UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
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x
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31,
2011
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¨
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ______________
to _____________
Commission File Number: 000-50586
MARKETING WORLDWIDE CORPORATION
(Exact name of registrant as specified in its
charter)
DELAWARE
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68-0566295
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(State of incorporation)
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(IRS Employer ID Number)
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2212 GRAND COMMERCE DR.
HOWELL, MICHIGAN 48855
(Address of principal executive offices)
631-444- 8090
(Registrant's telephone number, including area
code)
NOT APPLICABLE
(Former name, former address and former fiscal
year,
if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
x
Yes
o
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
o
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
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date, February 15, 2012: 173,029,486.
MARKETING WORLDWIDE CORPORATION
Form 10-Q for the Quarter ended December 31,
2011
Table of Contents
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PAGE
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PART I - FINANCIAL INFORMATION
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ITEM 1 - FINANCIAL STATEMENTS
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Condensed Consolidated Balance Sheets as of December 31, 2011 (unaudited) and September 30, 2011
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F-1
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Condensed Consolidated Statements of Operations for the three months ended December 31, 2011 and 2010 (unaudited)
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F-2
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Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2011 and 2010 (unaudited)
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F-3
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Notes to Condensed Consolidated Financial Statements (unaudited)
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F-4
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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2
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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8
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ITEM 4T - CONTROLS AND PROCEDURES
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9
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PART II - OTHER INFORMATION
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9
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ITEM 1 - LEGAL PROCEEDINGS
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9
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ITEM 1A – RISK FACTORS
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9
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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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9
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ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
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9
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ITEM 5 - OTHER INFORMATION
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9
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ITEM 6 - EXHIBITS
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9
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SIGNATURES
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12
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MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31,
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September 30,
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2011
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2011
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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12,403
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$
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5,012
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Accounts receivable, net
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304,329
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201,476
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Inventories, net
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85,200
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93,303
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Total current assets
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401,932
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299,791
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Property, plant and equipment, net
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1,035,986
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1,092,686
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Other assets:
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Capitalized finance costs, net
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65,234
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111,496
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Total assets
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$
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1,503,152
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$
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1,503,973
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
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Current liabilities:
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Bank line of credits
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$
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14,976
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$
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21,428
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Notes payable and capital leases, current portion
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1,507,972
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1,518,944
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Accounts payable
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1,795,465
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1,497,101
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Warranty liability
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75,000
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75,000
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Other current liabilities
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930,190
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769,458
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Current liabilities of discontinued operations
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492,006
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492,006
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Total current liabilities
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4,815,609
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4,373,937
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Long term debt:
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Derivative liability
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2,175,197
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1,258,634
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Warrant liability
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916,613
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427,266
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Total liabilities
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7,907,419
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6,059,837
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Temporary equity:
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Series A convertible preferred stock, $0.001 par value; 3,500,000 shares designated, issued and outstanding as of December 31, 2011 and September 30, 2011
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3,499,950
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3,499,950
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Permanent equity:
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Stockholders' Deficiency
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Preferred Stock, $0.001 par value; 10,000,000 shares authorized
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Series B convertible preferred stock, $0.001 par value, 1,200,000 designated; 1,192,308 shares issued and outstanding as of December 31, 2011 and September 30, 2011
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1,192
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1,192
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Series C convertible preferred stock, $0.001 par value, 1,000,000 designated; 100 issued and outstanding as of December 31, 2011 and September 30, 2011
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-
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-
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Common stock, $0.001 par value, 500,000,000 shares authorized; 125,513,670 and 71,494,819 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively
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125,515
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71,495
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Additional paid in capital
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9,691,695
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9,455,051
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Accumulated Deficit
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(19,076,518
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)
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(16,947,859
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)
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Accumulated other comprehensive income (loss)
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(148,873
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)
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(148,873
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)
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Total Marketing Worldwide Corporation stockholders' deficiency
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(9,406,989
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)
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(7,568,994
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)
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Non controlling interest
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(497,228
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)
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(486,820
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)
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Total stockholders' deficiency
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(9,904,217
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)
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(8,055,814
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)
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Total Liabilities and Stockholders' Deficiency
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$
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1,503,152
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$
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1,503,973
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See the accompanying notes to the unaudited
condensed consolidated financial statements
MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
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Three months ended December 31,
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2011
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2010
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Revenue
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$
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223,589
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$
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594,509
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Total cost of sales
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315,273
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450,485
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Gross (loss) profit
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(91,684
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)
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144,024
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Operating expenses:
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Selling, general and administrative expenses
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253,026
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327,226
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Total operating expenses
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253,026
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327,226
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Loss from operations
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(344,710
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)
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(183,202
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)
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Other income (expenses):
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(Loss) gain on change in fair value of derivative liability
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(1,140,651
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)
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772,327
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Financing expenses
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(577,664
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)
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(70,808
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)
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Other income (expense), net
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2,708
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7,921
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Net (Loss) Income before provision for income taxes
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(2,060,317
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)
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526,238
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Income tax
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-
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-
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Net (Loss) Income
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(2,060,317
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)
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526,238
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(Loss) Income attributable to Non-controlling interest
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(10,408
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)
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34,648
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(Loss) Income attributable to Company
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(2,049,909
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)
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491,590
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Preferred stock dividend
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(78,750
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)
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(78,750
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)
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NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS
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$
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(2,128,659
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)
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$
|
412,840
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(Loss) Income per common share, basic and fully diluted
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$
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(0.02
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)
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$
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0.01
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Weighted average common stock outstanding, basic and fully diluted
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93,467,442
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31,205,743
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See the accompanying notes to the unaudited
condensed consolidated financial statements
MARKETING WORLDWIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
(unaudited)
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Three months ended December 31,
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2011
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net (Loss) Income
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$
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(2,060,317
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)
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$
|
526,238
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Adjustments to reconcile net (loss) income to cash (used in) provided by operations:
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Depreciation and amortization
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56,700
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65,868
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Amortization of deferred financing costs
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46,262
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33,345
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Amortization of debt discounts
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358,428
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-
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Non cash interest
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|
159,178
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|
-
|
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Change in fair value of derivative liability
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1,140,651
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(772,327
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)
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Fair value of vested employee options
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|
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5,500
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1,965
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Common stock issued for services rendered
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30,000
|
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40,000
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Cancelation of previously issued common stock for services
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(120,000
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)
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|
-
|
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(Increase) decrease in operating assets:
|
|
|
|
|
|
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Accounts receivable
|
|
|
(102,853
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)
|
|
|
132,850
|
|
Inventory
|
|
|
8,103
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|
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(3,722
|
)
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Other current assets
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|
|
-
|
|
|
|
9,328
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Other assets
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|
-
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|
|
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19,400
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Increase (decrease) in operating liabilities:
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|
|
|
|
|
|
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Accounts payable and other current liabilities
|
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|
410,239
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|
|
|
82,501
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Cash (used in) provided by operating activities
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(68,109
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)
|
|
|
135,446
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|
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|
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CASH FLOWS FROM INVESTING ACTIVITIES:
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|
|
|
|
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|
|
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Purchase of property and equipment
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|
|
-
|
|
|
|
(2,834
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)
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Cash used in investing activities
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|
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-
|
|
|
|
(2,834
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)
|
|
|
|
|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
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Repayments of lines of credit
|
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|
(6,452
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)
|
|
|
(103,403
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)
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Proceed from issuance of notes
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|
|
90,500
|
|
|
|
-
|
|
Repayments of notes payable and capital leases
|
|
|
(8,548
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)
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|
|
-
|
|
Cash provided by (used in) financing activities
|
|
|
75,500
|
|
|
|
(103,403
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
7,391
|
|
|
|
29,209
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|
Cash and cash equivalents, beginning of period
|
|
|
5,012
|
|
|
|
3,847
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents, end of period
|
|
$
|
12,403
|
|
|
$
|
33,056
|
|
|
|
|
|
|
|
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|
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
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Cash paid during year for interest
|
|
$
|
-
|
|
|
$
|
70,808
|
|
Cash paid during year for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
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NON-CASH INVESTING AND FINANCING TRANSACTIONS:
|
|
|
|
|
|
|
|
|
Common stock issued in settlement of debt
|
|
$
|
375,164
|
|
|
$
|
-
|
|
Settlement of debt via sale of property
|
|
$
|
-
|
|
|
$
|
739,301
|
|
Accounts payable settled via sale of property
|
|
$
|
-
|
|
|
$
|
60,699
|
|
Accounts payable settled via issuance of notes payable
|
|
$
|
29,892
|
|
|
$
|
-
|
|
Preferred dividends declared
|
|
$
|
78,750
|
|
|
$
|
78,750
|
|
See the accompanying notes to the unaudited
condensed consolidated financial statements
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
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, 2011
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 three month period ended December 31, 2011, are not necessarily indicative of the results that may be expected
for the year ending September 30, 2012. The unaudited condensed consolidated financial statements should be read in conjunction
with the September 30, 2011 consolidated financial statements and footnotes thereto included in the Company's SEC Form 10-K.
The unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries and Variable Interest Entity (“VIE”),
JCMD, LLC (See note 11). All significant inter-company transactions and balances, including those involving the VIE, have been
eliminated in consolidation.
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 December 31, 2011 and 2010:
|
|
2011
|
|
|
2010
|
|
Convertible debt
|
|
|
362,317,197
|
|
|
|
312,500
|
|
Conversion of Series A preferred stock
|
|
|
21,472,393
|
|
|
|
22,616,981
|
|
Options
|
|
|
2,690,000
|
|
|
|
1,590,000
|
|
Warrants
|
|
|
7,375,000
|
|
|
|
100,000
|
|
Conversion of Series C preferred stock
|
|
|
666,667
|
|
|
|
-
|
|
Totals
|
|
|
394,521,257
|
|
|
|
24,619,481
|
|
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
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 three months ended December 31, 2011. The
resulting foreign currency transactions gains (losses), which were not material, are included in selling, general and administration
expenses in the accompanying unaudited condensed 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.
Accounting for bad debt and allowances
Bad debts and allowances are provided based
on historical experience and management's evaluation of outstanding accounts receivable. Management evaluates past due or delinquency
of accounts receivable based on the open invoices aged on due date basis. The allowance for doubtful accounts at December 31, 2011
and September 30, 2011 approximated $20,000.
Reclassification
Certain reclassifications have been made to
conform the prior period’s 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.
Pursuant to the effective date of a related
party lease obligation, the Company adopted ASC 810-10. This resulted in the consolidation of one variable interest
entity (VIE) of which the Company is considered the primary beneficiary. The Company's variable interest in this VIE is the result
of providing certain secured debt mortgage guarantees on behalf of a limited liability company that leases warehouse and general
offices located in the city of Howell, Michigan.
The Variable Interest Entity included in these
unaudited condensed 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.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
Deferred financing costs
Deferred financing costs represent costs incurred
in connection with obtaining the debt financing. These costs are amortized to financing expenses over the term of the
related debt using the interest rate method. The amortization for the three month periods ended December 31, 2011 and 2010 was
$46,262 and $33,345, respectively. Accumulated amortization of deferred financing costs was $647,482 and $601,219 at December
31, 2011 and September 30, 2011, respectively.
Recent accounting pronouncements
There were various 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 Company has incurred substantial recurring
losses. The accompanying unaudited condensed 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. As shown in the accompanying unaudited condensed consolidated financial statements
during the three month period ended December 31, 2011, the Company incurred a net loss attributable to common stockholders of approximately
$2,129,000. The Company has available cash of approximately $12,000 at December 31, 2011. During the three
months ended December 31, 2011, the Company’s operating activities used cash of approximately $68,000. The
Company’s working capital deficiency was approximately $4,414,000 and $4,074,000 as of December 31, 2011 and September 30,
2011, respectively. The Company’s accumulated deficit was approximately $19,077,000 and $16,948,000 as of December
31, 2011 and September 30, 2011, respectively. In addition, the Company has a stockholders’ deficit of approximately
$9,904,000 and $8,056,000 at December 31, 2011 and September 30, 2011, respectively. 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. The Company invested
approximately $2 million into this paint facility and expects the majority of future growth to come from this business. The
Company has restructured the management of this subsidiary and even though revenues are down, the Company has 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.
If the Company runs out of available capital,
it might be required to pursue additional highly dilutive equity or debt issuances to finance its business in a difficult and hostile
market, including possible equity financings at a price per share that might be much lower than the per share price invested by
current shareholders. No assurance can be given that any source of additional cash would be available to the Company. If
no source of additional cash is available to the Company, then the Company would be forced to significantly reduce the scope of
its operations.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
There can be no assurance that such funding
initiatives will be successful and any equity placement could result in substantial dilution to current stockholders. The
above factors raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited
condensed 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
The inventories are stated at the lower of
cost or market using the first-in, first-out method of valuation. The inventories at December 31, 2011 and 2011 are as follows:
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2011
|
|
|
2011
|
|
Work in process
|
|
$
|
291,350
|
|
|
$
|
294,568
|
|
Finished goods
|
|
|
62,484
|
|
|
|
67,369
|
|
Total inventory before reserve
|
|
|
353,834
|
|
|
|
361,937
|
|
Less inventory reserve
|
|
|
(268,634
|
)
|
|
|
(268,634
|
)
|
Net inventory
|
|
$
|
85,200
|
|
|
$
|
93,303
|
|
The inventory reserve is determined after an
exhaustive review and analysis of all inventories on hand. The Company examines the likelihood of salability of each
inventory item, and if there is more than 6 months supply of an item on hand, an appropriate reserve is recorded against such inventory;
for cancelled or completed programs, existing inventory is 100 % reserved for. At December 31, 2011 and September 30,
2011, the majority of the inventory reserve is for supply of product no longer in production or demand from existing customers.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
At December 31, 2011 and September 30, 2011, property, plant and
equipment consist of the following:
|
|
December 31,
2011
|
|
|
September 30,
2011
|
|
|
Range of
Estimated Life
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
|
N/A
|
|
Building
|
|
|
800,000
|
|
|
|
800,000
|
|
|
|
40 years
|
|
Office equipment
|
|
|
34,645
|
|
|
|
34,645
|
|
|
|
3 – 7 years
|
|
Tooling and other equipment
|
|
|
1,417,640
|
|
|
|
1,417,640
|
|
|
|
7 – 10 years
|
|
Subtotal
|
|
|
2,402,285
|
|
|
|
2,402,285
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(1,366,299
|
)
|
|
|
(1,309,599
|
)
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
1,035,986
|
|
|
$
|
1,092,686
|
|
|
|
|
|
Depreciation expense included as a charge to
operations of $56,700 and $65,868 for the three months ended December 31, 2011 and 2010 respectively.
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, 2012. The Company is evaluating the necessity of continuing this agreement and may terminate
the relationship by August 31, 2012.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
Under the arrangement, Summit typically advances
to the Company 75% of the total amount of accounts receivable factored. Summit retains 25% of the outstanding factored accounts
receivable as a reserve, which it holds until the customer pays the factored invoice to Summit. The cost of funds for the accounts
receivable portion of the borrowings with Summit includes: (a) a collateral management fee of 0.65% of the face amount of factored
accounts receivable for each period of fifteen days, or portion thereof, that the factored accounts receivable remains outstanding
until payment in full is applied and (b) interest charged at the Wall Street Journal prime rate plus 1% divided by 360. The
Summit default rate is the Wall Street Journal prime rate plus 10%. The Company may be obligated to purchase the receivable back
from Summit at the end of 90 days.
Under the terms of the recourse provision,
the Company is required to repurchase factored receivables if they are not paid in full or are deemed no longer acceptable. Accordingly,
the Company has accounted for the financing agreement as a secured borrowing arrangement and not a sale of financial assets.
As of December 31, 2011, the advance balance
due to Summit was $14,976. The interest rate at December 31, 2011 was 4.25%.
NOTE 7 - NOTES PAYABLE
At December 31, 2011 and September 30, 2011, notes payable consists
of the following:
|
|
December 31,
2011
|
|
|
September 30,
2011
|
|
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
|
|
|
|
489,755
|
|
Colortek Mortgage loan payable in monthly principal installments of $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. (**)
|
|
|
578,479
|
|
|
|
587,026
|
|
Note payable issued February 19, 2011, due contingent on certain events with interest at 5% per annum, unsecured, net of unamortized debt discount of $23,315 and $66,214, respectively
|
|
|
106,748
|
|
|
|
118,008
|
|
Note payable issued March 22, 2011, due on December 28, 2011 with interest at 8% per annum, unsecured, net of unamortized debt discount of $7,918
|
|
|
-
|
|
|
|
17,082
|
|
Note payable issued May 6, 2011, due February 10, 2012 with interest at 8% per annum, unsecured, net of unamortized debt discount of $14,250
|
|
|
-
|
|
|
|
15,750
|
|
Note payable issued on June 29, 2011, due July 1, 2012, with interest at 8% per annum, unsecured, net of unamortized debt discount of $124,321 and $186,821, respectively
|
|
|
125,679
|
|
|
|
63,179
|
|
Note payable, issued on January 10, 2011, due July 10, 2011, with interest at 7% per annum, unsecured
|
|
|
-
|
|
|
|
127,000
|
|
Note payable issued on July 1, 2011, due July 1, 2012, with interest at 16% per annum, unsecured, net of unamortized debt discount of $12,024 and $18,135, respectively
|
|
|
12,976
|
|
|
|
6,865
|
|
Note payable issued on July 15, 2011, due July 15, 2012, with interest at 16% per annum, unsecured, net of unamortized debt discount of $53,699 and $78,904, respectively
|
|
|
46,301
|
|
|
|
21,096
|
|
Note payable issued on July 20, 2011, due July 20, 2012, with interest at 16% per annum, unsecured, net of unamortized debt discount of $8,260 and $12,041, respectively
|
|
|
6,740
|
|
|
|
2,959
|
|
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
|
|
December 31,
2011
|
|
|
September 30,
2011
|
|
Note payable issued on July 21, 2011, due July 21, 2012, with interest at 16% per annum, unsecured, net of unamortized debt discount of $19,370 and $28,192, respectively
|
|
$
|
15,630
|
|
|
$
|
6,808
|
|
Note payable issued on July 20, 2011, due January 31, 2012, with interest at 5% per annum, unsecured, net of unamortized debt discount of $4,970 and $19,720, respectively
|
|
|
71,755
|
|
|
|
57,005
|
|
Note payable issued August 16, 2011, due August 15, 2012 with interest at 16% per annum, unsecured, net of unamortized debt discount of $23,753
|
|
|
-
|
|
|
|
6,247
|
|
Note payable issued September 28, 2011, due September 27, 2012 with interest at 16% per annum, unsecured, net of unamortized debt discount of $29,836
|
|
|
-
|
|
|
|
164
|
|
Note payable, issued October 7, 2011, due July 11, 2012 with interest at 8% per annum, unsecured, net of unamortized debt discount of $36,795
|
|
|
16,205
|
|
|
|
-
|
|
Note payable, issued December 6, 2011, due September 8, 2012, with interest at 8% per annum, unsecured, net of unamortized debt discount of $34,116
|
|
|
3,384
|
|
|
|
|
|
Note payable, issued on November 28, 2011, due on demand, with interest at 7% per annum, unsecured, net of unamortized debt discount of $57,880
|
|
|
34,320
|
|
|
|
|
|
Total
|
|
|
1,507,972
|
|
|
|
1,518,944
|
|
Less current portion
|
|
|
(1,507,972
|
)
|
|
|
(1,518,944
|
)
|
Long term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
(*) 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.
Note issued October 7, 2011
On October 7, 2011, the Company issued a $53,000
Convertible Promissory Note that matures on July 11, 2012. 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 October 7, 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 $91,801 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
|
|
|
425.63
|
%
|
Risk free rate:
|
|
|
0.11
|
%
|
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
The initial fair value of the embedded debt
derivative of $91,801 was allocated as a debt discount up to the proceeds of the note ($53,000) with the remainder ($38,801) charged
to current period operations as interest expense.
During the three months ended December 31,
2011, the Company amortized $16,205 to current period operations as interest expense.
The fair value of the described embedded derivative
of $175,162 at December 31, 2011 was determined using the Binomial Lattice Model with the following assumptions:
Dividend yield:
|
|
|
-0-
|
%
|
Volatility
|
|
|
377.70
|
%
|
Risk free rate:
|
|
|
0.06
|
%
|
At December 31, 2011, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $83,362 for the three
months ended December 31, 2011.
Note issued November 28, 2011
On November 28, 2011, the Company issued a
$127,000 Convertible Promissory Note payable on demand. The note bears interest at a rate of 7% and is convertible into the Company’s
common stock at any time at the holder’s option, at the conversion rate of 25% of the average bid price 5 days prior to notice
of conversion with a floor of $0.007 per share.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on November 28, 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 $146,682 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
|
|
|
403.66
|
%
|
Risk free rate:
|
|
|
0.20
|
%
|
The initial fair value of the embedded debt
derivative of $146,682 was allocated as a debt discount up to the proceeds of the note ($127,000) with the remainder ($19,682)
charged to current period operations as interest expense.
During the three months ended December 31,
2011, the Company amortized and wrote off (upon conversion) a total of $69,119 to current period operations as interest expense.
The fair value of the described embedded derivative
of $94,943 at December 31, 2011 was determined using the Binomial Lattice Model with the following assumptions:
Dividend yield:
|
|
|
-0-
|
%
|
Volatility
|
|
|
377.70
|
%
|
Risk free rate:
|
|
|
0.06
|
%
|
At December 31, 2011, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $24,811 for the three
months ended December 31, 2011.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
During the three months ended December 31,
2011, the Company issued an aggregate of 11,180,901 shares of common stock in settlement of $34,800 of the convertible note and
related interest.
Note issued November 29, 2011
On November 29, 2011, the Company issued a
$19,005 Convertible Promissory Note that matures on November 28, 2012. 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 fixed conversion rate of $0.0022 per share.
Due to the nature of other existing convertible
promissory notes, the Company could not insure sufficient shares available upon conversion demands, therefore the Company identified
embedded derivatives related to the Convertible Promissory Note entered into on November 29, 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 $43,572 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
|
|
|
398.61
|
%
|
Risk free rate:
|
|
|
0.14
|
%
|
The initial fair value of the embedded debt
derivative of $43,572 was allocated as a debt discount up to the proceeds of the note ($19,005) with the remainder ($24,567) charged
to current period operations as interest expense.
During the three months ended December 31,
2011, the Company amortized and wrote off (upon conversion) $19,005 to current period operations as interest expense.
During the three months ended December 31,
2011, the Company issued an aggregate of 8,638,705 shares of common stock in full settlement of the convertible note and related
interest.
Note issued December 6, 2011
On December 6, 2011, the Company issued a $37,500
Convertible Promissory Note that matures on September 8, 2012. 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 51% 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 December 6, 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 $76,924 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
|
|
|
399.15
|
%
|
Risk free rate:
|
|
|
0.11
|
%
|
The initial fair value of the embedded debt
derivative of $76,924 was allocated as a debt discount up to the proceeds of the note ($37,500) with the remainder ($39,424) charged
to current period operations as interest expense.
MARKETING WORLDWIDE
CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
During the three months ended December 31,
2011, the Company amortized $3,384 to current period operations as interest expense.
The fair value of the described embedded derivative
of $137,689 at December 31, 2011 was determined using the Binomial Lattice Model with the following assumptions:
Dividend yield:
|
|
|
-0-
|
%
|
Volatility
|
|
|
377.70
|
%
|
Risk free rate:
|
|
|
0.06
|
%
|
At December 31, 2011, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $60,765 for the three
months ended December 31, 2011.
Note issued December 27, 2011
On December 27, 2011, the Company issued a
$10,887 Convertible Promissory Note that matures on December 26, 2012. 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 fixed conversion rate of $0.002 per share.
Due to the nature of other existing convertible
promissory notes, the Company could not insure sufficient shares available upon conversion demands, therefore the Company identified
embedded derivatives related to the Convertible Promissory Note entered into on December 27, 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 $47,591 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
|
|
|
376.40
|
%
|
Risk free rate:
|
|
|
0.12
|
%
|
The initial fair value of the embedded debt
derivative of $47,591 was allocated as a debt discount up to the proceeds of the note ($10,887) with the remainder ($36,704) charged
to current period operations as interest expense.
During the three months ended December 31,
2011, the Company amortized and wrote off (upon conversion) $10,887 to current period operations as interest expense.
During the three months ended December 31,
2011, the Company issued an aggregate of 5,443,540 shares of common stock in full settlement of the convertible note and related
interest.
Settlement of previously issued Convertible Promissory Notes
During the three months ended December 31,
2011, the Company issued an aggregate of 25,355,705 shares of common stock in full settlement of $169,160 of convertible notes
and related accrued interest.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following at December 31,
2011 and September 30, 2011:
|
|
December 31,
2011
|
|
|
September 30,
2011
|
|
Preferred dividends payable
|
|
$
|
393,750
|
|
|
$
|
315,000
|
|
Consulting fees
|
|
|
18,992
|
|
|
|
69,500
|
|
Interest
|
|
|
285,540
|
|
|
|
225,530
|
|
Payroll and other
|
|
|
231,908
|
|
|
|
159,428
|
|
Total
|
|
$
|
930,190
|
|
|
$
|
769,458
|
|
NOTE 9 - WARRANT LIABILITY
The Company issued warrants in conjunction
with the issuance with certain convertible promissory notes. These warrants contained certain reset provisions. Therefore,
in accordance with ASC 815-40
,
the Company reclassified the fair value of the warrant from equity to a liability at the
date of issuance. Subsequent to the initial issuance date, the Company is required to adjust to fair value the warrant
as an adjustment to current period operations.
The Company estimated the fair value at date
of issue of the warrants issued in connection with the issuance of the convertible promissory notes to be $187,496 using the Binomial
Lattice formula assuming no dividends, a risk-free interest rate of 0.99% to 1.80%, expected volatility of 406.84% to 430.39%,
and expected warrant life of five years. Since the warrants have reset provisions, pursuant to ASC 815-40, the Company has recorded
the fair value of the warrants as a derivative liability. The net value of the warrants at the date of issuance was recorded as
a warrant liability in the amount of $187,496. Until conversion and expiration of the warrants, changes in fair value were
recorded as non-operating, non-cash income or expense at each reporting date.
The fair value of the warrant liability of
$916,613 as of December 31, 2011 was determined using the Binomial Lattice formula assuming no dividends, a risk-free interest
rate of 0.83%, expected volatility of 377.70%, and expected remaining warrant life of 4.50 to 4.74 years.
The Company adjusted the recorded fair values
of the warrants to market from September 30, 2011 resulting in a non-cash, non-operating loss of $489,348 for the three months
ended December 31, 2011.
NOTE 10 - CAPITAL STOCK
On May 1, 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.
Series A Preferred stock
As of December 31, 2011 and September 30, 2011,
the Company had 3,500,000 shares issued and outstanding.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
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: 434.88%, risk free rate: 0.06%.
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 December 31, 2011 and at September 30, 2011,
the fair value was measured using the Binomial Lattice Model and the following assumptions:
|
|
December 31,
|
|
|
September 30,
|
|
|
Date of
|
|
|
|
2011
|
|
|
2011
|
|
|
issuance
|
|
Imbedded Beneficial Conversion Feature:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free rate
|
|
|
0.02
|
%
|
|
|
0.06
|
%
|
|
|
4.55
|
%
|
Annual rate of dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Volatility
|
|
|
377.70
|
%
|
|
|
434.88
|
%
|
|
|
146.64
|
%
|
Weighted Average life (years)
|
|
|
0.32
|
|
|
|
0.57
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
$
|
28,080
|
|
|
$
|
141,740
|
|
|
$
|
1,971,115
|
|
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
The risk-free interest rate was based on rates
established by the Federal Reserve. The Company based expected volatility on the historical volatility for its common
stock. The expected life of the embedded beneficial conversion features was based on their full term. The
expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay
dividends in the future.
ASC 815 was implemented in the first quarter
of Fiscal 2010 and is reported as the cumulative effect of a change in accounting principles. At October 1, 2009, the
cumulative effect on the embedded conversion feature was recorded as decrease in accumulated deficit of $1,971,115. As
of December 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 $113,660 for the three months ended December 31, 2011 is included as
a decrease of a loss on change of fair value of derivative liabilities in the Company’s unaudited condensed consolidated
statement of operations.
Series B Preferred stock
As of December 31, 2011 and September 30, 2011, the Company has
1,192,308 shares of Series B Preferred Stock issued and outstanding.
Series C Preferred stock
On May 4, 2011, the Company designated the issuance of a Series
C preferred stock with the following attributes:
Par value:
|
|
|
$0.001 per share
|
|
|
|
|
|
|
Stated value:
|
|
|
$1,000 per share
|
|
|
|
|
|
|
Voting rights:
|
|
|
None
|
|
As of December 31, 2011 and September 30, 2011,
the Company has 100 shares of Series C Preferred stock issued and outstanding.
Conversion rights: Each share of
Series C Preferred stock is convertible at a conversion price of $0.15 per share based on the initial stated value at issuance.
Liquidation rights: Upon any liquidation,
dissolution or winding up of the Company, the holders shall be entitled to receive out of the assets an amount equal to the Stated
Value, plus any accrued and unpaid dividends before payment is made to the holders of junior securities. Junior
securities is defined as common stock or all other common stock equivalents of the Company other than those securities which are
explicitly senior or pari passu to the preferred stock.
Common stock
On October 3, 2011, the Company issued 1,948,052
shares of common stock in exchange for a convertible note and related accrued interest of $15,000. These shares were
valued at $0.014 per share, which was the trading price on October 3, 2011.
On October 5, 2011, the Company issued 1,666,667
shares of common stock in exchange for a convertible note and related accrued interest of $10,000. These shares were
valued at $0.012 per share, which was the trading price on October 5, 2011.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
On October 7, 2011, the Company issued 3,326,127
shares of common stock in exchange for a convertible note and related accrued interest of $28,000. These shares were
valued at $0.01203 per share, which was the trading price on October 7, 2011.
On October 26, 2011, the Company issued 3,619,158
shares of common stock in exchange for a convertible note and related accrued interest of $26,160. These shares were
valued at $0.01033 per share, which was the trading price on October 26, 2011.
On October 27, 2011, the Company issued 622,562
shares of common stock in exchange for a convertible note and related accrued interest of $4,500. These shares were
valued at $0.01033 per share, which was the trading price on October 27, 2011.
On November 8, 2011, the Company issued 2,000,000
shares of common stock in exchange for services valued at $10,000. These shares were valued at $0.005 per share, which
was the trading price on November 8, 2011
On November 11, 2011, the Company issued 3,000,000
shares of common stock in exchange for a convertible notes and related accrued interest of $30,000 each. These shares
were valued at $0.01033 per share, which was the trading price on November 11, 2011.
On November18, 2011, the Company received 600,000
shares of common stock previously issued for services valued at $120,000. These returned shares were canceled and returned
to authorized and were valued at $0.20 per share, which was the trading price at initial issuance on February 17, 2010.
On November 21, 2011, the Company issued an
aggregate of 5,679,384 shares of common stock in exchange for convertible notes and related accrued interest of $19,800. These
shares were valued at $0.007 per share, which was the trading price on November 21, 2011.
On November 22, 2011, the Company issued 2,592,593
shares of common stock in exchange for a convertible note and related accrued interest of $7,000. These shares were
valued at $0.005 per share, which was the trading price on November 22, 2011.
On November 28, 2011, the Company issued 2,400,000
shares of common stock in exchange for a convertible note and related accrued interest of $6,000. These shares were
valued at $0.0051 per share, which was the trading price on November 28, 2011.
On November 29, 2011, the Company issued an
aggregate of 10,038,705 shares of common stock in exchange for convertible notes and related accrued interest of $22,505. These
shares were valued at $0.005 per share, which was the trading price on November 29, 2011.
On November 30, 2011, the Company issued an
aggregate of 4,268,207 shares of common stock in exchange for convertible notes and related accrued interest of $11,500. These
shares were valued at $0.0058 per share, which was the trading price on November 29, 2011.
On December 6, 2011, the Company issued an
aggregate of 739,130 shares of common stock in exchange for convertible notes and related accrued interest of $500. These
shares were valued at $0.004 per share, which was the trading price on December 6, 2011.
On December 15, 2011, the Company issued 2,000,000
shares of common stock in exchange for services valued at $20,000. These shares were valued at $0.01 per share, which
was the trading price on December 15, 2011
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
On December 19, 2011, the Company issued an
aggregate of 2,637,363 shares of common stock in exchange for convertible notes and related accrued interest of $6,000. These
shares were valued at $0.0034 per share, which was the trading price on December 19, 2011.
On December 19, 2011, the Company issued an
aggregate of 2,637,363 shares of common stock in exchange for convertible notes and related accrued interest of $6,000. These
shares were valued at $0.0052 per share, which was the trading price on December 19, 2011.
On December 27, 2011, the Company issued 5,443,540
shares of common stock in exchange for a convertible note and related accrued interest of $10,887. These shares were
valued at $0.009 per share, which was the trading price on December 27, 2011.
NOTE 11 - STOCK OPTIONS AND WARRANTS
Employee Stock Options
The following table summarizes the options
outstanding and the related prices for the shares of the Company's common stock issued to employees of the Company as of December
31, 2011:
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise
Price
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
$
|
0.017
|
|
|
2,200,000
|
|
|
|
9.40
|
|
|
$
|
0.017
|
|
|
|
550,000
|
|
$
|
0.30
|
|
|
490,000
|
|
|
|
5.65
|
|
|
$
|
0.30
|
|
|
|
490,000
|
|
$
|
0.07
|
|
|
2,690,000
|
|
|
|
8.40
|
|
|
$
|
0.15
|
|
|
|
1,040,000
|
|
The fair value of all employee options vesting
charged to operations in the three months ended December 31, 2011 and 2010 were $5,500 and $1,965, respectively.
Transactions involving options issued to employees are summarized
as follows:
|
|
Weighted
Average
|
|
|
Weighted
Average
Exercise
|
|
|
|
Number
of Options
|
|
|
Price per
Share
|
|
Outstanding, September 30, 2010
|
|
|
590,000
|
|
|
$
|
0.30
|
|
Granted
|
|
|
2,200,000
|
|
|
|
0.017
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
(100,000
|
)
|
|
|
(0.30
|
)
|
Outstanding, September 30, 2011
|
|
|
2,690,000
|
|
|
|
0.07
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2011
|
|
|
2,690,000
|
|
|
$
|
0.07
|
|
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
Warrants
The following table summarizes the warrants outstanding as of December
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
|
|
|
$
|
0.02
|
|
|
|
3,000,000
|
|
|
|
4.68
|
|
|
$
|
0.02
|
|
|
|
3,000,000
|
|
|
$
|
0.02
|
|
|
$
|
0.04
|
|
|
|
4,375,000
|
|
|
|
4.54
|
|
|
$
|
0.04
|
|
|
|
4,375,000
|
|
|
$
|
0.04
|
|
|
$
|
0.03
|
|
|
|
7,375,000
|
|
|
|
4.59
|
|
|
$
|
0.03
|
|
|
|
7,375,000
|
|
|
$
|
0.03
|
|
Transactions involving warrants are summarized as follows:
|
|
Weighted
Average
Number of
Shares
|
|
|
Price per
Share
|
|
Outstanding, September 30, 2010
|
|
|
100,000
|
|
|
$
|
0.30
|
|
Granted
|
|
|
12,375,000
|
|
|
|
0.023
|
|
Exercised
|
|
|
(5,000,000
|
)
|
|
|
0.01
|
|
Canceled or expired
|
|
|
(100,000
|
)
|
|
|
(0.30
|
)
|
Outstanding, September 30, 2011
|
|
|
7,375,000
|
|
|
|
0.03
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Canceled or expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2011
|
|
|
7,375,000
|
|
|
$
|
0.03
|
|
In connection with the issuance of promissory
notes, the Company issued an aggregate of 7,375,000 warrants exercisable five years from the date of issuance at $0.02 to $0.04
per share with certain reset provisions. The fair value of the warrants were determined at the date of issuance and adjusted
to fair value to current period operations at December 31, 2011 with the offset to warrant liability using the binomial lattice
model.
NOTE 12 - 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.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
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 unaudited condensed consolidated financial statements.
Included in the Company's unaudited condensed
consolidated balance sheets at December 31, 2011 and September 30, 2011are the following net assets of JCMD:
|
|
December
31, 2011
|
|
|
September 30,
2011
|
|
ASSETS (JCMD)
|
|
|
|
|
|
|
|
|
Accounts receivable, prepaid expenses and other current assets
|
|
$
|
193,433
|
|
|
$
|
193,433
|
|
Total current assets
|
|
|
193,433
|
|
|
|
193,433
|
|
Total assets
|
|
$
|
193,433
|
|
|
$
|
193,433
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Current portion of long term debt
|
|
$
|
489,755
|
|
|
$
|
489,755
|
|
Accounts payable and accrued liabilities
|
|
|
200,906
|
|
|
|
190,498
|
|
Total current liabilities
|
|
|
690,661
|
|
|
|
680,253
|
|
Total deficit
|
|
|
(497,228
|
)
|
|
|
(486,820
|
)
|
Total liabilities and deficit
|
|
$
|
193,433
|
|
|
$
|
193,433
|
|
Consolidated results of operations for the three months ended December
31, 2011 and 2010 include the following:
|
|
2011
|
|
|
2010
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
34,000
|
|
Cost and expenses - real estate: Operating expenses, net
|
|
|
-
|
|
|
|
9,766
|
|
Interest, net
|
|
|
(10,408
|
)
|
|
|
(10,414
|
)
|
Total costs and expenses
|
|
|
(10,408
|
)
|
|
|
(648
|
)
|
|
|
|
|
|
|
|
|
|
Operating (loss) income-Real estate
|
|
$
|
(10,408
|
)
|
|
$
|
34,649
|
|
The Variable Interest Entity owned by JCMD
and included in these unaudited condensed 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 of $409,823 was recorded as an impairment loss in the September 30, 2010 consolidated financial statements.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
NOTE 13- FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 825-10 defines fair value as the price
that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded
at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk
of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be
used to measure fair value:
Level 1 - Quoted prices in active markets
for identical assets or liabilities.
Level 2 - Observable inputs other than Level
1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived
principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs to the valuation
methodology that are significant to the measurement of fair value of assets or liabilities.
To the extent that valuation is based on models
or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain
cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the
lowest level input that is significant to the fair value measurement.
Items recorded or measured at fair value on
a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items
as of December 31, 2011:
|
|
|
|
|
Fair Value Measurements at December 31, 2011 using:
|
|
|
|
December 31,
2011
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Derivative liabilities
|
|
$
|
2,175,197
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2,175,197
|
|
Warrant liabilities
|
|
$
|
916,613
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
916,613
|
|
The debt derivative and warrant
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 December 31, 2011:
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
|
|
Debt Derivative
Liability
|
|
|
Warrant
Liability
|
|
Balance, October 1, 2010
|
|
$
|
1,186,670
|
|
|
$
|
-
|
|
Initial fair value of debt derivatives at note issuances
|
|
|
1,484,806
|
|
|
|
-
|
|
Initial fair value of warrant liability
|
|
|
-
|
|
|
|
187,496
|
|
Mark-to market at September 30, 2011:
|
|
|
|
|
|
|
|
|
-Embedded debt derivatives
|
|
|
(367,912
|
)
|
|
|
-
|
|
-Reset provisions relating to Series A preferred stock
|
|
|
(1,044,930
|
)
|
|
|
-
|
|
-Reset provisions related to warrants
|
|
|
-
|
|
|
|
239,770
|
|
Balance, September 30, 2011
|
|
|
1,258,634
|
|
|
|
427,266
|
|
Transfers to (from) liabilities due to conversions
|
|
|
(141,310
|
)
|
|
|
|
|
Initial fair value of debt derivatives at note issuances
|
|
|
406,570
|
|
|
|
|
|
Mark-to-market at December 31, 2011:
|
|
|
|
|
|
|
|
|
- Embedded debt derivatives
|
|
|
764,963
|
|
|
|
-
|
|
- Reset provisions relating to Series A preferred stock
|
|
|
(113,660
|
)
|
|
|
-
|
|
-Reset provisions relating to warrants
|
|
|
-
|
|
|
|
489,347
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
$
|
2,175,197
|
|
|
$
|
916,613
|
|
|
|
|
|
|
|
|
|
|
Net (loss) for the period included in earnings relating to the liabilities held at December 31, 2011
|
|
$
|
(651,303
|
)
|
|
$
|
(489,347
|
)
|
Level 3 Liabilities are comprised of our bifurcated
convertible debt features on our convertible notes and reset provisions contained within our Series A stock and certain warrants.
NOTE 14– DISCONTINUED OPERATIONS
On February 25, 2010, the Company discontinued
operations of its wholly owned subsidiary; MW Global Limited which owns 100% of the outstanding ownership and economic interest
in Modelworxx GmbH. The financial results of MW Global are presented separately in the consolidated statements of operations
as discontinued operations for all periods presented. The assets and liabilities of this business are reflected as assets and liabilities
from discontinued operations in the consolidated balance sheets for all 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 December 31, 2011 and September 30, 2011 were as follows:
Assets:
|
|
December 31,
2011
|
|
|
September 30,
2011
|
|
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
|
|
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2011
There were no operation activities for operations for the periods
presented.
NOTE 15 - SUBSEQUENT EVENTS
During the month of January 2012, the Company issued an aggregate of 4,499,633 shares of common stock in exchange for conversion
of preferred stock.
During the months of January and February 2012,
the Company issued an aggregate of 40,754,836 shares of common stock in settlement of $145,654 of convertible notes payable and
accrued interest.
During the months of January and February 2012,
the Company issued an aggregate of $40,210 of convertible notes in exchange for accounts payable assumed.
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
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 and does not expect to receive any further communication.. The
Company reported this transaction as discontinued operations in the reported consolidated financial statements.
Marketing Worldwide, LLC (“MWW”)
MWW is a global design, engineering, manufacturer
and fulfillment firm serving some of the world’s leading automotive and industrial manufacturers, providing products and
services to Automotive and Industrial Original Equipment Manufacturers along with accessories for the customization of vehicles
and delivers its products to 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), front and rear fascia systems, side skirts, door panels, extruded body-side moldings
and interior dash components. During 2011, we have identified several new business partners to drive more product sales
and expect fiscal year 2012 to be greater than 2011.
MARKETING WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MWW’s programs are sold not only to Automotive
and Industrial Original Equipment Manufacturers but also 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
industrial partners are expecting just-in time inventory delivery to their large assembly plants in the U.S. and Europe.
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
* Body Side Moldings
* Front Fascia Systems
* Side Skirts
* Door Panels
* Interior Components
Several of the vehicles MWW currently provides
accessories to are changing models next year and will provide additional growth opportunities. Based on expertise and space
available in its Baroda plant, MWW is also negotiating to provide fulfillment activities for new customers, going beyond
the Company’s original business plan, meaning MWW will receive, store and ship products that are designed and manufactured
by other unrelated companies.
Colortek, Inc. (“CT”)
CT is a wholly owned Class A Original Equipment
painting facility and operates in a 46,000 square foot owned building in Baroda, which is in South Western Michigan. We invested
approximately $2 million into this paint facility and expect the majority of our future growth to come from this business. We
have restructured the management of this subsidiary and have successfully gained more business opportunities than ever before. CT
is aggressively beginning to diversify to non-automotive paint applications (household goods and construction equipment) which
we believe will help stabilize the Company going forward during 2012.
GENERAL OVERVIEW
MWW operates in a niche market of the supply
chain for new passenger motor vehicles primarily in the United States and Canada. MWW participates in the design of new automobiles
and the building of show cars and is a designer and manufacturer of accessories for the customization of cars, sport utility vehicles
and light trucks.
MWW's revenues are derived through the sales
of its products and services to large automotive companies. As a consequence, MWW is dependent upon the acceptance of its products
in the first instance by the automotive industry. As a result of this dependence MWW's business is vulnerable to actions which
impact the automotive industry in general, including but not limited to, current fuel costs, and new environmental regulations.
Growth opportunities for the Company include expanding its geographical coverage and increasing its penetration of existing markets
through internal growth and expanding into new product markets, adding additional customers and acquiring companies in its core
industry that supplement and compliment the currently existing capabilities.
Challenges currently facing the Company include
managing its growth and controlling costs. Escalating costs of audits, Sarbanes-Oxley compliance, health care and commercial insurance
are also challenges for the Company at this time.
The following specific factors could affect
our revenues and earnings in a particular quarter or over several quarterly or annual periods:
·
Ability
to continue increasing sales opportunities
·
Ability
to convert sales opportunities to actual revenue
·
Ability
to continue controlling our selling, general and administrative costs
·
Ability
to obtain funding adequate to satisfy past obligations and grow future opportunities
The requirements for our products are complex,
and before buying them, customers spend a great deal of time reviewing and testing them. Our customers' evaluation and purchase
cycles do not necessarily match our report periods, and if by the end of any quarter or year we have not sold enough new products,
our orders and revenues could fall below our plan for a period of time. Like many companies in the automotive accessory industry,
a large proportion of our business is attributable to our largest customers. As a result, if any order, and especially a large
order, is delayed beyond the end of a fiscal period, our orders and revenue for that period could be below our plan.
The accounting rules we are required to follow
permit us to recognize revenue only when certain criteria are met.
CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial
statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments
that affect our reported assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. We
base our estimates and judgments on historical experience and on various others assumptions we believe to be reasonable under the
circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there
are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical
accounting policies involve the most complex, difficult and subjective estimates and judgments:
o Accounting
for variable interest entities
o Revenue
recognition
o Inventories
o Allowance
for doubtful accounts
o Stock
based compensation
o
Derivative liabilities
ACCOUNTING FOR VARIABLE INTEREST ENTITIES
Accounting Standards Codification subtopic
810-10, Consolidation (“ASC 810-10”) discusses certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional
subordinated financial support. ASC 810-10 requires the consolidation of these entities, known as variable interest entities, by
the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of
the entities expected losses, receive a majority of the entity’s expected residual returns or both.
Pursuant to the effective date of a related
party lease obligation, the Company adopted ASC 810-10. This resulted in the consolidation of one variable interest
entity (VIE) of which the Company is considered the primary beneficiary. The Company’s variable interest in this
VIE is the result of providing certain secured debt mortgage guarantees on behalf of a limited liability company that leases warehouse
and general offices located in the city of Howell, Michigan.
REVENUE RECOGNITION
For revenue from products and services, the
Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition (“ASC
605-10”). ASC 605-10 requires that four basic criteria must be met before revenue can be recognized; (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the selling price is fixed and
determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s
judgments regarding the fixed nature of the selling prices of the products delivered/services rendered and the collectability of
those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments
are provided for in the same period the related sales are recorded.
The Company defers any revenue for which the
product has not been delivered or services has not been rendered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or services has been rendered or no refund will be required.
ASC 605-10 incorporates Accounting Standards
Codification subtopic 605-25, Multiple-Element Arrangements (“ASC 605-25”). ASC 605-25 addresses accounting
for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The
effect of implementing 605-25 on the Company’s financial position and results of operations was not significant.
Revenues on the sale of products, net of estimated
costs of returns and allowance, are recognized at the time products are shipped to customers, legal title has passed, and all significant
contractual obligations of the Company have been satisfied. Products are generally sold on open accounts under credit terms customary
to the geographic region of distribution. The Company performs ongoing credit evaluations of the customers and generally does not
require collateral to secure the accounts receivable.
The Company generally warrants its products
to be free from material defects and to conform to material specifications for a period of three (3) years. The cost of replacing
defective products and product returns have been immaterial and within management's expectations. In the future, when the company
deems warranty reserves are appropriate that such costs will be accrued to reflect anticipated warranty costs.
INVENTORIES
We value our inventories, which consist primarily
of automotive body components, at the lower of cost or market. Cost is determined on the weighted average cost method and includes
the cost of merchandise and freight. A periodic review of inventory quantities on hand is performed in order to determine if inventory
is properly valued at the lower of cost or market. Factors related to current inventories such as future consumer demand and trends
in MWW's core business, current aging, and current and anticipated wholesale discounts, and class or type of inventory is analyzed
to determine estimated net realizable values. A provision is recorded to reduce the cost of inventories to the estimated net realizable
values, if required. Any significant unanticipated changes in the factors noted above could have a significant impact on the value
of our inventories and our reported operating results.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
We are required to estimate the collectability
of our trade receivables. A considerable amount of judgment is required in assessing the realization of these receivables including
the current creditworthiness of each customer and related aging of the past due balances. In order to assess the collectability
of these receivables, we perform ongoing credit evaluations of our customers' financial condition. Through these evaluations we
may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its
financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are
reevaluated and adjusted as additional information is received.
Our reserves are also based on amounts determined
by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including,
but are not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict
changes in the financial condition of our customers and if circumstances related to our customers deteriorate, our estimates of
the recoverability of our receivables could be materially affected and we may be required to record additional allowances. Alternatively,
if we provided more allowances than are ultimately required, we may reverse a portion of such provisions in future periods based
on our actual collection experience. There was $20,000 allowance for doubtful accounts at December 31, 2011 and September 30, 2011.
STOCK BASED COMPENSATION
At times we issue stock in exchange for payment
of certain liabilities or payment of services, including employees in the form of compensation or professional service providers
in the form of consulting or other fees. We value the stock issued at the price in which it is trading on the open market.
DERIVATIVE LIABILITIES
The Company’s Series A Preferred Stock,
convertible debt and certain warrants have reset provisions to the exercise price if the Company issues equity, or a right to receive
equity, at a price less than the exercise prices. The Company utilizes the Binomial Lattice Model formula for determining
the estimated fair value.
COMPARISON OF THE THREE MONTHS ENDED DECEMBER
31, 2011 TO THE THREE MONTHS ENDED DECEMBER 31, 2010
REVENUES
Net revenues were approximately $224,000 for
the three months ended December 31, 2011. Our revenues decreased by $370,920 from the three months ended December 31, 2010. This
62.4% decrease is attributable to the fact we are focusing on our core business, which includes painting, seat heaters, spoilers
and body-side moldings. The Company is quoting on numerous paint projects and working on new programs for the
2012 and 2013 programs that are expected to provide continued revenue growth.
GROSS (LOSS) PROFIT
For the three months ended December 31, 2011,
MWW's gross loss was $(91,684) (41.0%) compared to gross profit of $144,024 (24.2%) for the three months ended December 31, 2010. MWW
sold a greater percentage of its lower margin products in 2011 than in 2010. During the current period, our Revenues
were insufficient to offset our overhead costs. MWW's gross profit margin is influenced by a number of factors and gross margin
may fluctuate based on changes in the cost of supplies and product mix.
The primary components of cost of sales are
direct labor and cost of parts and materials. The cost of parts and materials has been consistent from year to year.
OPERATING EXPENSES
Selling, general, and administrative expenses
were $253,026 (113.2 % of revenues) in 2011 compared to $327,226 (55.1 % of revenues) during 2010. The decrease in costs is attributable
to management’s stringent efforts to reduce overhead costs.
Significant components of operating expenses
consist of professional fees, salaries, and impairment losses.
OTHER INCOME (EXPENSES)
Financing expenses were $577,664 for the three
months ended December 31, 2011 compared to $70,808 during same period last year. The increase is due to forbearance charges by
our bank while in default of our real estate mortgage plus the change on the working capital portion of our debt from a traditional
bank to a factoring company. The factoring company charges a much higher rate on the borrowings. In addition,
we incurred non cash interest expense and amortization of debt discounts and non cash interest costs relating to our convertible
notes of $517,606 compared to $-0- for the three months ended December 31, 2010.
(LOSS) GAIN ON CHANGE IN FAIR VALUE OF DERIVATIVE
LIABILITY. As described in our accompanying unaudited condensed consolidated financial statements, we issued convertible
notes with certain conversion features, reset warrants and Series A Preferred Stock that have certain reset provisions. All
of which, we are required to bifurcate from the host financial instrument and mark to market each reporting period. We recorded
the initial fair value of the reset provision as a liability with an offset to equity or debt discount and subsequently mark to
market the reset provision liability at each reporting cycle.
For the three months ended December 310, 2011,
we recorded a net loss of $1,140,651 in change in fair value of the derivative liability as compared to a gain of $772,327 for
the same period the previous year. The changes in the market price of our common stock have affected the fair value
of the derivative liability.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2011 we had working capital
deficit of $4,413,677. We reported negative cash flow from operating activities of ($68,109) and positive cash flow from financing
activities of $75,500.
The negative cash flow from operating activities
consists of $2,060,317 net loss, net with $56,700 depreciation and amortization expenses, $46,262 in amortization of deferred financing
costs, $358,428 in amortization of debt discounts, $159,178 non cash interest paid, $5,500 stock based compensation,
loss on change in fair value of derivative liability of $1,140,651, common stock issued for services of $30,000, net with cancelation
of previously issued common stock for services of $120,000, Changes in operating assets were a $(102.853) increase in
accounts receivable, $8,103 decrease in inventory, $410,239 increase in accounts payable and other current liabilities.
Cash flows from financing activities were primarily
from issuance of notes payable of $90,500, net with repayments of $15,000.
On January 27, 2009, the Key Bank notified
the Company it was in default of its obligations under the line of credit agreement and commercial mortgage loan secured by second
deed of trust on real property to JCMD Properties, LLC. The notification is declaring the debt obligations in default and is therefore
entitling the lender to exercise certain rights and remedies, including but not limited to, increasing the interest rate to the
default rate and demanding immediate repayment in full of the principal, interest and interest swap outstanding liability. Further,
the lender notified the Company that the line of credit maturing on February 1, 2009 will not be renewed and no further advances
are available on the line of credit. As discussed in Note 7, the Company has entered into a Forbearance Agreement through
August 31, 2009. As of September 30, 2009, the Key Bank line of credit was repaid through the Company securing the below financing
with Summit Financial Resources, L.P.
In September, 2009, Marketing Worldwide, LLC
entered into a financing agreement with Summit Financial Resources L.P. (Summit) for a maximum borrowing of up to $1 million maturing
August 31, 2011. 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, 2012.
Under the arrangement, Summit typically advances
to the Company 75% of the total amount of accounts receivable factored. Summit retains 25% of the outstanding factored accounts
receivable as a reserve, which it holds until the customer pays the factored invoice to Summit. The cost of funds for the accounts
receivable portion of the borrowings with Summit includes: (a) a collateral management fee of 0.65% of the face amount of factored
accounts receivable for each period of fifteen days, or portion thereof, that the factored accounts receivable remains outstanding
until payment in full is applied and (b) interest charged at the Wall Street Journal prime rate plus 1% divided by 360. The
Summit default rate is the Wall Street Journal prime rate plus 10%. The Company may be obligated to purchase the receivable back
from Summit at the end of 90 days.
MWW expects its regular capital expenditures
to be approximately $100,000 for fiscal 2012. These anticipated expenditures are for continued investments in tooling and equipment
used in our business.
The independent registered public accounting
firm’s report on our September 30, 2011 consolidated financial statements included in our Form 10-K states that our difficulty
in generating sufficient cash flow to meet our obligations and sustain operations raise substantial doubts about the our ability
to continue as a going concern. The consolidated financial statements do not include any adjustments that might result
should the Company be unable to continue as a going concern.
The Company has reduced cash required for operations
by reducing operating costs and reducing staff levels. In addition, the Company is working to manage its current liabilities while
it continues to make changes in operations to improve its cash flow and liquidity position.
The Company's existence is dependent upon management's
ability to continue developing profitable business opportunities and their ability to obtain adequate financing to fund anticipated
growth.
The Company's existence is dependent upon management's
ability to raise additional financing and develop profitable operations. Additional financing transactions may include the
issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of
our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the
issuance of equity or debt securities. Further, if we issue additional equity or debt securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common
stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations
RECENT ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting
pronouncements and their effect on the Company, see “Recent Accounting Pronouncements” in Note 2 of the Notes to Unaudited
Condensed Consolidated Financial Statements contained herein.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
ITEM 3. – Quantitative and Qualitative Disclosures about Market
Risk
The Company is a smaller reporting company as defined by Rule 12b-2
under the Exchange Act and is not required to provide the information required under this item.
ITEM 4T. Controls and Procedures
a) Evaluation of Disclosure Controls and Procedures.
As of December 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 ****
(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.
(10)(22) $50,000 convertible note, dated Feb
16, 2011, Asher
(10)(23) $25,000 convertible note, dated March
22, 2011, Asher
(10)(24) $30,000 convertible note, dated May
6, 2011, Asher
(10)(25) $127,000 convertible promissory note,
dated Jan. 10, 2011, RBSM, LLP
(10)(26) $250,000 senior convertible debenture,
dated June 29, 2011, Hillair
(10)(27) $260,120 promissory note and stock
pledge agreement, dated Feb 19, 2011, Rainer Poertner
(10)(28) Series C convertible preferred stock agreement, dated April
29, 2011, Southridge
(10)(29) Series C convertible preferred stock agreement, dated May
17, 2011, Southridge
(10)(30) Public relations, promotion and marketing agreement, April
28, 2011 – August 28, 2011, Stock Vest
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
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BY:
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/s/ CHARLES PINKERTON
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NAME: CHARLES PINKERTON
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TITLE: CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICER
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Date: February 21, 2012
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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:
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/s/ CHARLES PINKERTON
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NAME: CHARLES PINKERTON
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TITLE: CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL OFFICER
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Date: February 21, 2012
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