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.
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Quantitative and Qualitative Disclosures About Market Risk.
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Not applicable for a smaller reporting company.
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Item 4T.
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Controls and Procedures.
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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
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Item 1.
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Legal Proceedings.
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We are not currently a party to any
legal proceedings required to be described in response to Item 103 of Regulation S-K.
Not applicable for a smaller reporting company.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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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.
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Item 3.
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Defaults Upon Senior Securities.
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None.
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Item 4.
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Submission of Matters to a Vote of Security Holders.
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None.
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Item 5.
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Other Information.
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None.
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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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