Net cash used in operating activities
in each of the nine months ended September 30, 2008 and the nine months ended September 30, 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 increased $46,903 for nine months ended September 30, 2008 as compared to an
decrease $84,174 for nine months ended September 30, 2007, while billings in excess of costs and estimated earnings decreased
$19,976 for the nine months ended September 30, 2008 and decreased $80,056 for the comparable period in fiscal 2007.
Net cash used in investing activities was $883,255 in the nine months ended September 30, 2008 as compared to $318,640 in the nine months ended September 30, 2007.
Net cash provided by financing activities for nine months ended September 30, 2008 was $48,603 as compared to $2,673,243in the nine months ended September 30, 2007. During the 2008 period we received $56,613 from an increase in our factor payable which was offset by a repayment of notes payable of $8,010.
From time to time Mr. Marmion, our CEO and principal stockholder, advances us funds for working capital purposes. A portion of these advances are unsecured, bear interest at 6% per annum and are due on demand. At September 30, 2008 we owed him $334,056.
Our capital commitments for the
remaining of 2008 include approximately $232,000 which is related to the costs associated with completing our new facility. We spent
approximately $879,380 during the year on this project.. In the second quarter 2008, we entered into a Line of Credit Agreement up
to $500,000 with Aquent LLC. The agreement is to provide factoring for the company at what we believe to be much better terms than
were had with our previous factoring company. At September 30, 2008 we had $56,613 outstanding under this line of credit with a
current interest rate of 1.75% per annum.
We believe this will enable us to have the 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. Although, given that our orders on the general purpose wall mount units have declined, we are anticipating a new influx of orders for our explosion proof equipment.
We also presently have approximately $2,719,927 principal outstanding, exclusive of debt discount, under the convertible debentures we issued during March 2007. The debentures have a five year term and bear interest at 12% per annum, compounded daily. The interest is payable monthly, in advance. Beginning in October 2007 we were required to make amortizing payments of principal plus interest in the amount equal to $224,375.41 and this amount can be satisfied by conversion of the debenture into shares of our common stock. During the nine months ended September 30, 2008 approximately we have not made any of the amortizing payments, however, we have continued to make monthly interest payments. At September 30, 2008, we owe $1,974,500 in amortizing principal payment that have not been made. As a result of our failure to make interest and principal payments when due, we continue to negotiate a
possible restructure of the obligation as we have not received a notice of default from the debenture holders. The holders, however, may elect to avail themselves of remedies available to them if an event of default is exercised.
We need to raise additional capital to provide sufficient funds to complete the construction of our facility and for general working capital. In addition, we are seeking financing to restructure the remaining outstanding debentures or to retire same. 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, and
• we have granted the debenture holders a lien on all of our assets.
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We continue to aggressively seek to raise the capital necessary to not only complete our manufacturing facility but to fund our operating expenses, pay our obligations as they become due and repay the debenture obligations. Although we are currently in negotiations with third parties to secure this capital, our abilities to secure the capital are made more difficult by the size and leverage of our company combined with the uncertainties in the capital markets. We do not, however, presently have any firm commitments for this additional funding and there are no assurances we will be successful in obtaining same. If we are unable to raise capital as needed to complete our manufacturing facility, 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 nine months ended September 30, 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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None.
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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None.
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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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No.
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Description
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31.1
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Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
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31.2
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Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer
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32.1
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Section 1350 Certification of Chief Executive Officer
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32.2
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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: November 18, 2008
By:
/s/ Ellen Raidl
Ellen Raidl, Treasurer, principal financial and accounting officer
Date: November 18, 2008
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