UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Under Section 13 or 15(d) of the Securities Exchange
Act
of 1934 For the fiscal year ended September
30, 2012
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Transition Report Under Section 13 or 15(d) of the Securities
Exchange
Act of 1934 For the transition period _______
to ________
COMMISSION FILE NUMBER 000-50586
MARKETING WORLDWIDE CORPORATION
(Name of small business issuer in its charter)
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Delaware
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68-0566295
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State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization
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2212 Grand Commerce Drive, Howell, MI 48855
(Address of principal executive offices)
(Zip Code)
(Issuer's telephone number) (517) 540-0045
SECURITIES REGISTERED PURSUANT TO SECTION
12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION
12(G) OF THE ACT:
$.00001 PAR VALUE COMMON STOCK
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
. No
x
.
Check
whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
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No
x
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. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
¨
No
x
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2
of the Exchange Act.
Large
accelerated filer
¨
Accelerated filer
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Non-accelerated
filer
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Smaller reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
x
The aggregate market value of the Registrant's
common stock held by non-affiliates (as defined by Rule 12b-2 of the Exchange Act) computed by reference to the average bid and
asked price of such common equity on March 31, 2012 as $887,386.
At January 9, 2013, there were 470,667,013 shares of $.00001
par value common stock issued and outstanding.
TABLE OF CONTENTS
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PAGE
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PART I
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ITEM 1.
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BUSINESS
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1
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ITEM 1A.
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RISK FACTORS
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4
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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7
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ITEM 2.
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PROPERTIES
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7
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ITEM 3.
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LEGAL PROCEEDINGS
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7
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ITEM 4.
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MINE SAFETY DISCLOSURES
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8
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PART II
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ITEM 5.
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MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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8
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ITEM 6.
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SELECTED FINANCIAL DATA
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8
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ITEM 7.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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8
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ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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13
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ITEM 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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14
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ITEM 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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15
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ITEM 9A.
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CONTROLS AND PROCEDURES
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15
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ITEM 9B.
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OTHER INFORMATION
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16
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PART III
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ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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16
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ITEM 11.
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EXECUTIVE COMPENSATION.
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17
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
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17
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ITEM 13.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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19
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ITEM 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES.
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19
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PART IV
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ITEM 15.
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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20
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K (including
the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements using terminology
such as "can", "may", "believe", "designated to", "will", "expect",
"plan", "anticipate", "estimate", "potential" or "continue", or the negative
thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results
of operations or of our financial condition; and
o state other "forward-looking"
information.
We believe it is important to communicate
our expectations. However, forward looking statements involve risks and uncertainties and our actual results and the timing of
certain events could differ materially from those discussed in forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors," "Business" and elsewhere in this report. All forward-looking statements
and risk factors included in this document are made as of the date hereof, based on information available to us as of the date
thereof, and we assume no obligations to update any forward-looking statement or risk factor, unless we are required to do so
by law.
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”).
Marketing Worldwide, LLC (“MWW”)
The MWW Automotive Group (OTCQB: MWWC)
administration office is located in Howell, Michigan, with a 46,000 square foot Class A manufacturing and logistics facility in
Baroda, Michigan for the production of high quality OE automotive and industrial products. MWW delivers its products and Class
A painting, assembly and logistics services directly to major US and Foreign automobile manufacturers' Vehicle Processing Centers
(VPC), leading edge show car and performance accessory design firms, and/or assembly lines in North America. MWW's industrial
products are delivered directly to the industrial manufacturers for installation in their facilities.
The primary automotive accessory products
services provided by MWW is the refinishing of blow-molded spoilers (bridge and lip), front and rear fascia systems, side skirts,
door panels, extruded body-side moldings and interior components. During 2012, we have identified several new Tier
1 business partners to drive more automotive and industrial product sales and expect fiscal year 2013 to be greater than 2012.
MWW’s programs are sold not only
to Automotive and Industrial Original Equipment Manufacturers but also directly to vehicle processing centers, manufacturers and
distributors located primarily in North America and through its Tier 1 partner companies. These companies 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 delivering components from the US and European market to MWW, expecting
refinishing and just-in time inventory delivery to their large assembly plants in the U.S. and Europe. Special design vehicle
components are delivered to MWW from within the US and delivered directly to the design firms extended client distribution network.
MWW's business model empowers its customers,
some of the largest brands in the U.S., to make the selection of various accessories and components (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:
* Hood Scoops
* Grills
* Rear Deck Spoilers
* Body Side Moldings
* Front and Rear Fascia Systems
* Side Skirts
* Engine Components
* Interior Dash Components
* Large industrial components
Based on expertise and space available
in its Baroda plant, MWW is also providing logistics support for new customers, going beyond the Company’s original business
plan, meaning MWW receives, stores and distributes 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, implemented rigid cost down exercises and streamlining of production processes
and have successfully gained substantial new business opportunities.. CT is aggressively beginning to diversify to
non-automotive paint applications and has secured its first industrial client, (construction and agricultural equipment) which
we believe will help stabilize the Company going forward during 2013.
RECENT DEVELOPMENTS
In September, 2009, the Company entered
into a new loan agreement with Summit Financial to borrow up to $1,000,000. MWW pledged all of its inventory, equipment, accounts
receivable, chattel paper, instruments, and letters of credit, documents, deposit accounts, investment property, money, rights
to payment and general intangibles to secure the Loan. The financing arrangement was set to expire on August 31, 2012, unless
extended by both parties. This financing agreement was terminated by the company on June 5, 2012.
The Company had a wholly owned subsidiary
in Germany, Modelworxx, GmbH, which, in February, 2010, filed insolvency in the German courts. The Company has reclassified Modelworxx,
GmbH fiscal year ended September 30, 2011 balances to reflect them as discontinued operations and upon final liquidation, recognized
a net gain on disposal of international subsidiary of $349,322 during the year ended September 30, 2012.
PRODUCTS IN DEVELOPMENT
During 2012, MWW significantly expanded
its customer base securing new automotive projects for Chevrolet, Ford, Mazda, Subaru, Scion and Hyundai. Two of the highlights
of 2012 were the development and implementation of products and services for two large domestic/international alliance partners
who have quickly become our largest clients. Five Axis Design out of California along with Roush Performance Products located
in Michigan has partnered with MWW for entry into the extremely lucrative marketplace of very high end custom and specialty automobiles,
that falls squarely within our core competencies. This is a very crucial development in the MWW market diversification effort
and a corner stone for improving revenue generation.
During 2012, MWW concluded the certification
and approval process with Roush, Five Axis, Mazda and GSI International, who will provide us with substantial Automotive and Industrial
opportunities well into the future.
Colortek, Inc. is currently manufacturing
products for several domestic and import automotive manufacturers along with the first awarded program to provide painting services
to both the industrial and construction industries. Colortek satisfies a growing marketplace requiring smaller production runs
at Class A production quality.
THE MARKET
The global automobile accessory market
is highly fragmented and not dominated by a few large participants. The Industrial market is somewhat less fragmented, but also
dominated by a few large European and North American companies. Competitive pressures among vehicle manufacturers have evolved
so that the manufacturers add options to their vehicles at the vehicle processing centers and not during the initial manufacturing
process at the assembly line. In addition many manufacturers have switched to smaller vehicle production runs which can be accommodated
by MWW’s business model. These options packages are commonly referred to as "port installed" or "dealer installed"
option packages. MWW accessory programs are a crucial part of the option packages installed at the vehicle processing centers
in North America. Accordingly, MWW receives its revenue directly from the vehicle processing centers and not from the automobile
manufacturers or the automotive dealer. MWW future prospects are expected to be positively impacted by the fact that the Domestic
Automotive and commercial markets have recovered and the prospects for the next few years are positive.
A large part of MWW’s manufacturing
and fulfillment programs is enhanced by the fact that MWW owns CT, its 46,000 square foot Class A paint facility. Accordingly,
MWW is in a position to provide painted products to their customers at the Vehicle Processing Centers, directly to OE automotive
and industrial manufacturers, as well as through its strategic Tier 1 partnerships. Over the recent years MWW’s has gathered
the experience and track record and has established the production capacity and expertise to effectively manufacturer programs
the automotive and commercial marketplaces. MWW is clearly positioned to satisfy the need for low volume and more frequent production
runs currently dominating the automotive industry. Large volume production facilities are considering and have begun shutting
down their robotic facilities and moving their business to small manufacturers such as MWW, who can execute these production runs
more cost effectively. MWW’s production facilities have also been enhanced to process large industrial components
in its oversized paint booth and bake ovens to satisfy the demand from the industrial markets. We are in negotiations with several
of these types of new opportunities.
MAJOR CUSTOMERS
MWW's major customers in North America
are the Domestic and Import Automobile Manufacturers, Industrial Equipment Manufacturers, large Tier 1 strategic partners, as
well as a variety of tier 2 and tier 3 manufacturers to the auto industry and a high-end design and prototype and concept show
cars studio with a line of aftermarket styling products
For the year ended September 30, 2012,
MWW was dependent upon four (4) customers for 96.81% of its revenue. Customer #1, Customer #2, Customer #3 and Customer #4 represented
76.40%, 12.84%, 5.11% and 2.47% of revenue, respectively. Moreover, 96.69% of our accounts receivable at September 30, 2012 were
due from these four (4) customers. For the year ended September 30, 2012, Customer #1, Customer #2, Customer #3, and Customer
#4 represented 12.88%, 16.07%, 3.15%, and 11.07% of accounts receivable, respectively.
PRODUCT WARRANTIES
MWW generally warranties its products
to be free from material defects and to conform to material specifications for a period of three (3) years. MWW has not experienced
significant returns to date. MWW suppliers provide warranties for each product manufactured covering manufacturing defects for
the same period that MWW offers to its customers. Therefore, a majority of the claims made under product warranties by MWW's customers
are covered by our supplier partners and sub-suppliers.
SOURCING
All MWW contract suppliers and production
facilities are original equipment manufacturers, approved and certified by the International Standards Organization ("ISO")
with the ISO 9001 certification. ISO 9001 certification refers to the objectively measurable set of quality management standards
and guidelines that form the basis for establishing quality management systems adopted by the ISO. The ISO is a non-governmental
organization comprised of the national standards institutes of 146 countries. The facilities have been strategically selected
to minimize transportation cost and logistics. Suppliers are required to participate in quality assurance audits and submit the
appropriate documentation for the components it processes for MWW.
SUPPLIERS
MWW has established relationships with
a group of global suppliers that deliver quality materials for the production of add-on components to MWW. MWW believes
there are numerous sources for the raw materials used in its products and a loss of any of these suppliers would not impact MWW’s
performance negatively. For the year ended September 30, 2012, MWW had 5 suppliers that aggregating 94.70 % represented
greater than 10% of our total purchases. Supplier 1, Supplier 2, Supplier 3, Supplier 4 and Supplier 5 represented
51.19%, 15.81%, 14.41%, 10.40% and 2.90% of purchases made from suppliers respectively. For the year ended September
30, 2012, Supplier #1, Supplier #2, Supplier #3, Supplier #4and Supplier #5 represented 4.02%, 0.17%, 0.42%, 0.44% and 0.43% of
accounts payable, respectively.
COMPETITION
The general aftermarket automotive industry
is highly competitive. In MWW's market niche, competition is somewhat limited and is occasionally represented by smaller divisions
of larger companies. MWW competes for a share of the overall global automotive aftermarket and potential new customers. In general,
competition is based on product quality, features, price and satisfactory after sale support. The industrial marketplace is somewhat
less competitive than the automotive market, dominated by fewer large companies and in need for high quality refinishing facilities
such as MWW.
The competitive landscape has changed
during the last twelve months, the market is more fragmented than ever before, a number of competitors have ceased to exist and
consolidation is ongoing. MWW has entered into several strategic alliances with Tier 1 companies and has entered the industrial
and Automotive Specialty Markets to diversify and limit the customer and market concentration risks further.
MWW believes that its competitive edge
lies in its extensive resources in OE Quality refinishing, Logistics Capabilities and its ability and production capacity to manufacture
oversized industrial components for multiple marketplaces. MWW focuses on the expansion of its internal capabilities and improved
utilization and expansion of its advanced resources and the careful cultivation of long-term relationships, in contrast to simply
selling products to multiple anonymous customers. By making sure MWW customers will remain satisfied clients,
MWW is not only stabilizing and growing
its client roster in different industries and assuring revenue growth, but also simultaneously building and maintaining barriers
of entry for competitors.
PROPRIETARY RIGHTS
MWW primarily relies upon a combination
of trade secret laws, nondisclosure agreements and purchase order forms to establish and protect proprietary rights in the design
of its own products and in its customers’ products. However, it may be possible for third parties to develop similar products
independently, provided they have not violated any contractual agreements or intellectual property laws.
COST OF COMPLIANCE WITH ENVIRONMENTAL
REGULATIONS
The Company currently has no costs associated
with compliance with environmental regulations. However, there can be no assurances that we will not incur such costs with our
paint facilities in the future.
EMPLOYEES
MWW has an elastic work-force, with as
few as 10 employees, and as many as 50 employees , depending on the number of projects currently being worked on. Management
believes that the structure of its workforce allows MWW to scale its overhead according to the scope of its design, tooling, assembly
and manufacturing requirements throughout the year. MWW plans to add employees in the future .
ITEM 1A. RISK FACTORS
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
AND THE MARKET PRICE OF OUR SECURITIES.
If any of the following material risks
actually occur, our business, financial condition, or results of operations could be materially adversely affected, the trading
prices and volume of our common stock could decline, and you could lose all or part of your investment. You should buy shares
of Marketing Worldwide Corporation common stock only if you can afford to lose your entire investment. Success is dependent on
the creative, technical, financial, administrative, logistical, design, engineering, manufacturing and other contributions of
the current employees and officers of the Company. Founders of Marketing Worldwide Corporation, Michael Winzkowski
and James Marvin have taken on different roles. Winzkowski has relinquished the role of CEO and is now the Chairman
of the Board and President of MWW. Mr. Marvin had resigned during 2010 and no longer has any management activities
at MWW. The Board of directors has engaged Charles Pinkerton as the new CEO in 2011. The role of Mr. Davis, the CFO has been transferred
to Deborah Hallman as director of financing, a long term employee of the company. The loss of either Pinkerton or Hallman could
potentially cause a disruption in our operations. In the short term, it would be difficult to duplicate the relationships, industry
experience, and creativity of Mr. Pinkerton and Mrs. Hallman. The loss of one or both might substantially reduce our revenues
and growth potential, although the recent departure of Mr. Davis had been compensated for with existing management resources.
OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY
AFFECTED BY GLOBAL ECONOMIC AND FINANCIAL MARKETS CONDITIONS.
Current global economic and financial
markets conditions, including severe disruptions in the credit markets and the prolonged global economic recession has materially
and adversely affected our results of operations and financial condition. These conditions have also materially impacted our customers,
suppliers and other parties with which we do business. Economic and financial market conditions that adversely affect our customers,
especially our past largest customer Toyota, caused them to terminate existing purchase orders or to reduce the volume of products
they purchase from us in the future. We have seen a decline in certain volumes over the last year, but are now seeing an increase
due to what appears to be a strengthening economic environment and the successful acquisition of new customers in the automotive
and industrial markets by our new management team. In connection with the sale of products, we normally do not require collateral
as security for customer receivables and do not purchase credit insurance. We may have significant balances owing from customers
that operate in cyclical industries and under leveraged conditions that may impair the collectability of those receivables.
Failure to collect a significant portion
of amounts due on those receivables could have a material adverse effect on our results of operations and financial condition.
Adverse economic and financial markets conditions may also cause our suppliers to be unable to meet their commitments to us or
may cause suppliers to make changes in the credit terms they extend to us, such as shortening the required payment period for
outstanding accounts receivable or reducing the maximum amount of trade credit available to us. Changes of this type could significantly
affect our liquidity and could have a material adverse effect on our results of operations and financial condition. If we are
unable to successfully anticipate changing economic and financial market conditions, we may be unable to effectively plan for
and respond to those changes, and our business could be negatively affected. We have been fortunate in that we have
not had any significant negative effect from not being able to collect on our billings.
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM’S REPORT CONTAINS AN EXPLANATORY PARAGHRAPH WHICH HAS EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS
A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING
In their report dated January 14, 2012,
our independent registered public accounting firm stated that our consolidated financial statements for the year ended September
30, 2012 were prepared assuming that we would continue as a going concern, and that they have substantial doubt about our ability
to continue as a going concern. Our auditors' doubts are based on our recurring net losses, deficits in cash flows from operations
and stockholders’ deficiency. We continue to experience net operating losses. Our ability to continue as a going concern
is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including by the sale of
our securities, or obtaining loans from financial institutions, where possible. Our continued net operating losses and our auditors'
doubts increase the difficulty of our meeting such goals and our efforts to continue as a going concern may not prove successful.
WE DO NOT HAVE LONG-TERM WRITTEN AGREEMENTS
WITH OUR KEY CUSTOMERS OR KEY SUPPLIERS; THEREFORE, OUR REVENUE STREAM AND OUR SUPPLY CHAIN ARE SUBJECT TO GREATER UNCERTAINTY.
Our customers issue short term contracts
(12 months) or blanket purchase orders to us that remain open during the life of an accessory program or the extended term.
The customer then places delivery releases
against these blanket purchase orders or short term agreements generally in 30 day intervals. However, none of our key customers
have any binding obligations, beyond the practical reasons that prevent a change in manufacturer and beyond payment of our most
recent purchase order and adherence to the terms and conditions of the blanket purchase order or short term agreement. The lack
of long-term written agreements that specify a fixed dollar amount of the total purchase amount for our accessory programs or
services means that we cannot predict with any certainty that these customers will generate a specific level of revenue in any
specific accounting period. Our blanket purchase orders or short term agreements with customers provide for a fixed per unit cost,
but do not contain any fixed purchase commitments for a specific dollar amount. We record revenue when products are shipped, legal
title has passed, and all our significant obligations have been satisfied.
We cannot predict with certainty that
we will be able to replace a significant customer or significant supplier without a decline in our revenue and net income. Stated
differently, we have to constantly justify our value proposition to our customers and our suppliers because even though the per
unit price of our accessory programs is covered in the blanket purchase order, our customers are not obligated to buy the goods
and services specified in the blanket purchase order. On the positive side their relative freedom to stop dealing with us keeps
us in close contact with them. On the negative side, their freedom to stop dealing with us means that our revenue and our ability
to generate revenue is in constant jeopardy, as well as difficult to predict with certainty. This jeopardy is balanced by the
fact that it is rather uneconomical for a customer to change manufacturers frequently, since the production qualification process
on both sides is rather resource intensive in regards to time and capital invested.
WE USE PAINT AND PLASTIC MATERIALS. OUR BUSINESS
COULD BE AFFECTED BY ENVIROMENTAL RISKS.
Colortek, Inc. is a paint company using
abrasives and paint solvents. Although we have approval from the governmental agencies to paint, there is no guaranty
that laws won’t change to adversely affect us, nor is there absolute certainty we will continue to operate without interference
from governmental agencies or environmental groups.
We have not experienced any issues as
yet, however the potential exists we may in the future.
LOSS OF FACILITIES COULD IMPAIR OUR ABILITY TO PROVIDE PRODUCTS
TO OUR CUSTOMERS.
As in most businesses, if we lost both
our facilities in Howell and Baroda Michigan, we would be in a short term bind. The Howell facility would cause less
disruption, as we could easily move our offices and the fulfillment activities elsewhere in quick fashion.
Although the Baroda facility is more critical,
we feel the likelihood of a total disaster is remote. Our insurance and strategic relationships with other paint facilities
should provide continuity of the supply chain to our customers.
LOSS OF MAJOR SUPPLIERS COULD AFFECT OUR
ABILITY TO GET PRODUCT.
We have a concentration of risk with a
few suppliers providing our product requirements. If we were to lose anyone of them, this could potentially negatively
impact our ability to get product on a timely basis. We have an internal policy to have back-up suppliers to our major
product offerings, and have in place a back-up for each of our suppliers. Accordingly, we do not consider this a significant risk.
WARRANTY CLAIMS COULD ADVERSLY IMPACT
OUR FINANCIAL POSITION IF OUR CUSTOMERS REQUIRE A RECALL OF VEHICLES DUE TO PRODUCTS WE PROVIDE.
We review warranty reserves on a regular
basis and record expense as deemed appropriate for the products sold to our customers. We also purchase product liability
insurance to cover large claims.
WE ARE VULNERABLE BECAUSE OF OUR CUSTOMER
CONCENTRATION, BUT THERE IS NO GUARANTY THAT WE CAN ADD CUSTOMERS. FAILURE TO ADD NEW CUSTOMERS MAY LIMIT OUR REVENUE IN FUTURE
PERIODS.
While the new management has expanded
our customer roster significantly, our revenue still depends on a few key customers, the loss of which would have a negative impact
on our revenues and results from operations.
Our annual operating results are likely
to fluctuate significantly in the future as a result of our dependence on our four or five major customers. Moreover, the actual
purchasing decisions of our customers are often outside our control. Consequently, our customer's purchase decisions are influenced
by factors beyond our control, like general economic conditions and economic conditions specific to the automobile industry.
Further, since the majority of our revenue
is from four or five key customers instead of from a multitude of individual customers, a significant change in the amount or
timing of purchase decisions by a single customer creates a wider fluctuation in our operating results for any given accounting
period.
MANAGEMENT INTENDS TO INCREASE REVENUE
THROUGH ACQUISITIONS FINANCED WITH EQUITY WHICH WILL DECREASE THE EQUITY PERCENTAGE OF THE COMPANY OWNED BY EXISTING STOCKHOLDERS.
Management may consider increasing the
Company's revenues through additional acquisitions of other operations in the automotive accessory industry. We have no plans
for a reverse merger, change in control or spin off. The Company currently has no plans to engage in a transaction with an entity
outside the automotive or commercial industry. Management is aware of several operating companies in the automotive accessory
market that are candidates for additional merger or acquisition. While we may consider financing any business combination with
common stock, we do not expect any business combination to result in a change in control or constitute a reverse merger.
WE LACK INDEPENDENT DIRECTORS WHICH LIMITS
THE NATURE AND TYPE OF GUIDANCE GIVEN BY THE BOARD TO THE MANAGEMENT TEAM AND MAY AFFECT THE PRICE OF OUR STOCK.
Shareholders should be aware of and familiar
with the recent issues concerning corporate governance and lack of independent directors as a specific topic. Our sole director
is not independent because they he is employed by the Company. The OTC Bulletin Board does not have any listing requirements concerning
the independence of a company's board of directors.
THERE IS A GRADUALLY EMERGING PUBLIC MARKET
FOR MWW'S SECURITIES AND YOU MAY HAVE DIFFICULTIES TO LIQUIDATE YOUR INVESTMENT.
Trading volume of MWW stock (MWWC) has
been increasing, with a closing ask price of $0.0002 on January 8, 2012. If a market for MWW's common stock continues to develop
slowly; the stock price may be volatile. No assurance can be given that any market for MWW's common stock will be maintained.
The sale of "unregistered" and "restricted" shares of common stock pursuant to Rule 144 of the Securities
Act Rules by members of management or others may have a substantial adverse impact on any such market.
WE HAVE IDENTIFIED WEAKNESSES IN OUR INTERNAL CONTROLS.
Our management has concluded that our
internal control over financial reporting was not effective as of September 30, 2012, as a result of several material weaknesses
in our internal control over financial reporting. Descriptions of the material weaknesses are included in Item 9A, "Control
and Procedures", in this Form 10-K.
As a result of these material weaknesses,
we performed additional work to obtain reasonable assurance regarding the reliability of our consolidated financial statements,
we keep engaging a third party CPA as our outside controlling entity and to generate and supervise the financial department and
financial statement process. However, the remaining material weaknesses could result in a misstatement of substantially
all accounts and disclosures, which would result in a misstatement of annual or interim consolidated financial statements that
would not be prevented or detected. Errors in our consolidated financial statements could require a restatement or prevent us
from timely filing our periodic reports with the Securities and Exchange Commission ("SEC"). Additionally, ineffective
internal control over financial reporting could cause investors to lose confidence in our reported financial information.
Our inability to remediate all
weaknesses or any additional material weaknesses that may be identified in the future could, among other things, cause us to
fail to timely file our periodic reports with the SEC and require us to incur additional costs and divert management
resources. Additionally, the effectiveness of our or any system of disclosure controls and procedures is subject to inherent
limitations, and therefore we cannot be certain that our internal control over financial reporting or our disclosure controls
and procedures will prevent or detect future errors or fraud in connection with our financial statements.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have received no written comments regarding
our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding
the end of our 2012 fiscal year and that remained unresolved.
ITEM 2. PROPERTIES
MWW's principal executive office is located
at 2212 Grand Commerce Dr., Howell, MI 48855 in a 3,000 square feet office space.
Our subsidiary, Colortek, Inc. has a 46,000
square foot facility on 20 acres located in Baroda, Michigan. The facility is owned by MWW and is financed by Edgewater Bank.
The mortgage is scheduled for a balloon payment in July of 2013. The Mortgage note balance at September 30, 2012 was $553,646.28
with a 180 month term and a fixed interest rate of 6.75%. The current monthly payment is $5,962. In accordance with the mortgage
loan agreement, we are currently in default and the following pertains to this default:
MWW’s subsidiary Colortek owns property
and a building in Baroda, Michigan. Edgewater Bank holds the mortgage. Colortek fell behind on payments. Edgewater foreclosed
on the property by Sheriff’s sale on October 25, 2012. Edgewater purchased the property at the Sheriff’s sale. The
purchase price left a deficiency of $167,000, which was accrued as of September 30, 2012. The mortgage was secured not only by the property, but by a UCC security interest
filing on Colortek equipment and a personal guaranty from MWW. Edgewater initiated a lawsuit against MWW and Colortek for the
deficiency .
The original owners of Colortek had also
signed a personal guaranty for the mortgage. Their guaranty was not discharged when MWW became a guarantor. MWW brought a third
party complaint against them on the guaranty. Edgewater and MWW principals and their attorneys have a settlement meeting scheduled
for January 14, 2013 to pursue a settlement on both the deficiency and redeeming the property prior to the redemption period running.
Because Edgewater agreed to the settlement
meeting and did not simply file a Motion for Summary Disposition to get a judgment, we believe settlement is probable. Both parties
would suffer greatly otherwise as Edgewater would have property and equipment it cannot use or sell and Colortek, and thus MWW
would be out of business, making the deficiency uncollectable as well. A well thought out settlement will get Edgewater paid and
keep Colortek and MWW solvent.
We believe that our current office space
and facilities are sufficient to meet our present and near term expansion needs and do not anticipate any difficulty securing
alternative or additional space, as needed, on terms acceptable to us.
ITEM 3. LEGAL PROCEEDINGS .
The company currently has the following:
Marvin, a former director and shareholder
of MWW brought a wage and hour claim against MWW alleging failure to pay wages and benefits. On March 2, 2011, an ALJ found in
favor of Marvin in the amount of $81,730. An appeal by MWW was dismissed. On September 24, 2012, the State of Michigan brought
an action against MWW to collect the amount due to Marvin. MWW has filed a third party complaint against Marvin alleging breach
of employment agreement, breach of fiduciary duty and tortious interference with business relations.
MWW and the State of Michigan have entered
into a consent judgment for the wage and hour amount. The State has agreed to hold the judgment in abeyance until the completion
of the third party complaint and any amounts found due to MWW from Marvin will be deducted from the consent judgment.
The matter against Marvin will be vigorously
contested, as Marvin abused his position with MWW and financially devastated the company.
MWW counsel feels MWW will either be awarded
or settle for an amount equal to or greater than the amount due to Marvin .
The Company is sometimes subject to certain
legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements
may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial
position, results of operations or liquidity.
MWW’s subsidiary, Colortek, owed money for services and
product to Merlyn Engineering. Merlyn initiated a lawsuit to collect $12,000.Settlement was entered into in October, 2012. Payment
is due and was to be paid before 12-31-2012.
MWW’s subsidiary Colortek filed with the Michigan Tax
Tribunal to have the 2011 property tax assessment lowered by Baroda Township. The matter was lost in both the Tribunal and at
MWW. After working with the Township and Tribunal, on December 4, 2012 the Tribunal agreed to enter a Stipulated Order reducing
the property assessment for 2011 and 2012 by approximately $150,000 for each year.
In March, 2012, Colortek received a letter from the attorney
for Reliable Analysis demanding payment of an overdue account in the amount of $21,711. The attorney was instructed direct all
future correspondence to MWW’s legal counsel. No further request has been received.
WLC brought a lawsuit against MWW to collect past due amounts
for services. A consent judgment with installment payment terms. The amount should be paid off in January 2014.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
At January 9, 2013, there were
470,667,013 shares of common stock issued and outstanding. There are 25,216 shares of common stock that are subject to
outstanding options and warrants to purchase common stock. On January 10, 2013 the closing ask price of our common stock was
$0.0003 per share.
The common stock of MWW commenced trading
on the OTCBB on September 14, 2006. The following table sets forth, for the calendar quarters indicated, the reported high and
low bid quotations per share of the Common Stock as reported on the OTCBB. Such quotations reflect inter-dealer quotations
without retail mark-up, markdowns or commissions, and may not necessarily represent actual transactions. On July 9, 2012, the
Company affected a three hundred-to-one (300 to 1) reverse stock split of its issued and outstanding shares of common stock, $0.00001
par value (whereby every three hundred shares of Company’s common stock will be exchanged for one share of the Company's
common stock).
|
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High
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Low
|
|
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FISCAL YEAR ENDED SEPTEMBER 30, 2012
|
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|
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|
|
|
|
|
|
|
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Fourth Quarter
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$
|
0.01
|
|
|
$
|
0.0002
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Third Quarter
|
|
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1.622
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|
|
|
0.0601
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|
|
Second Quarter
|
|
|
5.045
|
|
|
|
0.5105
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|
|
First Quarter
|
|
|
5.706
|
|
|
|
0.4505
|
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL YEAR ENDED September 30, 2011
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Fourth Quarter
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6.00
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|
|
|
3.00
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Third Quarter
|
|
|
6.00
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|
|
|
6.00
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|
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Second Quarter
|
|
|
6.00
|
|
|
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6.00
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First Quarter
|
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6.00
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|
|
|
6.00
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|
At January 10, 2013 MWW had 80
common stockholders of record and the share price was $0.0003. MWW has not declared any cash dividends on its common
equity for the last two years. It is unlikely that MWW will pay dividends on its common equity in the future and is likely to
retain earnings and issue additional common equity in the future.
ITEM 6. SELECTED FINANCIAL DATA
The Company is a smaller reporting company
as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
The following discussion and analysis
should be read in conjunction with our consolidated financial statements. This discussion should not be construed to imply that
the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily
be indicative of actual operating results in the future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS (CONTINUED)
GENERAL OVERVIEW
MWW operates in a niche market of the
supply chain for new passenger motor vehicles and large industrial components primarily in the United States and Canada. MWW provides
services for the refinishing of specially designed and manufactured automotive accessories and large industrial components
MWW's revenues are derived through the
sales of its products and services to large automotive and industrial companies. As a consequence, MWW is dependent upon the acceptance
of its products in the first instance by the automotive and industrial industry. As a result of this dependence MWW's business
is vulnerable to actions which impact these industries 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 industries 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
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|
·
|
Ability to convert sales opportunities to actual revenue
|
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·
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Ability to continue controlling our selling, general and administrative
costs
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|
|
·
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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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS (CONTINUED)
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 $nil and $20,000 allowance for doubtful accounts at September
30, 2012 and 2011, respectively.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS (CONTINUED)
DERIVATIVE LIABILITIES
The Company’s Series A and Series
E 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. All Series A Preferred stock has been purchased by a new investor and new Series E stock
has been issued to this investor, pursuant to the corresponding agreement and as explained in more detail in the derivative description.
COMPARISON OF THE YEAR ENDED SEPTEMBER
30, 2012 TO THE YEAR ENDED SEPTEMBER 30, 2011
Revenues
Net revenues were $790,211 for the year
ended September 30, 2012. Our revenues decreased by $1,118,038 from $1,908,249 the year ended September 30, 2011. This 58.59%
decrease is attributable to the fact we are focusing on our core business working with automotive and industrial manufactures
on starting many new projects. The Company is quoting on numerous paint projects and working on new programs for the 2013
and 2014 programs that are expected to provide continued revenue growth.
GROSS PROFIT
For the fiscal year ended September 30,
2012, MWW's gross profit was $(310,093) (-39.24% of revenue) compared to $64,890 (3.40% of revenue) for the fiscal year ended
September 30, 2011.
The primary components of cost of sales are
direct labor and cost of parts and materials.The costs of initial start-ups have driven up the cost of labor and in some cases
the cost of parts and materials due to extra usage during the 2012 fiscal year, In general the cost of parts and materials has
been consistent from year to year.
OPERATING EXPENSES
Selling, general, and administrative expenses
were $1,413,139 (178.83% of revenues) in 2012 compared to $1,712,759 (89.76 % of revenues) during 2011. 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
OTHER INCOME (EXPENSES)
Financing expenses were $2,849,830 in
2012 compared to $1,770,170 during 2011. The primary increase is due to incurred non cash interest expense and amortization of
debt discounts relating to our convertible notes of $2,562,174 in the current year as compared to $1,268,616 for the year ended
September 31, 2011.
(LOSS) GAIN ON CHANGE IN FAIR VALUE OF
DERIVATIVE LIABILITY. As described in our accompanying consolidated financial statements, we issued convertible
notes with certain conversion features, reset warrants and Series A and Series E 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 year ended September 30, 2012,
we recorded a net loss of $6,475,349 in change in fair value of the derivative liability as compared to a gain of $1,173,072 for
the same period the previous year. The changes in the market price of our common stock has affected the fair value of the
derivative liability.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2012 we had working
capital deficit of $4,516,249. We reported negative cash flow from operating activities of ($515,077), negative cash flow from
investing activities of ($12,860) and positive cash flow from financing of $548,191.
During the years ended September 30, 2012
and 2011, we used $515,077 and $413,751 of cash in operating activities, respectively. Below is a brief summary extracted from
our Consolidated Statement of Cash Flows, in tabular format, reconciling our net loss to cash used in operating activities for
the years ended September 30, 2012 and 2011:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS (CONTINUED)
|
|
|
Year ended September 30,
|
|
|
Year to year
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Change
|
|
|
Net loss
|
|
$
|
(11,116,725
|
)
|
|
$
|
(2,270,617
|
)
|
|
$
|
(8,846,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash items included in operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,570,728
|
|
|
|
883,859
|
|
|
|
686,869
|
|
|
Bad debts
|
|
|
41,909
|
|
|
|
-
|
|
|
|
41,909
|
|
|
Non cash interest
|
|
|
1,287,022
|
|
|
|
766,571
|
|
|
|
520,451
|
|
|
Loss on settlement and modification of debt
|
|
|
423,504
|
|
|
|
58,410
|
|
|
|
365,094
|
|
|
Gain on disposal of subsidiary
|
|
|
(349,322
|
)
|
|
|
-
|
|
|
|
(349,322
|
)
|
|
Change in fair value of derivative liability
|
|
|
6,475,349
|
|
|
|
(1,173,072
|
)
|
|
|
7,648,421
|
|
|
Stock based compensation
|
|
|
145,180
|
|
|
|
311,357
|
|
|
|
(166,177
|
)
|
|
Note payable issued for services
|
|
|
40,775
|
|
|
|
-
|
|
|
|
40,775
|
|
|
Changes in operating assets and liabilities
|
|
|
966,503
|
|
|
|
1,009,741
|
|
|
|
(43,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(515,077
|
)
|
|
$
|
(413,751
|
)
|
|
$
|
(101,326
|
)
|
The negative cash flow from operating
activities consists of $11,116,725 net loss, net with $184,080 depreciation and amortization expenses, $111,496 in amortization
of deferred financing costs, $41,909 in bad debts, $1,275,152 in amortization of debt discounts, $1,287,022 non cash interest, $145,180
stock based compensation, $423,504 loss on settlement and modification of debt, $6,475,349 loss on change in fair value of derivative
liability of $6,475,349, net with a gain on disposal of subsidiary of $349,322. Changes in operating assets were a $2,577
increase in accounts receivable, $10,860 decrease in inventory, $nil change in other current assets, $958,220 increase in accounts
payable and other current liabilities.
Negative cash flow from investing activities
of ($12,860) occurred primarily due to purchase of assets.
Cash flows from financing activities were
primarily from issuance of notes payable of $610,500, net with repayments of $62,309 and proceeds from the sale of our Series
C preferred stock of $nil.
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 2, 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 August, 2009, Marketing Worldwide,
LLC entered into a financing agreement with Summit Financial Resources L.P. (Summit) for a maximum borrowing of up to $1 million
maturing August 31, 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. The financing agreement
was terminated by the company on June 5, 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 2013. These anticipated expenditures are for continued investments in tooling and equipment
used in our business.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS (CONTINUED)
The independent registered public accounting
firm’s report on our September 30, 2012 consolidated financial statements included in this 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 Consolidated
Financial Statements contained herein.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not maintain off-balance
sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.
INFLATION
The effect of inflation on the Company's
revenue and operating results was not significant.
ITEM 7A. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL
DATA.
See pages F-1 through F-47 following:
MARKETING WORLDWIDE CORPORATION
SEPTEMBER 30, 2012
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
CONTENTS
|
|
PAGE
NO.
|
|
|
|
|
|
|
|
Report of Independent Registered Public
Accounting Firm
|
|
F-1
|
|
|
|
|
|
|
|
Consolidated Balance Sheets at September 30, 2012 and 2011
|
|
F-2
|
|
|
|
|
|
|
|
Consolidated Statements of Operations and Comprehensive Loss for
the Years Ended September 30, 2012 and 2011
|
|
F-3
|
|
|
|
|
|
|
|
Consolidated Statement of Stockholders’ Deficiency for
the Two Years Ended September 30, 2012
|
|
F-4 – F-5
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended September
2012 and 2011
|
|
F-6
|
|
|
|
|
|
|
|
Notes to the Consolidated Financial Statements
|
|
F-7 – F-47
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders
of
Marketing Worldwide Corporation
Howell, Michigan
We have audited the accompanying consolidated
balance sheets of Marketing Worldwide Corporation as of September 30, 2012 and 2011, and the related consolidated statements of
operations, deficiency in stockholders' equity and cash flows for each of the two years in the period ended September 30, 2012.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based upon our audits.
We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Marketing Worldwide Corporation
as of September 30, 2012 and 2011, and the results of its operations and its cash flows for each of the two years in the period
ended September 30, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3,
the Company has generated negative cash flows from operating activities, experienced recurring net operating losses, is in
default of certain loan covenants, and is dependent on securing additional equity and debt financing to support its business
efforts. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans
in regard to this matter are described in Note 3. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
|
New York, New York
|
/s/ RBSM LLP
|
|
January 14, 2013
|
MARKETING WORLDWIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2012 AND 2011
|
|
|
2012
|
|
|
2011
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,266
|
|
|
$
|
5,012
|
|
|
Accounts receivable, net
|
|
|
162,144
|
|
|
|
201,476
|
|
|
Inventories, net
|
|
|
82,443
|
|
|
|
93,303
|
|
|
Total current assets
|
|
|
269,853
|
|
|
|
299,791
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
921,466
|
|
|
|
1,092,686
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
Capitalized finance costs, net
|
|
|
-
|
|
|
|
111,496
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,191,319
|
|
|
$
|
1,503,973
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIENCY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Bank line of credits
|
|
$
|
-
|
|
|
$
|
21,428
|
|
|
Notes payable and capital leases, current portion
|
|
|
1,613,810
|
|
|
|
1,518,944
|
|
|
Accounts payable
|
|
|
1,999,403
|
|
|
|
1,497,101
|
|
|
Warranty liability
|
|
|
75,000
|
|
|
|
75,000
|
|
|
Other current liabilities
|
|
|
1,097,889
|
|
|
|
769,458
|
|
|
Current liabilities of discontinued operations
|
|
|
-
|
|
|
|
492,006
|
|
|
Total current liabilities
|
|
|
4,786,102
|
|
|
|
4,373,937
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt:
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
10,649,266
|
|
|
|
1,258,634
|
|
|
Warrant liability
|
|
|
809,967
|
|
|
|
427,266
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
16,245,335
|
|
|
|
6,059,837
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary equity:
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.001 par value; 3,500,000 shares
designated, nil and 3,500,000 shares issued and outstanding as of September 30, 2012 and 2011, respectively
|
|
|
-
|
|
|
|
3,499,950
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent equity:
|
|
|
|
|
|
|
|
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized
|
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock, $0.001 par value, 1,200,000 shares designated; nil and
1,192,308 shares issued and outstanding as of September 30, 2012 and 2011, respectively
|
|
|
-
|
|
|
|
1,192
|
|
|
Series C convertible preferred stock, $0.001 par value, 1,000,000 shares designated; nil and
100 shares issued and outstanding as of September 30, 2012 and 2011, respectively
|
|
|
-
|
|
|
|
-
|
|
|
Series D super voting preferred stock, $0.001 par value, 1,000,000 shares designated, 90,002
and nil shares issued and outstanding as of September 30, 2012 and 2011, respectively
|
|
|
90
|
|
|
|
-
|
|
|
Series E 6% convertible preferred stock, $0.001 par value, 15,000 shares designated, 11,112.5
and nil shares issued and outstanding as of September 30, 2012 and 2011, respectively
|
|
|
11
|
|
|
|
-
|
|
|
Common stock, $0.00001 and $0.001 par value, 5,900,000,000 and 500,000,000 shares authorized;
52,796,157 and 238,316 shares issued and outstanding as of September 30, 2012 and 2011, respectively
|
|
|
528
|
|
|
|
2
|
|
|
Additional paid in capital
|
|
|
13,657,583
|
|
|
|
9,526,544
|
|
|
Accumulated deficit
|
|
|
(28,183,779
|
)
|
|
|
(16,947,859
|
)
|
|
Accumulated other comprehensive loss
|
|
|
-
|
|
|
|
(148,873
|
)
|
|
Total Marketing Worldwide Corporation deficiency
|
|
|
(14,525,567
|
)
|
|
|
(7,568,994
|
)
|
|
Non controlling interest
|
|
|
(528,449
|
)
|
|
|
(486,820
|
)
|
|
Total deficiency
|
|
|
(15,054,016
|
)
|
|
|
(8,055,814
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Deficiency
|
|
$
|
1,191,319
|
|
|
$
|
1,503,973
|
|
See the accompanying notes to the consolidated
financial statements
MARKETING WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
Year ended September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Revenue
|
|
$
|
790,211
|
|
|
$
|
1,908,249
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,100,304
|
|
|
|
1,843,359
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
|
(310,093
|
)
|
|
|
64,890
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,413,139
|
|
|
|
1,712,759
|
|
|
Total operating expenses
|
|
|
1,413,139
|
|
|
|
1,712,759
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,723,232
|
)
|
|
|
(1,647,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
(Loss) gain on change in fair value of derivative liability
|
|
|
(6,475,349
|
)
|
|
|
1,173,072
|
|
|
Financing expenses
|
|
|
(2,849,830
|
)
|
|
|
(1,770,170
|
)
|
|
Gain on liquidation of international subsidiary
|
|
|
349,322
|
|
|
|
-
|
|
|
Loss on debt modification
|
|
|
(40,908
|
)
|
|
|
-
|
|
|
Loss on settlement of debt
|
|
|
(382,596
|
)
|
|
|
(58,410
|
)
|
|
Other income (expense), net
|
|
|
5,868
|
|
|
|
32,760
|
|
|
Total other income (expense)
|
|
|
(9,393,493
|
)
|
|
|
(622,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(11,116,725
|
)
|
|
|
(2,270,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income attributable to Non-controlling interest
|
|
|
(41,629
|
)
|
|
|
3,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to Company
|
|
|
(11,075,096
|
)
|
|
|
(2,274,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividend
|
|
|
(160,825
|
)
|
|
|
(315,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
|
|
$
|
(11,235,921
|
)
|
|
$
|
(2,589,045
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share, basic and diluted
|
|
$
|
(2.51
|
)
|
|
$
|
(16.70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock outstanding, basic and diluted
|
|
|
4,481,766
|
|
|
|
155,035
|
|
See the accompanying notes to the consolidated
financial statements
MARKETING WORLDWIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
DEFICIT
TWO YEARS ENDED SEPTEMBER 30, 2012
|
|
|
MARKETING
WORLDWIDE CORPORATION
|
|
|
|
|
Preferred stock-Series B
|
|
|
Preferred stock-Series C
|
|
|
Preferred stock-Series D
|
|
|
Preferred stock-Series E
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance, September 30, 2010
|
|
|
1,192,308
|
|
|
$
|
1,192
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Common stock issued for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common stock issued in settlement of preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common stock issued in settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Reclassify conversion feature of convertible note outside of equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Sale of Series C preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Fair value of vested options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance, September 30, 2011
|
|
|
1,192,308
|
|
|
|
1,192
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common stock issued in settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common stock issued for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common stock issued for conversion of Series A preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common stock issued in settlement of Series A preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common shares returned previously recorded for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Series D preferred stock issued for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
90,002
|
|
|
|
90
|
|
|
|
-
|
|
|
|
-
|
|
|
Series E preferred stock issued in settlement of Series A and Series
B preferred stock
|
|
|
(1,192,308
|
)
|
|
|
(1,192
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,923
|
|
|
|
12
|
|
|
Common stock issued in connection with conversion of Series E preferred
stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(811
|
)
|
|
|
(1
|
)
|
|
Note payable issued in settlement of Series C preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Beneficial conversion feature relating to convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Fair value of vested options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Reclassify other comprehensive loss to operations upon termination
of international subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance, September 30, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,002
|
|
|
|
90
|
|
|
|
11,113
|
|
|
|
11
|
|
See the accompanying notes to the consolidated
financial statements
|
MARKETING WORLDWIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
DEFICIT
TWO YEARS ENDED SEPTEMBER 30, 2012
|
|
|
|
MARKETING
WORLDWIDE CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Retained
|
|
|
Non
|
|
|
|
|
|
|
|
Common stock
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
Earnings
|
|
|
controlling
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid in Capital
|
|
|
Income (loss)
|
|
|
(Deficit)
|
|
|
Interest
|
|
|
Total
|
|
|
Balance, September 30, 2010
|
|
|
98,367
|
|
|
$
|
1
|
|
|
$
|
8,274,403
|
|
|
$
|
(148,873
|
)
|
|
$
|
(14,358,814
|
)
|
|
$
|
(490,248
|
)
|
|
$
|
(6,722,339
|
)
|
|
Common stock issued for services rendered
|
|
|
43,832
|
|
|
|
-
|
|
|
|
299,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,708
|
|
|
Common stock issued in settlement of preferred stock dividend
|
|
|
17,125
|
|
|
|
-
|
|
|
|
472,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
472,500
|
|
|
Common stock issued in settlement of debt
|
|
|
78,992
|
|
|
|
1
|
|
|
|
373,165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
373,166
|
|
|
Reclassify conversion feature of convertible note outside of equity
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,880
|
)
|
|
Sale of Series C preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
Fair value of vested options
|
|
|
|
|
|
|
|
|
|
|
11,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,648
|
|
|
Preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(315,000
|
)
|
|
|
-
|
|
|
|
(315,000
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,274,045
|
)
|
|
|
3,428
|
|
|
|
(2,270,617
|
)
|
|
Balance, September 30, 2011
|
|
|
238,316
|
|
|
|
2
|
|
|
|
9,526,544
|
|
|
|
(148,873
|
)
|
|
|
(16,947,859
|
)
|
|
|
(486,820
|
)
|
|
|
(8,055,814
|
)
|
|
Common stock issued in settlement of debt
|
|
|
7,808,772
|
|
|
|
78
|
|
|
|
1,870,718
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,870,796
|
|
|
Common stock issued for services rendered
|
|
|
28,793,333
|
|
|
|
288
|
|
|
|
202,392
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
202,680
|
|
|
Common stock issued for conversion of Series A preferred stock
|
|
|
15,000
|
|
|
|
-
|
|
|
|
1,808,099
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,808,099
|
|
|
Common stock issued in settlement of Series A preferred stock dividend
|
|
|
83,333
|
|
|
|
1
|
|
|
|
79,999
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80,000
|
|
|
Common shares returned previously recorded for services
|
|
|
(2,000
|
)
|
|
|
-
|
|
|
|
(120,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(120,000
|
)
|
|
Series D preferred stock issued for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
40,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,501
|
|
|
Series E preferred stock issued in settlement of Series A and Series
B preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(19,774
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,954
|
)
|
|
Common stock issued in connection with conversion of Series E preferred
stock
|
|
|
15,859,403
|
|
|
|
159
|
|
|
|
247,780
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
247,938
|
|
|
Note payable issued in settlement of Series C preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
Beneficial conversion feature relating to convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
99,414
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,414
|
|
|
Fair value of vested options
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000
|
|
|
Reclassify other comprehensive loss to operations upon termination
of international subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
148,873
|
|
|
|
-
|
|
|
|
-
|
|
|
|
148,873
|
|
|
Preferred stock dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(160,825
|
)
|
|
|
-
|
|
|
|
(160,825
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,075,096
|
)
|
|
|
(41,629
|
)
|
|
|
(11,116,725
|
)
|
|
Balance, September 30, 2012
|
|
|
52,796,157
|
|
|
$
|
528
|
|
|
$
|
13,657,583
|
|
|
$
|
-
|
|
|
$
|
(28,183,780
|
)
|
|
$
|
(528,449
|
)
|
|
$
|
(15,054,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See the accompanying notes to the
consolidated financial statements
|
|
MARKETING WORLDWIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
|
|
Year ended September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,116,725
|
)
|
|
$
|
(2,270,617
|
)
|
|
Adjustments to reconcile net loss to cash used in operations:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
184,080
|
|
|
|
236,603
|
|
|
Bad debts
|
|
|
41,909
|
|
|
|
-
|
|
|
Amortization of deferred financing costs
|
|
|
111,496
|
|
|
|
145,211
|
|
|
Amortization of debt discounts
|
|
|
1,275,152
|
|
|
|
502,045
|
|
|
Non cash interest
|
|
|
1,287,022
|
|
|
|
766,571
|
|
|
Loss on settlement of debt
|
|
|
382,596
|
|
|
|
58,410
|
|
|
Gain on disposal of international subsidiary
|
|
|
(349,322
|
)
|
|
|
-
|
|
|
Loss on modification of debt
|
|
|
40,908
|
|
|
|
-
|
|
|
Change in fair value of derivative liability
|
|
|
6,475,349
|
|
|
|
(1,173,072
|
)
|
|
Fair value of vested employee options
|
|
|
22,000
|
|
|
|
11,648
|
|
|
Notes payable issued for services rendered
|
|
|
40,775
|
|
|
|
-
|
|
|
Stock based compensation
|
|
|
243,180
|
|
|
|
299,709
|
|
|
Cancelation of previously issued common stock for services
|
|
|
(120,000
|
)
|
|
|
-
|
|
|
(Increase) decrease in operating assets:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,577
|
)
|
|
|
114,443
|
|
|
Inventory
|
|
|
10,860
|
|
|
|
51,097
|
|
|
Other current assets
|
|
|
-
|
|
|
|
9,328
|
|
|
Other assets
|
|
|
-
|
|
|
|
19,400
|
|
|
Increase (decrease) in operating liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
|
|
958,220
|
|
|
|
815,473
|
|
|
Cash used in operating activities
|
|
|
(515,077
|
)
|
|
|
(413,751
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(12,860
|
)
|
|
|
(16,832
|
)
|
|
Cash used in investing activities
|
|
|
(12,860
|
)
|
|
|
(16,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of Series C preferred stock
|
|
|
-
|
|
|
|
100,000
|
|
|
Proceeds from (repayments of) lines of credit
|
|
|
(21,428
|
)
|
|
|
(188,558
|
)
|
|
Proceed from issuance of notes
|
|
|
610,500
|
|
|
|
538,750
|
|
|
Repayments of notes payable and capital leases
|
|
|
(40,881
|
)
|
|
|
(18,444
|
)
|
|
Cash provided by (used in) financing activities
|
|
|
548,191
|
|
|
|
431,748
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
20,254
|
|
|
|
1,165
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
5,012
|
|
|
|
3,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
25,266
|
|
|
$
|
5,012
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid during year for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash paid during year for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
|
|
|
|
|
|
|
|
|
|
Common stock issued in settlement of debt
|
|
$
|
1,870,796
|
|
|
$
|
73,166
|
|
|
Common stock issued in settlement of preferred stock dividends
|
|
$
|
80,000
|
|
|
$
|
472,500
|
|
|
Accounts payable settled via issuance of notes payable
|
|
$
|
202,120
|
|
|
$
|
260,120
|
|
|
Preferred dividends declared
|
|
$
|
160,825
|
|
|
$
|
315,000
|
|
|
Issuance of Series E Preferred Stock in settlement of Series A and Series
B Preferred stock
|
|
$
|
2,095,413
|
|
|
$
|
956,562
|
|
|
Common stock issued upon conversion of Series A preferred stock
|
|
$
|
1,808,099
|
|
|
$
|
-
|
|
|
Common stock issued upon conversion of Series E preferred stock
|
|
$
|
247,938
|
|
|
$
|
-
|
|
|
Sale of JCMD property used for repayment of debts
|
|
$
|
-
|
|
|
$
|
800,000
|
|
|
Note payable issued in exchange for Series C preferred stock
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
See the accompanying notes to the
consolidated financial statements
|
MARKETING WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012 AND 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 and industrial components for the
commercial machinery industries. The Company had a wholly owned subsidiary in Germany, Modelworxx, GmbH, which, in February, 2010,
filed insolvency in the German courts. The Company has reclassified Modelworxx, GmbH fiscal year ended September 30, 2011 balances
to reflect them as discontinued operations and upon final liquidation, recognized a net gain on disposal of international subsidiary
of $349,322 during the year ended September 30, 2012.
Basis of presentation
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America for
annual financial statements and with Form 10-K and article 8 of the Regulation S-X of the United States Securities and Exchange
Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries and Variable Interest Entity (“VIE”). All significant inter-company transactions and balances, including
those involving the VIE, have been eliminated in consolidation.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
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 uncollectible accounts receivable are recorded in the financial statements.
The Company defers any revenue for which
the product has not been delivered or services has not been rendered or is subject to refund until such time that the Company
and the customer jointly determine that the product has been delivered or services have been rendered or no refund will be required.
As of September 30, 2012 and 2011, these types of transactions are not material.
ASC 605-10 incorporates Accounting Standards
Codification subtopic 605-25, Multiple-Element Arraignments (“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.
Cash and Cash Equivalents
The Company considers all highly liquid
debt instruments with a maturity of less than three months at purchase to be cash equivalents. The Company did not
have any cash equivalents at September 30, 2012 and 2011. Cash balances at financial institutions are insured by the
Federal Deposit Insurance Corporation (“FDIC”). At times, cash and cash equivalents may be uninsured or
in deposit accounts that exceed the FDIC insurance limits. Periodically, the Company evaluates the credit worthiness
of the financial institutions and has determined the credit exposure to be negligible.
NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Warranty
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. Warranty expense is
estimated based primarily on historical experience and is reflected in the financial statements.
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 September
30, 2012 and 2011 approximated $nil and $20,000, respectively.
Inventories
The inventories are stated at the lower
of cost or market using the first-in, first-out method of valuation. The inventories at September 30, 2012 and 2011 are as follows:
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Work in process
|
|
$
|
197,926
|
|
|
$
|
294,568
|
|
|
Finished goods
|
|
|
24,686
|
|
|
|
67,369
|
|
|
Total inventory before reserve
|
|
|
222,612
|
|
|
|
361,937
|
|
|
Less inventory reserve
|
|
|
(139,729
|
)
|
|
|
(268,634
|
)
|
|
Net inventory
|
|
$
|
82,443
|
|
|
$
|
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. During the year ended September 30,
2012, the Company write-off from reserve $128,905. At September 30, 2012 and 2011 the majority of the inventory reserve is for
supply of product no longer in production or demand from existing customers.
Long lived assets
The Company follows Accounting Standards
Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires those long-lived assets
and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results
over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash
flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to
be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
Property, plant and equipment
Property, plant and equipment are carried
at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the assets. Gains and losses from the retirement or disposition of property and equipment are
included in operations in the period incurred. Maintenance and repairs are expensed as incurred.
Research and development costs
The Company accounts for research and
development cost in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”).
ASC 730-10, requires research and development costs to be charged to expense as incurred. Accordingly, internal research and development
costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed
or as milestone results have been achieved. Total research and development cost charged to income was immaterial for both years
ended September 30, 2012 and 2011.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Net income (loss) per share
Basic and diluted loss per common share
is based upon the weighted average number of common shares outstanding during the fiscal year computed under the provisions of
Accounting Standards Codification subtopic 260-10, Earnings per Share (“ASC 260-10”). All primary dilutive
common shares have been excluded since the inclusion would be anti-dilutive. Such shares consist of the following at September
30, 2012 and 2011:
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
16,250
|
|
|
|
24,583
|
|
|
Options
|
|
|
8,967
|
|
|
|
8,967
|
|
|
Series A preferred stock
|
|
|
-
|
|
|
|
71,043
|
|
|
Series E preferred stock
|
|
|
3,704,166,667
|
|
|
|
-
|
|
|
Convertible Debt
|
|
|
2,513,335,088
|
|
|
|
401,190
|
|
|
Totals
|
|
|
6,217,526,972
|
|
|
|
505,783
|
|
Income taxes
Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases,
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A
valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred
tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions
taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements
if such positions are more likely than not of being sustained.
In accordance with 740-10, the Company
recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the
financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement
with the relevant tax authority. The Company will classify as income tax expense any interest and penalties recognized in accordance
with ASC Topic 740. The tax years ending September 30, 2010, 2011 and 2012 are still open for review by the various
tax jurisdictions. The state tax jurisdictions the Company files in are South Carolina, Florida, California and
Michigan.
Use of estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported revenues and expenses during the reporting year. The Company deems its
critical estimates to be the determination of inventory values, the allowance for doubtful accounts, stock based compensation,
derivative liabilities, and impairment losses. Actual results could differ from those estimates.
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. The resulting foreign currency transactions gains
(losses), which were not material, are included in selling, general and administration expenses in the accompanying
consolidated statements of operations.
Fair value of financial instruments
Cash, accounts receivable, accounts payable
and accrued expenses approximates fair value because of their short-term nature. The fair value of notes payable and short-term
debt is estimated to approximate fair market value based on the current rates available to companies such as MWW.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Derivative financial instruments
Accounting Standards Codification subtopic
815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company
on October 1, 2009. The Company’s Series A Preferred Stock, convertible debt and certain warrant 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.
Reclassification
Certain reclassifications have been made
to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.
Accounting for variable interest entities
Accounting Standards Codification subtopic
810-10, Consolidation (“ASC 810-10”) discusses certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity risk for the entity to finance its activities without additional
subordinated financial support. ASC 810-10 requires the consolidation of these entities, known as variable interest entities, by
the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the 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.
The Variable Interest Entity included in
these consolidated financial statements sold the only asset it owned, which was real estate subject to a lease with the Company,
for $800,000 on November 30, 2010. This sale resulted in a loss of approximately $400,000 and left a remaining
liability to the Small Business Administration of approximately $500,000 which is guaranteed by the Company. As of the
date of this filing, the Company has not received any specific demands or requests for payment on this loan. This loss was recorded
as an impairment loss in the September 30, 2010 consolidated financial statement.
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 years ended September 30, 2012 and 2011 was $111,496
and $145,211, respectively. Accumulated amortization of deferred financing costs were $712,715 and $601,219 at September
30, 2012 and 2011, respectively.
Segment information
Accounting Standards Codification subtopic
280-10, Segment Reporting (“ASC 280-10”) establishes standards for reporting information regarding operating segments
in annual financial statements and requires selected information for those segments to be presented in interim financial reports
issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources
and assess performance. The information disclosed therein materially represents all of the financial information related to the
Company's principal operating segments.
The Company has one reportable business
segment which is operated in the United States. In previous years the Company had financial activity in Germany, but
in February, 2010 the German affiliate filed bankruptcy and all activity has been classified as discontinued operations in the
presented financial statements for the year ended September 30, 2011 and subsequently liquidated during the year ended September
30, 2012.
Stock based compensation
The Company accounts for stock based awards
issued to employees in accordance with FASB guidance. Such awards consist of options to purchase common stock. The fair value of
stock based awards is determined on the grant date using a valuation model. The fair value is recognized as compensation expense,
net of estimated forfeitures, on a straight-line basis over the service period, which is normally the vesting period.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
The Company granted nil employee options
during the year ended September 30, 2012 and 2,200,000 (7,333 post reverse stock split of 1:300) during the year ended September
30, 2011. The Company recorded the fair value of the vested portion of issued employee options of $22,000 and $11,648 for the years
ended September 30, 2012 and 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 accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying consolidated financial statements during the year ended September
30, 2012, the Company incurred a net loss attributable to common stockholders of $11,075,096.
The Company has incurred substantial recurring
losses. The Company has available cash of $25,266 at September 30, 2012 and during the year ended September 30,
2012, the Company used cash of $515,077 in operating activities. The Company’s working capital deficiency was
approximately $4,516,000 and $4,074,000 as of September 30, 2012 and 2011 respectively. The Company’s accumulated
deficit was approximately $28,000,000 and $17,000,000 as of September 30, 2012 and 2011 respectively. In addition, the
Company has a deficit of approximately $15,000,000 at September 30, 2012.
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 expect 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 significant new business opportunities. . These opportunities take time to develop before converted to revenue.
CT is aggressively beginning to diversify to non-automotive paint applications (industrial equipment) which Management believes
will help stabilize the Company going forward.
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.
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 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 - PROPERTY, PLANT AND EQUIPMENT
At September 30, 2012 and 2011, property,
plant and equipment consist of the following:
|
|
|
2012
|
|
|
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
|
|
|
1,430,499
|
|
|
|
1,417,640
|
|
|
|
7 – 10 years
|
|
|
Subtotal
|
|
|
2,415,144
|
|
|
|
2,402,285
|
|
|
|
|
|
|
Less land and building depreciation
|
|
|
(1,493,678
|
)
|
|
|
(1,309,599
|
)
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
921,466
|
|
|
$
|
1,092,686
|
|
|
|
|
|
Depreciation expense included as a charge
to operations of $184,080 and $236,603 for the years ended September 30, 2012 and 2011 respectively.
NOTE 5 - 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 financing agreement was terminated by the company on June 5,2012
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 September 30, 2011, the advance balance
due to Summit was $nil.
NOTE 6 – CONVERTIBLE NOTES PAYABLE
At September 30, 2012 and 2011, convertible notes payable consists
of the following:
|
|
|
2012
|
|
|
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. (**)
|
|
|
553,646
|
|
|
|
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 $66,214
|
|
|
-
|
|
|
|
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 $186,821
|
|
|
138,000
|
|
|
|
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 $18,135
|
|
|
25,000
|
|
|
|
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 $78,904
|
|
|
-
|
|
|
|
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 $12,041
|
|
|
15,000
|
|
|
|
2,959
|
|
|
Note payable issued on July 21, 2011, due July 21, 2012, with interest at 16% per annum, unsecured, net of unamortized debt discount of $28,192
|
|
|
35,000
|
|
|
|
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 $19,720
|
|
|
-
|
|
|
|
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 December 6, 2011, due September 27, 2012, with default interest At 22% per annum, unsecured, Note is in default
|
|
|
12,350
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 6 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
|
Note payable, issued on February 1, 2012, due November 2, 2012, with interest at 8% per annum, unsecured, net of unamortized debt discount of $4,338
|
|
|
43,162
|
|
|
|
-
|
|
|
Note payable, issued on February 15, 2012, due February 15, 2013, with interest At 10% per annum, unsecured, net of unamortized debt discount of $18,767
|
|
|
31,233
|
|
|
|
-
|
|
|
Note payable, issued on February 22, 2012, due November 22, 2012, with interest at 8% per annum, unsecured, net of unamortized debt discount of $17,973
|
|
|
74,643
|
|
|
|
-
|
|
|
Note payable, issued on April 25, 2012, due January 30, 2013, with interest at 8% per annum, unsecured, net of unamortized debt discount of $19,607
|
|
|
25,393
|
|
|
|
-
|
|
|
Note payable, issued on May 16, 2012, due December 31, 2012, with interest at 6% per annum, unsecured, net of unamortized debt discount of $32,140
|
|
|
47,860
|
|
|
|
-
|
|
|
Note payable, issued on May 16, 2012, due December 31, 2012, with interest at 6% per annum, unsecured, net of unamortized debt discount of $32,140
|
|
|
47,860
|
|
|
|
-
|
|
|
Note payable, issued on June 1, 2012, due December 31, 2012, with interest at 6% per annum, unsecured, net of unamortized debt discount of $41,132
|
|
|
54,098
|
|
|
|
-
|
|
|
Note payable, issued on July 30, 2012, due March 31, 2013, with interest at 8% per annum, unsecured, net of unamortized debt discount of $37,500
|
|
|
12,500
|
|
|
|
-
|
|
|
Note payable, issued on August 2, 2012, due May 6, 2013, with interest at 8% per annum, unsecured, net of unamortized debt discount of $15,740
|
|
|
4,260
|
|
|
|
-
|
|
|
Notes payable, issued on September 12, 2012, due March 31, 2013, with interest at 8% per annum, unsecured, net of unamortized debt discount of $40,950
|
|
|
4,050
|
|
|
|
-
|
|
|
Note payable, issued on September 30, 2012, due December 31, 2012, with interest at 6% per annum, unsecured, net of unamortized debt discount of $40,775
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
1,613,810
|
|
|
|
1,518,944
|
|
|
Less Current portion
|
|
|
(1,613,810
|
)
|
|
|
(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.
Promissory Note issued February 19, 2011
On February 19, 2011, the Company issued
a Promissory Note for $260,120 in exchange for previously accrued consulting services. The Note bears an interest rate
of 5% per annum, payable semi-annually beginning November 1, 2011 and is due upon the occurrence of certain bankruptcy or reorganization
events. The Promissory Note is convertible into the Company’s common stock at any time at the holder’s option,
into common stock at the conversion rate of 90% of the lowest three trading days 10 days prior to notice of conversion.
NOTE 6 - NOTES PAYABLE (CONTINUED)
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on February 19, 2011. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the
fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each
subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $240,321 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial
Lattice Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
390.68
|
%
|
|
Risk free rate:
|
|
|
0.28
|
%
|
The initial fair value of the embedded
debt derivative of $240,321 was allocated as a debt discount.
During the years ended September 30, 2012
and 2011, the Company amortized and wrote off $66,214 and $174,107 to current period operations as interest expense, respectively.During
the years ended September 30, 2012 and 2011, the Company issued an aggregate of 134,744 and 26,342 shares of its common stock in
settlement of $184,223 and $75,897 of notes payable, respectively.
Note issued March 22, 2011
On March 22, 2011, the Company issued a
$25,000 Convertible Promissory Note that matures on December 28, 2011. The note bears interest at a rate of 8% and will be convertible
into the Company’s common stock at any time at the holder’s option, at the conversion rate of 55% of the lowest three
trading days 10 days prior to notice of conversion.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on March 22, 2011. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the
fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each
subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $83,744 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
426.05
|
%
|
|
Risk free rate:
|
|
|
0.25
|
%
|
The initial fair value of the embedded
debt derivative of $83,744 was allocated as a debt discount up to the proceeds of the note ($25,000) with the remainder ($58,744)
charged to current period operations as interest expense.
During the years ended September 30, 2012 and 2011, the Company
amortized $7,918 and $17,082 to current period operations as interest expense, respectively.
During the year ended September 30, 2012, the Company issued
an aggregate of 12,049 shares of its common stock in settlement of the notes payable.
Note issued May 6, 2011
On May 6, 2011, the Company issued a $30,000
Convertible Promissory Note that matures on February 10, 2012. The note bears interest at a rate of 8% and will be convertible
into the Company’s common stock at any time at the holder’s option, at the conversion rate of 55% of the lowest three
trading days 10 days prior to notice of conversion.
NOTE 6 - NOTES PAYABLE (CONTINUED)
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on May 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 $52,318 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
|
|
|
438.48
|
%
|
|
Risk free rate:
|
|
|
0.7
|
%
|
The initial fair value of the embedded debt derivative of $52,318
was allocated as a debt discount up to the proceeds of the note ($30,000) with the remainder ($22,318) charged to operations as
interest expense in September 30, 2011.
During the year ended September 30, 2012 and 2011, the Company
amortized $14,250 and $15,750 to current period operations as interest expense, respectively.
During the year ended September 30, 2012, the Company issued
an aggregate of 39,319 shares of its common stock in settlement of the notes payable.
Note issued June 29, 2011
On June 29, 2011, the Company issued a
$250,000 Convertible Promissory Note that matures on July 1, 2012. The note bears interest at a rate of 8% and will be convertible
into the Company’s common stock at any time at the holder’s option, at the conversion rate of the lower of the lowest
of a) conversion rate offered for any other financial instrument or b) $0.04 per share.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on March 22, 2011. These embedded derivatives included certain
conversion features. The accounting treatment of derivative financial instruments requires that the Company record the
fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each
subsequent balance sheet date. At the inception of the Convertible Promissory Note, the Company determined a fair value
of $440,372 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
|
|
|
406.84
|
%
|
|
Risk free rate:
|
|
|
0.19
|
%
|
The initial fair value of the embedded debt derivative of $440,372
was allocated as a debt discount up to the proceeds of the note ($250,000) with the remainder ($190,372) charged to operations
as interest expense in September 30, 2011.
During the years ended September 30, 2012 and 2011, the Company
amortized $186,821 and $63,179 to current period operations as interest expense, respectively.
During the year ended September 30, 2012, the Company issued
an aggregate of 367,824 shares of its common stock in settlement of $112,000 of the notes payable.
The fair value of the described embedded derivative of $696,514
at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.06
|
%
|
NOTE 6 - NOTES PAYABLE (CONTINUED)
At September 30, 2012, the Company adjusted the recorded fair
value of the derivative liability to market resulting in non-cash, non-operating loss of $262,242 for the year ended September
30, 2012
Note issued January 10, 2011
On January 10, 2011, the Company issued a Promissory Note for
$127,000 in exchange for previously accrued services. The Note bears an interest rate of 7% per annum and matured on July
10, 2011. Upon maturity of the note, since the Company has not pay the holder the principal and interest due, the holder
has the right to convert all principal and interest into the Company's common stock at 75% of the average closing bid price of
the Company's common stock during the five days preceding the date of maturity. This is convertible into approximately
7.7 million shares (approx. 25,700 shares post reverse split of 1:300) of the Company’s common stock
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into in January 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 $133,073 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
|
|
|
411.17
|
%
|
|
Risk free rate:
|
|
|
0.19
|
%
|
The initial fair value of the embedded
debt derivative of $133,073 was allocated as a debt discount up to the proceeds of the note ($127,000) with the remainder ($6,073)
charged to operations as interest expense in September 30, 2011.
During the year ended September 30, 2011,
the Company amortized $127,000 to current period operations as interest expense.
This note was assigned on November 28,
2011 (see below).
Notes issued during in July 2011:
During the month of July 2011, the Company
issued an aggregate of $175,000 Convertible Promissory Note that matures one year from the date of issuance. These notes bear interest
at a rate of 16% and will be convertible into the Company’s common stock at any time at the holder’s option, at the
conversion rate of the lower of the lowest of a) conversion rate offered for any other financial instrument or b) $0.04 per share.
The Company identified embedded derivatives
related to the Convertible Promissory Notes entered into in July 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 $365,839
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
|
|
|
406.84 to 411.17
|
%
|
|
Risk free rate:
|
|
|
0.2
|
%
|
In conjunction with the issuance of the
Convertible Promissory Notes, the Company issued an aggregate of 4,375,000 detachable warrants (14,583 post reverse stock split
of 1:300) exercisable five years from the date of issuance with an initial exercise price of $0.04 per share ($12 per share post
reverse stock split of 1:300).
NOTE 6 - NOTES PAYABLE (CONTINUED)
The Company identified embedded derivatives
related to the warrants issued July 2011. These embedded derivatives included certain reset provisions. The
accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as
of the inception date to adjust the fair value as of each subsequent balance sheet date. At the date of issuance, the
Company determined a fair value of $112,497 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
|
|
|
406.84 to 411.17
|
%
|
|
Risk free rate:
|
|
|
1.46 to 1.80
|
%
|
The initial fair values of the embedded debt derivative of $365,839
and warrants of $112,497 was allocated as a debt discount up to the proceeds of the note ($174,247) with the remainder ($304,089)
charged to operations as interest expense in September 30, 2011.
During the years ended September 30, 2012 and 2011, the Company
amortized $137,272 and $36,975 to current period operations as interest expense, respectively.
During the year ended September 30, 2012, the Company issued
an aggregate of 88,265 shares of its common stock in settlement of $100,000 of the outstanding notes and related accrued interest
The fair value of the described embedded derivative of $336,418
at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.06
|
%
|
At September 30, 2012, the Company adjusted the recorded
fair value of the derivative liability to market resulting in non-cash, non-operating loss of $31,086 for the year ended September
30, 2012.
Note issued on July 20, 2011
On July 20, 2011, the Company issued a Promissory Note for $76,725
in exchange for previously accrued legal services. The Note bears an interest rate of 5% per annum and matures on January
31, 2012. Upon maturity of the note, since the Company has not pay the holder the principal and interest due, the holder
has the right to convert all principal and interest into the Company's common stock at $0.04 per share ($12 per share post reverse
split of 1:300). This is convertible into approximately 1.9 million shares (approx. 6,333 shares post reverse split
of 1:300) of the Company’s common stock.
The Company identified embedded derivatives related to the Convertible
Promissory Note entered into in July 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 $31,264 of the embedded derivative. The
fair value of the embedded derivative was determined using the Bi
n
omial Lattice Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
411.17
|
%
|
|
Risk free rate:
|
|
|
0.2
|
%
|
NOTE 6 - NOTES PAYABLE (CONTINUED)
The initial fair value of the embedded debt derivative of $31,264
was allocated as a debt discount up to the proceeds of the note.
During the year ended September 30, 2012 and 2011, the Company
amortized $19,720 and $11,544 to current period operations as interest expense, respectively.
During the year ended September 30, 2012, the Company paid $7,500
principal balance and issued a convertible note in settlement of the outstanding balance.
Notes issued during in August and September 2011:
During the months of August and September 2011, the Company
issued an aggregate of $60,000 Convertible Promissory Notes that matures one year from the date of issuance. These notes bear interest
at a rate of 16% and will be convertible into the Company’s common stock at any time at the holder’s option, at the
conversion rate of the lower of the lowest of a) conversion rate offered for any other future financial instrument or b) $0.02
per share ($6 per share post reverse split of 1:300).
The Company identified embedded derivatives
related to the Convertible Promissory Notes entered into in August and September 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 $72,338 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
|
|
|
410.08 to 430.39
|
%
|
|
Risk free rate:
|
|
|
0.99
|
%
|
In conjunction with the issuance of the
Convertible Promissory Notes, the Company issued an aggregate of 3,000,000 detachable warrants (10,000 post reverse split of 1:300)
exercisable five years from the date of issuance with an initial exercise price of $0.02 per share ($6 per share post reverse split
of 1:300).
The Company identified embedded derivatives
related to the warrants issued in August and September 2011. These embedded derivatives included certain reset provisions. The
accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as
of the inception date to adjust the fair value as of each subsequent balance sheet date. At the date of issuance, the
Company determined a fair value of $74,999 of the embedded derivative. The fair value of the embedded derivative was
determined using the Bi
n
omial Lattice Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
410.08 to 430.39
|
%
|
|
Risk free rate:
|
|
|
0.99
|
%
|
The initial fair values of the embedded
debt derivative of $72,338 and warrants of $74,999 was allocated as a debt discount up to the proceeds of the note ($60,000) with
the remainder ($87,337) charged to operations as interest expense in September 30, 2011.
During the year ended September 30, 2012
and 2011, the Company amortized $53,589 and $6,411 to current period operations as interest expense, respectively.
During the year ended September 30, 2012,
the Company issued an aggregate of 10,000 shares of its common stock in settlement of the outstanding notes payable.
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.
NOTE 6 - NOTES PAYABLE (CONTINUED)
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
|
%
|
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 year ended September 30, 2012,
the Company amortized $53,000 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 231,838 shares of its common stock in settlement of the note payable and accrued interest;
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 $2.10 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 year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) a total of $127,000 to current period operations as interest expense, respectively.
During the year ended September 30, 2012,
the Company issued an aggregate of 195,229 shares of common stock in settlement 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 $0.66 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
NOTE 6 - NOTES PAYABLE (CONTINUED)
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 year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $19,005 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 28,796 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.
During the year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $37,500 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 2,553,686 shares of common stock in full settlement of the $25,150 of the convertible note.
The fair value of the described embedded
derivative of $34,052 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.06
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $42,872 for the year
ended September 30, 2012.
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 $0.60 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.
NOTE 6 - NOTES PAYABLE (CONTINUED)
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 year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $10,887 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 18,145 shares of common stock in full settlement of the convertible note and related interest.
Note issued January 3, 2012
On January 3, 2012, the Company issued
a $8,998 Convertible Promissory Note that matures on January 3, 2013. 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 $0.90 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 January 3, 2012. 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 $20,206 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
|
|
|
379.14
|
%
|
|
Risk free rate:
|
|
|
0.12
|
%
|
The initial fair value of the embedded
debt derivative of $20,206 was allocated as a debt discount up to the proceeds of the note ($8,998) with the remainder ($11,208)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $8,998 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 10,000 shares of common stock in full settlement of the convertible note and related interest.
Note issued January 17, 2012
On January 17, 2012, the Company issued
a $11,212 Convertible Promissory Note that matures on January 17, 2013. 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 $0.90 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 January 17, 2012. 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 $36,112 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
|
|
|
372.71
|
%
|
|
Risk free rate:
|
|
|
0.11
|
%
|
NOTE 6 - NOTES PAYABLE (CONTINUED)
The initial fair value of the embedded
debt derivative of $36,112 was allocated as a debt discount up to the proceeds of the note ($11,212) with the remainder ($24,900)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $11,212 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 12,667 shares of common stock in full settlement of the convertible note and related interest.
Note issued February 1, 2012
On February 1, 2012, the Company issued
a $47,500 Convertible Promissory Note that matures on November 2, 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% (subsequently amended
to 36%) of the lowest three trading days 10 days prior to notice of conversion.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on February 1, 2012. 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 $121,282 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
|
|
|
350.13
|
%
|
|
Risk free rate:
|
|
|
0.13
|
%
|
The initial fair value of the embedded
debt derivative of $121,282 was allocated as a debt discount up to the proceeds of the note ($47,500) with the remainder ($73,782)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $31,816 to current period operations as interest expense.
The fair value of the described embedded
derivative of $206,756 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.06
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $90,049 for the year
ended September 30, 2012.
In connection with the modification of
the debt as described above, the Company recognized a loss of $40,908 for the year ended September 30, 2012.
Note issued February 2, 2012
On February 2, 2012, the Company issued
a $20,000 Convertible Promissory Note that matures on February 1, 2013. 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 $0.90 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 February 2, 2012. 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 $50,783 of the embedded derivative. The fair value of the embedded derivative was determined
using the Binomial Lattice
NOTE 6 - NOTES PAYABLE (CONTINUED)
Model based on the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
350.18
|
%
|
|
Risk free rate:
|
|
|
0.31
|
%
|
The initial fair value of the embedded
debt derivative of $50,783 was allocated as a debt discount up to the proceeds of the note ($20,000) with the remainder ($30,783)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $20,000 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 22,333 shares of common stock in full settlement of the convertible note and related interest.
Note issued February 15, 2012
On February 15, 2012, the Company issued
a $100,000 Convertible Promissory Note that matures on December 31, 2012 in exchange for 100 shares of Series C Preferred stock.
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 $2.25 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 February 15, 2012. 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 $52,677 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
|
|
|
325.00
|
%
|
|
Risk free rate:
|
|
|
0.18
|
%
|
The initial fair value of the embedded
debt derivative of $52,677 was allocated as a debt discount up to the proceeds of the note.
During the year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $52,677 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 44,649 shares of common stock in full settlement of the convertible note and related interest.
Note issued February 15, 2012
On February 15, 2012, the Company issued
a $50,000 Convertible Promissory Note that matures on February 15, 2013. The note bears interest at a rate of 10% and is convertible
into the Company’s common stock at any time at the holder’s option, at the conversion rate of 65% of the lowest two
trading days 10 days prior to notice of conversion.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on February 15, 2012. 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 $72,072 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial Lattice
Model based on the following assumptions:
NOTE 6 - NOTES PAYABLE (CONTINUED)
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
325.00
|
%
|
|
Risk free rate:
|
|
|
0.18
|
%
|
The initial fair value of the embedded
debt derivative of $72,072 was allocated as a debt discount up to the proceeds of the note ($50,000) with the remainder ($22,072)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $31,233 to current period operations as interest expense.
The fair value of the described embedded
derivative of $160,526 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.10
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $88,454 for the year
ended September 30, 2012.
Note issued February 21, 2012
On February 21, 2012, the Company issued
a $64,398 Convertible Promissory Note that matures on February 20, 2013. 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 52% of the lowest trading
day 10 days prior to notice of conversion.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on February 21, 2012. 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 $123,822 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
|
|
|
318.85
|
%
|
|
Risk free rate:
|
|
|
0.17
|
%
|
The initial fair value of the embedded
debt derivative of $123,822 was allocated as a debt discount up to the proceeds of the note ($64,398) with the remainder ($59,424)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $64,398 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 113,667 shares of common stock in full settlement of the convertible note and related interest.
Note issued February 22, 2012
On February 22, 2012, the Company issued
a $102,500 Convertible Promissory Note that matures on February 22, 2013. 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 February 22, 2012. 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 $204,223 of the embedded derivative. The fair value of the embedded derivative was determined using the Binomial
Lattice Model based on the following assumptions:
NOTE 6 - NOTES PAYABLE (CONTINUED)
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
318.85
|
%
|
|
Risk free rate:
|
|
|
0.17
|
%
|
The initial fair value of the embedded
debt derivative of $204,223 was allocated as a debt discount up to the proceeds of the note ($102,500) with the remainder ($101,723)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized or wrote off (upon conversion) $84,527 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 3,400,000 shares of common stock in settlement of $9,884 of the convertible note.
The fair value of the described embedded
derivative of $291,655 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.10
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $87,432 for the year
ended September 30, 2012.
Note issued April 10, 2012
On April 10, 2012, the Company issued a
$16,615 Convertible Promissory Note that matures on April 9, 2013. 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 $0.2931 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 April 10, 2012. 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 $27,192 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
|
|
|
240.82
|
%
|
|
Risk free rate:
|
|
|
0.19
|
%
|
The initial fair value of the embedded
debt derivative of $27,192 was allocated as a debt discount up to the proceeds of the note ($16,615) with the remainder ($10,577)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized and wrote off (upon conversion) $16,615 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 56,667 shares of common stock in full settlement of the convertible note and related interest.
Note issued April 25, 2012
On April 25, 2012, the Company issued a
$45,000 Convertible Promissory Note that matures on January 30, 2013. 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.
NOTE 6 - NOTES PAYABLE (CONTINUED)
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on April 25, 2012. 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 $84,798 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
|
|
|
257.63
|
%
|
|
Risk free rate:
|
|
|
0.18
|
%
|
The initial fair value of the embedded
debt derivative of $84,798 was allocated as a debt discount up to the proceeds of the note ($45,000) with the remainder ($39,798)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $25,393 to current period operations as interest expense.
The fair value of the described embedded
derivative of $150,879 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.10
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $66,081 for the year
ended September 30, 2012.
Note issued May 16, 2012
On May 16, 2012, the Company issued a $80,000
Convertible Promissory Note that matures on December 31, 2012. The note bears interest at a rate of 6% and is convertible into
the Company’s common stock at any time at the holder’s option, at the conversion rate of 50% of the lowest bid price
5 trading days prior to notice of conversion. The note includes a redemption premium up to 120% of the face of the note for early
payoff.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on May 16, 2012. 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 $174,938 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
|
|
|
258.13
|
%
|
|
Risk free rate:
|
|
|
0.20
|
%
|
The initial fair value of the embedded
debt derivative of $174,938 was allocated as a debt discount up to the proceeds of the note ($80,000) with the remainder ($94,938)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $47,860 to current period operations as interest expense.
The fair value of the described embedded
derivative of $443,576 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.10
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $252,828 for the year
ended September 30, 2012.
NOTE 6 - NOTES PAYABLE (CONTINUED)
Note issued May 16, 2012
On May 16, 2012, the Company issued a $80,000
Convertible Promissory Note that matures on December 31, 2012. The note bears interest at a rate of 6% and is convertible into
the Company’s common stock at any time at the holder’s option, at the conversion rate of 50% of the lowest bid price
5 trading days prior to notice of conversion. The note includes a redemption premium up to 120% of the face of the note for early
payoff.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on May 16, 2012. 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 $174,938 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
|
|
|
258.13
|
%
|
|
Risk free rate:
|
|
|
0.20
|
%
|
The initial fair value of the embedded
debt derivative of $174,938 was allocated as a debt discount up to the proceeds of the note ($80,000) with the remainder ($94,938)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $47,860 to current period operations as interest expense.
The fair value of the described embedded
derivative of $443,576 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.10
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $268,638 for the year
ended September 30, 2012.
Note issued May 22, 2012
On May 22, 2012, the Company issued a $25,000
Convertible Promissory Note that is due on demand. The note bears interest at a rate of 5% and is convertible into the Company’s
common stock at any time at the holder’s option, at the conversion rate of 50% of the average of the three lowest bid prices,
10 trading days prior to notice of conversion.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on May 22, 2012. 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 $24,478 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
|
|
|
271.22
|
%
|
|
Risk free rate:
|
|
|
0.08
|
%
|
The initial fair value of the embedded
debt derivative of $24,478 was allocated as a debt discount of the note.
During the year ended September 30, 2012,
the Company amortized $24,478 to current period operations as interest expense.
During the year ended September 30, 2012,
the Company issued an aggregate of 431,351 shares of common stock in settlement of the outstanding note payable.
NOTE 6 - NOTES PAYABLE (CONTINUED)
Notes issued June 1, 2012
On June 1, 2012, the Company issued an
aggregate of $95,229 of Convertible Promissory Notes that matures on December 31, 2012. The notes bear interest at a rate of 6%
and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 50%
of the lowest bid price 5 trading days prior to notice of conversion. The note includes a redemption premium up to 120% of the
face of the note for early payoff.
The Company identified embedded derivatives
related to the Convertible Promissory Notes entered into on June 1, 2012. 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 Notes and to adjust the fair value as of each
subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined a fair value
of $222,153 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
|
|
|
272.05
|
%
|
|
Risk free rate:
|
|
|
0.12
|
%
|
The initial fair value of the embedded
debt derivative of $222,153 was allocated as a debt discount up to the proceeds of the note ($95,229) with the remainder ($126,924)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $54,097 to current period operations as interest expense.
The fair value of the described embedded
derivative of $526,349 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.10
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $304,196 for the year
ended September 30, 2012.
Note issued July 30, 2012
On July 30, 2012, the Company issued a
$50,000 Convertible Promissory Note that matures on March 31, 2013. 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 50% of the average of
the two lowest bid prices 5 trading days prior to notice of conversion. The note includes a redemption premium up to 120% of the
face of the note for early payoff.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on July 30, 2012. 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 $187,051 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
|
|
|
363.95
|
%
|
|
Risk free rate:
|
|
|
0.15
|
%
|
The initial fair value of the embedded
debt derivative of $187,051 was allocated as a debt discount up to the proceeds of the note ($50,000) with the remainder ($137,051)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $12,500 to current period operations as interest expense.
NOTE 6 - NOTES PAYABLE (CONTINUED)
The fair value of the described embedded
derivative of $165,015 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.14
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain of $22,036 for the year
ended September 30, 2012.
Note issued August 2, 2012
On August 2, 2012, the Company issued a
$20,000 Convertible Promissory Note that matures on May 6, 2013. 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 36% of the average three lowest
trading prices 10 trading days prior to notice of conversion.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on August 2, 2012. 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 $78,599 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
|
|
|
366.04
|
%
|
|
Risk free rate:
|
|
|
0.14
|
%
|
The initial fair value of the embedded
debt derivative of $78,599 was allocated as a debt discount up to the proceeds of the note ($20,000) with the remainder ($58,599)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $4,260 to current period operations as interest expense.
The fair value of the described embedded
derivative of $100,557 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.14
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $21,958 for the year
ended September 30, 2012.
Notes issued September 12, 2012
On September 12, 2012, the Company issued
an aggregate of $45,000 Convertible Promissory Notes that matures on March 31, 2013. 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 50% of
the lowest bid price 10 trading days prior to notice of conversion for $10,000 and lower of $0.01 or 50% of the lowest bid price
15 trading days prior to notice of conversion for $35,000. The note includes a redemption premium up to 120% of the face of the
note for early payoff.
The Company identified embedded derivatives
related to the Convertible Promissory Notes entered into on September 12, 2012. 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 Notes and to adjust the fair value
as of each subsequent balance sheet date. At the inception of the Convertible Promissory Notes, the Company determined
a fair value of $63,040 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
|
|
|
472.85
|
%
|
|
Risk free rate:
|
|
|
0.13
|
%
|
NOTE 6 - NOTES PAYABLE (CONTINUED)
The initial fair value of the embedded
debt derivative of $63,040 was allocated as a debt discount up to the proceeds of the note ($45,000) with the remainder ($18,040)
charged to current period operations as interest expense.
During the year ended September 30, 2012,
the Company amortized $4,050 to current period operations as interest expense.
The fair value of the described embedded
derivative of $260,837 at September 30, 2012 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.14
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $197,797 for the year
ended September 30, 2012.
Note issued September 30, 2012
On September 30, 2012, the Company issued
a $40,775 Convertible Promissory Note that matures on December 31, 2012 for services rendered. The note bears interest at a rate
of 6% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate
of 50% of the lowest bid price 5 trading days prior to notice of conversion. The note includes a redemption premium up to 120%
of the face of the note for early payoff.
The Company identified embedded derivatives
related to the Convertible Promissory Note entered into on September 30, 2012. 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 (and at September 30, 2012) of the Convertible Promissory Note, the
Company determined a fair value of $225,371 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
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.10
|
%
|
The initial fair value of the embedded
debt derivative of $225,371 was allocated as a debt discount up to the proceeds of the note ($40,775) with the remainder ($184,596)
charged to current period operations as interest expense.
During
the year ended September 30, 2012, the Company amortized $nil to current period operations as interest expense
.
MARKETING WORLDWIDE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012 AND 2011
NOTE 7 - WARRANTY LIABILITY
The Company provides for estimated costs
to fulfill customer warranty obligations upon recognition of the related revenue in accordance with Accounting Standards Codification
subtopic 460-10, Guarantees (“ASC 460-10”) as a charge in the current period cost of goods sold. The range for
the warranty coverage for the Company's products is up to 18 to 36 months. The Company estimates the anticipated future costs of
repairs under such warranties based on historical experience and any known specific product information. These estimates are reevaluated
periodically by management and based on current information, are adjusted accordingly. The Company's determination of the warranty
obligation is based on estimates and as such, actual product failure rates may differ significantly from previous expectations. The
warranty reconciliation as of September 30, 2012 and 2011 is as follows:
|
|
|
2012
|
|
|
2011
|
|
|
Warranty liability, beginning of year
|
|
$
|
75,000
|
|
|
$
|
95,000
|
|
|
Expense for the year
|
|
|
10,781
|
|
|
|
20,000
|
|
|
Amount incurred
|
|
|
(10,781
|
)
|
|
|
(40,000
|
)
|
|
Warranty liability, end of year
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following at September
30, 2012 and 2011:
|
|
|
2012
|
|
|
2011
|
|
|
Preferred dividends payable
|
|
$
|
386,493
|
|
|
$
|
315,000
|
|
|
Consulting fees
|
|
|
394,779
|
|
|
|
69,500
|
|
|
Interest
|
|
|
7,364
|
|
|
|
225,530
|
|
|
Payroll and other
|
|
|
309,253
|
|
|
|
159,428
|
|
|
Total
|
|
$
|
1,097,889
|
|
|
$
|
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 $809,967 as of September 30, 2012 was determined using the Binomial Lattice formula assuming no dividends, a risk-free interest
rate of 0.31%, expected volatility of 482.68%, and expected remaining warrant life of 3.75 to 3.99 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 $482,115 for the year ended
September 30, 2012.
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.
NOTE 10 - CAPITAL STOCK (CONTINUED)
On May 1, 2012, four persons holding majority
voting power of the Company took action by written consent to increase the authorized capital stock of the Company to consist of
Five Billion Nine Hundred Ten Million (5,910,000,000) shares of which stock Five Billion Nine Hundred Million (5,900,000,000) shares
of the par value of $.00001 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.
On July 9, 2012, the Company affected a
three hundred-to-one (300 to 1) reverse stock split of its issued and outstanding shares of common stock, $0.00001 par value (whereby
every three hundred shares of Company’s common stock will be exchanged for one share of the Company's common stock).
All references in the consolidated financial statements and the notes to consolidated financial statements, number of shares, and
share amounts have been retroactively restated to reflect the reverse split.
Series A Preferred stock
As of September 30, 2012 and 2011, the
Company had nil and 3,500,000 shares issued and outstanding, respectively.
On January 5, 2012, the Company issued
an aggregate of 15,000 shares of common stock in exchange for 1,808,099 shares of Series A Preferred Stock.
On May 22, 2012, the Company entered a
Securities Exchange Agreement with two investors. The Company exchanged the remaining outstanding shares of Series A Convertible
Preferred Stock (1,691,901shares) and Series B Convertible Preferred Stock (1,192,308 shares) for 11,923 shares of the Company’s
Series E 6% Convertible Preferred Stock.
In connection
with the settlement of the remaining Series A Preferred stock, the Company recorded a loss on settlement of debt of $382,596. The
fair value of the issued Series E Preferred stock of $2,095,401 was determined using the
Binomial Lattice Model with the
following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
271.65
|
%
|
|
Risk free rate:
|
|
|
0.21
|
%
|
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. On March
5, 2012 and April 18, 2012, the Company issued an aggregate of 83,333 shares of common stock in payment of $80,000 of accrued dividends.
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.
NOTE 10 - CAPITAL STOCK (CONTINUED)
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.
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. During the year ended September 30,
2012, the Company converted/settled all the Series A Preferred Stock. As of the date of the conversion /settlement, derivative
liability associated with the embedded conversion features of the Series A Preferred stock was revalued, the gain in the derivative
liability of $141,740 for the year ended September 30, 2012 is included as a decrease of a loss on change of fair value of derivative
liabilities in the Company’s consolidated statement of operations
Series B Preferred stock
As of September 30, 2012 and 2011, the
Company had nil and 1,192,308 shares of Series B Convertible Preferred stock issued and outstanding, respectively.
As described above under Series A Preferred
stock, On May 22, 2012, the Company exchanged all the outstanding Series B Preferred stock for Series E 6% Convertible Preferred
Stock.
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
|
On February 15, 2012, the Company issued
a $100,000 convertible note payable in exchange for all the outstanding Series C Preferred stock.
As of September 30, 2012 and 2011, the
Company has nil and 100 shares of Series C Preferred stock issued and outstanding, respectively.
Conversion rights: Each share
of Series C Preferred stock is convertible at a conversion price of $45.00 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.
NOTE 10 - CAPITAL STOCK (CONTINUED)
Series D Super Voting Preferred stock
On April 11, 2012. the Company designated
1,000,000 authorized preferred shares as Series D Super Voting Preferred stock with the following attributes:
|
Par value:
|
$0.001 per share
|
|
|
|
|
Stated value:
|
$0.001 per share
|
|
|
|
|
Voting rights:
|
10,000 votes per share when voting on matters with the Company's common stockholders
|
Conversion rights: none.
Dividend rights: none
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.
On April 12, 2012, the Company issued 90,002
shares of Series D Super Voting Preferred stock to key officers, employees and consultants, valued at $40,501.
Series E 6% Convertible Preferred Stock
On May 24, 2012. the Company designated
15,000 authorized preferred shares as Series E Convertible Preferred Stock with the following attributes:.
|
Par value:
|
$0.001 per share
|
|
|
|
|
Stated value:
|
$100 per share
|
|
|
|
|
Voting rights:
|
None
|
Conversion rights: Each share
of Series E 6% Convertible Preferred stock is convertible at any time at the election of the holder into that number of shares
of the Company's common stock determined by dividing the Stated value of such shares of preferred stock into the conversion price.
The conversion price is defined as fifty percent (50%) of the lowest closing bid price of the Company's common stock during five
(5) trading days immediately preceding a conversion date.
Dividend rights: Holders share be entitled
to receive cumulative dividends at a rate per share of 6% per annum, payable in arrears on June 30 and December 31 and on each
conversion date in cash or at the Company's irrevocable option, shares of the Company's common stock. The number of shares issuable
is defined as 50% of the previous ten (10) day variable weighted average price of the Company's common stock, with certain limitations
Dividends on the Series E 6% Convertible
Preferred stock shall accrue daily commencing on the original issuance date and shall be deemed to accrue from such date whether
or not earned or declared and whether or not there are profits, surplus or other funds of the Company legally available for the
payment of dividends.
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.
On May 24, 2012, the Company issued an
aggregate of 11,923 shares of Series E 6% Convertible Preferred stock in exchange for all of the outstanding Series A Preferred
stock and Series B Preferred stock.
NOTE 10 - CAPITAL STOCK (CONTINUED)
The Company identified embedded derivatives
related to the Series E 6% Convertible Preferred stock issued on May 24, 2012. 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 issuance date of the Series E 6% Convertible Preferred stock 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 $2,095,401 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
|
|
|
271.65
|
%
|
|
Risk free rate:
|
|
|
0.21
|
%
|
The Company allocated the determined fair
value of the Series E 6% Convertible Preferred stock based on the carrying value of the Series B preferred stock and the fair value
of the Series A preferred stock (based on the underlying conversion feature) and accordingly recorded a loss on settlement of debt
associated Series A preferred stock (debt) of $382,596 and a charge to equity of $19,774 associated with the Series B preferred
stock.
During the year ended September 30, 2012,
the Company issued an aggregate of 15,859,403 shares of its common stock in exchange for 810.5 shares of Series E 6% Convertible
Preferred stock.
At September 30, 2012, the fair value of
the described embedded derivative of $6,620,806 was determined using the Binomial Lattice Model with the following assumptions:
|
Dividend yield:
|
|
|
-0-
|
%
|
|
Volatility
|
|
|
482.68
|
%
|
|
Risk free rate:
|
|
|
0.17
|
%
|
At September 30, 2012, the Company adjusted
the recorded fair value of the derivative liability to market resulting in non-cash, non-operating loss of $4,525,405 for the year
ended September 30, 2012.
Common stock
On October 25, 2010, the Company issued 2,000,000 shares (6,667
shares post reverse stock split of 1:300) of common stock in exchange for services valued at $40,000. These shares were
valued at $0.02 per share ($6 per share post reverse stock split of 1:300), which was the trading price on October 25, 2010.
On January 11, 2011, the Company issued an aggregate of 554,108
shares (1,847 shares post reverse stock split of 1:300) of common stock in exchange for services valued at $25,914. The
shares were valued at the $0.04 per share ($12 per share post reverse stock split of 1:300), which was the trading price as
of January 11, 2011.
On January 11, 2011, the Company issued 5,137,500 shares (17,125
shares post reverse stock split of 1:300) of common stock in exchange for accumulated Series A preferred stock dividend of $472,500. The
shares were valued at the underlying terms of the Series A preferred stock.
On January 17, 2011, the Company issued 375,000 shares (1,250
shares post reverse stock split of 1:300) of common stock in exchange for services valued at $7,500. These shares were
valued at $0.02 per share ($6 per share post reverse stock split of 1:300), which was the trading price on January 17, 2011
On February 1, 2011, the Company issued 800,000 shares (2,667
shares post reverse stock split of 1:300) of common stock in exchange for accrued compensation valued at $16,000. These
shares were valued at $0.02 per share ($6 per share post reverse stock split of 1:300), which was the trading price on February
1, 2011.
On February 12, 2011, the Company issued 4,150,000 shares (13,833
shares post reverse stock split of 1:300) of common stock in exchange for previously incurred debt of $49,566. These
shares were valued at $0.02 per share ($6 per share post reverse stock split of 1:300), which was the trading price on February
12, 2011. The Company recorded a $33,434 loss on settlement of debt at the date of issuance.
On February 22, 2011, the Company issued 600,000 shares (2,000
shares post reverse stock split of 1:300) of common stock in exchange for services valued at $9,600. These shares were
valued at $0.02 per share ($6 per share post reverse stock split of 1:300), which was the trading price on February 22, 2011
On February 23, 2011, the Company issued 375,000 shares (1,250
shares post reverse stock split of 1:300) of common stock in exchange for services valued at $7,500. These shares were
valued at $0.019 per share ($5.7 per share post reverse stock split of 1:300), which was the trading price on February 23, 2011.
NOTE 10 - CAPITAL STOCK (CONTINUED)
On March 24, 2011, the Company issued 2,540,787 shares (8,469
shares post reverse stock split of 1:300) of common stock in exchange for previously incurred debt of $25,840. These
shares were valued at $0.02 per share ($6 per share post reverse stock split of 1:300), which was the trading price on March 24,
2011. The Company recorded a $24,976 loss on settlement of debt at the date of issuance.
On April 27, 2011, the Company issued an aggregate of 3,621,362
shares (12,071 shares post reverse stock split of 1:300) of common stock in exchange for services valued at $108,641. These
shares were valued at $0.03 per share ($9 per share post reverse stock split of 1:300), which was the trading price on April 27,
2011.
On May 17, 2011, the Company issued 2,902,657 shares (9,676
shares post reverse stock split of 1:300) of common stock in exchange for services valued at $58,053. These shares were
valued at $0.02 per share ($6 per share post reverse stock split of 1:300), which was the trading price on May 17, 2011
On May 25, 2011, the Company issued 378,143 shares (1,260 shares
post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $26,470. These
shares were valued at $0.07 per share ($21 per share post reverse stock split of 1:300), which was the effective conversion rate
of the underlying note.
On August 1, 2011, the Company issued 100,000 shares (333 shares
post reverse stock split of 1:300) of common stock in exchange for services valued at $1,000. These shares were valued
at $0.01 per share ($3 per share post reverse stock split of 1:300), which is the trading price on August 1, 2011.
On August 22, 2011, the Company issued 2,646,666 shares (8,822
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $33,692. These
shares were valued at $0.013 per share ($3.9 per share post reverse stock split of 1:300), which was the trading price on August
22, 2011.
On August 26, 2011, the Company issued 833,333 shares (2,778
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $8,000. These
shares were valued at $0.017 per share ($5.1 per share post reverse stock split of 1:300), which was the trading price on August
26, 2011.
On September 7, 2011, the Company issued 1,964,286 shares (6,548
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $11,000. These
shares were valued at $0.0108 per share ($3.24 per share post reverse stock split of 1:300), which was the trading price on September
7, 2011.
On September 12, 2011, the Company issued 2,500,000 shares (8,333
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $14,000. These
shares were valued at $0.0122 per share ($3.66 per share post reverse stock split of 1:300), which was the trading price on September
12, 2011.
On September 14, 2011, the Company issued 2,000,000 shares (6,667
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $11,200. These
shares were valued at $0.011 per share ($3.3 per share post reverse stock split of 1:300), which was the trading price on September
14, 2011.
On September 15, 2011, the Company issued 1,428,571 shares (4,762
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $8,000. These
shares were valued at $0.01136 per share ($3.41 per share post reverse stock split of 1:300), which was the trading price on September
15, 2011.
On September 15, 2011, the Company issued 1,821,429 shares (6,071
shares post reverse stock split of 1:300) of common stock in exchange for services valued at $25,500. These shares were
valued at $0.014 per share ($4.2 per share post reverse stock split of 1:300), which is the trading price on September 15, 2011.
On September 19, 2011, the Company issued 2,627,537 shares (8,758
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $19,496. These
shares were valued at $0.0106 per share ($3.18 per share post reverse stock split of 1:300), which was the trading price on September
19, 2011.
On September 21, 2011, the Company issued 2,628,349 shares (8,761
shares post reverse stock split of 1:300) of common stock in exchange for a convertible note and related accrued interest of $22,709. These
shares were valued at $0.01234 per share ($3.7 per share post reverse stock split of 1:300), which was the trading price on September
21, 2011.
On October 3, 2011, the Company issued
6,494 shares of common stock in exchange for a convertible note and related accrued interest of $15,000. These shares
were valued at $4.20 per share, which was the trading price on October 3, 2011.
On October 5, 2011, the Company issued
5,556 shares of common stock in exchange for a convertible note and related accrued interest of $10,000. These shares
were valued at $3.60 per share, which was the trading price on October 5, 2011.
NOTE 10 - CAPITAL STOCK (CONTINUED)
On October 7, 2011, the Company issued
11,087 shares of common stock in exchange for a convertible note and related accrued interest of $28,000. These shares
were valued at $3.61 per share, which was the trading price on October 7, 2011.
On October 26, 2011, the Company issued
12,064 shares of common stock in exchange for a convertible note and related accrued interest of $26,160. These shares
were valued at $3.10 per share, which was the trading price on October 26, 2011.
On October 27, 2011, the Company issued
2,075 shares of common stock in exchange for a convertible note and related accrued interest of $4,500. These shares
were valued at $3.10 per share, which was the trading price on October 27, 2011.
On November 8, 2011, the Company issued
6,667 shares of common stock in exchange for services valued at $10,000. These shares were valued at $1.50 per share,
which was the trading price on November 8, 2011
On November 11, 2011, the Company issued
10,000 shares of common stock in exchange for a convertible notes and related accrued interest of $30,000. These shares
were valued at $3.10 per share, which was the trading price on November 11, 2011.
On November 18, 2011, the Company received
2,000 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 $60.00 per share, which was the trading price at initial issuance on February 17,
2010.
On November 21, 2011, the Company issued
an aggregate of 18,931 shares of common stock in exchange for convertible notes and related accrued interest of $19,800. These
shares were valued at $2.10 per share, which was the trading price on November 21, 2011.
On November 22, 2011, the Company issued
8,642 shares of common stock in exchange for a convertible note and related accrued interest of $7,000. These shares
were valued at $1.50 per share, which was the trading price on November 22, 2011.
On November 28, 2011, the Company issued
8,000 shares of common stock in exchange for a convertible note and related accrued interest of $6,000. These shares
were valued at $1.53 per share, which was the trading price on November 28, 2011.
On November 29, 2011, the Company issued
an aggregate of 33,462 shares of common stock in exchange for convertible notes and related accrued interest of $22,505. These
shares were valued at $1.50 per share, which was the trading price on November 29, 2011.
On November 30, 2011, the Company issued
an aggregate of 14,227 shares of common stock in exchange for convertible notes and related accrued interest of $11,500. These
shares were valued at $1.74 per share, which was the trading price on November 29, 2011.
On December 6, 2011, the Company issued
an aggregate of 2,464 shares of common stock in exchange for convertible notes and related accrued interest of $500. These
shares were valued at $1.20 per share, which was the trading price on December 6, 2011.
On December 15, 2011, the Company issued
6,667 shares of common stock in exchange for services valued at $20,000. These shares were valued at $3.00 per share,
which was the trading price on December 15, 2011
On December 19, 2011, the Company issued
an aggregate of 8,791 shares of common stock in exchange for convertible notes and related accrued interest of $6,000. These
shares were valued at $1.02 per share, which was the trading price on December 19, 2011.
On December 19, 2011, the Company issued
an aggregate of 8,791 shares of common stock in exchange for convertible notes and related accrued interest of $6,000. These
shares were valued at $1.56 per share, which was the trading price on December 19, 2011.
On December 27, 2011, the Company issued
18,145 shares of common stock in exchange for a convertible note and related accrued interest of $10,887. These shares
were valued at $2.70 per share, which was the trading price on December 27, 2011.
On January 3, 2012, the Company issued
12,554 shares of common stock in exchange for a convertible note and related accrued interest of $14,500. These shares
were valued at $2.10 per share, which was the trading price on January 3, 2012.
On January 5, 2012, the Company issued
an aggregate of 15,000 shares of common stock in exchange for 1,808,099 shares of Series A Preferred stock.
On January 12, 2012, the Company issued
17,460 shares of common stock in exchange for a convertible note and related accrued interest of $22,000. These shares
were valued at $3.00 per share, which was the trading price on January 12, 2012.
On January 12, 2012, the Company issued
10,000 shares of common stock in exchange for a convertible note and related accrued interest of $8,998. These shares
were valued at $3.00 per share, which was the trading price on January 12, 2012.
NOTE 10 - CAPITAL STOCK (CONTINUED)
On January 24, 2012, the Company issued
12,667 shares of common stock in exchange for a convertible note and related accrued interest of $11,212. These shares
were valued at $2.25 per share, which was the trading price on January 24, 2012.
On January 24, 2012, the Company issued
44,309 shares of common stock in exchange for a convertible note and related accrued interest of $58,760. These shares
were valued at $2.25 per share, which was the trading price on January 24, 2012.
On February 2, 2012, the Company issued
22,333 shares of common stock in exchange for a convertible note and related accrued interest of $20,000. These shares
were valued at $2.10 per share, which was the trading price on February 2, 2012.
On February 10, 2012, the Company issued
49,069 shares of common stock in exchange for a convertible note and related accrued interest of $58,000. These shares
were valued at $1.80 per share, which was the trading price on February 10, 2012.
On February 16, 2012, the Company issued
25,000 shares of common stock in exchange for a convertible note and related accrued interest of $19,744. These shares
were valued at $1.50 per share, which was the trading price on February 16, 2012.
On February 21, 2012, the Company issued
30,000 shares of common stock in exchange for a convertible note and related accrued interest of $18,000. These shares
were valued at $1.50 per share, which was the trading price on February 21, 2012.
On February 23, 2012, the Company issued
88,265 shares of common stock in exchange for a convertible note and related accrued interest of $107,990. These shares
were valued at $1.20 per share, which was the trading price on February 23, 2012.
On February 27, 2012, the Company issued
26,423 shares of common stock in exchange for a convertible note and related accrued interest of $23,781. These shares
were valued at $1.23 per share, which was the trading price on February 27, 2012.
On February 28, 2012, the Company issued
17,027 shares of common stock in exchange for a true up of a convertible note and related accrued interest. These shares
were valued at $1.20 per share, which was the trading price on February 28, 2012.
On February 29, 2012, the Company issued
27,333 shares of common stock in exchange for a convertible note and related accrued interest of $19,988. These shares
were valued at $1.20 per share, which was the trading price on February 29, 2012.
On March 5, 2012, the Company issued 32,110
shares of common stock in exchange for a convertible note and related accrued interest of $72,249. These shares were
valued at $1.41 per share, which was the trading price on March 5, 2012.
On March 5, 2012, the Company issued 33,333
shares of common stock as payment on Series A Preferred stock dividend of $50,000. These shares were valued at $1.50
per share, which was the trading price on March 5, 2012.
On March 7, 2012, the Company issued 35,667
shares of common stock in exchange for a convertible note and related accrued interest of $21,398. These shares were
valued at $1.50 per share, which was the trading price on March 7, 2012.
On March 15, 2012, the Company issued 26,667
shares of common stock in exchange for a convertible note and related accrued interest of $12,740. These shares were
valued at $0.78 per share, which was the trading price on March 15, 2012.
On March 15, 2012, the Company issued 12,539
shares of common stock in exchange for a convertible note and related accrued interest of $28,214. These shares were
valued at $0.78 per share, which was the trading price on March 15, 2012.
On March 19, 2012, the Company issued 48,000
shares of common stock in exchange for a convertible note and related accrued interest of $25,000. These shares were
valued at $1.02 per share, which was the trading price on March 19, 2012.
On March 19, 2012, the Company issued 44,397
shares of common stock in exchange for a convertible note and related accrued interest of $21,000. These shares were
valued at $1.02 per share, which was the trading price on March 19, 2012.
On March 19, 2012, the Company issued 11,121
shares of common stock in exchange for a convertible note and related accrued interest of $5,260. These shares were
valued at $1.02 per share, which was the trading price on March 19, 2012.
On March 27, 2012, the Company issued 23,333
shares of common stock in exchange for a convertible note and related accrued interest of $8,645. These shares were
valued at $0.90 per share, which was the trading price on March 27, 2012.
On March 27, 2012, the Company issued
56,834 shares of common stock in exchange for a convertible note and related accrued interest of $20,000. These shares
were valued at $0.90 per share, which was the trading price on March 27, 2012.
NOTE 10 - CAPITAL STOCK (CONTINUED)
On April 16, 2012, the Company issued 26,799
shares of common stock in exchange for a convertible note and related accrued interest of $8,884. These shares were
valued at $0.60 per share, which was the trading price on April 16, 2012.
On April 18, 2012, the Company issued 54,545
shares of common stock in exchange for a convertible note and related accrued interest of $18,000. These shares were
valued at $1.35 per share, which was the trading price on April 18, 2012.
On April 18, 2012, the Company issued 50,000
shares of common stock as payment on Series A Preferred stock dividend of $30,000. These shares were valued at $0.60
per share, which was the trading price on April 18, 2012.
On April 18, 2012, the Company issued 56,667
shares of common stock in exchange for a convertible note and related accrued interest of $16,615. These shares were
valued at $1.05 per share, which was the trading price on April 18, 2012.
On April 23, 2012, the Company issued 28,070
shares of common stock in exchange for a convertible note and related accrued interest of $8,000. These shares were
valued at $0.52 per share, which was the trading price on April 23, 2012.
On April 25, 2012, the Company issued 28,736
shares of common stock in exchange for a convertible note and related accrued interest of $7,500. These shares were
valued at $0.47 per share, which was the trading price on April 25, 2012.
On April 26, 2012, the Company issued 28,736
shares of common stock in exchange for a convertible note and related accrued interest of $7,500. These shares were
valued at $0.47 per share, which was the trading price on April 26, 2012.
On April 27, 2012, the Company issued 27,027
shares of common stock in exchange for a convertible note and related accrued interest of $6,000. These shares were
valued at $0.40 per share, which was the trading price on April 27, 2012.
On April 27, 2012, the Company issued 27,397
shares of common stock in exchange for a convertible note and related accrued interest of $6,000. These shares were
valued at $0.40 per share, which was the trading price on April 27, 2012.
On May 1, 2012, the Company issued 27,397
shares of common stock in exchange for a convertible note and related accrued interest of $6,000. These shares were
valued at $0.40 per share, which was the trading price on May 1, 2012.
On May 2, 2012, the Company issued 27,397
shares of common stock in exchange for a convertible note and related accrued interest of $6,000. These shares were
valued at $0.40 per share, which was the trading price on May 2, 2012.
On May 3, 2012, the Company issued 25,114
shares of common stock in exchange for a convertible note and related accrued interest of $5,500. These shares were
valued at $0.40 per share, which was the trading price on May 3, 2012.
On May 4, 2012, the Company issued 11,963
shares of common stock in exchange for a convertible note and related accrued interest of $500. These shares were valued
at $0.40 per share, which was the trading price on May 4, 2012.
On May 8, 2012, the Company issued 26,667
shares of common stock in exchange for a convertible note and related accrued interest of $6,600. These shares were
valued at $0.45 per share, which was the trading price on May 8, 2012.
On May 17, 2012, the Company issued 26,794
shares of common stock in exchange for a convertible note and related accrued interest of $8,400. These shares were
valued at $0.81 per share, which was the trading price on May 17, 2012.
On May 25, 2012, the Company issued 27,273
shares of common stock in exchange for a convertible note and related accrued interest of $12,000. These shares were
valued at $0.81 per share, which was the trading price on May 25, 2012.
On May 30, 2012, the Company issued 77,519
shares of common stock in exchange for a convertible note and related accrued interest of $12,000. These shares were
valued at $0.45 per share, which was the trading price on May 30, 2012.
On May 30, 2012, the Company issued 146,970
shares of common stock in exchange for 242.50 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.39 per share, which was the trading price on May 30, 2012.
On June 5, 2012, the Company issued 131,313
shares of common stock in exchange for a convertible note and related accrued interest of $26,000. These shares were
valued at $0.36 per share, which was the trading price on June 5, 2012.
On June 14, 2012, the Company issued 72,917
shares of common stock in exchange for a convertible note and related accrued interest of $7,000. These shares were
valued at $0.15 per share, which was the trading price on June 14, 2012.
NOTE 10 - CAPITAL STOCK (CONTINUED)
On June 15, 2012, the Company issued 100,000
shares of common stock in exchange for 90.0 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.21 per share, which was the trading price on June 15, 2012.
On June 18, 2012, the Company issued 88,889
shares of common stock in exchange for a convertible note and related accrued interest of $8,000. These shares were
valued at $0.21 per share, which was the trading price on June 18, 2012.
On June 18, 2012, the Company issued 76,923
shares of common stock in exchange for a convertible note and related accrued interest of $6,000. These shares were
valued at $0.15 per share, which was the trading price on June 18, 2012.
On June 26, 2012, the Company issued 114,943
shares of common stock in exchange for a convertible note and related accrued interest of $4,000. These shares were
valued at $0.12 per share, which was the trading price on June 26, 2012.
On June 26, 2012, the Company issued 90,000
shares of common stock in exchange for 27.0 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.12 per share, which was the trading price on June 26, 2012.
On July 1, 2012, the Company issued 279,167
shares of common stock in exchange for 83.75 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.09 - $0.12 per share, which was the trading price on July 1, 2012.
On July 2, 2012, the Company issued 77,778
shares of common stock in exchange for a convertible note and related accrued interest of $2,800. These shares were
valued at $0.09 per share, which was the trading price on July 2, 2012.
On July 9, 2012, the Company issued 76,667 shares of common
stock in exchange for a convertible note and related accrued interest of 2,300. These shares were valued at $0.09 per
share, which was the trading price on July 9, 2012.
On July 18, 2012, the Company issued 141,026
shares of common stock in exchange for a convertible note and related accrued interest of $550. These shares were valued
at $0.011 per share, which was the trading price on July 18, 2012.
On July 23, 2012, the Company issued 129,167
shares of common stock for reset provisions relating to the conversion of the Series E 6% Convertible Preferred Stock. These
shares were valued at $0.03 per share, which was the trading price on July 23, 2012.
On July 23, 2012, the Company issued 113,334
shares of common stock in exchange for 17 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.01 per share, which was the trading price on July 23, 2012
On July 25, 2012, the Company issued 157,273
shares of common stock in exchange for 8.65 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.0399 per share, which was the trading price on July 25, 2012
On July 26, 2012, the Company issued 142,857
shares of common stock in exchange for a convertible note and related accrued interest of $800. These shares were valued
at $0.011 per share, which was the trading price on July 26, 2012.
On August 1, 2012, the Company issued 150,000
shares of common stock in exchange for a convertible note and related accrued interest of $1,000. These shares were
valued at $0.015 per share, which was the trading price on August 1, 2012.
On August 3, 2012, the Company issued 120,000
shares of common stock in exchange for 9 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.0131 per share, which was the trading price on August 3, 2012.
On August 7, 2012, the Company issued 319,000
shares of common stock in exchange for 15.95 shares of Series E 6% Convertible Preferred stock. These shares were valued
at $0.015 per share, which was the trading price on August 7, 2012.
On August 20, 2012, the Company issued
640,000 shares of common stock in exchange for 12.15 shares of Series E 6% Convertible Preferred stock. These shares
were valued at $0.074 per share, which was the trading price on August 20, 2012.
On August 21, 2012, the Company issued
206,897 shares of common stock in exchange for a convertible note and related accrued interest of $600. These shares
were valued at $0.02 per share, which was the trading price on August 21, 2012.
On August 27, 2012, the Company issued
411,765 shares of common stock in exchange for 10.5 shares of Series E 6% Convertible Preferred stock. These shares
were valued at $0.0063 per share, which was the trading price on August 27, 2012.
On September 4, 2012, the Company issued
3,606,897 shares of common stock in exchange for a convertible notes and related accrued interest of $10,484. These
shares were valued at $0.015 per share, which was the trading price on September 4, 2012.
On September 7, 2012, the Company issued
28,770,000 shares of common stock in exchange for services rendered. These shares were valued at $0.006 per share, which was the
trading price on September 7, 2012.
NOTE 10 - CAPITAL STOCK (CONTINUED)
On September 11, 2012, the Company issued
10,152,727 shares of common stock in exchange for 294.0 shares of Series E 6% Convertible Preferred stock. These shares
were valued at $0.0055 per share, which was the trading price on September 11, 2012.
On September 13, 2012, the Company issued
10,000 shares of common stock in exchange for services rendered. These shares were valued at $0.006 per share, which was the trading
price on September 13, 2012.
On September 18, 2012, the Company issued
1,551,724 shares of common stock in exchange for a convertible notes and related accrued interest of $4,500. These shares
were valued at $0.0063 per share, which was the trading price on September 18, 2012.
On September 21, 2012, the Company issued
3,200,000 shares of common stock for reset provisions relating to the conversion of the Series E 6% Convertible Preferred Stock. These
shares were valued at $0.0018 per share, which was the trading price on September 21, 2012.
As of September 30, 2012 and 2011, the
Company has 52,796,407 and 238,316 shares of common stock issued and outstanding, respectively.
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 September 30, 2012:
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
$
|
5.10
|
|
|
|
7,333
|
|
|
|
8.65
|
|
|
$
|
5.10
|
|
|
|
5,500
|
|
|
$
|
90.00
|
|
|
|
1,633
|
|
|
|
4.90
|
|
|
$
|
90.00
|
|
|
|
1,633
|
|
|
$
|
20.57
|
|
|
|
8,966
|
|
|
|
7.97
|
|
|
$
|
24.54
|
|
|
|
7,133
|
|
The fair value of all employee options
vesting charged to operations in the year ended September 30, 2012 and 2011 was $22,000 and $11,648, 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
|
|
|
1,967
|
|
|
$
|
90.00
|
|
|
Granted
|
|
|
7,333
|
|
|
|
5.10
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Canceled or expired
|
|
|
(334
|
)
|
|
|
(90.00
|
)
|
|
Outstanding, September 30, 2010
|
|
|
8,966
|
|
|
|
20.55
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Canceled or expired
|
|
|
-
|
)
|
|
|
-
|
)
|
|
Outstanding, September 30, 2011
|
|
|
8,966
|
|
|
$
|
20.57
|
|
NOTE 11 - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants
The following table summarizes the warrants outstanding as of
September 30, 2012:
|
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
|
Weighted
Average
Remaining
|
|
|
Weighted
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
|
|
|
Average
|
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$
|
6.00
|
|
|
|
10,000
|
|
|
|
3.93
|
|
|
$
|
6.00
|
|
|
|
10,000
|
|
|
$
|
6.00
|
|
|
$
|
12.00
|
|
|
|
6,250
|
|
|
|
3.78
|
|
|
$
|
12.00
|
|
|
|
6,250
|
|
|
$
|
12.00
|
|
|
$
|
8.31
|
|
|
|
16,250
|
|
|
|
3.88
|
|
|
$
|
8.31
|
|
|
|
16,250
|
|
|
$
|
8.31
|
|
Transactions involving warrants are summarized as follows:
|
|
|
Weighted
Average
Number of
Shares
|
|
|
Price per
Share
|
|
|
Outstanding, September 30, 2010
|
|
|
333
|
|
|
$
|
90.00
|
|
|
Issued
|
|
|
41,250
|
|
|
|
6.90
|
|
|
Exercised
|
|
|
(16,667
|
)
|
|
|
3.00
|
|
|
Canceled or expired
|
|
|
(333
|
)
|
|
|
(90.00
|
)
|
|
Outstanding, September 30, 2011
|
|
|
24,583
|
|
|
|
9.00
|
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Canceled or expired
|
|
|
(8,333
|
)
|
|
|
(12.00
|
)
|
|
Outstanding, September 30, 2012
|
|
|
16,250
|
|
|
$
|
8.31
|
|
During the year ended September 30, 2011,
the Company issued 16,667 warrants in connection for services rendered exercisable to July 31, 2011 at $0.01 per share. The Company
issued an aggregate of 15,747 shares in connection with the cashless exercise of the warrant.
In connection with the issuance of promissory
notes, the Company issued an aggregate of 16,250 warrants (net of cancelations of 8,333) exercisable five years from the date of
issuance at $6.00 to $12.00 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 September 30, 2012 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.
ASC 810-10 requires that an enterprise
consolidate a VIE if that enterprise has a variable interest that will absorb a majority of the entity's expected losses if they
occur. Accordingly, the Company adopted ASC 810-10 and consolidated JCMD as a VIE, regardless of the Company not having an equity
interest in JCMD. Since JCMD is owned by two of the former principals of MWW, MWW has guaranteed the indebtedness of
JCMD for the real estate occupied by MWW, and the two principals of JCMD do not have the ability to repay the loan, the Company,
in accordance with ASC 810-10 has consolidated the activities of JCMD into the presented financial statements.
NOTE 12 - CONSOLIDATION OF VARIABLE INTEREST ENTITIES
(CONTINUED)
Included in the Company's consolidated
balance sheets at September 30, 2012 and 2011 are the following net assets of JCMD:
|
|
|
2012
|
|
|
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
|
|
|
232,127
|
|
|
|
190,498
|
|
|
Total current liabilities
|
|
|
712,882
|
|
|
|
680,253
|
|
|
Total deficit
|
|
|
(528,499
|
)
|
|
|
(486,820
|
)
|
|
Total liabilities and deficit
|
|
$
|
193,433
|
|
|
$
|
193,433
|
|
Consolidated results of operations include the following:
|
|
|
2012
|
|
|
2011
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
34,000
|
|
|
Interest, net
|
|
|
41,629
|
|
|
|
30,572
|
|
|
Total costs and expenses
|
|
|
41,629
|
|
|
|
30,572
|
|
|
Total costs an expenses
|
|
|
|
|
|
|
|
|
|
Operating income (loss) -Real estate
|
|
$
|
(41,629
|
)
|
|
$
|
3,428
|
|
The Variable Interest Entity owned by JCMD
and included in these consolidated financial statements sold the only asset it owned, which was real estate that was under a lease
with the Company, for $800,000 on November 30, 2010. This sale resulted in a net loss of approximately $400,000 and
left a remaining liability to the Small Business Administration of approximately $500,000 which is guaranteed by the Company. This
loss of $409,823 was recorded as an impairment loss in the September 30, 2010 consolidated financial statements.
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.
NOTE 13- FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
Items recorded or measured at fair value
on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of September
30, 2012:
|
|
|
|
|
|
Fair Value Measurements at September 30, 2012 using:
|
|
|
|
|
September 30,
2012
|
|
|
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
|
|
$
|
10,649,266
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
10,649,266
|
|
|
Warrant liabilities
|
|
$
|
809,967
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
809,967
|
|
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 September 30, 2012:
|
|
|
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
|
|
|
(1,089,216
|
)
|
|
|
(99,414
|
)
|
|
Transfers to liabilities due to debt modifications
|
|
|
40,908
|
|
|
|
-
|
|
|
Initial fair value of debt derivatives at note and preferred stock issuances
|
|
|
4,445,706
|
|
|
|
-
|
|
|
Mark-to-market at September 30, 2012
|
|
|
|
|
|
|
|
|
|
-Embedded debt derivatives
|
|
|
1,609,569
|
|
|
|
-
|
|
|
-Reset provisions relating to Series A preferred stock
|
|
|
(141,740
|
)
|
|
|
-
|
|
|
-Reset provisions relating to Series E preferred stock
|
|
|
4,525,405
|
|
|
|
-
|
|
|
-Reset provisions relating to warrants
|
|
|
-
|
|
|
|
482,115
|
|
|
Balance, September 30, 2012
|
|
$
|
10,649,266
|
|
|
$
|
809,967
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) for the period included in earnings relating to the liabilities held at September 30, 2012
|
|
$
|
(5,993,234
|
)
|
|
$
|
(482,115
|
)
|
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.
NOTE 14– DISCONTINUED OPERATIONS (CONTINUED)
The assets and liabilities of the discontinued
operations as of September 30, 2012 and 2011 were as follows:
Assets:
|
|
|
2012
|
|
|
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
|
|
|
Line of credit
|
|
|
-
|
|
|
|
-
|
|
|
Liabilities of discontinued operations
|
|
$
|
-
|
|
|
$
|
492,006
|
|
During the year ended September 30, 2012,
the Company determined it no longer was obligated to the outstanding debt of the foreign subsidiary through German Court proceedings,
therefore recognized a gain of $492,006 in liquidation of international subsidiary.
NOTE 15 - PROVISION FOR INCOME TAXES
The Company files income tax returns for
Marketing Worldwide Corporation and its domestic subsidiaries (MWW Automotive, LLC and Colortek, Inc.) with the Internal Revenue
Service and with various state jurisdictions, most notable Michigan. As of September 30, 2012, the tax returns for tax years 2008
– current remain open to examination by the Internal Revenue Service and various state authorities.
|
Components of deferred tax assets as of September 30, 2012 and 2011
|
|
2012
|
|
|
2011
|
|
|
Net operating loss carryforward
|
|
$
|
4,431,000
|
|
|
$
|
3,698,000
|
|
|
Inventory reserve, expense for books, not on tax return
|
|
|
56,000
|
|
|
|
107,000
|
|
|
Warranty reserve, expense for books, not on tax return
|
|
|
30,000
|
|
|
|
38,000
|
|
|
Book-tax difference in Fixed Asset Depreciation
|
|
|
5,500
|
|
|
|
58,000
|
|
|
Sub total
|
|
|
4,522,500
|
|
|
|
3,901,000
|
|
|
Valuation allowance
|
|
|
(4,522,500
|
)
|
|
|
(3,901,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net tax benefit
|
|
$
|
0
|
|
|
$
|
0
|
|
As of September 30, 2012, the Company had
approximately $11,080,000 of federal and state net operating losses (“NOL”) available for income tax purposes that may
be carried forward to offset future taxable income, if any. The federal carryforwards expire beginning in 2025.
A reconciliation of the statutory federal
income tax rate to the Company’s effective tax rate is as follows:
|
|
|
As of September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Tax benefit at federal statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
|
State statutory rate
|
|
|
(6.0
|
)%
|
|
|
(6.0
|
)%
|
|
Change in valuation allowance
|
|
|
42.0
|
%
|
|
|
42.0
|
%
|
|
Valuation of imbedded derivative
|
|
|
-
|
%
|
|
|
-
|
%
|
|
Impairment on sale of building
|
|
|
-
|
%
|
|
|
-
|
%
|
|
Other permanent items
|
|
|
(2.0
|
)%
|
|
|
(2.0
|
)%
|
|
Effective income tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Deferred income taxes result from temporary
differences in the recognition of income and expenses for the financial reporting purposes and for tax purposes.
NOTE 15 - PROVISION FOR INCOME TAXES
(CONTINUED)
A full valuation allowance is being maintained
resulting in a net deferred tax asset of zero until sufficient positive evidence exists to support the reversal of any portion
or all of the valuation allowance net of appropriate reserves. Should the Company become profitable in future periods
with supportable trends; the valuation allowance will be reduced accordingly.
NOTE 16- ECONOMIC DEPENDENCY
During the years ended September 30, 2011 and 2010, revenues
were derived from the following customers:
|
|
|
Revenue
|
|
|
Accounts Receivable
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
Customer A
|
|
|
76.4
|
%
|
|
|
36.6
|
%
|
|
|
12.88
|
%
|
|
|
69.24
|
%
|
|
Customer B
|
|
|
12.8
|
%
|
|
|
32.7
|
%
|
|
|
16.07
|
%
|
|
|
13.03
|
%
|
|
Customer C
|
|
|
5.1
|
%
|
|
|
20.4
|
%
|
|
|
3.15
|
%
|
|
|
8.49
|
%
|
|
Customer D
|
|
|
2.5
|
%
|
|
|
5.5
|
%
|
|
|
11.07
|
%
|
|
|
5.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
96.8
|
%
|
|
|
95.2
|
%
|
|
|
43.17
|
%
|
|
|
96.51
|
%
|
During the years ended September 30, 2012 and 2011, purchases
were made from the following suppliers:
|
|
|
Purchases
|
|
|
Accounts Payable
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
Supplier 1
|
|
|
51.19
|
%
|
|
|
21.75
|
%
|
|
|
4.02
|
%
|
|
|
1.24
|
%
|
|
Supplier 2
|
|
|
15.81
|
%
|
|
|
15.99
|
%
|
|
|
0.17
|
%
|
|
|
5.37
|
%
|
|
Supplier 3
|
|
|
14.41
|
%
|
|
|
13.27
|
%
|
|
|
0.42
|
%
|
|
|
0.32
|
%
|
|
Supplier 4
|
|
|
10.40
|
%
|
|
|
10.28
|
%
|
|
|
0.44
|
%
|
|
|
0.18
|
%
|
|
Supplier 5
|
|
|
94.7
|
%
|
|
|
10.26
|
%
|
|
|
0.43
|
%
|
|
|
0.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
90.6
|
%
|
|
|
71.54
|
%
|
|
|
5.48
|
%
|
|
|
7.60
|
%
|
NOTE 17 – COMMITMENTS AND CONTINGENCIES
Employment and Consulting Agreements
The Company has employment agreements with
all of its employees. In addition to salary and benefit provisions, the agreements include non-disclosure and confidentiality provisions
for the protection of the Company’s proprietary information.
The Company has consulting agreements with
outside contractors to provide marketing and financial advisory services. The Agreements are generally for a term of 12 months
from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement
by written notice.
Litigation
The Company is subject to certain legal
proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements
may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial
position, results of operations or liquidity.
The company currently has the following:
James Marvin/Michigan Department of Wage
and Hour
Marvin, a former director and shareholder
of MWW brought a wage and hour claim against MWW alleging failure to pay wages and benefits. On March 2, 2011, an ALJ found in
favor of Marvin in the amount of $81,730. An appeal by MWW was dismissed.
On September 24, 2012, the State of Michigan
brought an action against MWW to collect the amount due to Marvin. MWW has filed a third party complaint against Marvin alleging
breach of employment agreement, breach of fiduciary duty and tortious interference with business relations.
NOTE 17 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
MWW and the State of Michigan have entered
into a consent judgment for the wage and hour amount. The State has agreed to hold the judgment in abeyance until the completion
of the third party complaint and any amounts found due to MWW from Marvin will be deducted from the consent judgment. The matter
against Marvin will be vigorously contested, as Marvin abused his position with MWW and financially devastated the company. MWW
counsel feels MWW will either be awarded or settle for an amount equal to or greater than the amount due to Marvin.
MWW’s subsidiary Colortek owns property and a building
in Baroda, Michigan. Edgewater Bank holds the mortgage. Colortek fell behind on payments. Edgewater foreclosed on the property
by Sheriff’s sale on October 25, 2012. Edgewater purchased the property at the Sheriff’s sale. The purchase price left
a deficiency of $167,000, which was accrued as of September 30, 2012. The mortgage was secured not only by the property, but by a UCC security interest filing on Colortek
equipment and a personal guaranty from MWW. Edgewater initiated a lawsuit against MWW and Colortek for the deficiency. The original
owners of Colortek had also signed a personal guaranty for the mortgage. Their guaranty was not discharged when MWW became a guarantor.
MWW brought a third party complaint against them on the guaranty.
Edgewater and MWW principals and their
attorneys have a settlement meeting scheduled for January 14, 2013 to pursue a settlement on both the deficiency and redeeming
the property prior to the redemption period running. Because Edgewater agreed to the settlement meeting and did not simply file
a Motion for Summary Disposition to get a judgment, the Company believes settlement is probable. Both parties would suffer greatly
otherwise as Edgewater would have property and equipment it cannot use or sell and Colortek, and thus MWW would be out of business,
making the deficiency uncollectable as well. A well thought out settlement will get Edgewater paid and keep Colortek and MWW solvent .
MWW's subsidiary, Colortek, owed money for services and product to Merlyn Engineering. Merlyn initiated a lawsuit to collect
$12,000. Settlement was entered into in October, 2012. Payment is due and was to be paid before 12-31-2012.
MWW's subsidiary
Colortek filed with the Michigan Tax Tribunal to have the 2011 property tax assessment lowered by Baroda Township. The matter
was lost in both the Tribunal and at MWW. After working with the Township and Tribunal, on December 4, 2012 the Tribunal agreed
to enter a Stipulated Order reducing the property assessment for 2011 and 2012 by approximately $150,000 for each year.
In
March, 2012, Colortek received a letter from the attorney for Reliable Analysis demanding payment of an overdue account in
the amount of $21,711. The attorney was instructed direct all future correspondence to MWW's legal counsel. No further request
has been received.
WLC brought a lawsuit against MWW to collect past due amounts for services. A consent judgment with installment
payment terms. The amount should be paid off in January 2014.
NOTE 18 – SUBSEQUENT EVENTS
There were 200,264,188 common shares
issued for note conversions and 163,096,802 common shares for Series E conversions and for services rendered 54,509,616 common shares after
September 30, 2012.
The Company issued $179,500 of Notes
Payable.
The Company is in default with note holder
due as of November 22, 2012. Default interest rate of 22% now applies.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
There are no changes and/or disagreements
with RBSM LLP, the company’s current independent registered accounting firm.
ITEM
9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURE
We maintain disclosure controls and procedures,
as defined in Rule 13a-15(e) promulgated under the Exchange Act that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2012. Based on the evaluation of these disclosure controls and procedures, and in light of the
material weaknesses found in our internal controls, the Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were not effective.
MANAGEMENT REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange
Act. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance
that a misstatement of our financial statements would be prevented or detected. Under the supervision of our Chief Executive Officer
and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting
as of September 30, 2012 using the criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In its
assessment of the effectiveness of internal control over financial reporting as of September 30, 2012, we determined that control
deficiencies existed that constituted material weaknesses, as described below:
|
|
O
|
lack of documented policies
and procedures;
|
|
|
O
|
we have no audit committee;
|
|
|
O
|
There is a risk of management override given
that our officers have a high degree of involvement in our day to day operations.
|
|
|
O
|
there is no policy on fraud and no code of ethics
at this time, though we plan to implement such policies in fiscal 2012; and
|
|
|
O
|
There is no effective separation of duties,
which includes monitoring controls, between the members of management.
|
Management is currently evaluating what
steps can be taken in order to address these material weaknesses.
Accordingly, we concluded that these control
deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis by the Company's internal controls.
As a result of the material weaknesses
described above, Chief Executive Officer and Chief Financial Officer has concluded that the Company did not maintain effective
internal control over financial reporting as of September 30, 2012 based on criteria established in Internal Control—Integrated
Framework issued by COSO.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL
REPORTING
During the fiscal year ended September
30, 2012, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE.
Michael Winzkowski, age 61 is the sole
director of MWW. At present, MWW's directors serve without compensation for acting as directors and do not receive any special
compensation for committee participation or special assignments.
MWW does not have a majority of independent
directors, have a separately designated audit committee nor a person designated as an audit committee member financial expert.
MWW does not have a majority of independent board members, separately designated audit committee or an audit committee member
financial expert because the cost of identifying, interviewing, appointing, educating, and compensating such persons would outweigh
the benefits to its stockholders at the present time. If MWW is successful in its efforts to secure additional capital, the resources
may be available to appoint additional directors.
In August 1997, Mr. Winzkowski (age 61)
became Director of the Inalfa Industries Global Aftermarket Operations, CEO of North America and a member of the Board of Directors.
In September 2000, Mr. Winzkowski left his position with Inalfa to serve as the President of Marketing Worldwide. Mr. Winzkowski
has served as Chief Executive Officer, President, Secretary and Director of MWW Corporation since October 2003. Mr. Winzkowski
holds a degree in chemical Bio-Engineering and in addition studied Business, Marketing and Accounting Administration. He is an
accomplished commercial pilot with close to 10,000 Hrs. of flight experience, holding European and US Commercial, Air Transport
Pilot and Instrument pilot certificates and a variety of Turboprop and Business Jet type ratings along with his single and multi-engine
ratings. Mr. Winzkowski is a member and manager of JCMD Properties LLC. MWW moved into a new facility in Howell, Michigan as its
principal business location, which was built to suit MWW's requirements by JCMD Properties LLC under a long term lease agreement.
(See Certain Relationships and Related Transactions). JCMD LLC was formed in the state of Michigan on December 31, 2003 as a property
development and management company.
DIRECTORS, EXECUTIVE OFFICERS
Mr. Winzkowski has been employed by the
company since its inception and is currently Chairman of the Board, President and sole board member of the company.
On July 20, 2010, Marketing Worldwide
Corporation appointed Charles Pinkerton as the Company’s Chief Executive Officer. Mr. Pinkerton is 59 years old
and has over 35 years’ experience working with Fortune 500 Corporations within the automotive, petroleum, retail and construction
arenas. Within these companies, Mr. Pinkerton has held the positions as Vice President Sales & Marketing, Director of Business
Development and Director of Operations and has established relationships with companies such as BP, Amoco, Citgo and others. From
1998 to 2001, in his position as Executive Vice President of Kux Manufacturing, Inc., a supplier of automotive products for the
US market, he has established longstanding relationships with companies such as Honda, Nissan, GM, Toyota, Ford and Mazda among
others. From 2001 until joining MWW, he served as President and CEO of Kux Architectural Products and as Director of Business
for Engineered Tax Services. Mr. Pinkerton is also currently holding the position of Chief Financial Officer.
Rainer Poertner, Business Development,
has served as a consultant to the Company since its inception. Mr. Poertner has a 23-year record of accomplishments in founding,
leading and consulting with private and publicly traded companies in the USA and Europe. As founder, CEO, Chairman and majority
shareholder of two publicly traded companies; he was responsible for managing the companies' financial, technical and business
development and secured funding for acquisitions and corporate working capital purposes through a network of private investors
and US and overseas investment banking firms.
Debbie Hallman, which has been employed
by the Company since inception has taken over the responsibility as director of accounting and is working closely with our outside
CPA and our auditors in preparation and the submission of all SEC filings.
Section 16(a) Beneficial Ownership Reporting
Compliance
MWW is not aware of any reporting person
that failed to file on a timely basis, reports required by Section 16(a) of the Exchange Act during the most recent fiscal year.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (CONTINUED)
Code of Ethics
MWW does not have a code of ethics but
has drafted a document and intends to implement a code of ethics in 2013.
ITEM 11. EXECUTIVE COMPENSATION.
The Summary Compensation Table below identifies
the compensation to the officers of MWW.
|
SUMMARY COMPENSATION TABLE
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
|
(i)
|
|
|
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonequity
|
|
|
qualified
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incentive
|
|
|
deferred
|
|
|
All
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
plan
|
|
|
compensation
|
|
|
other
|
|
|
|
|
|
Position
|
|
Year
|
|
|
Salary($)
|
|
|
Bonus($)
|
|
|
Awards($)
|
|
|
Awards($)
|
|
|
compensation($)
|
|
|
earnings($)
|
|
|
compensation($)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
|
|
|
2012
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
30,000
|
|
|
Winzkowski
|
|
|
2011
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
Chairman of the Board
|
|
|
2010
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
|
|
|
2012
|
|
|
|
73,326
|
|
|
|
0
|
|
|
|
30,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
103,326
|
|
|
Pinkerton
|
|
|
2011
|
|
|
|
75,877
|
|
|
|
0
|
|
|
|
16,000
|
|
|
|
20,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
111,877
|
|
|
CEO
|
|
|
2010
|
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MWW did not make any option or SAR grants in its last fiscal
year and has not adopted a long term incentive compensation plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the ownership, as January 9, 2013, of our voting securities by each person known by us to be
the beneficial owner of more than 5% of our outstanding voting securities, each of our directors and executive officers; and
all of our directors and executive officers as a group. The information presented below regarding beneficial ownership of
our voting securities has been presented in accordance with the rules of the SEC and is not necessarily indicative of ownership
for any other purpose. This table is based upon information derived from our stock records. Unless otherwise indicated in
the footnotes to this table and subject to community property laws where applicable, we believe that each of the shareholders
named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.
Except as set forth below, applicable percentages are based upon 470,667,013 shares of Common Stock outstanding as of January
9, 2013. The Company's Series D Super Voting Preferred Stock has 10,000 votes per share and votes with the Common Stock on
all matters. As such, the owners of the Company's outstanding 90,002 shares of Series D Super Voting Preferred Stock have
900,020,000 votes on all matters and can control the election of directors and other matters voted on by the shareholders
of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (CONTINUED)
Security Ownership of Certain Beneficial
Owners and Management
|
(1)
|
|
(2)
|
|
(3)
|
|
(4)
|
|
|
Title of Class
|
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of Class
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred
|
|
Rainer Poertner
|
|
39,062 shares (direct)
|
|
|
43.40
|
%
|
|
|
2212 Grand Commerce Drive
|
|
|
|
|
$.00001 par value common shares
|
Howell, MI 48855
|
12,015,442 shares (direct)
|
31.61
|
%
|
|
Issued upon conversion of warrants
|
|
200,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred
|
|
Michael Winzkowski
|
|
31,156 shares (direct)
|
|
|
34.62
|
%
|
|
|
2212 Grand Commerce Drive
|
|
|
|
|
$.00001 par value common stock
|
Howell, MI 48855
|
5,016,383 shares (direct)
|
>1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred
|
|
Charles Pinkerton
|
|
16,902 shares (direct)
|
|
|
18.78
|
%
|
|
|
2212 Grand Commerce Drive
|
|
|
|
|
$.00001 par value common stock
|
Howell, MI 48855
|
5,002,667 shares (direct)
|
>1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred
|
|
Deborah Hallman
|
|
2,880 shares (direct)
|
|
|
3.20
|
%
|
|
|
2212 Grand Commerce Drive
|
|
|
|
|
$.00001 par value common stock
|
Howell, MI 48855
|
2,000,000 shares (direct)
|
>1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
Alpco
|
|
63,563,469 shares (direct)
|
|
|
13.50
|
%
|
|
|
440 East 400 South
|
|
|
Salt Lake City, UT 84111
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
BNP Paribas Securities Corp
|
|
46,501,366 shares (direct)
|
|
|
9.88
|
%
|
|
|
555 Croton Road
|
|
|
King of Prussia, PA 19406
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
St. George Investments
|
|
41,760,000 shares (direct)
|
|
|
34.87
|
%
|
|
|
303 East Wacker Drive
|
|
|
Issued upon conversion of Notes Payable
|
Ste 1200
Chicago, IL 60601
|
187,862,069 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
National Financial Services LLC
|
|
35,938,233 shares (direct)
|
|
|
7.64
|
%
|
|
|
New Port Office Center 111
|
|
|
499 Washington Blvd. 5
th
Fl NJ5A
|
|
|
Jersey City, NJ 07310-2010
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
SGI Group LLC
|
|
28,876,000 shares (direct)
|
|
|
6.14
|
%
|
|
|
6538 North Christina Ave.
|
|
|
Lincolnwood, IL 60712
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
Asher Enterprises Inc.
|
|
27,540,231 shares (direct)
|
|
|
71.32
|
%
|
|
|
One Linden Place, Ste. 207
|
|
|
Issued upon conversion of Notes Payable
|
Great Neck, NY 11021
|
1,074,323,943 shares
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
Panache Capital LLC
|
|
24,454,000 shares (direct)
|
|
|
39.53
|
%
|
|
|
303 Merrick Road, Ste. 504
|
|
|
Issued upon conversion of Notes Payable
|
Lynbrook, NY 11563
|
572,485 shares
|
|
Issued upon conversion of Series E Preferred
|
|
266,666,667 shares
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
Southridge Partners II LP
|
|
18,100,000 shares (direct)
|
|
|
48.61
|
%
|
|
|
90 Grove Street Ste 204
|
|
|
Issued upon conversion of Notes Payable
|
Ridgefield, CT 06877
|
409,523,810 shares
|
|
Issued upon conversion of Series E Preferred
|
|
457,265 Shares
|
|
|
|
|
|
|
|
|
|
|
|
$.00001 par value common stock
|
|
Hillair Capital Investment LP
|
|
22,775,000 shares (direct)
|
|
|
51.87
|
%
|
|
|
21 Old Katonah Dr.
|
|
|
Issued upon conversion of Notes Payable
|
Katona, NY 10536
|
460,000,000 shares
|
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE.
On October 1, 2003, MWW acquired 100%
of the membership interests in Marketing Worldwide LLC, a Michigan limited liability company ("MWWLLC"), in a tax-free
exchange whereby MWWLLC became a wholly owned subsidiary of MWW. Under the Purchase Agreement, the three selling members of MWWLLC
were issued 9,600,000 shares of common stock. Michael Winzkowski received 4,564,800 shares, James C. Marvin received 4,564,800
shares and Gregory G. Green received 470,400 shares of MWW under the Purchase Agreement. Immediately following the transaction,
Michael Winzkowski and James C. Marvin became the officers and directors of MWW. Mr. Winzkowski and Mr. Marvin serve as members
of MWW's board of directors without compensation.
MWW does not have any independent directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES.
The following table sets forth fees billed
to us by our auditors during the fiscal years ended September 30, 2012 and 2011 for: (i) services rendered for the audit of our
annual consolidated financial statements and the review of our quarterly financial statements, (ii) services by our auditor that
are reasonably related to the performance of the audit or review of our consolidated financial statements and that are not reported
as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and tax planning, and (iv) all other fees
for services rendered.
|
|
|
|
|
September 30,
|
|
|
September 30 ,
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
(i)
|
|
Audit Fees
|
|
$
|
79,980
|
|
|
$
|
164,283
|
|
|
(ii)
|
|
Audit Related Fees
|
|
|
|
|
|
|
13,650
|
|
|
(iii)
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
|
(v)
|
|
All Other Fees
|
|
|
—
|
|
|
|
—
|
|
|
Total fees
|
|
|
|
$
|
79,980
|
|
|
$
|
177,933
|
|
AUDIT FEES. Consists of fees billed for
professional services rendered for the audit of our consolidated financial statements and review of the interim consolidated financial
statements included in quarterly reports and services that are normally provided by the Company's auditor/s in connection with
statutory and regulatory filings or engagements."
AUDIT-RELATED FEES. Consists of fees billed
for assurance and related services that are reasonably related to the performance of the audit or review of MWW's consolidated
financial statements and are not reported under "Audit Fees."
TAX FEES. Consists of fees billed for
professional services for tax compliance, tax advice and tax planning.
ALL OTHER FEES. Consists of fees for products
and services other than the services reported above.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL
OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS
The Company currently does not have a
designated Audit Committee, and accordingly, the Company's Board of Directors' policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax
services and other services. Pre- approval is generally provided for up to one year and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a specific budget. The independent auditors and management
are required to periodically report to the Company's Board of Directors regarding the extent of services provided by the independent
auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also
pre-approve particular services on a case-by-case basis.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a) See the consolidated financial
statements listed in Item 8.
(b) 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 ******
(10)(16) Lease Agreement and Amendment to Lease Agreement with
JCMD Properties, LLC ******
(10)(17) Consulting Agreement with Rainer Poertner dated July
1, 2006 ******
(10)(18) Waiver of Cashless Exercise Provisions in Warrant
by Wendover Investments Ltd. *******
(10)(19) Waiver of Cashless Exercise Provisions in Stock Option
by Richard O. Weed *******
(10)(20) Extension of Employment Agreement with Michael Winzkowski
dated October 15, 2006
(10)(21) Extension of Employment Agreement with James Marvin
dated (21) Subsidiaries of Registrant *
(31)(1) Certification of Chief Executive Officer pursuant to
Section302 of the Sarbanes-Oxley Act of 2002.
(31)(2) Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32)(1) Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation S-K.
(32)(2) Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, furnished under Exhibit 32 of Item 601 of Regulation S-K.
* Previously filed on February 11, 2005 as part of the Registration
Statement on Form 10-SB12G of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 1019687-4-279.
** previously filed on August 10, 2005 as part of the Registration
Statement on Form 10-SB12G/A Amendment No. 1 of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 0001019687-04-001719
*** previously filed on November 9, 2005 as part of the Registration
Statement on Form 10-SB12G/A Amendment No. 2 of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 0001019687-04-002436.
**** Previously filed on January 31, 2006 as part of the Form
10-KSB for the year ended September 30, 2005 of Marketing Worldwide Corporation SEC File 0-50586 Accession Number 0001019687-05-000207.
***** previously filed on March 17, 2006 as part of the Form
SB-2 of Marketing Worldwide Corporation SEC File 333-123380 Accession Number 0001019687-05-000728.
****** previously filed on September 15, 2006 as part of the
Form SB-2 of Marketing Worldwide Corporation SEC File 333-123380 Accession Number 0001019687-05-002649.
******* previously filed on December 7, 2006 as part of the
Form SB-2 of Marketing Worldwide Corporation SEC File 333-123380 Accession Number 0001019687-05-003367.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES (CONTIUNUED)
(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.
SIGNATURES
Pursuant to the requirements of section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
MARKETING WORLDWIDE CORPORATION
|
|
|
|
|
|
|
|
|
BY:
|
/s/ Charles Pinkerton
|
|
|
|
|
NAME: Charles Pinkerton
|
|
|
|
|
TITLE: CHIEF EXECUTIVE OFFICER
|
|
|
|
|
Date: January 14, 2013
|
|
Pursuant to requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
|
|
BY:
|
/s/ Charles Pinkerton
|
|
|
|
|
NAME: Charles Pinkerton
|
|
|
|
|
TITLE: CHIEF EXECUTIVE OFFICER,
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SECRETARY AND DIRECTOR
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Date: January 14, 2013
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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 FINANCIAL OFFICER
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Date: January 14, 2013
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