Marmion Industries Corp - Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

(Mark One)

Form 10-Q

 

[√]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2008

 

or

 

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

 

For the transition period from __________________ to _________________

Commission file number: 000-31507

 

MARMION INDUSTRIES CORP.

(Name of registrant as specified in its charter)

 

Nevada	06-1588136
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

9103 Emmott Road, Building 6, Suite A, Houston, Texas	77040
(Address of principal executive offices)	(Zip Code)

 

[phone]

(Registrant’s telephone number, including area code)

 

not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes [√]  No [  ]

 

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

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer (Do not check if smaller reporting company)	[  ]	Smaller reporting company	[√]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes [  ]  No [√]

 

Indicated the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 90,741,190 shares of common stock are issued and outstanding as of May 15, 2008.

 

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TABLE OF CONTENTS

 

		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	9
Item 3.	Quantative and Qualitative Disclosures About Market Risk.	13
Item 4T	Controls and Procedures.	13
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	14
Item 1A.	Risk Factors.	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	14
Item 3.	Defaults Upon Senior Securities.	14
Item 4.	Submission of Matters to a Vote of Security Holders.	14
Item 5.	Other Information.	14
Item 6.	Exhibits.	14

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

Certain statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, availability of sufficient capital to fund our ongoing operations and satisfy our obligations as they become due, our future strategic, operational and financial plans, potential acquisitions, anticipated or projected revenues, expenses and operational growth, markets and potential customers for our products and services, plans related to sales strategies and efforts, the anticipated benefits of our relationships with strategic partners, growth of our competition, our ability to compete, the adequacy of our current facilities and our ability to obtain additional space, use of future earnings, and the feature, benefits and performance of our current and future products and services and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report in its entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT

 

•          “Marmion, “ “we,” “us,” “ours,” and similar terms refers to Marmion Industries Corp., a Nevada corporation, and our subsidiary, and

 

•          “Marmion Air Service” refers to Marmion Investments, Inc., a Texas corporation and a wholly-owned subsidiary of Marmion.

 

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PART 1 - FINANCIAL INFORMATION

 

Item 1.

Financial Statements.

 

MARMION INDUSTRIES CORPORATION

CONSOLIDATED BALANCE SHEETS

 

		March 31,			December 31,
		2008			2007
ASSETS		(unaudited)			(audited)
Current Assets:
Cash		$	994,238		$	1,291,966
Accounts receivable, net of allowance for doubtful accounts of $86,253 and $84,818 respectfully			981,965			539,629
Costs and estimated earnings in excess of billings on uncompleted contracts			59,805			46,903
Inventory			284,387			176,251
Employee Advances			130			250
Prepaid Expenses			3,738			10,408
Total Current Assets			2,324,263			2,065,406
Property and equipment, net of $180,790 and $170,033 accumulated depreciation, respectively			480,043			410,694
Deferred Financing Cost			70,000			87,500
Total Assets		$	2,874,307		$	2,563,600
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable		$	415,216		$	499,331
Accrued Expenses			59,597			81,650
Accrued Salaries - Officers			344,592			344,592
Advances-Stockholder			334,056			334,056
Current Maturities of Notes Payable			11,183			10,847
Convertible Note Payable-Current			1,781,511			1,691,940
Factor Payable			228,142			—
Billings in excess of costs and estimated earnings on uncompleted contracts			164,487			49,145
Total Current Liabilities			3,338,784			3,011,561
Notes Payable, net of current maturities			19,882			22,807
Convertible Note Payable, net of current maturities			468,058			460,950
Total Liabilities			3,826,724			3,495,318
COMMITMENTS AND CONTINGENCIES			—			—
STOCKHOLDER'S EQUITY (DEFICIT):
Series A preferred stock, $.001 par value, 500,000,000 shares designated, 9,500,000 and 9,500,000 shares issued and outstanding, respectively			9,500			9,500
Series B preferred stock, $.001 par value, 30,000,000 shares designated, 30,000,000 and 30,000,000 shares issued and outstanding, respectively			30,000			30,000
Common stock, $.001 par value, 500,000,000 shares authorized, 90,741,190 and 85,356,487 shares issued and outstanding, respectively			90,741			85,356
Additional paid-in capital			15,236,831			15,187,020
Accumulated deficit			(16,319,490	)		(16,243,595	)
Total Stockholder's Equity (Deficit)			(952,418	)		(931,718	)
Total Liabilities and Stockholder's Equity (Deficit)		$	2,874,307		$	2,563,600

 

See notes to consolidated financial statements.

 

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MARMION INDUSTRIES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three Months Ended
		March 31,
		2008			2007
		(Unaudited)			(Unaudited)
REVENUES		$	1,882,167		$	1,627,935
COSTS OF SALES			1,421,075			1,371,465
GROSS MARGIN			461,092			256,470
COSTS AND EXPENSES:
Salaries and employee benefits			144,453			122,247
General and administrative			165,369			171,504
Depreciation and amortization			10,757			7,863
TOTAL COSTS AND EXPENSE			320,579			301,614
INCOME (LOSS) FROM OPERATIONS			140,514			(45,144	)
OTHER INCOME (EXPENSE):
Interest expense			(224,349	)		(472,717	)
Other income			7,942			—
NET (LOSS)		$	(75,895	)	$	(517,861	)
Net (loss) per share:
Basic and diluted net (loss) per share		$	(0.00	)	$	(0.01	)
Weighted average shares outstanding:
Basic and diluted			88,224,037			50,704,434

 

See notes to consolidated financial statements.

 

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MARMION INDUSTRIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Three Months Ended
		March 31,
		2008			2007
		(Unaudited)			(Unaudited)
OPERATING ACTIVITIES:
Net (Loss)		$	(75,895	)	$	(517,861	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			10,757			7,863
Common Stock issued for services			34,285			8,400
Beneficial conversion feature and other interest cost amortized			135,090			455,933
Changes in assets and liabilities:
Accounts receivable			(442,336	)		305,511
Inventory			(108,136	)		(98,998	)
Other Assets			6,790			2,655
Costs and estimated earnings in excess of billings			(12,902	)		(49,812	)
Accounts payable			(84,116	)		(104,866	)
Accrued expenses			(22,053	)		36,149
Billings in excess of costs and estimated earnings			115,342			(192,260	)
Net cash used in operating activities			(443,174	)		(147,286	)
INVESTING ACTIVITIES:
Purchase of property and equipment			(80,107	)		(2,436	)
Net cash used in investing activities			(80,107	)		(2,436	)
FINANCING ACTIVITIES:
Advances, shareholder (net)			—			60,000
Net change in factor payable			228,142			(104,299	)
Net proceeds from convertible note payable			—			610,000
Repayments of notes payable			(2,589	)		(2,295	)
Net cash provided by financing activities			225,553			563,406
NET CHANGE IN CASH			(297,728	)		413,684
CASH, beginning of period			1,291,966			1,785
CASH, end of period		$	994,238		$	415,469
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid		$	3,028		$	1,636
Income taxes paid		$	—		$	—
NON CASH FINANCING ACTIVITIES:
Conversion of debt to equity		$	20,911		$	72,500
Issuance of warrants with debt		$	—		$	294,067

 

See notes to consolidated financial statements.

 

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MARMION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

NOTE 1 – BASIS OF PRESENTATION

 

The accompanying unaudited financial statements of Marmion Industries Corp.,(the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation SX. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. The preparation of financial statements in conformity with generally accepted accounting principles 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31,2008. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The company has suffered from negative working capital and shareholder deficiency as of December 31, 2007 and March 31, 2008. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. Management expects to incur additional losses in the foreseeable future and recognizes the need to raise debt or capital to achieve their business plans. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

 

Inventory

 

Finished goods are stated at the lower of cost or net realizable value using a first-in, first-out method of costing. At March 31, 2008, inventory totaling $284,387 consisted of $72,037 in finished goods and $212,350 in raw material.

 

New Accounting Pronouncements

 

FASB 161 - Disclosures about Derivative Instruments and Hedging Activities

 

In March 2008, the FASB issued FASB Statement No. 161, which amends and expands the disclosure requirements of FASB Statement No. 133 with the intent to provide users of financial statements with an enhanced understanding of; how and why an entity uses derivative instruments, how the derivative instruments and the related hedged items are accounted for and how the related hedged items affect an entity’s financial position, performance and cash flows. This Statement is effective for financial statements for fiscal years and interim periods beginning after November 15, 2008. Management believes this Statement will have no impact on the financial statements of the Company once adopted.

 

NOTE 2 – RELATED PARTY TRANSACTIONS

 

Advances – Stockholders

 

The outstanding owed to such stockholder is $132,412 as of March 31, 2008. The additional $201,644 owed is non interest bearing debt. The advances are unsecured and are due upon demand. Interest on these new advances is being accrued at 6% per annum. Accrued interest as of March 31, 2008 for the stockholder advances is $44,843.

 

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MARMION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

NOTE 3 – CONVERTIBLE DEBT

 

As of March 31, 2008, $20,911 in principal had been converted to 3,884,703 shares of common stock with regards to the subscription agreement.

 

NOTE 4 – COMMON STOCK

 

In February 2008, the Company engaged Wakabayashi Fund LLC to provide non-exclusive public relations including serving as an investment banking liaison for a six month term. Compensation for this service was the issuance of 1,500,000 shares of restricted stock. An expense of $12,000 was recorded related to these shares.

 

NOTE 5 – SUBSCRIPTION AGREEMENT

 

On March 22, 2007, we entered into a Subscription Agreement with certain accredited investors pursuant to which they agreed to issue up to $3,000,000 of principal amount of convertible promissory notes and warrants to purchase 100,000,000 shares of our common stock (the “Purchase Agreement”). The convertible notes have a 5 year term and bear interest at twelve percent (12%). Beginning on the 7 ^th month following issuance, we are required to make amortizing payments of principal plus interest in the amount equal to $224,375.41. If a registration statement is effective, this amount can be satisfied by conversion of the debenture. The notes are convertible into our common stock pursuant to a “variable conversion price” equal to the lesser of $0.075 and 75% of the lowest bid price for our common stock during the 20 trading day period prior to conversion. Provided, however, upon an event of default this conversion price will be reduced to the lesser of the then current conversion price and 50% of the lowest bid price for the 15 trading days prior to conversion. In no event shall the conversion price be less than $0.001 per share. In addition, upon an event of default, the holder can exercise its right to increase the face amount of the Debenture by 10% for the first default and by 10% for each subsequent event of default. In addition, the Holder may else to increase the face amount by 2.5% per month paid as liquidated damages The maximum amount that the face amount may be increased by holder for all defaults under the note and any other transaction document is 30%. The debenture is secured by a 1 ^st lien, a guaranty by our subsidiary and a pledge of 4 million shares of Mr. Marmion’s series B preferred stock

 

Under the terms of these notes and the related warrants, the notes and the warrants are convertible/exercisable by any holder only to the extent that the number of shares of common stock issuable pursuant to such securities, together with the number of shares of common stock owned by such holder and its affiliates (but not including shares of common stock underlying unconverted shares of the note or unexercised portions of the warrants) would not exceed 4.99% of our then outstanding common stock as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.

 

Subject to certain terms and conditions set forth therein, the notes are redeemable by us at a rate of between 125% of the outstanding principal amount of the notes plus interest. In addition, so long as the average daily price of our common stock is below the “initial market price”, we may prepay such monthly portion due on the outstanding notes and the investors agree that no conversions will take place during such month where this option is exercised by us.

 

The notes were issued with warrants to purchase up to 100,000,000 shares of our common stock at an exercise price of $0.015 per share, subject to adjustment. To the extent that the shares of common stock underlying the warrant of not registered for resale, the warrant holder may designate a “cashless exercise option.” This option entitles the warrant holders to elect to receive fewer shares of common stock without paying the cash exercise price. The number of shares to be determined by a formula based on the total number of shares to which the warrant holder is entitled, the current market value of the common stock and the applicable exercise price of the warrant.

 

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MARMION INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

We agreed to register the secondary offering and resale of the shares issuable upon conversion of the notes, the shares issuable upon exercise of the warrants by April 16, 2007. Such registration statement was filed on April 11, 2007.

 

We relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for the offer and sale of the notes and the warrants.

 

NOTE 6 – SUBSEQUENT EVENTS

 

On April 23, 2008 the company entered into an agreement for financial sourcing and related consulting services with a registered FINRA broker-dealer. No specific financing has been identified at this time. The Company has agreed to pay the broker-dealer a retainer in the amount of $50,000, of which $25,000 has been paid with the balance due on or before May 21, 2008. Additional compensation will be due to the broker-dealer upon successful completion of any financing.

 

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Item 2.

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

 

Overview

 

We manufacture and modify heating, ventilation and air conditioning (HVAC) equipment for the petrochemical industry, specifically for hazardous location applications. We also sell custom engineered systems for strategic industrial environments and providing commercial HVAC construction services. The explosion-proof market includes industries such as oil and gas exploration and production, chemical plants, granaries and fuel storage depots. We believe there is significant demand for these systems in any area where sensitive computer systems and analysis equipment is located. We currently target refinery and chemical plants service companies that build analyzer shelters, controls centers and computer rooms in corrosive or hazardous locations on our industrial side.

 

We believe that diversification is a key factor to maintain market share in the industrial and commercial markets. Accordingly, in 2004 we began preparations to open a commercial division and hired personnel to bid and supervise commercial projects. During 2006 we began generating revenues from this commercial division and have successfully completed several projects for customers such as Houston Independent School District, City of Clute Texas, State of Texas Parks and Recreation. As of the date of this report, we are currently completing one project for the Houston Independent School District in Pasadena, Texas and midway through two additional projects; one for the Sweeny Independent School District, Sweeny, Texas and the second for a private elementary school in Houston, Texas.

 

Our long-term plans for growth include continued expansion of our industrial base into Louisiana. We have obtained the necessary licenses in Louisiana and during the first quarter of 2008 we received our first orders from customers in Louisiana.

 

Historically, we generally outsourced approximately 5% of our manufacturing. In fiscal 2005, we acquired several pieces metal manufacturing equipment which allowed us to reduce our outsourcing needs and permitted us to take on a diversified work load. During fiscal 2007 we also purchased additional equipment which permitted us to facilitate additional in-house fabrication, thereby cutting time and cost associated with outsourcing this work.

 

Historically, one of our challenges in growing our company was our ability to attract and retain top quality employees which we believe is necessary to accomplish our business objectives. In addition to the competitive marketing in which we operate, this challenge was made more difficult by our failure to offer any type of benefits program to our employees. In addition, our customers normally pay on 45 to 60 day intervals and our suppliers bill us on 30 day terms. While there are no assurances we will continue to sustain our current growth rate, cash flow has also been a major challenge for our company as a result of our growth rate beyond 30% annually. Finally, we believed our ability to continue to grow our business was dependent upon larger facilities. In August 2007 we purchased 2.75 acres of real property and in March 2008 we began construction on a 32,900 square foot facility. We anticipate that the cost of this facility, including the purchase of additional equipment which will permit us to increase our production, will be approximately $1,100,000.

 

Because of the size of our company and the relatively limited market for our securities, like many small public companies we face many challenges in our efforts to raise capital and generally the cost of the capital is very high in relation to costs to larger public companies. In order to provide sufficient capital to meet these challenges, in fiscal 2007 we sold $3,000,000 principal amount of debentures in a transaction described later in this section. The proceeds from this transaction have provided capital to build the new manufacturing facility, reduce related party obligations and purchase new company vehicles as well as providing cash for operations. While these debentures have provided us the much needed cash to address some of our challenges, the cost of the financing, both in the form of interest payments and non-cash expenses we were required to recognize under generally accepted accounting principles as a result of the terms, were significant to our company. In addition, we continue to face a number of challenges in our efforts to grow our company including our ability to expand into new markets, our ability to hire and retain qualified employees and our ability to raise sufficient capital to fund this anticipated growth. 

 

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Results of Operations

 

Three months ended March 31, 2008 as compared to the three months ended March 31, 2007 and Fiscal 2007.

 

The following table provides, for the periods indicated, certain key ratios:

 

	March 31,		Change       (+/-)
	2008	2007
	(unaudited)
Cost of sales as a percentage of revenues	75.5%	84.2%	-8.7%
Gross profit margin	24.5%	15.8%	+8.7%
Total costs and expense as a percentage of revenues	17.0%	18.5%	-1.5%
Salaries and employee benefits as a percentage of revenues	7.7%	7.5%	+0.2%
General and administrative as a percentage of revenues	8.8%	10.5%	-1.7%

 

Revenues . Our revenues increased approximately 15.6% for the three months ended March 31, 2008 from the three months ended March 31, 2007. During three months ended March 31, 2008, approximately 33% of our revenues were attributable to equipment for the petrochemical industry and approximately 67% were attributable to our commercial division. The increase in the 2008 period is primarily attributable to the substantial completion of several large commercial projects. We believe our revenues will continue to increase during the balance of 2008. In addition, as a result of our expansion efforts of our industrial division into the Louisiana market, during 2008 we have begun receiving purchase orders from those contacts and anticipate revenues from for this division will also increase in 2008.

 

Cost of Sales and Gross Profit Margin . The decrease in our cost of sales as a percentage of revenues for the three months ended March 31, 2008 versus the three months ended March 31, 2007 is attributable to due to more efficient manufacturing procedures coupled with new quality and purchasing controls As a result our gross profit margins were higher in three months ended March 31, 2008 than the three months ended March 31, 2007.

 

Total Cost and Expenses . Our total costs and expenses which include certain variable costs associated with increases in gas, insurance and certain fixed costs associated with our overhead and fees associated with our reporting requirements under Federal securities laws. Our total costs and expenses increased approximately 6% in the three months ended March 31, 2008 from the three months ended March 31, 2007 which reflected increases in depreciation and amortization expenses, increases in salaries and employee benefits and decreases in general and administrative expenses. Our total costs and expenses as a percentage of revenues in the three months ended March 31, 2008 decreased from three months ended March 31, 2007 as a result of the increase in our revenues.

 

•            Salaries and employee benefits . Salaries and employee benefits increased approximately 18% in the three months ended March 31, 2008 from the three months ended March 31, 2007 which reflects the hiring of additional employees during the 2008 period. As a percentage of revenues, salaries and employee benefits are approximately 7.7%.

 

•            General and administrative . General and administrative expenses decreased approximately 3.5% in the three months ended March 31, 2008 from the three months ended March 31, 2007. This change is primarily attributable to a strategic budgeting of our resources undertaken in an effort to reduce certain fixed expenses. General and administrative expenses as a percentage of revenues decreased in the three months ended March 31, 2008 from the three months ended March 31, 2007 as a result of our overall increase in revenues. While we anticipate that the move to our new facility which is scheduled for the second quarter of 2008 will result in certain cost savings and greater efficiencies, we anticipate that expenses associated with insurance as well as energy costs will continue to escalate in 2008.

 

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•            Depreciation and Amortization . Depreciation and amortization expense increased approximately 36.8% in the three months ended March 31, 2008 from the three months ended March 31, 2007 and is primarily attributable to additional vehicles and equipment purchased last year that were not being depreciated in the three months ended March 31, 2007. We anticipate that depreciation and amortization in 2008 will increase as it will include assets associated with our new manufacturing facility which is currently under construction.

 

Other income (expense). Interest expense decreased approximately $248,368 in the three months ended March 31, 2008 from the three months ended March 31, 2007. During 2007 we issued $3,000,000 principal amount of debentures which pay interest at 12% per annum, compounded daily. Interest expense in the three months ended March 31, 2008 includes $86,231 of interest paid on these debentures, as well as interest on other notes payable related to automotive loans.

 

Other income (expense) for three months ended March 31, 2008 also included $7,942 of other income which represented interest earned on our cash deposits.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. The following table provides certain selected balance sheet comparisons between March 31, 2008 and December 31, 2007:

 

		March 31,		December 31,		$ of
		2008		2007		Change
		(unaudited)
Working capital (deficit)		(1,014,521)		(946,155)		68,366
Cash		994,238		1,291,966		(297,728)
Accounts receivable, net		981,965		539,629		442,336
Inventory		284,387		176,251		108,136
Total current assets		2,324,263		2,065,406		258,857
Property and equipment, net		480,043		410,694		69,349
Total assets		2,874,307		2,563,600		310,707
Accounts payable		415,216		499,331		(84,115)
Convertible notes payable - current		1,781,511		1,691,940		89,571
Factor payable		228,142		0		228,142
Total current liabilities		3,338,784		3,011,561		327,223
Total liabilities		3,826,724		3,495,318		331,406

 

We have completed approximately 50% of the construction of our new manufacturing facility and as a result of this our cash position significantly decreased, and our working capital position deteriorated from December 31, 2007 to March 31, 2008.

 

Net cash used in operating expenses for the three months ended March 31, 2008 was $443,174 as compared to $147,286 for the three months ended March 31, 2007. We used cash in the three months ended March 31, 2008 to fund our operating loss of $75,895 as well as for increases in our accounts receivable and inventory and decreases in our accounts payable and accrued expenses, which were offset by decreases in other assets, as well as an add-back of non-cash items totaling $180,132. These non-cash items included depreciation and amortization ($10,757), the value of common stock issued for services ($34,285) and the beneficial conversion feature and other interest cost amortization ($135,090) related to our convertible notes. During the three months ended March 31, 2007 we used cash to fund our operating loss of $517,861 as well as an increase in inventory and a decrease in accounts payable which were offset by decreases in accounts receivable, other assets and accrued expenses together with an add-back of non-cash items totaling $472,196.

 

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Net cash used in operating activities in each of the three months ended March 31, 2008 and the three months ended March 31, 2007 were also impacted by our revenue recognition policy which provides that we record revenues from long term construction projects on a percentage of completion basis. Costs and estimated earnings in excess of billings decreased $12,902 and $49,812 for three months ended March 31, 2008 and 2007, respectively, while billings in excess of costs and estimated earnings increased $115,342 for the three months ended March 31, 2008 and decreased $192,260 for the comparable period in fiscal 2007.

 

Net cash used in investing activities was $80,107 in the three months ended March 31, 2008 as compared to $2,436 in the three months ended March 31, 2007. This increase is primarily attributable to our purchase of real property on which we are constructing our new facility.

 

Net cash provided by financing activities for three months ended March 31, 2008 was $225,553 as compared to $563,406 in the three months ended March 31, 2007. During the 2008 period we received $228,142 from an increase in our factor payable which was offset by a repayment of notes payable of $2,589. During the 2007 period we received $610,000 from the proceeds of the issuance of a convertible note and $60,000 (net) of advances from our principal stockholder which were offset by decreases of $104,299 in our factor payable and a repayment of a note payable of $2,295.

 

From time to time Mr. Marmion, our CEO and principal stockholder, advances us funds for working capital purposes. These advances are unsecured, bear interest at 6% per annum and are due on demand. At March 31, 2008 we owed him $334,056.

 

Our capital commitments for 2008 are approximately $1,100,000 which is related to the costs associated with completing our new facility. We spent approximately $79,000 during the first quarter on this project. We will also require additional capital to fund anticipated increases in our accounts receivables as a result of increases in our revenues, any expansion of our labor force and other costs associated with the anticipated growth of our company. In addition, while the amounts due under the amortizing payments for the debentures are presently being made through the conversion of those amounts into shares of our common stock, should the debenture holder elect not to make such a conversion we will require funds to meet the debt service on those liabilities.

 

Our ability to raise additional capital, however, is hindered by the terms of the debentures, including:

 

•          we agreed that for the period ended on the earlier of 180 days following the registration of all shares underlying the debentures or the payment of all principal and interest due under the debentures that we would not sell any additional securities or file any registration statements without the prior consent of the debenture holder,

 

•          the debentures and the warrants contain ratchet provisions if we do enter into new financing transactions at prices less than the conversion terms of the debentures,

 

•          we have granted the debenture holders a lien on all of our assets, and

 

•          we are required to make monthly amortizing payments of approximately $224,000 on the debentures which are being made through the issuance of shares of our common stock. These issuances are continuing to dilute our existing stockholders and may have the effect of adversely impacting the market price of our common stock.

 

If we are unable to raise capital as needed to fund our operating expenses and pay our obligations as they become due, our ability to continue as a going concern is in jeopardy. In that event, our growth plans would be scaled back and we could be forced to cease some or all of our existing operations. If we were forced to cease operations, you would lose your entire investment in our company.

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable for a smaller reporting company.

 

Item 4T.

Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures . We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Our management, including our Chief Executive Officer and our Treasurer who serves as our principal financial and accounting officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, and as discussed in greater detail below, our Chief Executive Officer and Treasurer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective:

 

•          to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and

 

•          to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and our Treasurer, to allow timely decisions regarding required disclosure.

 

During the analysis of our internal controls at December 31, 2007 in connection with our implementation of Section 404 of the Sarbanes-Oxley Act of 2002, we identified a number of controls, the adoption of which are material to our internal control environment and critical to providing reasonable assurance that any potential errors could be detected. Our analysis identified control deficiencies related to our recordation of inventory, accounts payable, notes payable/debentures, prepaid expenses and unique or one time or first time transactions. While we have taken certain remedial steps during the three months ended March 31, 2008 to correct these control deficiencies, we have an inadequate number personnel with the requisite expertise in generally accepted accounting principles to ensure the proper application thereof. Due to the nature of these material weaknesses in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected.

 

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

We are not currently a party to any legal proceedings required to be described in response to Item 103 of Regulation S-K.

 

Item 1A.

Risk Factors.

 

Not applicable for a smaller reporting company.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

In February 2008 we issued 1,500,000 shares of our common stock valued at $12,000 to entity as compensation for services to be rendered to us. The shares were issued pursuant to an exemption from registration available under Section 4(2) of the Securities Act. The recipient was an accredited or otherwise sophisticated investor who had such knowledge and experience in business matters that it was capable of evaluating the merits and risks of the prospective investment in our securities. The recipient had access to business and financial information concerning our company.

 

Item 3.

Defaults Upon Senior Securities.

 

None.

 

Item 4.

Submission of Matters to a Vote of Security Holders.

 

None.

 

Item 5.

Other Information.

 

None.

 

Item 6.

Exhibits.

 

No.	Description
31.1	Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of principal financial and accounting officer

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

MARMION INDUSTRIES CORP.

 

By: /s/ Wilbert H. Marmion, III

Wilbert H. Marmion, III, Chief Executive Officer, President

Date: May 19, 2008

 

By: /s/ Ellen Raidl

Ellen Raidl, Treasurer, principal financial and accounting officer

Date: May 19, 2008

 

 

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