UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
AMENDMENT
NO. 1 TO 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)
DELA
WARE
|
68-0566295
|
(State
of incorporation)
|
|
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
o
|
|
|
|
|
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
EXPLANATORY
NOTE
This
Amendment No. 1 on Form 10-Q/A ("Amendment No. 1") to our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008, initially filed
with the Securities and Exchange Commission (the “SEC”) on February 18,
2009 (the "Original Filing"), reflects a restatement of the Unaudited
Condensed Consolidated Financial Statements of Marketing Worldwide Corporation
as discussed in Note L to the Consolidated Financial Statements to correct
errors relating to the accounting treatment of dividend classification of
our Preferred Stock. The effect of these adjustments is a
reclassification from interest expense to preferred stock dividend on the face
of the Statements of Operations. There was no effect on the balance sheet or
cash flows from operating, investing or financing for either period, except for
line items changes within each category.
This
Amendment No. 1 only amends and restates Items 1 and 2 and Part I of the
Original Filing and we have revised language in these Items from the Original
Filing to reflect the restatement of our Consolidated Financial
Statements. No other information in the Original Filing is amended
hereby. The foregoing items have not been updated to reflect other
events occurring after the initial Original Filing or to modify or update those
disclosures affected by subsequent events.
While the
remainder of the Original Filing is unchanged, this Amendment No. 1 is an
amendment and restatement of the Original Filing in its entirety in order
to provide a complete presentation.
Except as
stated herein, this Amendment No. 1 does not reflect events occurring after the
date of the filing of the Original Filing.
MARKETING
WORLDWIDE CORPORATION
Form 10-Q
for the Quarter ended December 31, 2008
Table of
Contents
|
|
PAGE
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
ITEM
1 - FINANCIAL STATEMENTS
|
|
2
|
ITEM
2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
|
30
|
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
|
35
|
ITEM
4 - CONTROLS AND PROCEDURES
|
|
36
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
|
ITEM
1 - LEGAL PROCEEDINGS
|
|
37
|
ITEM
2 - RECENT SALES OF UNREGISTERED SECURITIES AND USE OF
PROCEEDS
|
|
37
|
ITEM
3 - DEFAULTS UPON SENIOR SECURITIES
|
|
37
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ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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37
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ITEM
5 - OTHER INFORMATION
|
|
37
|
ITEM
6 - EXHIBITS
|
|
38
|
SIGNATURES
|
|
39
|
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, net
|
|
|
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
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
7,018,246
|
|
|
$
|
7,660,347
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Bank
line of credits
|
|
$
|
648,963
|
|
|
$
|
400,000
|
|
Notes
payable and capital leases, current portion
|
|
|
1,343,809
|
|
|
|
1,356,002
|
|
Accounts
payable
|
|
|
876,535
|
|
|
|
865,058
|
|
Warranty
liability
|
|
|
126,983
|
|
|
|
126,983
|
|
Other
current liabilities
|
|
|
595,870
|
|
|
|
621,117
|
|
Total
current liabilities
|
|
|
3,592,160
|
|
|
|
3,369,160
|
|
|
|
|
|
|
|
|
|
|
Long
term debt:
|
|
|
|
|
|
|
|
|
Notes
payable, long term
|
|
|
643,505
|
|
|
|
653,776
|
|
Capital
leases, long term
|
|
|
32,303
|
|
|
|
38,230
|
|
|
|
|
|
|
|
|
|
|
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'
Equity (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
|
|
Subscription
receivable
|
|
|
-
|
|
|
|
-
|
|
Accumulated
Deficit
|
|
|
(9,819,486
|
)
|
|
|
(8,961,715
|
)
|
Accumulated
other comprehensive income (loss)
|
|
|
(86,810
|
)
|
|
|
(84,772
|
)
|
Total
stockholders' equity (deficiency)
|
|
|
(749,672
|
)
|
|
|
(35,067
|
)
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity (Deficiency)
|
|
$
|
7,018,246
|
|
|
$
|
7,660,347
|
|
See the
accompanying notes to the unaudited condensed consolidated financial
statements
MARKETING
WORLDWIDE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
Three
months ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(RESTATED)
|
|
|
(RESTATED)
|
|
Revenue:
|
|
|
|
|
|
|
Sales,
net
|
|
$
|
1,143,994
|
|
|
$
|
2,396,864
|
|
Services
|
|
|
252,166
|
|
|
|
336,058
|
|
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
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(679,229
|
)
|
|
|
(254,913
|
)
|
|
|
|
|
|
|
|
|
|
Financing
expenses
|
|
|
(153,897
|
)
|
|
|
(41,961
|
)
|
Other
income (expense), net
|
|
|
17,307
|
|
|
|
7,435
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(815,819
|
)
|
|
|
(289,439
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes (benefit)
|
|
|
-
|
|
|
|
(4,388
|
)
|
|
|
|
|
|
|
|
|
|
Loss
before minority interest
|
|
|
(815,819
|
)
|
|
|
(285,051
|
)
|
|
|
|
|
|
|
|
|
|
Loss from
minority interest
|
|
|
36,298
|
|
|
|
(9,158
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(779,521
|
)
|
|
|
(294,209
|
)
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
(78,750
|
)
|
|
|
(78,750
|
)
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
(858,271
|
)
|
|
$
|
(372,959
|
)
|
|
|
|
|
|
|
|
|
|
Loss
per share, basic
|
|
$
|
(0.05
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Loss
per share, fully diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common stock outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,698,352
|
|
|
|
15,763,080
|
|
Fully
Diluted
|
|
|
16,698,352
|
|
|
|
15,763,080
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(858,271
|
)
|
|
$
|
(372,959
|
)
|
Foreign
currency translation loss
|
|
|
(2,038
|
)
|
|
|
4,192
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(860,309
|
)
|
|
$
|
(368,767
|
)
|
See the
accompanying notes to the unaudited condensed consolidated financial
statements
MARKETING
WORLDWIDE CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
Three
months ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(RESTATED)
|
|
|
(RESTATED)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(779,521
|
)
|
|
$
|
(294,209
|
)
|
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
|
|
|
12,727
|
|
|
|
392,502
|
|
Other
current liabilities
|
|
|
(25,247
|
)
|
|
|
(77,577
|
)
|
Net
cash used in operating activities:
|
|
|
(334,634
|
)
|
|
|
(199,925
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(12,178
|
)
|
|
|
(456,371
|
)
|
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
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
122,572
|
|
|
|
1,368,292
|
|
|
|
|
|
|
|
|
|
|
Effect
of currency rate change on cash:
|
|
|
(2,038
|
)
|
|
|
4,192
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(226,278
|
)
|
|
|
716,188
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,003,071
|
|
|
|
2,270,313
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
776,793
|
|
|
$
|
2,986,501
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during year for interest
|
|
$
|
30,345
|
|
|
$
|
44,099
|
|
Cash
paid during year for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH
TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Common
stock issued in settlement of debt
|
|
$
|
80,000
|
|
|
$
|
-
|
|
See the
accompanying notes to the unaudited condensed consolidated financial
statements
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.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE A -
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE A -
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE A -
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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.
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.
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.
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
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.
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.
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 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
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.
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
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
$779,521. 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.
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,
2008
|
|
|
September
30,
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
|
|
|
|
1,326,167
|
|
Long
term portion
|
|
|
643,505
|
|
|
$
|
653,776
|
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE D -
NOTES PAYABLE (CONTINUED)
Payments
for notes payable, including the JCMD loans, for the next five years ending
December 31, are as follows:
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.
|
·
|
Level
1 - Valuation is based upon unadjusted quoted prices for identical
assets or liabilities in active
markets.
|
|
·
|
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.
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE E -
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
|
·
|
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:
|
|
|
|
Fair Value Measurements at December 31,
2008 Using:
|
|
|
December
31, 2008
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(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.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE F -
CAPITAL STOCK (CONTINUED)
SERIES A
PREFERRED STOCK (CONTINUED)
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.
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.
The
Company recognized the beneficial conversion feature as in its original filing
dated February 18, 2009 as a charge against current earnings as a financing
(interest) expense. As fully described under note L below, this amendment
reflects the beneficial conversion feature as a preferred stock dividend, rather
than as a financing (interest) expense in compliance with Emerging Issues Task
Force 98-5. “Accounting for Convertible Securities with a Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios (“EITF 98-5”). According
to EITF 98-5, for convertible preferred stock, any recorded discount resulting
from the allocation of proceeds to the beneficial conversion feature should be
recognized as a preferred stock dividend using the effective yield method. EITF
98-5 also states that for convertible instruments that do not have a stated
redemption date, a discount resulting from the accounting for a beneficial
conversion option shall be amortized from the date of issuance to the earliest
conversion date. The earliest conversion date of the Series A Preferred Stock is
anytime from the issuance date up to five years when the stock is mandatorily
redeemable.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE F -
CAPITAL STOCK (CONTINUED)
SERIES A
PREFERRED STOCK (CONTINUED)
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 as a preferred stock dividend. 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%.
The
Series A Preferred Stock includes certain redemption features allowing the
holders the right, at the holder’s option, to require the Company to redeem all
or a portion of the holder’s shares of Series A Preferred Stock upon the
occurrence of a Major Transaction or Triggering Event. Major
Transaction is defined as a consolidation or merger; sale or transfer of more
than 50% of the Company assets or transfer of more than 50% of the Company’s
common stock. A Triggering Event is defined as a lapse in the
effectiveness of the related registration statement; suspension from listing;
failure to honor for conversion or going private.
SFAS 150
requires mandatorily redeemable financial instruments be classified as a
liability unless the redemption is required only upon liquidation or termination
of the reporting entity. Although SFAS 150 also states that if a
financial instrument embodies a conditional obligation to redeem the instrument
by transferring assets upon an event not certain to occur becomes mandatorily
redeemable –and therefore becomes a liability-if that event occurs…, per Topic
D-98 requires securities with redemption features that are not solely within the
control of the issuer to be classified outside of permanent equity.
SERIES B
PREFERRED STOCK
On July
10, 2008, the Company filed a Certificate of Designation creating a $0.001 par
value Series B Convertible Preferred stock for 1,200,000 shares.
RANK. The
Series B Preferred Stock shall rank pari passu as to liquidation rights and
other matters to the Company's common stock, par value $0.001 per share (the
"COMMON STOCK"). The Series B Preferred Stock shall be subordinate to and rank
junior to all indebtedness of the Company now or hereafter
outstanding.
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.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE F -
CAPITAL STOCK (CONTINUED)
SERIES B
PREFERRED STOCK (CONTINUED)
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.
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
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Weighted
|
|
|
Average
|
|
Exercise
Price
|
|
Number
Outstanding
|
|
|
Contractual
Life (Years)
|
|
|
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Exercise
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
|
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE G -
STOCK OPTIONS AND WARRANTS (CONTINUED)
EMPLOYEE
STOCK OPTIONS (CONTINUED
)
Transactions
involving options issued to employees are summarized as follows:
|
|
Weighted
Average
Number of
Shares
|
|
|
Price
per
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
|
|
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.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE G -
STOCK OPTIONS AND WARRANTS (CONTINUED)
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Remaining
Contractual
|
|
|
|
|
|
|
|
|
Average
|
|
Exercise Price
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise 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
|
|
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:
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE G -
STOCK OPTIONS AND WARRANTS (CONTINUED)
WARRANTS
(CONTINUED)
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
|
|
|
|
|
$ 0.30
|
|
|
100,000
|
|
|
|
2.94
|
|
|
$
|
0.30
|
|
|
|
100,000
|
|
|
$
|
0.30
|
|
Transactions
involving warrants are summarized as follows:
|
|
Weighted Average
Number of Shares
|
|
|
Price per
Share
|
|
Outstanding at October 1, 2007
|
|
|
20,490,000
|
|
|
$
|
0.69
|
|
Granted
|
|
|
100,000
|
|
|
|
0.30
|
|
Exercised
|
|
|
(3,500,000
|
)
|
|
|
-
|
|
Canceled
or expired
|
|
|
(15,500,000
|
)
|
|
|
-
|
|
Outstanding,
September 30, 2007
|
|
|
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.
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
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.
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE H -
CONSOLIDATION OF VARIABLE INTEREST ENTITIES (CONTINUED)
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
|
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE H -
CONSOLIDATION OF VARIABLE INTEREST ENTITIES (CONTINUED)
Net loss
from non controlling entity is comprised as follows:
Loss
of non controlling entity:
|
|
$
|
110,224
|
|
Less:
liabilities in excess of assets
|
|
|
(73,926
|
)
|
|
|
|
|
|
Net
loss of non controlling entity
|
|
$
|
36,298
|
|
During
the three months ended December 31, 2008, JCMD Properties, LLC distributed
$98,000 to its members (See Note J)
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
|
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE I -
SEGMENT INFORMATION (CONTINUED)
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.
NOTE L –
RESTATEMENT
The
accompanying unaudited condensed consolidated financial statements for the three
months ended December 31, 2008 and 2007 have been restated to correct errors
relating to the accounting treatment of dividend classification of our
Preferred Stock. The effect of these adjustments is a
reclassification from interest expense to preferred stock dividend on the face
of the Statements of Operations. There was no effect on the balance sheet or
cash flows from operating, investing or financing for either period, except for
line items changes within each category.
The
following tables summarize the effects of these adjustments on the Company’s
unaudited condensed consolidated statements of operations and cash flows for the
three months ended December 31, 2008 and 2007:
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE L –
RESTATEMENT (CONTINUED)
Condensed
Consolidated Statement of Operations
For the
Three Months Ended December 31, 2008
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Reference
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,396,160
|
|
|
$
|
|
|
|
|
|
|
$
|
1,396,160
|
|
Cost
of sales
|
|
|
920,274
|
|
|
$
|
|
|
|
|
|
|
|
920,274
|
|
Gross
profit
|
|
|
475,886
|
|
|
$
|
-
|
|
|
|
|
|
|
|
475,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
1,155,115
|
|
|
$
|
-
|
|
|
|
|
|
|
|
1,155,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(679,229
|
)
|
|
|
|
|
|
|
|
|
|
|
(679,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
costs
|
|
|
(232,647
|
)
|
|
$
|
78,750
|
|
|
|
a
|
|
|
|
(153,897
|
)
|
Other
income (expense)
|
|
|
17,307
|
|
|
$
|
|
|
|
|
|
|
|
|
17,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(894,569
|
)
|
|
$
|
78,750
|
|
|
|
|
|
|
|
(815
,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before minority interest
|
|
|
(894,569
|
)
|
|
$
|
78,750
|
|
|
|
|
|
|
|
(815,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from minority interest
|
|
|
36,298
|
|
|
|
|
|
|
|
|
|
|
|
36,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(858,271
|
)
|
|
$
|
78,750
|
|
|
|
|
|
|
$
|
(779,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
|
-
|
|
|
$
|
(78,750
|
)
|
|
|
a
|
|
|
|
(78,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
(858,271
|
)
|
|
$
|
-
|
|
|
|
|
|
|
$
|
(858,271
|
)
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE L –
RESTATEMENT (CONTINUED)
Condensed
Consolidated Statement of Operations
For the
Three Months Ended December 31, 2007
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Reference
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,732,922
|
|
|
$
|
|
|
|
|
|
|
$
|
2,732,922
|
|
Cost
of sales
|
|
|
1,638,064
|
|
|
|
|
|
|
|
|
|
|
1,638,064
|
|
Gross
profit
|
|
|
1,094,858
|
|
|
|
-
|
|
|
|
|
|
|
|
1,094,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
1,349,771
|
|
|
|
-
|
|
|
|
|
|
|
|
1,349,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(254,913
|
)
|
|
|
|
|
|
|
|
|
|
|
(254,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
costs
|
|
|
(120,711
|
)
|
|
|
78,750
|
|
|
|
a
|
|
|
|
(41,961
|
)
|
Other
income (expense)
|
|
|
7,435
|
|
|
|
|
|
|
|
|
|
|
|
7,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before income taxes
|
|
|
(368,189
|
)
|
|
|
78,750
|
|
|
|
|
|
|
|
(289,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(4,388
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(4,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before minority interest
|
|
|
(363,801
|
)
|
|
|
78,750
|
|
|
|
|
|
|
|
(285,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from minority interest
|
|
|
(9,158
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(372,959
|
)
|
|
$
|
78,750
|
|
|
|
|
|
|
$
|
(294,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
dividend
|
|
$
|
-
|
|
|
$
|
(78,750
|
)
|
|
|
a
|
|
|
$
|
(78,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
(372,959
|
)
|
|
$
|
-
|
|
|
|
|
|
|
$
|
(372,959
|
)
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE L –
RESTATEMENT (CONTINUED)
Condensed
Consolidated Statement of Cash Flows
For the
Three Months Ended December 31, 2008
|
|
As Previously
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Reference
|
|
|
As Restated
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
(858,271
|
)
|
|
$
|
78,750
|
|
|
|
a
|
|
|
$
|
(779,521
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
107,035
|
|
|
|
|
|
|
|
|
|
|
|
107,035
|
|
Amortization
of deferred financing costs
|
|
|
33,345
|
|
|
|
|
|
|
|
|
|
|
|
33,345
|
|
Fair
value of vested employee options
|
|
|
65,704
|
|
|
|
|
|
|
|
|
|
|
|
65,704
|
|
Interest
in non controlling entity
|
|
|
(36,298
|
)
|
|
|
|
|
|
|
|
|
|
|
(36,298
|
)
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
77,192
|
|
|
|
|
|
|
|
|
|
|
|
77,192
|
|
Inventory
|
|
|
122,057
|
|
|
|
|
|
|
|
|
|
|
|
122,057
|
|
Other
assets
|
|
|
88,372
|
|
|
|
|
|
|
|
|
|
|
|
88,372
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
66,230
|
|
|
|
(78,750
|
)
|
|
|
a
|
|
|
|
(12,520
|
)
|
Net
cash used in operating activities
|
|
|
(334,634
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(334,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(12,178
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,178
|
)
|
Net
cash used in investing activities
|
|
|
(12,178
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(12,178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
by non-controlling entity
|
|
|
(98,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(98,000
|
)
|
Proceeds
from of lines of credit
|
|
|
248,963
|
|
|
|
|
|
|
|
|
|
|
|
248,963
|
|
Repayments
of notes payable and capital leases
|
|
|
(28,391
|
)
|
|
|
|
|
|
|
|
|
|
|
(28,391
|
)
|
Net
cash provided by financing activities
|
|
|
122,572
|
|
|
|
-
|
|
|
|
|
|
|
|
122,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of currency rate change on cash:
|
|
|
(2,038
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
(226,278
|
)
|
|
|
|
|
|
|
|
|
|
|
(226,278
|
)
|
Cash
at beginning of period
|
|
|
1,003,071
|
|
|
|
|
|
|
|
|
|
|
|
1,003,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
776,793
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
776,793
|
|
MARKETING
WORLDWIDE CORPORATION
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
(UNAUDITED)
NOTE L –
RESTATEMENT (CONTINUED)
Condensed
Consolidated Statement of Cash Flows
For the
Three Months Ended December 31, 2007
|
|
As
Previously
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
Adjustment
|
|
|
Reference
|
|
|
As Restated
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
$
|
(372,959
|
)
|
|
$
|
78,750
|
|
|
|
a
|
|
|
$
|
(294,209
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
98,454
|
|
|
|
|
|
|
|
|
|
|
|
98,454
|
|
Amortization
of deferred financing costs
|
|
|
33,346
|
|
|
|
|
|
|
|
|
|
|
|
33,346
|
|
Interest
in non controlling entity
|
|
|
9,158
|
|
|
|
|
|
|
|
|
|
|
|
9,158
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(251,092
|
)
|
|
|
|
|
|
|
|
|
|
|
(251,092
|
)
|
Inventory
|
|
|
(235,134
|
)
|
|
|
|
|
|
|
|
|
|
|
(235,134
|
)
|
Other
assets
|
|
|
124,627
|
|
|
|
|
|
|
|
|
|
|
|
124,627
|
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
393,675
|
|
|
|
(78,750
|
)
|
|
|
a
|
|
|
|
314,925
|
|
Net
cash used in operating activities
|
|
|
(199,925
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(199,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(456,371
|
)
|
|
|
|
|
|
|
|
|
|
|
(456,371
|
)
|
Net
cash used in investing activities
|
|
|
(456,371
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(456,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from common stock subscription
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
Repayments
of lines of credit
|
|
|
(600,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(600,000
|
)
|
Repayments
of notes payable and capital leases
|
|
|
(31,708
|
)
|
|
|
|
|
|
|
|
|
|
|
(31,708
|
)
|
Net
cash provided by financing activities
|
|
|
1,368,292
|
|
|
|
-
|
|
|
|
|
|
|
|
1,368,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of currency rate change on cash:
|
|
|
4,192
|
|
|
|
|
|
|
|
|
|
|
|
4,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
716,188
|
|
|
|
|
|
|
|
|
|
|
|
716,188
|
|
Cash
at beginning of period
|
|
|
2,270,313
|
|
|
|
|
|
|
|
|
|
|
|
2,270,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
2,986,501
|
|
|
$
|
-
|
|
|
|
|
|
|
$
|
2,986,501
|
|
(a)
reclassification of preferred stock dividend from financing costs to preferred
stock dividend
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.
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 businesss 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 $779,521; 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 $275,101.
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.
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 $153,897 from $41,961, an increase of 267% 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 ($779,521) from a loss of
($294,209).
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) collectibility 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 collectibility 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 collectibility 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 collectibility 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 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.
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.
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 601of
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.
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):
June 4, 2009
|
By:
|
/S/
JAMES MARVIN
|
|
|
James
Marvin
|
|
|
Vice
President Finance,
|
|
|
Chief
Financial Officer
|
|
|
(Principal
Financial and Accounting
|
|
|
Officer)
|
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.
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