- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _____________

Commission File Number: 000-50586

MARKETING WORLDWIDE CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE		68-0566295
(State of incorporation)		(IRS Employer ID Number)

2212 GRAND COMMERCE DR.

HOWELL, MICHIGAN 48855

(Address of principal executive offices)

631-444- 8090

(Registrant's telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer	¨	Accelerated filer ¨

Non-accelerated filer	¨	Smaller reporting company x
(Do not check if a smaller reporting
company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date, May 16, 2011: 49,663,848

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

Form 10-Q for the Quarter ended March 31, 2011

Table of Contents

	PAGE

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and September 30, 2010	F-1
Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2011 and 2010 (unaudited)	F-2
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2011 and 2010 (unaudited)	F-3
Notes to Condensed Consolidated Financial Statements (unaudited)	F-4

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	11

ITEM 4T - CONTROLS AND PROCEDURES	12

PART II - OTHER INFORMATION	12

ITEM 1 - LEGAL PROCEEDINGS	12

ITEM 1A – RISK FACTORS	12

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	12

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES	12

ITEM 5 - OTHER INFORMATION	12

ITEM 6 - EXHIBITS	12

SIGNATURES	14

Page 1

MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			September 30,
	2011			2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	738		$	3,847
Accounts receivable, net		194,125			315,919
Inventories, net		110,727			144,400
Other current assets		-			9,328
Total current assets		305,590			473,494

Property, plant and equipment, net		1,193,555			2,112,457

Other assets:
Capitalized finance costs, net		139,492			205,457
Other assets, net		-			19,400
Total other assets		139,492			224,857

Total assets	$	1,638,637		$	2,810,808

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Finance Company line of credit	$	93,647		$	209,986
Notes payable, current portion, net		1,174,982			1,863,961
Accounts payable		1,489,085			1,302,178
Warranty liability		95,000			95,000
Other current liabilities		490,287			883,396
Current liabilities of discontinued operations		492,006			492,006
Total current liabilities		3,835,007			4,846,527

Derivative liability		1,053,152			1,186,670

Total liabilities		4,888,159			6,033,197

Temporary equity:
Series A convertible preferred stock, $0.001 par value; 3,500,000 shares issued and outstanding		3,499,950			3,499,950

Permanent equity:
Stockholders' Deficiency
Series B convertible preferred stock, $0.001 par value, 10,000,000 authorized; 1,192,308 shares issued and outstanding as of March 31, 2011 and September 30, 2010		1,192			1,192
Common stock, $0.001 par value, 100,000,000 shares authorized; 46,042,486 and 29,510,091 shares issued and outstanding as of March 31, 2011 and September 30, 2010, respectively		46,042			29,510
Additional paid in capital		8,939,451			8,244,894
Deficit		(15,121,278	)		(14,358,814	)
Accumulated other comprehensive loss		(148,873	)		(148,873	)
Total Marketing Worldwide Corporation stockholders' deficiency		(6,283,466	)		(6,232,091	)
Non controlling interest		(466,006	)		(490,248	)
Total stockholders' deficiency		(6,749,472	)		(6,722,339	)

Total Liabilities and Stockholders' Deficiency	$	1,638,637		$	2,810,808

See the accompanying notes to the unaudited condensed consolidated financial statements

F-1

MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

	Three Months Ended March 31,						Six Months Ended March 31,
	2011			2010			2011			2010
Revenue	$	265,354		$	980,261		$	859,863		$	2,172,427

Cost of sales		304,559			783,959			755,044			1,489,797

Gross profit (loss)		(39,205	)		196,302			104,819			682,630

Operating expenses:
Selling, general and administrative expenses		675,033			1,208,890			1,002,259			2,107,501

Loss from operations		(714,238	)		(1,012,588	)		(897,440	)		(1,424,871	)

(Loss) gain on change in fair value of derivative liability		(166,461	)		3,616,762			605,866			(44,195	)
Financing expenses		(221,244	)		(91,283	)		(292,052	)		(205,841	)
Loss on settlement of debt		(58,410	)					(58,410	)		-
Other income (expense), net		53,393			(2,995	)		61,314			7,827

(Loss) income from continuing operations		(1,106,960	)		2,509,896			(580,722	)		(1,667,080	)

Loss from discontinued operations		-			(265,091	)		-			(377,228	)

Net (loss) income		(1,106,960	)		2,244,805			(580,722	)		(2,044,308	)

(Loss) income attributable to Non-controlling interest		(10,406	)		(666	)		24,242			18,794

(Loss) income attributable to Company		(1,096,554	)		2,245,471			(604,964	)		(2,063,102	)

Preferred stock dividend		(78,750	)		(78,750	)		(157,500	)		(157,500	)

NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	(1,175,304	)	$	2,166,721		$	(762,464	)	$	(2,220,602	)

(Loss) income per common share, basic:
Continuing operations	$	(0.03	)	$	0.12		$	(0.02	)	$	(0.10	)
Discontinued operations		-			(0.01	)		-			(0.02	)
Total	$	(0.03	)	$	0.11		$	(0.02	)	$	(0.12	)

(Loss) income per common share, fully diluted
Continuing operations	$	(0.03	)		0.06		$	(0.02	)	$	(0.10	)
Discontinued operations		-			(0.01	)		-			(0.02	)
Total	$	(0.03	)	$	0.05		$	(0.02	)	$	(0.12	)

Weighted average common stock outstanding
Basic		40,087,286			19,375,258			35,586,726			18,861,217
Fully Diluted		40,087,286			41,352,484			35,586,726			18,861,217

Comprehensive loss:
Net (loss) income	$	(1,106,960	)		2,244,805		$	(580,722	)	$	(2,044,308	)
Foreign currency translation, income		-			-			-			27,456

Total comprehensive income (loss)		(1,106,960	)		2,244,805			(580,722	)		(2,016,852	)
Comprehensive income (loss) attributable to non controlling interest		(10,406	)		(666	)		24,242			18,794
Comprehensive ( loss) income attributable to Marketing Worldwide Corporation	$	(1,096,554	)	$	2,245,471		$	(604,964	)	$	(2,035,646	)

See the accompanying notes to the unaudited condensed consolidated financial statements

F-2

MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

	Six months ended March 31,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to continuing operations	$	(580,722	)	$	(1,667,080	)
Loss from discontinued operations		-			(377,228	)
Net Loss		(580,722	)		(2,044,308	)
Adjustments to reconcile net loss to cash provided by operations:
Depreciation and amortization		126,449			210,892
Amortization of deferred financing costs		65,965			65,965
Amortization of debt discounts		34,955			-
Non cash interest		152,146			-
Loss on disposal of assets, net		-			10,617
Loss on settlement of debt		58,410			-
Interest in non-controlling entity		-			(38,250	)
Change in fair value of derivative liability		(605,866	)		44,195
Fair value of vested employee options		3,140			3,887
Common stock issued for services rendered		106,514			434,250
Change in fair value of interest swap		-			(1,324	)
Changes in operating assets and liabilities:
Accounts receivable		121,794			232,411
Inventory		33,673			168,736
Other current assets		9,328			4,449
Other assets		19,400			(8,389	)
Accounts payable and other current liabilities		500,591			767,190
Cash provided by (used in) continuing operating activities		45,777			(149,679	)
Cash provided by discontinued operating operations		-			241,960
Net cash provided by operating activities		45,777			92,281

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, continuing operations		(7,547	)		(47,124	)
Cash provided by discontinued investing activities		-			149,002
Net cash (used in) provided by investing activities:		(7,547	)		101,878

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of lines of credit		(116,339	)		(218,855	)
Proceeds from (repayments of) notes payable		75,000			(81,505	)
Net cash used in continuing financing activities		(41,339	)		(300,360	)

Effect of currency rate change on cash:		-			27,456

Net decrease in cash and cash equivalents		(3,109	)		(78,745	)
Cash and cash equivalents, beginning of period		3,847			113,539

Cash and cash equivalents, end of period	$	738		$	34,794

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for interest	$	94,543		$	195,417

NON-CASH TRANSACTIONS:
Common stock issued in settlement of debt	$	108,840		$	78,950
Common stock issued in settlement of preferred stock dividends	$	472,500		$	-
Dividends declared	$	157,500		$	157,500
Accounts payable settled via sale of property	$	60,699			-
Settlement of debt via sale of property	$	739,301			-
Common stock issued for services rendered	$	260,160			434,250

See the accompanying notes to the unaudited condensed consolidated financial statements

F-3

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

Marketing Worldwide Corporation (the "Company"), was incorporated under the laws of the State of Delaware in July 2003. The Company is engaged in North America through its wholly-owned subsidiaries, Marketing Worldwide LLC ("MWW"), and Colortek, Inc. (“CT”) in the design, manufacturing, painting and distribution of automotive accessories for motor vehicles in the automotive aftermarket industry and provides design services for large automobile manufacturers. The Company has a wholly owned subsidiary in Germany, Modelworxx, GmbH, which, in February, 2010, filed insolvency in the German courts. As of the date of this filing, the Company has not received the final determination from the German Courts. The Company has reclassified Modelworxx, GmbH fiscal year ended September 30, 2010 balances to reflect them as discontinued operations.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Accordingly, the results from operations for the six month period ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending September 30, 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the September 30, 2010 financial statements and footnotes thereto included in the Company's SEC Form 10-K. The Company has evaluated and included subsequent events through the filing date of this Form 10-Q.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and Variable Interest Entity (“VIE”). All significant inter-company transactions and balances, including those involving the VIE, have been eliminated in consolidation.

Subsequent Events

Subsequent events have been evaluated through the date of this filing.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net income (loss) per share

Basic and diluted loss per common share is based upon the weighted average number of common shares outstanding during the period computed under the provisions of Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). All primary dilutive common shares have been excluded since the inclusion would be anti-dilutive.

Such shares consist of the following at March 31, 2011 and 2010:

	2011		2010

Convertible debt		34,847,888		-
Conversion of Series A preferred stock		20,743,533		20,977,226
Warrants		100,000		100,000
Options		590,000		1,660,000
Totals		56,281,421		22,737,226

F-4

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign currency

The functional currency of the Company is the U. S. dollar. When a transaction is executed in a foreign currency, it is re-measured into U. S. dollars based on appropriate rates of exchange in effect at the time of the transaction. At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the Companies are adjusted to reflect the current exchange rate. The related translation adjustments are included in other comprehensive income and were not material during the six months ended March 31, 2011. The resulting foreign currency transactions gains (losses), which were not material, are included in selling, general and administration expenses in the accompanying consolidated statements of operations.

Fair value of financial instruments

Cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of their short-term nature. The fair value of notes payable and short-term debt is estimated to approximate fair market value based on the current rates available to companies such as MWW.

Reclassification

Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.

Accounting for variable interest entities

Accounting Standards Codification subtopic 810-10, Consolidation (“ASC 810-10”) discusses certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support. ASC 810-10 requires the consolidation of these entities, known as variable interest entities, by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity’s expected losses, receive a majority of the entity's expected residual returns, or both.

The Variable Interest Entity included in these consolidated financial statements sold the only asset it owned, which was real estate subject to a lease with the Company, for $800,000 on November 30, 2010. This sale resulted in a loss of approximately $400,000 and left a remaining liability to the Small Business Administration of approximately $500,000 which is guaranteed by the Company. As of the date of this filing, the Company has not received any specific demands or requests for payment on this loan. This loss was recorded as an impairment loss in the September 30, 2010 consolidated financial statements.

F-5

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred financing costs

Deferred financing costs represent costs incurred in connection with obtaining the debt financing. These costs are amortized to financing expenses over the term of the related debt using the interest rate method. The amortization for the six month periods ended March 31, 2011 and 2010 was approximately $65,965 in each of the periods .

Recent accounting pronouncements

In December 2010, ASU Update No. 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (a consensus of the FASB Emerging Issues Task Force), addresses questions about entities that have reporting units with zero or negative carrying amounts. The amendments in this Update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples in paragraph 350-20-35-30, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. As a result, current GAAP will be improved by eliminating an entity’s ability to assert that a reporting unit is not required to perform Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence of qualitative factors that indicate the goodwill is more likely than not impaired. As a result, goodwill impairments may be reported sooner than under current practice. ASU Update no. 2010-28 is effective for fiscal years, and interim periods within those years, beginning after Dec. 15, 2010. Early adoption is not permitted. The adoption of ASU 2010-20 is not expected to have a material effect on our financial statements.

In July 2010, the FASB issued Accounting Standards Update 2010-20 which amends “Receivables” (Topic 310). ASU 2010-20 is intended to provide additional information to assist financial statement users in assessing an entity’s risk exposures and evaluating the adequacy of allowances for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company did not have a significant impact on its financial statements with the adoption of ASU 2010-20.

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

NOTE 3 - GOING CONCERN MATTERS AND TRIGGERING EVENTS

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements during the six month period ended March 31, 2011, the Company incurred a loss from continuing operations of approximately $581,000.

The Company has incurred substantial recurring losses. The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has available cash of approximately $700 at March 31, 2011, although during the six months ended March 31, 2011, the Company’s operating activities generated cash of approximately $46,000. The Company’s working capital deficiency was approximately $3,529,000 and $4,373,000 as of March 31, 2011 and September 30, 2010, respectively. The Company’s accumulated deficit was approximately $15,100,000 and $14,400,000 as of March 31, 2011 and September 30, 2010, respectively. In addition, the Company has a stockholders’ deficit of approximately $6,700,000 at March 31, 2011. The Company has pledged all of its assets to Summit Financial Resources (Summit) as security for the Summit loan agreement.

The Company has reduced cash required for operations by reducing operating costs and reducing staff levels. In addition, the Company is working to manage its current liabilities while it continues to make changes in operations to improve its cash flow and liquidity position.

CT is a Class A Original Equipment painting facility and operates in a 46,000 square foot owned building in Baroda, which is in South Western Michigan. We invested approximately $2 million into this paint facility and expect the majority of our future growth to come from this business. We have restructured the management of this subsidiary and even though revenues are down, we have successfully gained more business opportunities than ever before. These opportunities take time to develop before converted to revenue. CT is aggressively beginning to diversify to non-automotive paint applications (industrial equipment) which we believe will help stabilize the Company going forward. CT currently has submitted quotes for new business opportunities aggregating approximately $20 million in revenue.

F-6

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - GOING CONCERN MATTERS AND TRIGGERING EVENTS (continued)

The Company's existence is dependent upon management's ability to raise additional financing and develop profitable operations. Additional financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Although the Company has reduced cash required for future operations by reducing operating costs and reducing staff levels, there exists a large balance of debt from prior periods that still must be paid. The Company continues working to manage its current liabilities while it continues to make changes in operations to improve its cash flow and liquidity position.

The above factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 4 – INVENTORIES

Inventories

The inventories at March 31, 2011 and September 30, 2010 are as follows:

	March 31, 2010		September 30, 2010

Work in process	$	41,333	$	65,866
Finished goods		69,394		78,534
Totals	$	110,727	$	144,400

NOTE 5 - COMMITMENTS AND CONTINGENCIES

Related party lease obligations and transactions

On March 5, 2004, MWW and MWWLLC entered into a five year real property lease, beginning on January 1, 2005, with a related party (JCMD Properties LLC: See Note 11) for use of warehouse and general offices located in the city of Howell, Michigan. The lease was terminated at the time the real estate was sold to an unrelated party on November 30, 2010.

The Company entered into a three (3) year lease with the buyer of the property described above. The general terms of the lease call for monthly payments beginning December 1, 2010 of $6,667 for the first year ($80,000 annually); $7,083 per month for the second year ($85,000 annually); $7,417 per month ($89,000 annually) for the third, or final, year of the lease, or an aggregate of $254,000. The Company is responsible for all property taxes, maintenance and utilities associated with the property.

F-7

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued)

Employment and Consulting Agreements

The Company has employment agreements with all of its employees. In addition to salary and benefit provisions, the agreements include non-disclosure and confidentiality provisions for the protection of the Company's proprietary information.

The Company has consulting agreements with outside contractors to provide marketing and financial advisory services. The Agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement by written notice.

Litigation

The Company is subject to certain legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

On October 19, 2010, the Company was served a Complaint from one of its suppliers that a loan in the amount of $217,000 was due and payable. The Company has recorded $195,000 in their accounts as of September 30, 2010 and expects to continue negotiations to settle this outside the legal system.

NOTE 6 - LINE OF CREDIT

In August, 2009, the Company entered into a financing agreement with Summit Financial Resources L.P. (Summit) for a maximum borrowing of up to $1,000,000 maturing August 31, 2010. The arrangement is based on recourse factoring of the Company’s accounts receivables. Substantially all assets within the consolidation group have been pledged as collateral for the Summit facility. The financing agreement was extended for one year through August 31, 2011.

Under the arrangement, Summit typically advances to the Company 75% of the total amount of accounts receivable factored. Summit retains 25% of the outstanding factored accounts receivable as a reserve, which it holds until the customer pays the factored invoice to Summit. The cost of funds for the accounts receivable portion of the borrowings with Summit includes: (a) a collateral management fee of 0.65% of the face amount of factored accounts receivable for each period of fifteen days, or portion thereof, that the factored accounts receivable remains outstanding until payment in full is applied and (b) interest charged at the Wall Street Journal prime rate plus 1% divided by 360. The Summit default rate is the Wall Street Journal prime rate plus 10%. The Company may be obligated to purchase the receivable back from Summit at the end of 90 days.

F-8

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - LINE OF CREDIT (continued)

Under the terms of the recourse provision, the Company is required to repurchase factored receivables if they are not paid in full or are deemed no longer acceptable. Accordingly, the Company has accounted for the financing agreement as a secured borrowing arrangement and not a sale of financial assets.

As of March 31, 2011, the advance balance due to Summit was $93,647. The interest rate at March 31, 2011 was 4.25%.

NOTE 7 - NOTES PAYABLE

At March 31, 2011 and September 30, 2010, notes payable consists of the following:

	March 31, 2011		September 30, 2010
JCMD Mortgage loan payable in monthly principal installments plus interest. Note secured by first deed of trust on real property and improvements located in Howell, MI. In addition to the Company the JCMD General Partners personally guarantee the loan. (*)	$	-	$	669,352

JCMD Mortgage loan payable in 240 monthly principal installments plus interest. The loan was secured by a second deed of trust on real property and improvements located in Howell, MI. In addition to the Company the JCMD General Partners personally guarantee the loan The note is in default. (*)		489,755		538,800

Colortek Mortgage loan payable in monthly principal installments of approximately $5,961 with a fixed interest rate of 6.75% per annum. Note based on a 20 year amortization. Note is secured by first priority security interest in the business property of Colortek, Inc, the Company's wholly owned subsidiary. (**)		601,041		620,595

Note payable issued February 16, 2011, due November 18, 2011 with interest at 8% per annum, unsecured, net of unamortized debt discount of $42,183		7,817		-

Note payable issued February 19, 2011, due contingent on certain events with interest at 5% per annum, unsecured, net of unamortized debt discount of $213,985		50,568		-

Note payable issued March 22, 2011, due on December 28, 2011 with interest at 8% per annum, unsecured, net of unamortized debt discount of $24,199		801		-

Other		25,000		35,214

Total	$	1,174,982	$	1,863,961

F-9

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - NOTES PAYABLE (continued)

(*) In accordance with the Forbearance Agreement, the secured lender of the JCMD Mortgage Loans increased the interest rate on unpaid balances to bear interest at a floating rate of two and quarter percent (2.25%) in excess of the Bank’s Prime Rate, and upon default shall bear interest at a rate of five and one quarter percent (5.25%) in excess of the Bank’s Prime Rate. On November 30, 2010, the real estate securing the mortgage loan payable was sold and the first deed of trust was fully retired. The proceeds from the sale of real estate did not retire the balance of the loan secured by the second deed of trust. There is a shortfall of approximately $490,000 that will continue to be carried as a liability to SBA and will be adjusted once the offer in compromise has been accepted. The sale of real estate for $800,000 which was less than the carrying value of $1,210,000, resulted in the Company recording an impairment charge of approximately $410,000 for the year ended September 30, 2010.

(**) In accordance with the mortgage loan agreement, the Company is currently in default of certain loan covenants.

F-10

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - NOTES PAYABLE (continued)

Note issued February 16, 2011

On February 16, 2011, the Company issued a $50,000 Convertible Promissory Note that matures on November 18, 2011. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 55% of the lowest three trading days 10 days prior to notice of conversion.

The Company identified embedded derivatives related to the Convertible Promissory Note entered into on February 16, 2011. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $143,402 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Model based on the following assumptions:

Dividend yield:	-0-	%
Volatility	385.15	%
Risk free rate:	0.16	%

The initial fair value of the embedded debt derivative of $143,402 was allocated as a debt discount up to the proceeds of the note ($50,000) with the remainder ($93,402) charged to current period operations as interest expense.

During the six months ended March 31, 2011, the Company amortized $7,817 to current period operations as interest expense.

The fair value of the described embedded derivative of $140,002 at March 31, 2011 was determined using the Binomial Lattice Model with the following assumptions:

Dividend yield:	-0-	%
Volatility	425.97	%
Risk free rate:	0.17	%

F-11

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - NOTES PAYABLE (continued)

At March 31, 2011, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $3,400 for the three months ended March 31, 2011.

Promissory Note issued February 19, 2011

On February 19, 2011, the Company issued a Promissory Note for $260,120 in exchange for previously accrued consulting services. The Note bears an interest rate of 5% per annum, payable semi-annually beginning November 1, 2011 and is due upon the occurrence of certain bankruptcy or reorganization events. The Promissory Note is convertible into the Company’s common stock at any time at the holder’s option, into common stock at the conversion rate of 90% of the lowest three trading days 10 days prior to notice of conversion.

The Company identified embedded derivatives related to the Convertible Promissory Note entered into on February 19, 2011. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $240,321 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice Model based on the following assumptions:

Dividend yield:	-0-	%
Volatility	390.68	%
Risk free rate:	1.02	%

The initial fair value of the embedded debt derivative of $240,321 was allocated as a debt discount.

During the six months ended March 31, 2011, the Company amortized $26,336 to current period operations as interest expense.

The fair value of the described embedded derivative of $456,618 at March 31, 2011 was determined using the Binomial Lattice Model with the following assumptions:

Dividend yield:	-0-	%
Volatility	425.97	%
Risk free rate:	1.11	%

At March 31, 2011, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $216,297 for the three months ended March 31, 2011.

Note issued March 22, 2011

On March 22, 2011, the Company issued a $25,000 Convertible Promissory Note that matures on December 28, 2011. The note bears interest at a rate of 8% and will be convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 55% of the lowest three trading days 10 days prior to notice of conversion.

F-12

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - NOTES PAYABLE (continued)

The Company identified embedded derivatives related to the Convertible Promissory Note entered into on March 22, 2011. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value of $83,744 of the embedded derivative. The fair value of the embedded derivative was determined using the Bi n omial Lattice Model based on the following assumptions:

Dividend yield:	-0-	%
Volatility	426.05	%
Risk free rate:	0.25	%

The initial fair value of the embedded debt derivative of $83,744 was allocated as a debt discount up to the proceeds of the note ($25,000) with the remainder ($58,744) charged to current period operations as interest expense.

During the six months ended March 31, 2011, the Company amortized $801 to current period operations as interest expense.

The fair value of the described embedded derivative of $70,962 at March 31, 2011 was determined using the Binomial Lattice Model with the following assumptions:

Dividend yield:	-0-	%
Volatility	425.97	%
Risk free rate:	0.17	%

At March 31, 2011, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $12,782 for the three months ended March 31, 2011.

NOTE 8 – OTHER CURRENT LIABILITIES

Other current liabilities consist of the following at March 31, 2011 and September 30, 2010:

	March 31, 2011		September 30, 2010
Preferred dividends payable	$	157,500	$	472,500
Consulting fees		13,000		112,200
Interest		169,684		163,202
Payroll and other		150,103		135,494
Totals	$	490,287	$	883,396

F-13

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - CAPITAL STOCK

The Company is authorized to issue 110,000,000 shares of stock consisting of 100,000,000 shares of common stock and 10,000,000 shares of Preferred stock, both at par value of $.001

The Board of Directors of the Company has the right to establish the pertaining terms of the issuance of shares of preferred stock, such as dividend rates, liquidation preferences, voting rights and conversion options .

Series A Preferred stock

Payment of Dividends: Commencing on the date of issuance of the Series A Preferred Stock, the holders of record of shares of Series A Preferred Stock shall be entitled to receive, out of any assets at the time legally available therefore and as declared by the Board of Directors, dividends at the rate of nine percent (9%) of the stated Liquidation Preference Amount (see below) per share per annum payable quarterly.

In accordance with Accounting Standards Codification subtopic 470-20, Debt, Debt with Conversions and Other Options (“ASC 470-20”), the Company recognized an imbedded beneficial conversion feature present in the Convertible Series A Preferred Stock. The Company allocated a portion of the proceeds equal to the fair value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $3,500,000 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature to additional paid-in capital and a charge as preferred stock dividend. The fair value of the imbedded beneficial conversion feature was determined using the Black-Scholes Option Pricing Model which approximates the fair value measured using the Binomial Lattice Model with the following assumptions: Dividend yield: $-0-; Volatility: 425.97%, risk free rate: 0.93%.

The Series A Preferred Stock includes certain redemption features allowing the holders the right, at the holder’s option, to require the Company to redeem all or a portion of the holder’s shares of Series A Preferred Stock upon the occurrence of a Major Transaction or Triggering Event. Major Transaction is defined as a consolidation or merger; sale or transfer of more than 50% of the Company assets or transfer of more than 50% of the Company’s common stock. A Triggering Event is defined as a lapse in the effectiveness of the related registration statement; suspension from listing; failure to honor for conversion or going private.

In accordance with ASC 470-20, the Company has classified the Series A Preferred Stock outside of permanent equity.

In June 2008, the FASB finalized ACS 815, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” Under ASC 815, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has determined that it needs to account for these imbedded beneficial conversion features, issued to investors in 2007 for its Series A Convertible Preferred Stock, as derivative liabilities, and apply the provisions of ASC 815. The instruments have a ratchet provision (that adjusts the exercise price in the event of a subsequent offering of equity at a lower exercise price). As a result, the ratchet provision has been accounted for as derivative liabilities, in accordance with ASC 815. ASC 815, “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815”) requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in fair value reported in the consolidated statement of operations.

The fair value of the embedded conversion features were measured using the Black-Scholes option pricing model as of the date of issuance and as of September 30, 2010 and at March 31, 2011, the fair value was measured using the Binomial Lattice Model and the following assumptions:

F-14

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - CAPITAL STOCK (continued)

	March 31,			September 30,			Date of
	2011			2010			issuance

Imbedded Conversion Feature:
Risk-free rate		0.93	%		0.42	%		4.55	%
Annual rate of dividends		0			0			0
Volatility		425.97	%		336.73	%		146.64	%
Weighted Average life (years)		1.07			1.56			5.0

Fair Value	$	384,299		$	1,186,670		$	1,971,115

The risk-free interest rate was based on rates established by the Federal Reserve. The Company based expected volatility on the historical volatility for its common stock. The expected life of the embedded conversion features was based on their full term. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

ASC 815 was implemented in the first quarter of Fiscal 2010 and is reported as the cumulative effect of a change in accounting principles. At October 1, 2009, the cumulative effect on the embedded conversion feature was recorded as decrease in accumulated deficit of $1,971,115. As of March 31, 2011 the derivative liability associated with the embedded conversion features of the Series A Preferred stock was revalued, the decrease in the derivative liability of $30,044 and $802,371 for the three and six months ended March 31, 2011 is included as an increase of a gain on change of fair value of derivative liabilities in the Company’s consolidated statement of operations.

Series B Preferred stock

As of March 31, 2011 and September 30, 2010, the Company has 1,192,308 shares of Series B Preferred Stock outstanding.

Common stock

On October 25, 2010, the Company issued 2,000,000 shares of common stock in exchange for services valued at $40,000. These shares were valued at $0.02 per share, which was the trading price on October 25, 2010.

On January 11, 2011, the Company issued an aggregate of 554,108 shares of common stock in exchange for services valued at $25,914. The shares were valued at the $.04 per share, which was the trading price as of January 11, 2011.

On January 11, 2011, the Company issued 5,137,500 shares of common stock in exchange for accumulated Series A preferred stock dividend of $472,500. The shares were valued at the underlying terms of the Series A preferred stock.

On January 17, 2011, the Company issued 375,000 shares of common stock in exchange for services valued at $7,500. These shares were valued at $0.02 per share, which was the trading price on January 17, 2011

On February 1, 2011, the Company issued 800,000 shares of common stock in exchange for accrued compensation valued at $16,000. These shares were valued at $0.02 per share, which was the trading price on February 1, 2011.

F-15

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - CAPITAL STOCK (continued)

On February 12, 2011, the Company issued 4,150,000 shares of common stock in exchange for previously incurred debt of $49,566. These shares were valued at $0.02 per share, which was the trading price on February 12, 2011. The Company recorded a $33,434 loss on settlement of debt at the date of issuance.

On February 22, 2011, the Company issued 600,000 shares of common stock in exchange for services valued at $9,600. These shares were valued at $0.02 per share, which was the trading price on February 22, 2011

On February 23, 2011, the Company issued 375,000 shares of common stock in exchange for services valued at $7,125. These shares were valued at $0.019 per share, which was the trading price on February 23, 2011

On March 24, 2011, the Company issued 2,540,787 shares of common stock in exchange for previously incurred debt of $25,840. These shares were valued at $0.02 per share, which was the trading price on March 24, 2011. The Company recorded a $24,976 loss on settlement of debt at the date of issuance.

NOTE 10 - STOCK OPTIONS

Employee Stock Options

The Company granted no employee options during the three and six month period ended March 31, 2011. The Company recorded the fair value of the vested portion of issued employee options of $1,175 and $3,140 for the three and six months ended March 31, 2011 and $1,922 and $3,887 for the three and six months ended March 31, 2010.

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 March 31, 2011:

						Options Exercisable
				Options Outstanding		Weighted
				Weighted Average		Average
Exercise		Number		Remaining Contractual		Exercise		Number
Price		Outstanding		Life (Years)		Price		Exercisable
$	0.30		490,000		6.40	$	0.30		490,000
$	0.30		100,000		.42	$	0.30		100,000
			590,000		5.39	$	0.30		590,000

During the six month periods ended March 31, 2011 and 2010, there were no Employee Stock Options either granted or expired or cancelled. In addition, as of March 31, 2011, the Company has no remaining unamortized stock compensation costs relating to the 590,000 previously issued Employee Stock Options.

Transactions involving options issued to employees are summarized as follows:

F-16

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCK OPTIONS (continued)

			Weighted Average Exercise
	Weighted Average Number of Options		Price per Share
Outstanding, September 30, 2010		590,000	$	.30
Granted		-		-
Exercised		-		-
Canceled or expired		-		-
Outstanding, March 31, 2011		590,000		.30

Non employee options

As of March 31, 2011, all non employee options expired.

Transactions involving options issued to non-employees are summarized as follows:

	Weighted Average Number of Options			Weighted Average Excercise Price per Share
Outstanding, September 30, 2010		1,000,000		$	0.10
Granted / Exercised		-			-
Canceled or expired		(1,000,000	)		(0.10	)
Outstanding, March 31, 2011		-		$	-

Warrants

The following table summarizes the changes in warrants outstanding as of March 31, 2011:

Warrants Outstanding

Warrants Exercisable

Weighted Average

Remaining

Weighted

Average

Weighted

Number

Contractual

Exercise

Number

Average

Exercise Price

Outstanding

Life (Years)

Price

Exercisable

Exercise Price

0.30

100,000

0.50

0.30

100,000

0.30

Transactions involving warrants are summarized as follows :

	Weighted Average Number of Shares		Price per Share
Outstanding, September 30, 2010		100,000		0.30
Granted		-		-
Exercised		-		-
Canceled or expired		-		-
Outstanding, March 31, 2011		100,000	$	0.30

F-17

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - CONSOLIDATION OF VARIABLE INTEREST ENTITIES

On June 6, 2005 and August 8, 2005, JCMD Properties LLC, an entity controlled by the Company's former Chief Executive and Chief Operating officers respectively ("JCMD"), entered into a Secured Loan Agreement with a financial institution, in connection with the financing of real property and improvements ("property"). This agreement is guaranteed by the Company.

The property was leased to the Company under a long term operating lease beginning on January 1, 2005. Under the loan agreements, JCMD is obligated to make periodic payments of principal repayments and interest. The Company has no equity interest in JCMD or the property.

Based on the terms of the lending agreement, the Company determined that JCMD was a variable interest entity ("VIE") and the Company was the primary beneficiary under ASC 810-10 since JCMD did not have sufficient equity at risk for the entity to finance its activities.

ASC 810-10 requires that an enterprise consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the entity's expected losses if they occur. Accordingly, the Company adopted ASC 810-10 and consolidated JCMD as a VIE, regardless of the Company not having an equity interest in JCMD. Since JCMD is owned by two of the former principals of MWW, MWW has guaranteed the indebtedness of JCMD for the real estate occupied by MWW, and the two principals of JCMD do not have the ability to repay the loan, the Company, in accordance with ASC 810-10 has consolidated the activities of JCMD into the presented financial statements.

Included in the Company's consolidated balance sheets at March 31, 2011 and September 30, 2010 are the following net assets of JCMD:

	March 31, 2011			September 30, 2010
ASSETS (JCMD)
Cash and cash equivalents	$	-		$	755
Accounts receivable, prepaid expenses and other current assets		193,433			150,400
Total current assets		193,433			151,155
Property, plant and equipment, net		-			800,000
Total assets		193,433			951,155

LIABILITIES:
Current portion of long term debt		489,755			1,208,152
Accounts payable and accrued liabilities		169,684			233,251
Total current liabilities		659,439			1,441,403
Total equity		(466,006	)		(490,248	)
Total liabilities and deficit	$	193,433		$	951,155

F-18

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11- CONSOLIDATION OF VARIABLE INTEREST ENTITIES (continued)

Consolidated results of operations include the following for the three months ended March 31, 2011 and 2010:

	March 31,			March 31,
	2011			2010

Revenues	$	0		$	51,000
Cost and expenses – real estate: Operating expenses, net		0			3,293
Depreciation		0			8,000
Interest, net		10,406			40,373
Total costs and expenses		10,40 6			51,666
Operating income – Real estate	$	(10,406	)	$	(666	)

Consolidated results of operations include the following for the six months ended March 31, 2011 and 2010:

	March 31, 2011		March 31, 2010
Revenues	$	34,000	$	102,000
Cost and expenses - real estate: Operating expenses, net		9,766		6,056
Depreciation		-		16,000
Interest, net		(8)		61,150
Total costs and expenses		9,758		83,206

Operating income-Real estate	$	24,242	$	18,794

The Variable Interest Entity owned by JCMD and included in these consolidated financial statements sold the only asset it owned, which was real estate that was under a lease with the Company, for $800,000 on November 30, 2010. This sale resulted in a net loss of approximately $400,000 and left a remaining liability to the Small Business Administration of approximately $500,000 which is guaranteed by the Company. This loss was recorded as an impairment loss in the September 30, 2010 financial statements.

NOTE 12- FAIR VALUE OF FINANCIAL INSTRUMENTS

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

F-19

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

Items recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items as of March 31, 2011:

Fair Value Measurements at March 31, 2011 using:

March 31,

2011

Quoted Prices

in Active

Markets for

Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs (Level 2)

Significant

Unobservable

Inputs

(Level 3)

Liabilities:

Derivative liabilities

1,053,152

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2011:

	Derivative Liability
Balance, October 1, 2010	$	1,186,670
Total (gains) losses
Initial fair value of debt derivatives at note issuances		467,467
Mark-to-market at March 31, 2011:
- Embedded debt derivatives		201,386
- Reset provisions relating to Series A preferred stock		(802,371	)

Balance, March 31, 2011	$	1,053,152

Net gain for the period included in earnings relating to the liabilities held at March 31, 2011	$	605,866

Level 3 Liabilities are comprised of our bifurcated convertible debt features on our convertible notes and reset provision contained within our Series A stock.

F-20

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13– DISCONTINUED OPERATIONS

On February 25, 2010, the Company discontinued operations of its wholly owned subsidiary; MW Global Limited which owns 100% of the outstanding ownership and economic interest in Modelworxx GmbH. The financial results of MW Global are presented separately in the unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. The assets and liabilities of this business are reflected as assets and liabilities from discontinued operations in the consolidated balance sheets for all periods presented. The Company does not expect to incur any ongoing costs associated with this discontinued operations.

The assets and liabilities of the discontinued operations as of March 31, 2011 and September 30, 2010 were as follows:

Assets:

	March 31, 2011		September 30, 2010
Cash	$	-	$	-
Accounts receivable		-		-
Inventories		-		-
Prepaid expenses and other assets		-		-
Total current assets		-		-
Other assets of discontinued operations		-		-
Assets of discontinued operations	$	-	$	-
Liabilities:
Accounts payable	$	492,006	$	492,006
Line of credit		-		-
Liabilities of discontinued operations	$	492,006	$	492,006

The Results of Operations for the three month periods ended March 31, 2011 and 2010 are as follows:

	March 31, 2011		March 31, 2010
Sales	$	-	$	-
Cost of sales		-		-
Gross profit (loss)		-		-

Operating Costs:
Selling, general and administrative		-		-
Depreciation and amortization		-		-
Total operating costs		-		-
Net loss from operations		-

Other loss		-		(265,091	)
Net loss	$		$	(265,091	)

F-21

MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13– DISCONTINUED OPERATIONS

The Results of Operations for the six month periods ended March 31, 2011 and 2010 are as follows:

	March 31, 2011		March 31, 2010
Sales	$	-	$	316,110
Cost of sales		-		266,556
Gross profit (loss)		-		49,554

Operating Costs:
Selling, general and administrative		-		153,543
Depreciation and amortization		-		11,639
Total operating costs		-		165,182
Net loss from operations		-		(115,628	)

Other income (expense), net		-		(261,600	)
Net loss	$		$	(377,228	)

NOTE 14 - SUBSEQUENT EVENTS

Southridge Partners II, LP

In July 2010, the Company entered into an Equity Credit Agreement (the “Agreement”) with Southridge Partners II, LP (“Investor”), whereby the Company would sell up to $5 million of the Company’s common stock for a period up to twenty four months following effectiveness of a registration statement for the Company’s common stock. In connection with this Agreement, the Company agreed to issue the Investor a warrant to purchase up to 5 million shares of the company’s common stock at an original exercise price of $0.001 or par value. In connection with the agreement, the initial notice to exercise warrants was approved by the Company’s Board of Directors on April 27, 2011 for the issuance of 1,821,361 shares of common stock valued at $54,640 under the cashless exercise provision.

On April 29, 2011 the Company entered into an agreement with Southridge Partners II, LP whereby they issued 40 shares of Series C preferred stock at $1,000 per share. On May 5, 2011, the Company received $40,000 from this transaction.

StockVest

The Company has entered into an agreement with StockVest for consulting services. In connection with this agreement the Company is obligated to issue 1,800,000 shares of its restricted common stock to StockVest. In connection with the agreement, the Company’s Board of Directors on April 27, 2011 approved the issuance of 1,800,000 shares of common stock valued at $54,000.

Other

On May1, 2011, the Company, by agreement of a majority of shareholders, amended the Certificate of Incorporation to increase the authorized shares of common stock .The total number of shares of stock which the corporation shall have authority to issue is: Five Hundred Ten Million (510,000,000) of which Five Hundred Million (500,000,000) shares of the par value of $.001 each shall be common stock and of which Ten Million (10,000,000) shares of the par value of $.001 each shall be preferred stock. Further, the board of directors of this corporation, by resolution only and without further action or approval, may cause the corporation to issue one or more classes or one or more series of preferred stock within any class thereof and which classes or series may have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the board of directors, and to fix the number of shares constituting any classes or series and to increase or decrease the number of shares of any such class or series.

F-22

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

THIS REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS IN THIS REPORT ARE INDICATED BY WORDS SUCH AS "ANTICIPATES," "EXPECTS," "BELIEVES," "INTENDS," "PLANS," "ESTIMATES," "PROJECTS" AND SIMILAR EXPRESSIONS. THESE STATEMENTS REPRESENT OUR EXPECTATIONS BASED ON CURRENT INFORMATION AND ASSUMPTIONS. FORWARD-LOOKING STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE WHICH ARE ANTICIPATED OR PROJECTED AS A RESULT OF CERTAIN RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO A NUMBER OF FACTORS, SUCH AS ECONOMIC AND MARKET CONDITIONS; THE PERFORMANCE OF THE AUTOMOTIVE AFTERMARKET SECTOR; CHANGES IN BUSINESS RELATIONSHIPS WITH OUR MAJOR CUSTOMERS AND IN THE TIMING, SIZE AND CONTINUATION OF OUR CUSTOMERS' PROGRAMS; THE ABILITY OF OUR CUSTOMERS TO ACHIEVE THEIR PROJECTED SALES; COMPETITIVE PRODUCT AND PRICING PRESSURES; INCREASES IN PRODUCTION OR MATERIAL COSTS THAT CANNOT BE RECOUPED IN PRODUCT PRICING; SUCCESSFUL INTEGRATION OF ACQUIRED BUSINESSES; PRODUCT LIABILITY, AS WELL AS OTHER RISKS AND UNCERTAINTIES, SUCH AS THOSE DESCRIBED

UNDER QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND THOSE DETAILED HEREIN AND FROM TIME TO TIME IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THOSE FORWARD-LOOKING STATEMENTS ARE MADE ONLY AS OF THE DATE HEREOF, AND WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE THE FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q

BUSINESS OVERVIEW

Marketing Worldwide Corporation

Marketing Worldwide Corporation, a Delaware corporation ("MWWC” "We" "Us" "Our" or the "Company"), was incorporated on July 21, 2003. MWWC's headquarters are in Howell, Michigan. MWWC operates through the holding company structure and conducts its business operations through our wholly owned subsidiaries Colortek, Inc. (“CT”) and Marketing Worldwide, LLC (“MWW”).

In previous reporting periods, the Company had a 100% German subsidiary, Modelworxx, GmbH (“MWX”). As the direct result from the world-wide economic recession, MWX was forced to file insolvency in the German legal system. This filing was done in February, 2010 and MWWC has not been provided any final determination from the German courts. The Company reported this transaction as discontinued operations in the reported unaudited condensed consolidated financial statements.

Marketing Worldwide, LLC (“MWW”)

MWW is a complete design, manufacturer and fulfillment business providing accessories for the customization of vehicles and delivers its products to large global automobile manufacturers and certain Vehicle Processing Centers primarily in North America. MWW operates in a 23,000 square foot leased building in Howell Michigan.

The primary automotive accessory products provided by MWW are blow-molded spoilers (bridge and lip), extruded body-side moldings, and carbon-fiber seat heaters. We have identified new business partners to drive more product sales. Even though sales for the first two quarters are less than the prior year, we expect to finish the year at approximately the same level as 2010.. Much of the increased sales growth is expected to occur in the fourth quarter of fiscal year ending September 30, 2011.

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MWW’s accessory programs are sold directly to vehicle processing centers and distributors located primarily in North America. These vehicle processing centers and distributors receive a continuous stream of new vehicles from the foreign and domestic automobile manufacturers for accessorization, customization, and subsequently, distribution into the domestic dealer distribution network. Distributors also sell MWW’s accessories directly to their dealers and end customers.

The vehicle processing centers and distributors submit purchase orders to MWW and/or its wholly owned subsidiaries for the delivery of accessories programs for specific types of vehicles. An accessory program refers to the complete package of goods and services related to a single accessory for a particular type of vehicle.

MWW's business model empowers its customers to make the selection of various accessories (sold by MWW) later in the production cycle, thus improving time to market for their automobiles and faster reaction to the dynamically changing demand of its customers. The principal MWW products sold during the last two fiscal years include Automotive Body Components such as:

* Rear Deck Spoilers

* Running Boards

* Body Side Moldings

* Stainless Steel Exhaust Systems

* Side skirts or front ends

* Carbon Fiber Seat Heater Systems

* Lights and Fixtures

Several of the vehicles MWW currently provides accessories to are changing models this year and will provide additional growth opportunities. MWW is also negotiating to provide fulfillment activities for new customers, meaning MWW will receive, store and ship products that are designed and manufactured by other unrelated companies.

Colortek, Inc. (“CT”)

CT is a Class A Original Equipment painting facility and operates in a 46,000 square foot owned building in Baroda, which is in South Western Michigan. MWW invested approximately $2 million into this paint facility and expect the majority of our future growth to come from this business. We have restructured CT’s management and streamlined the production process and in addition have successfully gained more business opportunities than ever before. CT is aggressively beginning to diversify to non-automotive paint applications (industrial equipment) which we believe will help stabilize the Company going forward. CT currently has submitted quotes for new business opportunities aggregating approximately $20 million in revenue.

RECENT DEVELOPMENTS

In August, 2009, the Company entered into a loan agreement with Summit Financial to borrow up to $1,000,000. MWW pledged all of its inventory, equipment, accounts receivable, chattel paper, instruments, and letters of credit, documents, deposit accounts, investment property, money, rights to payment and general intangibles to secure the Loan. The financing arrangement expires on August 31, 2011, unless extended by both parties.

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Effective February, 2010, the Company’s German subsidiary, ModelWorxx GmbH filed insolvency. The Company has not received final resolution of this matter from the German courts. The net liabilities of the 100% owned subsidiary are included in the reported consolidated financial statements of the Company. The income and expense accounts of ModelWorxx have been reclassified and its operations have been treated as a loss from discontinued operations in these unaudited condensed consolidated financial statements.

As part of the continued restructuring of the Company, the Board hired a new Chief Executive Officer, Charles Pinkerton, to further and accelerate the turnaround efforts. To date, the Company has reduced labor by 40% and occupancy cost by 50%. Under the leadership of Mr. Pinkerton, the Company has increased new revenue opportunities.

On May1, 2011, the Company, by agreement of a majority of shareholders, amended the Certificate of Incorporation to increase the authorized shares of common stock . The total number of shares of stock which the corporation shall have authority to issue is: Five Hundred Ten Million (510,000,000) of which Five Hundred Million (500,000,000) shares of the par value of $.001 each shall be common stock and of which Ten Million (10,000,000) shares of the par value of $.001 each shall be preferred stock. Further, the board of directors of this corporation, by resolution only and without further action or approval, may cause the corporation to issue one or more classes or one or more series of preferred stock within any class thereof and which classes or series may have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the board of directors, and to fix the number of shares constituting any classes or series and to increase or decrease the number of shares of any such class or series.

PRODUCTS IN DEVELOPMENT

During 2010, MWW expanded its presence in color body side moldings and seat heaters, both of which can be installed either by the vehicle processing centers or the retail dealer. MWW expects that installation at the vehicle processing center and dealership level will increase the market penetration rates.

In January 2009 MWW was awarded the 4Runner running board program for Toyota Canada. This program launched in September of 2009 and should continue through 2014.

In addition to its internal development programs, MWW is in various stages of joint program developments on a number of new programs with several other suppliers. These development efforts were undertaken to expand our product offering and customer base, while reducing our development costs. These products are either currently being designed, prototyped or in various stages of tooling with expected launch dates in the third quarter of fiscal year 2011.

Colortek, Inc. is currently negotiating to provide painting services to the industrial goods and construction industry, along with the expansion into the domestic automakers offerings. Colortek satisfies a niche market where low volume painting of Class A quality is necessary. Though its strategic alliances, Colortek has currently quoted approximately $20 million of new business.

THE MARKET

The global automobile accessory market is highly fragmented and not dominated by a few large participants. Competitive pressures among vehicle manufacturers has forced manufacturers to add more options to their vehicles at the vehicle processing centers and not during the initial manufacturing process at the assembly line. In addition many manufacturers have switched to smaller, but more frequent vehicle production runs which fall squarely into MWW’s core competency and can be economically executed based on its streamline production capabilities. These options packages are commonly referred to as "port installed" or "dealer installed" option packages. MWW accessory programs are a crucial part of the option packages installed at the vehicle processing centers in North America. Accordingly, MWW receives its revenue directly from the vehicle processing centers and not from the automobile manufacturers or the automotive dealer.

The vehicle processing centers, which MWW sells to, do not design or manufacture the option packages. Instead, they have well-trained employees who install virtually any accessory for all vehicles they distribute after having been trained by MWW and using installation manuals and fixtures provided by MWW. As such, any vehicle received by the vehicle processing centers is being accessorized by these teams before it goes into the respective domestic retail dealer distribution network. MWW's accessory programs that are sold to the vehicle processing centers include the individual components, parts, installation instructions and training, fixtures, templates, and warranty.

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Vehicle manufacturers and the vehicle processing centers rely on MWW to propose, design, manufacture and deliver the accessory programs. The vehicle processing centers operate under quality control programs similar or equal to the manufacturer's on-line production facilities. Therefore, process stability, quality control issues and other related procedures are a crucial component of a successful relationship with the processing centers. The vehicle processing centers that will market particular vehicles into the dealer network are responsible for requesting, approving, and ultimately paying for the accessory programs.

A large part of the fulfillment program is enhanced by the fact that MWW owns CT, its the Class A paint facility. MWW, through CT, provides painted products to their customers at the Vehicle Processing Centers as well as through other strategic alliance partners to large domestic and foreign automotive manufacturers, thus accelerating MWW”s efforts for customer diversification..

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MARCH 31, 2011 TO THE THREE MONTHS ENDED MARCH 31, 2010:

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Revenues

Net revenues were approximately $265,000 for the quarter ended March 31, 2011. Our revenues decreased approximately $715,000 from the quarter ended March 31, 2010. This 73% decrease is due to changing vehicle models which is normal when new models are going to be launched and customers are not accessorizing existing models in their effort to reduce inventory levels. We are currently in the design phase of creating new spoilers and body-side moldings for the new vehicles expecting to be launched this summer. The Company is quoting on numerous paint projects and working on new Toyota programs for the 2011 and 2012 programs that are expected to provide revenue growth.

GROSS PROFIT

MWW's gross profit margin (loss) as a percentage of revenues were (14.8%) for the quarter ended March 31, 2011 as compared to 20% for the same period last year as a result of decreased revenue and a certain minimum level fixed costs. We are quoting on higher profit margin products for 2011 and expect an improvement in margins as we get further into 2011.

The primary components of cost of sales are direct labor and cost of parts and materials. Even though the Company has reduced head count, the reduced revenues have created a situation where cost of sales has exceeded sales. As we move into the third and fourth quarter of the year, we expect sales levels to increase and our gross profit will become stabilized. The cost of parts and materials has been consistent from year to year.

OPERATING EXPENSES

Selling, general, and administrative expenses were $675,033, 254% of revenues, for the quarter ended March 31, 2011 compared to $1,208,890, 123 % of revenues, during the quarter ended March 31, 2010. The increase in costs as a percent of revenues is attributable to the decrease in revenues and a minimum level of fixed cost somewhat offset with management’s stringent efforts to reduce overhead costs.

Significant components of operating expenses consist of professional fees, salaries, and business insurances. The Company has been reducing head count which is driving the decrease in costs, but with declining revenues, the operating expenses have increased as a percentage of revenue. With increasing revenues these headcount levels will be adjusted accordingly.

OTHER INCOME (EXPENSES)

Financing expenses were $221,244 and $91,283 for the quarters ended March 31, 2011 and 2010, respectively. This increase is due primarily to added interest costs associated with new debt issuances offset with the elimination of the bank debt on the building in Howell Michigan and the reduced borrowing levels against our line of credit We also incurred a loss on settlement of debt of $58,411 (non-cash) during the quarter ended March 31, 2011 as compared to $-0- for the same period last year.

In addition, we incurred a non-cash expense from the change in fair value of our derivative liability of $166,461 for the three months ended March 31, 2011 as compared to a non-cash gain of $3,616,762 for same period last year. The change in our derivative liability was due primarily to the changes in the market value of our common stock from December 31, 2010.

LIQUIDITY AND CAPITAL RESOURCES

OPERATING ACTIVITIES. During the six months ended March 31, 2011, we provided $45,777 of cash flow in operations, which was primarily the result of an intense collection effort of accounts receivables.

INVESTING ACTIVITIES. During the six months ended March 31, 2011, net cash used by investing activities was $7,547 for the purchase of equipment.

FINANCING ACTIVITIES. During the six months ended March 31, 2011, net cash flow used in financing activities amounted to $41,339. The net cash flow from our operating activities and the short term borrowings was used primarily to pay down our line of credit.

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MWW expects its regular capital expenditures to be approximately $160,000 for fiscal 2011. These anticipated expenditures are for continued investments in property, tooling, and equipment used in our business. We have identified several potential sources of funds to accommodate this capital need, but have not entered into any definite agreements yet.

The independent registered public accounting firm’s report on our September 30, 2010 financial statements states that our difficulty in generating sufficient cash flow to meet our obligations and sustain operations raises substantial doubts about the our ability to continue as a going concern. These unaudited condensed consolidated financial statements as of March 31, 2011 do not include any adjustments that might result should the Company be unable to continue as a going concern.

The Company has reduced cash required for operations by significantly reducing operating costs and reducing staff levels. In addition, the Company is managing its current liabilities while it continues to make changes in operations to improve its cash flow and liquidity position and pursue additional advantageous financing opportunities.

The Company's existence is dependent upon management's ability to develop profitable operations. In addition, at March 31, 2011, the Company was in default on certain secured credit facilities.

As of March 31, 2011, we had a working capital deficit of approximately $3,500,000. Although the Company has reduced various overhead costs, it will be necessary to obtain new equity investments or debt instruments to fund future projects.

On April 29, 2011, the Company issued 40 shares of Series C preferred stock in exchange for $40,000 from Southridge Partners II, LP,

As of March 31, 2011 we had working capital deficit of approximately $3,500,000. We reported positive cash flow from operating activities of $45,777, negative cash flow from investing activities of $7,547 and negative cash flow from financing of $41,339 due primarily to the pay down on our line of credit net with new borrowings of $75,000.

In August, 2009, Marketing Worldwide, LLC entered into a financing agreement with Summit Financial Resources L.P. (Summit) for a maximum borrowing of up to $1 million maturing August 31, 2010. The arrangement is based on recourse factoring of the Company’s accounts receivables. Substantially all assets of Marketing Worldwide, LLC have been pledged as collateral for the Summit facility. Marketing Worldwide Corp. has guaranteed the financing arrangement. The financing arrangement has been extended through August 31, 2011.

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MWW expects its regular capital expenditures to be approximately $160,000 for fiscal 2011. These anticipated expenditures are for continued investments in tooling and equipment used in our business. We are negotiating with several companies in order to raise the necessary funds to satisfy these capital expenditure needs.

(LOSS) GAIN ON CHANGE IN FAIR VALUE OF DERVIATIVE LIABILITY. As described in our accompanying financial statements, We issued convertible notes with certain conversion features and our Series A Preferred Stock has certain reset provisions. Both of which, we are required to bifurcate from the host financial instrument and mark to market each reporting period On October 1, 2009 in accordance with Accounting Standards Codification subtopic 815-40, Derivatives and Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”) we recorded the initial fair value of the reset provision as a liability with an offset to equity and subsequently mark to market the reset provision liability at each reporting cycle.

At March 31, 2011, the derivative liability fair value, net with additions, decreased to $1,053,152 resulting in non-cash income in the current period of $605,866. The changes in the market price of our common stock has affected the fair value of the derivative liability.

NET LOSS decreased by $1,420,550 to a loss of ($762,464) from a loss of ($2,183,014). The decrease was primarily attributed to the gain on the change of fair value of the derivative liability during the six months ended March 31, 2011 as compared to a loss of $44,195 for the same period last year.

LIQUIDITY AND GOING CONCERN

The independent registered public accounting firm’s report on our September 30, 2010 yearend financial statements states that our difficulty in generating sufficient cash flow to meet our obligations and sustain operations raise substantial doubts about the our ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

CT is a Class A Original Equipment painting facility and operates in a 46,000 square foot owned building in Baroda, which is in South Western Michigan. We invested approximately $2 million into this paint facility and expect the majority of our future growth to come from this business. We have restructured the management of this subsidiary and have successfully gained more business opportunities than ever before. CT is aggressively beginning to diversify to non-automotive paint applications (industrial goods and construction equipment) which we believe will help stabilize the Company going forward. CT currently has submitted quotes for new business opportunities aggregating approximately $20 million in revenue.

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CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various others assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

Accounting for variable interest entities

Revenue recognition

Inventories

Allowance for doubtful accounts

Stock based compensation

Derivative liability

ACCOUNTING FOR VARIABLE INTEREST ENTITIES

Accounting Standards Codification subtopic 810-10, Consolidation (“ASC 810-10”) discusses certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional subordinated financial support. ASC 810-10 requires the consolidation of these entities, known as variable interest entities, by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entities expected losses, receive a majority of the entity’s expected residual returns or both.

Pursuant to the effective date of a related party lease obligation, the Company adopted ASC 810-10. This resulted in the consolidation of one variable interest entity (VIE) of which the Company is considered the primary beneficiary. The Company’s variable interest in this VIE is the result of providing certain secured debt mortgage guarantees on behalf of a limited liability company that used to lease warehouse and general offices located in the city of Howell, Michigan. On November 30, 2010, the VIE sold the property for $800,000, which was approximately $500,000 less than the outstanding indebtedness. Because the Company is a guarantor of this remaining debt, we are continuing to include the VIE in our financial statements.

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REVENUE RECOGNITION

For revenue from products and services, the Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC 605-10”). ASC 605-10 requires that four basic criteria must be met before revenue can be recognized; (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered/services rendered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

The Company defers any revenue for which the product has not been delivered or services has not been rendered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or services has been rendered or no refund will be required.

ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing 605-25 on the Company’s financial position and results of operations was not significant.

Revenues on the sale of products, net of estimated costs of returns and allowance, are recognized at the time products are shipped to customers, legal title has passed, and all significant contractual obligations of the Company have been satisfied. Products are generally sold on open accounts under credit terms customary to the geographic region of distribution. The Company performs ongoing credit evaluations of the customers and generally does not require collateral to secure the accounts receivable.

The Company generally warrants its products to be free from material defects and to conform to material specifications for a period of three (3) years. The cost of replacing defective products and product returns have been immaterial and within management's expectations. In the future, when the Company deems warranty reserves are appropriate that such costs will be accrued to reflect anticipated warranty costs.

INVENTORIES

We value our inventories, which consist primarily of automotive body components, at the lower of cost or market. Cost is determined on the weighted average cost method and includes the cost of merchandise and freight. A periodic review of inventory quantities on hand is performed in order to determine if inventory is properly valued at the lower of cost or market. Factors related to current inventories such as future consumer demand and trends in MWW's core business, current aging, and current and anticipated wholesale discounts, and class or type of inventory are analyzed to determine estimated net realizable values. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required. Any significant unanticipated changes in the factors noted above could have a significant impact on the value of our inventories and our reported operating results.

ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS

We are required to estimate the collectability of our trade receivables. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past due balances. In order to assess the collectability of these receivables, we perform ongoing credit evaluations of our customers' financial condition. Through these evaluations we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received.

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Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but are not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers and if circumstances related to our customers deteriorate, our estimates of the recoverability of our receivables could be materially affected and we may be required to record additional allowances. Alternatively, if we provided more allowances than are ultimately required, we may reverse a portion of such provisions in future periods based on our actual collection experience. The allowance for doubtful accounts was approximately $20,000 at March 31, 2011 and September 30, 2010.

STOCK-BASED COMPENSATION

The Company has adopted the fair value provisions for share-based awards pursuant to ASC 718-10, using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes (a) compensation cost for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the attribution method and grant date fair value estimated in accordance with the original provisions of ASC 718-10, and (b) compensation cost for all share-based awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, all recognized on a straight line basis as the requisite service periods are rendered.

DERIVATIVE LIABILTY

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging,; Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on January 1, 2010. The Company has issued convertible promissory notes with certain conversion features with require us to bifurcate the conversion feature from the host instrument. In addition the Company’s Series A Preferred Stock has reset provisions to the exercise price if the Company issues equity at a price less than the exercise prices. Upon the effective date, the provisions of ASC 815-40 required a reclassification to liability based on the reset feature of the agreements if the Company sells equity at a price below the exercise price of the Series A Preferred Stock.

We have identified the policies discussed as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations," where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies see the Notes to the Financial Statements of our Report on Form 10K. Note that our preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

ITEM 3. – Quantitative and Qualitative Disclosures about Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and is not required to provide the information required under this item.

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ITEM 4. Controls and Procedures

a) Evaluation of Disclosure Controls and Procedures. As of March 31, 2011, the Company's management carried out an evaluation, under the supervision of the Company's Chief Executive Officer and the Chief Financial Officer of the effectiveness of the design and operation of the Company's system of disclosure controls and procedures pursuant to the Securities and Exchange Act, Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses previously found in our internal controls, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

b) Changes in internal controls. There were no changes in internal controls over financial reporting, known to the Chief Executive Officer or Chief Financial Officer that occurred during the period covered by this report that has materially affected, or is likely to materially effect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

There are no current legal proceedings.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3. Defaults upon Senior Securities

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

(a) EXHIBIT(S) DESCRIPTION

(3)(i) Certificate of Incorporation * (3)(ii) Bylaws *

(4)(1) Form of Common Stock Certificate *

(4)(2) Common Stock Purchase Warrant with Wendover Investments Limited *

(4)(3) Stock Option Agreement with Richard O. Weed *

(5) Opinion on Legality *****

(10)(1) Consulting Agreement with Rainer Poertner ***

(10)(2) Fee Agreement with Weed & Co. LLP *

(10)(3) Purchase Agreement MWW and MWWLLC *

(10)(4) Amendment to Purchase Agreement between MWW and MWWLLC **

(10)(5) Employment Agreement with CEO Michael Winzkowski **

(10)(6) Employment Agreement with COO/CFO James Marvin **

(10)(7) Loan Agreement with Key Bank N.A. ***

(10)(8) Amendment to Consulting Agreement with Rainer Poertner ***

(10)(10) Real Property Lease Agreement for 11224 Lemen Road, Suite A ****

(10)(11) Real Property Lease Agreement for 11236 Lemen Road ****

(10)(12) Supplier and Warranty Agreement ****

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(10)(13) Business Loan Agreement April 4, 2006 with KeyBank N.A. ******

(10)(14) Supplier and Warranty Agreement ****

(10)(15) Blanket Purchase Order, Non-Disclosure and Confidentiality Agreement ******

1(0)(16) Lease Agreement and Amendment to Lease Agreement with JCMD Properties, LLC ******

(10)(17) Consulting Agreement with Rainer Poertner dated July 1, 2006 ******

(10)(18) Waiver of Cashless Exercise Provisions in Warrant by Wendover Investments Ltd. *******

(10)(19) Waiver of Cashless Exercise Provisions in Stock Option by Richard O. Weed *******

(10)(20) Extension of Employment Agreement with Michael Winzkowski dated October 15, 2006

(10)(21) Extension of Employment Agreement with James Marvin dated (21) Subsidiaries of Registrant *

(31)(1) Certification of Chief Executive Officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002.

(31)(2) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)(1) Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation S-K.

(32)(2) Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation S-K.

* Previously filed on February 11, 2005 as part of the Registration Statement on Form 10-SB12G of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 1019687-4-279.

** previously filed on August 10, 2005 as part of the Registration Statement on Form 10-SB12G/A Amendment No. 1 of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 0001019687-04-001719.

*** previously filed on November 9, 2005 as part of the Registration Statement on Form 10-SB12G/A Amendment No. 2 of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 0001019687-04-002436.

**** Previously filed on January 31, 2006 as part of the Form 10-KSB for the year ended September 30, 2005 of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 0001019687-05-000207.

***** previously filed on March 17, 2006 as part of the Form SB-2 of Marketing Worldwide Corporation SEC File 333-123380 Accession Number 0001019687-05-000728.

****** previously filed on September 15, 2006 as part of the Form SB-2 of Marketing Worldwide Corporation SEC File 333-123380 Accession Number 0001019687-05-002649.

******* previously filed on December 7, 2006 as part of the Form SB-2 of Marketing Worldwide Corporation SEC File 333-123380 Accession Number 0001019687-05-003367.

(31)(1) Certification of Chief Executive Officer pursuant to Section302 of the Sarbanes-Oxley Act of 2002.

(31)(2) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)(1) Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation S-K.

(32)(2) Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation S-K.

Page 13

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MARKETING WORLDWIDE CORPORATION

BY:	/s/ CHARLES PINKERTON
	NAME: CHARLES PINKERTON
	TITLE: CHIEF EXECUTIVE OFFICER
	Date: May 16, 2011

Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

BY:	/s/ MICHAEL WINZKOWSKI
	NAME: MICHAEL WINZKOWSKI
	TITLE: PRESIDENT, CHAIRMAN OF THE BOARD,
	SECRETARY AND SOLE DIRECTOR
	Date: May 16, 2011

BY:	/s/ JAMES E. DAVIS
	NAME: JAMES E. DAVIS
	TITLE: CHIEF FINANCIAL OFFICER
	Date: May 16, 2011

BY:	/s/ CHARLES PINKERTON
	NAME: CHARLES PINKERTON
	TITLE: CHIEF EXECUTIVE OFFICER
	Date: May 16, 2011

Page 14

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