEASE OBLIGATIONS
Automobile and equipment includes the following amounts for capitalized leases
at December 31, 2008:
Automobile and equipment $910,403
Less: Accumulated depreciation and amortization 379,372
--------
Net book value: $531,031
========
|
Future minimum lease payments required under the capital leases are as follows:
Total minimum lease payments $ 67,982
Less: amount representing interest 6,001
---------
Subtotal 61,981
Less current portion 29,678
--------
Long term portion $ 32,303
========
|
NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted SFAS 157, as related to financial instruments. SFAS 157
establishes a three-level hierarchy for fair value measurements. The hierarchy
is based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date.
o Level 1 - Valuation is based upon unadjusted quoted prices for
identical assets or liabilities in active markets.
o Level 2 - Valuation is based upon quoted prices for similar
assets and liabilities in active markets, or other inputs that
are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial
instruments.
o Level 3 - Valuation is based upon other unobservable inputs
that are significant to the fair value measurements.
The classification of fair value measurements within the hierarchy is
based upon the lowest level of input that is significant to the measurement. At
December 31, 2008, the Company had an interest rate swap contract recorded at
fair value. The fair values of these instruments were measured using valuations
based upon quoted prices for similar assets and liabilities in active markets
(Level 2) and are valued by reference to similar financial instruments, adjusted
for credit risk and restrictions and other terms specific to the contracts. The
following table provides a summary by level of the fair value of financial
instruments that are measured on a recurring basis:
Page 13
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2008 USING:
----------------------------------------------------------
QUOTED PRICES
IN ACTIVE
MARKETS FOR SIGNIFICANT SIGNIFICANT
IDENTICAL OTHER UNOBSERVABLE
DECEMBER 31, ASSETS OBSERVABLE INPUTS
2008 (LEVEL 1) INPUTS (LEVEL 2) (LEVEL 3)
----------------- ------------------ ----------------- -------------------
Liabilities:
Interest rate swap $ 119,168 $ 119,168
|
NOTE F - CAPITAL STOCK
The Company is authorized to issue 110,000,000 shares of which stock 100,000,000
shares of par value of $.001 each shall be common stock and of which 10,000,000
shares of par value of $.001 each shall be preferred stock. As of December 31,
2008, the Company has issued and outstanding 3,500,000 shares of Series A
preferred stock, 1,192,308 shares of Series B preferred stock and 16,845,091
shares of common stock.
SERIES A PREFERRED STOCK
On April 23, 2007, the Company filed a Certificate of Designation creating a
$0.001 par value Series A Convertible Preferred stock for 3,500,000 shares.
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.
RIGHT TO CONVERT. At any time on or after the Issuance Date, the holder of any
such shares of Series A Preferred Stock may, at such holder's option, subject
certain limitations, elect to convert all or any portion of the shares of Series
A Preferred Stock held into a number of shares of Common Stock equal to the
quotient of (i) the Liquidation Preference Amount (see below) of the shares of
Series A Preferred Stock being converted plus any accrued but unpaid dividends
thereon DIVIDED BY (ii) the Conversion Price of $0.50 per share, subject to
certain adjustments.
MANDATORY CONVERSION. Subject to certain restrictions and limitations, five
years after the issuance date, the Series A Preferred Stock will automatically
and without any action on the part of the holder thereof, convert into shares of
Common Stock equal to the quotient of (i) the Liquidation Preference Amount of
the number of shares of Series A Preferred Stock being converted on the
Mandatory Conversion Date DIVIDED BY (ii) the Conversion Price in effect on the
Mandatory Conversion Date.
LIQUIDATION RIGHTS. The Series A Preferred Stock shall, with respect to
distributions of assets and rights upon the occurrence of a Liquidation rank (i)
senior to all classes of common stock of the Company and (ii) senior to each
other class of Capital Stock of the Company hereafter created with does not
expressly rank pari passu or senior to the Series A Preferred Stock. Holders of
the Series A Preferred Stock is entitled, in the event of liquidation or winding
up of the Company's affairs, a liquidation payment of $1.00 per share plus any
accrued and unpaid dividends before any distribution to any common or other
junior classes of stock
VOTING RIGHTS. The holders of Series A 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.
Page 14
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE F - CAPITAL STOCK (CONTINUED)
SERIES A PREFERRED STOCK (CONTINUED)
REGISTRATION RIGHTS. The Company is required to file a registration statement
with the SEC to affect the registration of the shares of its common stock
underlying the Series A Preferred Stock and the warrants (see below) within 30
days. The Company also agreed to use its reasonable best efforts to cause the
registration statement to be declared effective no later than 150 days after its
filing. If the Registration Statement is not filed and declared effective as
described above, the Company will be required to pay liquidated damages to the
holders of the Series A Preferred Stock, in an amount equal to 2% of the initial
investment. The registration statement for all the shares of its common stock
underlying the Series A Preferred Stock and all attached warrants was declared
effective by the SEC on July 20, 2007.
On April 23, 2007 the Company issued 3,500,000 shares of Series A Preferred
Stock for gross proceeds of $3,500,000 resulting in net proceeds of $3,222,450.
As additional consideration for the purchase of the Series A Preferred Stock,
the Company granted to the holders warrants entitling it to purchase 11,000,000
common shares of the Company's common stock at the price of $0.70 per share,
6,000,000 at $0.85 per share and 6,000,000 at $1.20 per share. The underlying A,
B & C warrants lapse if unexercised by April 23, 2012, while the J and D, E &F
warrants lapse if unexercised by June 28, 2008. All warrants are subject to the
registration rights agreement described above.
In accordance with EMERGING ISSUES TASK FORCE ISSUE 98-5, ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH A BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY
ADJUSTABLE CONVERSION RATIOS ("EITF 98-5"), 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 against current earnings. The fair value of the
warrants was determined using the Black-Scholes Option Pricing Model with the
following assumptions: Dividend yield: $-0-; Volatility: 146.64%, risk free
rate: 4.55%.
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.
PAYMENT OF DIVIDENDS. There are no dividends payable on the Series B Preferred
Stock .VOTING RIGHTS The holders of Series B Preferred Stock shall have no
voting rights with the exception of the approval 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.
Page 15
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE F - CAPITAL STOCK (CONTINUED)
SERIES A PREFERRED STOCK (CONTINUED)
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 December 31, 2008, the Company has 1,192,308 shares of Series B Preferred
Stock outstanding.
COMMON STOCK
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.
NOTE G - STOCK OPTIONS AND WARRANTS
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 December 31, 2008:
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------------------
Weighted
Weighted Average Average Weighted Average
Exercise Number Remaining Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
----- ----------- ------------ ----- ----------- -----
$0.26 490,000 4.51 $0.26 -- $0.26
$0.45 170,000 7.40 $0.45 170,000 $0.45
---------------------------------------------------------------------------------
660,000 5.50 $0.31 170,000 $0.45
|
Transactions involving options issued to employees are summarized as follows:
Weighted Average Price per
Number of Shares Share
Outstanding at October 1, 2007 170,000 $0.45
Granted 490,000 $0.26
Exercised -- --
Canceled or expired -- --
Outstanding, September 30, 2008 660,000 0.31
Granted -- --
Exercised -- --
Canceled or expired -- --
Outstanding, December 31, 2008 660,000 $0.31
======= =====
|
Page 16
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE G - STOCK OPTIONS AND WARRANTS (CONTINUED)
EMPLOYEE STOCK OPTIONS (CONTINUED)
SFAS No. 123, "Accounting for Stock-Based Compensation," required the disclosure
of the estimated fair value of employee option grants and their impact on net
income using option pricing models that are designed to estimate the value of
options that, unlike employee stock options, can be traded at any time and are
transferable. In addition to restrictions on trading, employee stock options may
include other restrictions such as vesting periods. Further, such models require
the input of highly subjective assumptions, including the expected volatility of
the stock price.
In May 2007, the Company granted 170,000 employee stock options vesting over the
next three years. The options grant the employee the right to purchase the
Company's common stock over the next 8 to 10 years at an exercise price of
$0.45. The options were valued using the Black-Scholes Option Pricing model with
the following assumptions: dividend yield: -0-%; volatility: 37.74%; risk free
interest rate: 4.50%. The determined fair value of the options of $41,440 will
be recognized as a period expense ratably with vesting rights.
In May 2008 the Company granted 400,000 employee stock options vesting over one
year. The options grant the employee the right to purchase the Company's common
stock over the next 4 years at an exercise price of $0.26. The options were
valued using the Black-Scholes Option Pricing model with the following
assumptions: dividend yield: -0-%; volatility: 221.26%; risk free interest rate:
3.85%. The determined fair value of the options of $101,213 will be recognized
as a period expense ratably with vesting rights.
In May 2008 the Company granted 90,000 employee stock options vesting over next
three years. The options grant the employee the right to purchase the Company's
common stock over the next 10 years at an exercise price of $0.26. The options
were valued using the Black-Scholes Option Pricing model with the following
assumptions: dividend yield: -0-%; volatility: 221.26%; risk free interest rate:
2.73%. The determined fair value of the options of $23,390 will be recognized as
a period expense ratably with vesting rights.
The Company recorded as current period expense the vested portions of the above
employee options of $65,704 for the three months ended December 31, 2008. As of
December 31, 2008, total unrecognized stock-based compensation expense related
to non-vested stock options was $58,899.
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, 2008:
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------------------
Weighted Average Weighted
Remaining Average Weighted Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
------------- ----------- ------------ -------- ----------- ----------
$ 0.10 1,000,000 3.75 $0.10 1,000,000 $ 0.10
|
Transactions involving options issued to non-employees are summarized as
follows:
Weighted Average Price per
Number of Shares Share
Outstanding at October 1, 2007 1,395,000 $0.39
Granted -- --
Exercised -- --
Canceled or expired -- --
Outstanding, September 30, 2008 1,395,000 0.39
Granted
Exercised -- --
Canceled or expired (395,000) 1.13
Outstanding, December 31, 2008 1,000,000 $0.10
========= =====
|
Page 17
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE G - STOCK OPTIONS AND WARRANTS (CONTINUED)
NON EMPLOYEE OPTIONS (CONTINUED)
As described in Note A above, the Company issued 1,000,000 options to purchase
common stock at $0.10 per share for five years to acquire MW Global Limited. The
options were valued using the Black-Scholes Option Pricing Model with the
following assumptions: dividend yield: -0-%; volatility: 282.85%; risk-free
rate: 4.23%
Aggregate intrinsic value of options outstanding and exercisable at December 31,
2008 was $219,600 and $200,000, respectively. Aggregate intrinsic value
represents the difference between the Company's closing price on the last
trading day of the fiscal period, which was $0.30 as of December 31, 2008, and
the exercise price multiplied by the number of options outstanding.
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, 2008:
Warrants Outstanding Warrants Exercisable
-------------------- --------------------
Weighted Average Weighted
Remaining Average Weighted Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
-------------- ----------- ------------ ----- ----------- --------------
$ 0.30 100,000 2.69 $0.30 100,000 $0.30
|
Transactions involving warrants are summarized as follows:
Weighted Average Price per
Number of Shares Share
Outstanding at October 1, 2007 20,490,000 $0.69
Granted 100,000 0.30
Exercised (19,000,000) --
Canceled or expired -- --
Outstanding, September 30, 2008 1,590,000 0.54
Granted -- --
Exercised -- --
Canceled or expired (1,490,000) 0.55
Outstanding, December 31, 2008 100,000 $0.49
========= =====
|
During the three months ended December 31, 2008, the Company cancelled 490,000
warrants in connection with a settlement of an outstanding debt obligation.
NOTE H - 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.
Page 18
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE H - CONSOLIDATION OF VARIABLE INTEREST ENTITIES (CONTINUED)
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 FIN No. 46 since JCMD does not have sufficient
equity at risk for the entity to finance its activities.
FIN No. 46 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.
Included in the Company's consolidated balance sheets at December 31, 2008 and
September 30, 2008 are the following net assets of JCMD:
December 31, September 30,
2008 2008
----------- -----------
ASSETS (JCMD)
Cash and cash equivalents $ 34,019 $ 117,726
Accounts receivable, prepaid expenses
and other current assets 19,400 19,400
----------- -----------
Total current assets 53,419 137,126
Property, plant and equipment, net 1,257,824 1,273,824
----------- -----------
Total assets 1,311,243 1,410,950
LIABILITIES:
Current portion of long term debt 1,266,001 43,570
Accounts payable and accrued liabilities
119,168 --
----------- -----------
Total current liabilities 1,385,169 43,570
Long term debt -- 1,233,082
----------- -----------
Total liabilities 1,385,169 1,276,652
Net assets (liabilities) $ 73,926) $ 134,298
|
Consolidated results of operations for the three months ended December 31, 2008
and 2007 include the following:
December 31, December 31,
2008 2007
--------- ---------
Revenues $ 39,636 $ 38,859
Cost and expenses - real estate:
Operating expenses 8,084 1,789
Depreciation 8,000 8,000
Financing expenses 133,776 19,912
--------- ---------
Total costs and expenses 149,860 29,701
Operating income (loss) -Real estate $(110,224) $ 9,158
-----------------------------------------------------------------------
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Page 19
MARKETING WORLDWIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008
(UNAUDITED)
NOTE I - SEGMENT INFORMATION
The Company has one reportable business segment which is operated in two
geographic locations.
Those geographic segments are:
* United States * Germany
Information for the three months ended December 31, 2008 and 2007 concerning
principal geographic areas is presented below according to the area where the
activity is taking place.
December 31, December 31,
2008 2007
------------------------------------------------------------------------
REVENUES:
United States $ 1,132,742 $ 2,290,726
Germany 263,418 442,197
----------- -----------
Total revenue 1,396,160 2,732,923
GROSS PROFIT
United States 470,997 953,360
Germany (4,889) 141,498
------------ -------------
Total gross profit 475,886 1,094,858
OPERATING LOSS:
United States (502,974) (219,733)
Germany (176,259) (35,180)
------------ --------------
Total operating (loss) $ (679,233) $ (254,913)
December 31, September 30,
2008 2008
------------ --------------
ASSETS
United States $6,436,403 $7,093,088
Germany 581,843 567,259
----------- ------------
Total asset $7,018,246 $7,660,347
Three months ended December 31, 2008 and 2007: December 31, December 31,
2008 2007
CAPITAL EXPENDITURES
United States -- 416,242
Germany 12,178 40,129
--------- ---------
Total capital expenditures $ 12,178 $456,371
|
NOTE J - RELATED PARTY TRANSACTIONS
The members of JDMD Properties, LLC made cash distributions of $98,000 during
the three months ended December 31, 2008.
NOTE K - SUBSEQUENT EVENTS
At September 30, 2008, the Company was in default on its line of credit
agreement with its primary secured lender. On January 27, 2009, the primary
secured lender notified the Company it was in default of its obligations under
the line of credit agreement and commercial mortgage loan secured by first 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 of January 27, 2009, the interest rate on the line of credit and commercial
loan was increased to Prime plus 4.00% and 2.75%, respectively.
Page 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-LOOKINGSTATEMENTS 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 (the "Company", "Registrant" or "MWW"), was
incorporated under the laws of the State of Delaware in July 2003. The Company
is engaged, through its wholly-owned subsidiary, Marketing Worldwide LLC
("MWWLLC").
MWW is a full service design, engineering and manufacturing firm of original
equipment manufacturer ("OEM") components in the automotive accessory market.
MWW provides a number of large foreign and domestic automobile manufacturers'
and independently owned vehicle processing and distribution centers in the US,
Canada and Europe with MWW's components directly at their respective locations.
At the instruction of MWW, the vehicle processing centers' technical teams
install MWW's accessory products on new automobiles, as soon as these new
vehicles arrive from foreign or domestic automobile manufacturers at their
centers. From the vehicle processing or distribution centers the accessorized
automobiles are then delivered into the domestic car dealer distribution systems
throughout the Continental US, Canada and Europe. MWW's relationship is solely
with the vehicle processing and/or distribution centers, which also pay for
MWW's products.
Since its inception, the continuously increasing demand for the company's
products and services has prompted an ongoing expansion of MWW's infrastructure
and staff and warranted the diversification and expansion of its activities into
the design and engineering of its products in the US and Europe. The company has
also continued to increase vertical integration in manufacturing, in order to
address newly arising market opportunities. Drawing from the experience of its
principals, consultants and management team, strategically utilizing
longstanding relationships in the industry, the company has steadily expanded
its design services, product range, client and employees/contractor base and is
currently aggressively pursuing the expansion of its client roster, in addition
to its existing major clients such as South East Toyota, Gulf States Toyota and
Toyota Canada. In its effort for more vertical integration, the Company has
acquired Colortek, a "Class A" painting facility in Baroda, Michigan, Modelworxx
GmbH in Munich Germany and has commenced operation with a new "Class A" painting
facility in Elkhart, Indiana.
The Company has established initial relationships with several new major foreign
and domestic automobile manufacturers, has recently begun delivering accessory
programs to KIA Motors America and has received additional Request for Quotes
from Toyota's Scion Group, KIA Motors America, MOBIS (KIA and Hyundai Worldwide)
and Nissan. MWW has been delivering product directly to the Toyota Motor
Manufacturing Corporation assembly plant in Canada for nearly twenty six (26)
months and has been awarded new programs to be delivered to Toyota Canada
International. Through our wholly owned subsidiary Modelworxx in Germany we have
begun to manufacture and deliver products to Toyota Europe and are currently in
the process to expand our design and logistics services in Germany. We have
expanded the number of products designed in Germany for sale to other European
automobile manufacturers and our large customers in the US. Through Modelworxx,
we will also provide our US produced products for sale to European customers,
currently supported by a very favorable Dollar exchange rate with the Euro. We
are in various stages of seeking to provide our accessory programs to other
major foreign and domestic automobile manufacturers such as Ford, GM, Nissan,
Subaru and Hyundai in the US and several large manufacturers and distributors
throughout Europe.
Page 21
SEASONALITY. Historically, our operating results have fluctuated by quarter to
quarter, with the greatest sales occurring in the quarters of the fiscal year
with the largest number of automobile manufacturers new model releases. Revenues
are generally being recognized at the time of product shipment. It is in these
quarters of new model releases that demand for our products is typically the
highest. As we expand our business globally, we expect to better able to
mitigate these impacts.
The limited seasonality of our business offers significant operational
challenges in our manufacturing and distribution functions, based on a partial
dependency on manufacturing abroad. To limit these challenges and to provide a
rapid turnaround time of customer orders, we traditionally keep somewhat higher
inventory levels. New strategies to decrease inventory and improve inventory
turns over rates are currently being implemented. Utilizing the synergies
between our newly acquired companies and the utilization of the newly created
manufacturing capacities here in the US that are now controlled by us, we are
expecting to produce higher levels of efficiency over time.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. During the three months ended December 31, 2008, we used
$334,634 of cash flow in operations primarily from our net loss of $858,271;
offset by non cash depreciation and amortization charges of $140,380, fair value
of options granted of $65,704, minority interest of $(36,298) and net changes in
our operating assets and liabilities of $353,851.
INVESTING ACTIVITIES. During the three months ended December 31, 2008, we used
$12,178 in cash flows in investing activities by acquiring additional equipment
for our operations of $12,178.
FINANCING ACTIVITIES. During the three months ended December 31, 2008, net cash
flow provided by financing activities amounted to $122,572. The net cash flow
was generated by borrowing $248,963 on our credit lines, offset by our pay down
of our notes and leases payable by $28,391 and cash distributions of $98,000 to
the members of JCMD Properties LLC.
MWW currently had a $800,000 line of credit, which expired on February 1, 2009
and was used to fund seasonal working capital requirements and other financing
needs. MWW pledged all of its inventory, equipment, accounts, and chattel paper,
instruments, and letters of credit, documents, deposit accounts, investment
property, money, rights to payment and general intangibles to secure the Loan.
The Company was required to maintain an operating cash flow to fixed charge
ratio of 1.5 to 1 at year end. At September 30, 2008, the Company was in default
on its line of credit agreement with its primary secured lender. On January 27,
2009, the primary secured lender notified the Company it was in default of its
obligations under the line of credit agreement and commercial mortgage loan
secured by first 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 of January 27, 2009, the interest rate
on the line of credit and commercial loan was increased to Prime plus 4.00% and
2.75%, respectively. The Company is currently negotiating to lower the interest
rates for both loans.
Our working capital requirements have increased because of our recent
acquisitions and declining sales, the opening of our new facility AutoFX in
Elkhart, newly awarded programs and arising program development opportunities to
secure additional large customers..
The global credit market crisis has had a dramatic effect on our industry. In
the three months ended December 31, 2008, the turmoil in the mortgage and
overall credit markets, continued reductions in U.S. housing values, the high
likelihood that the United States and Western Europe have entered into a
recession and the slowdown of economic growth in the rest of the world, created
a substantially more difficult business environment. Vehicle sales in North
America contracted severely and the pace of vehicle sales in the rest of the
world slowed. Our liquidity position, as well as our operating performance, were
negatively affected by these economic and industry conditions and by other
financial business factors, many of which are beyond our control. We do not
believe it is likely that these adverse economic conditions, and their effect on
the automotive industry, will improve significantly in the near term,
notwithstanding the unprecedented intervention by the U.S. and other governments
in the global banking and financial systems.
As of December 31, 2008, we had a working capital deficit of approximately
$553,958. Our registered independent certified public accountants have stated in
their report dated January 13, 2009, that we have incurred operating losses in
the last two years, and that we are dependent upon management's ability to
develop profitable operations and raise additional capital. These factors among
others may raise substantial doubt about our ability to continue as a going
concern.
Page 22
INTERIM RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 2008 TO THE THREE MONTHS ENDED
DECEMBER 31, 2007.
SALES. Net sales during the first quarter 2009 (three months ending December 31,
2008) were $1,396,160 a decrease of $1,336,762, or 48.9 %, compared to
$2,732,922 during the first quarter 2008. This decrease was due a slowdown of
manufacturing activities in the automobile industry.
GROSS MARGINS. Gross margins for the first quarter 2009 decreased to 34.1 % from
40.1 % in the same period of 2008 due to pricing constraints and fixed costs
embedded in our cost of sales line.
OPERATING EXPENSES
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.
Selling, general and administrative expenses decreased by $194,656 to $1,155,115
in the first quarter of 2009, compared to $1,349,771 in the first quarter of
2008. The decrease was attributable to operating costs reductions we put into
place with the auto industry downturn.
OPERATING LOSS. Operating loss increased by $424,316 to a loss of ($679,229) in
the first quarter of 2009, compared to a net operating loss of ($254,913) in the
first quarter of 2008. This increase was due to primarily to the factors
described above.
FINANCING EXPENSE. For the three months ended December 31, 2008, our financing
expense increased to $232,647 from $120,711, an increase of 93 % over the same
period prior year. The increase was primarily related to the mark to market
adjustment to our interest swap agreement associated with the JCMD Properties,
LLC mortgages.
NET LOSS increased by $485,312 to a loss of ($858,271) from a loss of
($372,959).
CRITICAL ACCOUNTING POLICIES
We have identified the policies below 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.
ACCOUNTING FOR VARIABLE INTEREST ENTITIES
In December 2003, the FASB issued a revision to FASB Interpretation ("FIN") No.
46, "Consolidation of Variable Interest Entities" (FIN No. 46R). FIN No. 46R
clarifies the application of ARB No. 51, "Consolidated Financial Statements," to
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. FIN No. 46R 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 FIN 46R on January 1, 2005. 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 SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). SAB 101 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
Page 23
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.
On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB)
No.104, Revenue Recognition. The staff updated and revised the existing revenue
recognition in Topic 13, Revenue Recognition, to make its interpretive guidance
consistent with current accounting guidance, principally EITF Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." Also, SAB 104 incorporates
portions of the Revenue Recognition in Financial Statements - Frequently Asked
Questions and Answers document that the SEC staff considered relevant and
rescinds the remainder. The company's revenue recognition policies are
consistent with this guidance; therefore, this guidance will not have an
immediate impact on the company's consolidated financial statements.
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.
STOCK-BASED COMPENSATION
Prior to January 1, 2006, we accounted for the Plans under the recognition and
measurement provisions of APB Opinion No. 25, as permitted by SFAS No. 123.
Consequently, no stock-based compensation cost relating to stock options was
recognized in the consolidated statement of income for any period prior to 2006,
as all options granted under the Plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. Effective January 1,
2006, we adopted the fair value provisions for share-based awards pursuant to
SFAS No. 123(R), using the modified-prospective-transition method. Under that
Page 24
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 SFAS No. 123,
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 SFAS No. 123(R), all recognized on a straight line basis as
the requisite service periods are rendered. Results for prior periods have not
been restated.
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, 2008,
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 upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were not effective, as of the date of their
evaluation, for the purposes of recording, processing, summarizing, and timely
reporting material information required to be disclosed in reports filed by the
Company under the Securities Exchange Act of 1934.
b) Changes in internal controls. Previously, the Company disclosed management's
determination that deficiencies existed in the Company's internal controls over
financial reporting as of September 30, 2008 under criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). As noted in the Company's
annual report on Form 10-K, management determined that control deficiencies
existed due to the Company's lack of documented policies and procedures
concerning internal controls over financial reporting, the Company's lack of an
audit committee; the Company's risk of management override given that our
officers have a high degree of involvement in our day to day operations; the
Company's lack of documented policies and procedures concerning its policy on
fraud, the Company's lack of a documented code of ethics; and the Company's lack
of effective separation of duties, which includes monitoring controls, between
the members of management.
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. In
response, the Company has addressed these deficiencies and while it has not
eliminated each item, the Company has begun a process to address each identified
weakness, such as, hiring an outside CPA consultant who will provide a greater
degree of separation of duties, especially Accounts Receivable and Accounts
Payable management. Further, the outside CPA consultant will be implementing
documented policies and procedures concerning the Company's internal controls
over financial reporting, its policy on fraud and code of ethics. Moreover, the
Company's board of directors is evaluating the cost vs. benefit of expanding its
board to include independent directors and a separate audit committee, as well
as methods to implement sufficient monitoring controls among a small number of
executives.
As a result of our limited financial resources, we do not anticipate that we
will be in a position to engage accounting personnel or a senior financial
officer in the foreseeable future. Until we are able to engage a qualified
financial officer, and/or accounting staff, we may continue to experience
material weaknesses in our disclosure controls that may continue to adversely
affect our ability to timely file our quarterly and annual reports.
Accordingly, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures were not
effective, as of December 31, 2008, for the purposes of recording, processing,
summarizing, and timely reporting material information required to be disclosed
in reports filed by the Company under the Securities Exchange Act of 1934.
Page 25
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
quarter.
ITEM 5. OTHER INFORMATION
None.
Page 26
ITEM 6. EXHIBITS
(a) EXHIBIT(S) DESCRIPTION
Exhibits
(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 ******
(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.
Page 27
SIGNATURE
Pursuant to the requirements 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
(Registrant)
(Date): February 18, 2009 By: /S/ JAMES MARVIN
-----------------------------------------
James Marvin
Vice President Finance,
Chief Financial Officer
(Principal Financial and Accounting
Officer)
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Page 28
EXHIBIT INDEX
(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 29
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