**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**





(Mark
      One)





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




For
      The
      Fiscal Year Ended **December
      31, 2006**





[
                ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      transition period from ___________ to _____________





Commission
      File No: **000-31507**





**MARMION
      INDUSTRIES CORP.**


(Exact
      name of issuer 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,
              TX
              77040**(Address
                of principal executive offices, including zip
                code)




Registrant’s
                  telephone number, including area code:
              **(713)
                  466-6585**Securities
                  registered pursuant to Section 12(b) of the Act:
              **None**Securities
                  registered pursuant to Section 12(g) of the Act:
              **$.001
                  par value common
                  stock**




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 twelve months (or 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 o





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-KSB or any amendment
      to this
      Form
      10-KSB. o





State
      issuer's revenues for its most recent fiscal year: $4,613,282.





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      March
      27, 2007: $524,809.





Indicate
      the number of shares outstanding of each of the registrant's classes of common
      stock as of March 27, 2007: 57,709,990 shares of common stock.





Documents
      incorporated by reference: None.





Transitional
      Small Business Disclosure Format (Check one): Yes o No x





1


**PART
      I**





**ITEM
      1. BUSINESS.**





**Our
      Company**




We
      manufacture and market explosion-proof air conditioners, refrigeration systems,
      chemical filtration systems and building pressurizers as well as provide air
      conditional and services for the commercial sector. Our executive office is
      located at 9103 Emmott Road, Building 6, Suite A, Houston, Texas, 77040,
      telephone number (713) 466-6585. We maintain a website at
      www.marmionair.com





**Our
      Business**





**Corporate
      History**





We
      were
      formed in Florida on September 5, 1996 under the name Fairbanks, Inc. On April
      18, 1997, we changed our name to Jet Vacation, Inc. On May 11, 1998 we changed
      our name to Precom Technology, Inc. On October 12, 2002 we again changed our
      name, this time to International Trust & Financial Systems, Inc.


Prior
      to
      2002, we were a blind pool whose sole business plan and direction was to
      identify and merge with an operating business. During 2002 we entered into
      two
      separate transactions to acquire operating businesses. Both acquisitions proved
      not to be profitable and were terminated. During 2002 and 2003, we continued
      our
      efforts to identify and merge with an operating business and entered into
      several agreements and transactions to accomplish that goal.





On
      May
      20, 2004, Wilbert H. Marmion, III our President and Chief Executive Officer,
      contributed all of his shares of common stock in Marmion Investments, Inc.,
      a
      Texas corporation d/b/a Marmion Air Service, to us as a contribution to our
      capital. The shares contributed to us by Wilbert H. Marmion constitute one
      hundred percent of the issued and outstanding shares in Marmion Investments,
      Inc. As a result of the capital contribution by Mr. Marmion, Marmion
      Investments, Inc. became our wholly-owned subsidiary.





In
      July
      of 2004, we completed a merger and change of our domicile from Florida to
      Nevada. We also changed our name from "International Trust and Financial
      Systems" to "Marmion Industries Corp.”





**Current
      Business Plan**





We
      manufacture and modify heating, ventilation and air conditioning (HVAC)
      equipment for the petrochemical industry specifically for hazardous location
      applications. We custom engineer special systems for strategic industrial
      environments. Additionally we perform new commercial HVAC construction services
      currently in the Houston, Texas area.




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. Commercially we are emerging into the new
      HVAC
      construction market to take advantage of the constant new development taking
      place in the Houston area.




With
      the
      demand for oil and the price constantly in today's market, our position in
      this
      industry is poised to take advantage of the increasing boom in petroleum
      expansion taking place both here in the national market as well as the
      international markets emerging in Mexico, the Middle East and South America.
      We
      foresee the next cycle of renovation and new construction in the commercial
      market, and population expansion currently taking place in the gulf-coast area
      to continue long into the future.




In
      November of 2004 our State of Texas Air Conditioning Contractor’s License for
      Marmion Air Service (TACLA019367C) was upgraded to ”A” status allows us to sell
      air conditioners to unlimited tonnages, as opposed to the “B” license which
      limited us to sell equipment up to 20 tons. In October 2005, we received our
      Mechanical and Sheet Metal Contractor License in the State of Louisiana (Lic.
      No. 44001) allowing us to perform projects in that State.




2




Marmion
      Industries Corp. began eight years ago as a HVAC company in Beaumont, Texas.
      We
      then moved to Houston to take advantage of the accessibility to a larger market
      in and around the Houston area. Marmion Industries Corp. has always been owned
      and operated by W. H. Marmion and Ellen Raidl Marmion, who are husband and
      wife.
      In the first few years we acquired an agreement with Nextel Corporation to
      provide service and replacement of HVAC machines across southern Texas. This
      enabled Marmion to grow at a rapid pace as we completed Nextel's 3-G upgrade
      in
      2000 and generated $1.1 million in gross revenues. In early 2001 Marmion began
      building industrial grade machines and providing them to petrochemical customers
      in the Houston area. At that time Nextel began tightening their services budgets
      due to the low price of their stock and approached us to reduce our pricing
      to a
      rate below our cost factor. As a result, we terminated our contract with Nextel
      and made a strategic decision to concentrate on the Industrial markets and
      develop our line of explosion-proof machines as our core business. We developed
      and refined our product line and continued to market to a growing list of
      customers primarily in the Houston area. Our alliance with a major wall mount
      air conditioner manufacturer Marvair, a subsidiary of AHI Holding, Inc., allowed
      us to gain a substantial market share in the industrial market as a reseller
      of
      Marvair products to two large national building manufacturers.




We
      believe that diversification is a key factor to maintain market share in the
      industrial and commercial markets. Accordingly, in 2004 we began making plans
      to
      open a commercial division and hired personnel to bid and supervise commercial
      projects. We have opened our 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 two projects for the Pasadena Independent
      School District in Pasadena, Texas and midway through two additional projects
      for the Houston Independent School District. Until 2003 we operated as an S
      corporation and in 2003 converted to C corp. in anticipation of accessing the
      public markets to enable us to raise capital to grow our business. Today Marmion
      has ten full time employees and depending on the commercial projects undertaken
      as many or more subcontractors to accomplish our business objectives.




One
      of
      our challenges continues to be our ability to attract and keep excellent
      employees to accomplish our business objectives. This challenge is highlighted
      due to the fact that we do not offer any type of benefits program to our
      employees. Cash flow has and remains a major challenge due to the fact that
      we
      are outgrowing our receivables and increasing our growth rate beyond 30 percent
      annually. Our customers normally pay on 45 to 60 day intervals and our suppliers
      bill us on 30 day terms. We need larger facilities and equipment to increase
      profitability and meet increasing demand and we are currently seeking new
      facilities and/or property to erect facilities. We have generally outsourced
      5%
      of our manufacturing. In November 2005, we acquired several pieces metal
      manufacturing equipment which has allowed us to reduce our outsourcing needs.
      This new equipment will allow us to take on a diversified work load, which
      could
      increase our profitability.




Our
      long-term plans for growth include continued expansion of our industrial base
      into Louisiana and abroad. We have recently started servicing the commercial
      market in the Houston area and have obtained the necessary licenses in Louisiana
      and have begun bidding on commercial projects in that area as well. We believe
      that, with right personnel and growth capital, we can grow our industrial and
      commercial division over the next two years.




We
      have
      acquired third party certification (ETL Certification) for the wallmount line
      for our products and have begun the process of getting our hazardous location
      package units as well as our pressurizers certified as well. These third parties
      certify our hazardous location equipment, saying it is indeed explosion-proof
      on
      our industrial line of equipment which will enable us to bid on new jobs and
      we
      believe the certification will allow us to be successful on our bids\. Because
      of third party certification, we will now be able to be listed as an “approved
      supplier/provider” for large multi-national petrochemical company’s
      specifications, as some large oil companies will spec in the company A/C’s they
      want. Normally they will require a UL/CSA listing or another third party
      certification from their suppliers/providers This will allow us to increase
      our
      profit margin on the certified equipment. We are currently educating engineering
      companies in Houston of the options now available to them and their customers.




By
      attracting and keeping better employees and retaining our current ones we
      believe that we can maintain our current growth rate over the next 3-5
      years.





**Competition**




3





As
      of
      December 31, 2006, we had four primary competitors to Marmion within the
      industry. All of these competitors are substantially larger and have greater
      resources than us. In the custom market, the Company competes with many larger
      and smaller manufacturers. We compete on the basis of total value, quality,
      function, serviceability, efficiency, availability of product, product line
      recognition and acceptability of sales outlet. However, in new construction
      where the contractor is the purchasing decision maker, we are often is at a
      competitive disadvantage on sales of its products because of the emphasis placed
      on initial cost; whereas, in the replacement market and other owner-controlled
      purchases, we have a better chance of getting the business since quality and
      long-term cost are generally taken into account.








**Major
      Customers**





Our
      three
      largest customer last year accounted for almost 70% of total sales in 2006,
      with
      our largest customer accounting for 34% of total sales. In order to diversify
      its customer base, we have added to and/or upgraded its sales representation
      in
      various markets. The loss of a significant portion of sales to any of these
      customers could have a material adverse effect on our financial condition.
      In
      addition, many of the arrangements that we have with such customers are by
      purchase order and terminable at will at the option of either party. A
      significant decrease or interruption in businesses of any of our significant
      customers could have a material adverse effect on our financial position,
      results of operations or liquidity.





**Sources
      and Availability of Raw Materials**





The
      most
      important materials purchased by us are steel, copper and aluminum, which are
      obtained from domestic suppliers. We also purchase from other domestic
      manufacturers certain components, including compressors, electric motors and
      electrical controls used in its products. We endeavor to obtain the lowest
      possible cost in its purchases of raw materials and components, consistent
      with
      meeting specified quality standards. We are not dependent upon any one source
      for its raw materials or the major components of its manufactured products.
      We
      reduced our reliance on our largest vendor to 24% from 50% in 2005. By having
      multiple suppliers, we believe that we will have adequate sources of supplies
      to
      meet its manufacturing requirements for the foreseeable future.





We
      attempt to limit the impact of increases in raw materials and purchased
      component prices on its profit margins by negotiating with each of its major
      suppliers on a term basis from six months to one year. However, in each of
      the
      last three years cost increases in basic commodities, such as steel, copper
      and
      aluminum, severely impacted profit margins.





**Employees**





We
      have
      10 full-time employees as of March 27, 2007. As we grow, we will need to attract
      an unknown number of additional qualified employees. Although we have
      experienced no work stoppages and believe our relationships with our employees
      are good, we could be unsuccessful in attracting and retaining the persons
      needed. None of our employees are currently represented by a labor
      union.





**Legal
      Proceedings**





None





**RISK
      FACTORS**





**RISKS
      RELATED TO OUR BUSINESS**





**We
      may not have sufficient funds to operate our business and may not be able to
      obtain additional financing.**





We
      have
      recently completed a financing which could ultimately result in $3 million
      gross
      proceeds to us. We expect these fund to be sufficient to carry out operations
      through at least fiscal 2007. However, if unanticipated expenses, problems,
      and
      difficulties occur which result in material delays in the development of our
      products, we will not be able to operate within our budget. If we do not operate
      within our budget, we will require additional funds to continue our business.
      We
      may not be able to obtain additional financing as needed, on acceptable terms,
      or at all, which would force us to delay our plans for growth and implementation
      of our strategy which could seriously harm our business, financial condition,
      and results of operations. If we need additional funds, we may seek to obtain
      them primarily through stock or debt financings. Those additional financings
      could result in dilution to our stockholders.




4





**We
      may need to raise additional money before we achieve profitability; if we fail
      to raise additional money, it could be difficult to continue our business.**




Based
      on
      our current plans, we believe that we have sufficient financial resources to
      meet our operating expenses and capital requirements for fiscal 2007. If we
      plan
      to expand our operations to manufacture and market additional products or
      services or if we make material acquisitions, we will need to obtain additional
      funds. We may seek additional funding through public or private financing or
      through collaborative arrangements with strategic partners.




You
      should be aware that in the future:




•
            we
                may not obtain additional financial resources when necessary or on
                terms
                favorable to us, if at all; and





•
            any
                available additional financing may not be
                adequate.




If
      we
      cannot raise additional funds when needed, or on acceptable terms, we will
      not
      be able to continue to expand our operations or develop and manufacture our
      products.




**Our
      business can be hurt by an economic downturn.**





Our
      business is affected by a number of economic factors, including the level of
      economic activity in the markets in which we operate. A decline in economic
      activity in the United States could materially affect our financial conditionand
      results of operations. Sales in the commercial and industrial new construction
      markets correlate closely to the number of new homes and buildings that are
      built, which in turn is influenced by cyclical factors such as interestrates,
      inflation, consumer spending habits, employment rates and other macroeconomic
      factors over which we have no control. In the HVACbusiness, a decline in economic activity as a result of these cyclical or other
      factorstypically results in a decline in new construction and replacement
      purchases, which would result in a decrease in our sales volume and
      profitability.





**We
      may be adversely affected by problems in the availability, or increases in
      the
      prices, of raw materials and components.**





Problems
      in the availability, or increases in the prices, of raw materials or components
      could depress our sales or increase the costs of our products. We are dependent
      upon components purchased from third parties, as well as raw materials such
      as
      steel, copper and aluminum. We enter into cancelable contracts on terms from
      six
      months to one year for raw materials and components at fixed prices. However,
      if
      a key supplier is unable or unwilling to meet our supply requirements, we could
      experience supply interruptions or cost increases, either of which could have
      an
      adverse effect on our gross profit.





**We
      may need to develop manufacturing capacity for our existing and future products,
      which will increase our expenses.**





We
      have
      evaluated in the past, and continue to evaluate, the feasibility of acquiring
      manufacturing capabilities to support the production of our products. These
      facilities may be required to meet the production capacities required to produce
      such products for commercial sale at an acceptable cost. We have not
      manufactured these products in the past. Developing these capabilities and
      building or purchasing a facility will increase our expenses with no guarantee
      that we will be able to recover our investment in our manufacturing
      capabilities.





**We
      depend heavily on key personnel, and loss of the services of one or more of
      our
      key executives or a significant portion of any prospective local management
      personnel could weaken our management team adversely affecting our operations.**





Our
      success largely depends on the skills, experience and efforts of our senior
      management, particularly our Chief Executive Officer, Wilbert H. Marmion, III.
      Our operations will also be dependent on the efforts, ability and experience
      of
      key members of our prospective local management staff. The loss of services
      of
      one or more members of our senior management or of a significant portion of
      any
      of our local management staff could weaken significantly our management
      expertise and our ability to deliver health care services efficiently. We do
      not
      maintain key man life insurance policies on any of our officers, although we
      intend to obtain such insurance policies in the future.




5




**Because
      stock ownership is concentrated, you and other investors will have minimal
      influence on stockholders’ decisions.**




Assuming
      that issued and outstanding warrants and options for our common stock have
      not
      been exercised, one of our shareholders controls in excess of 90% of our
      outstanding voting rights as of March 27, 2007. Pursuant to their terms each
      share of our series A preferred stock is and each share of series B preferred
      stock are entitled to that number of votes equal to the number of shares of
      common stock issuable upon conversion of the series A and series B preferred
      stock held by them. As such, Wilbert Marmion, our sole preferred stockholders,
      holds voting rights equal to approximately 3.4 billion shares of common stock
      based on his holdings of series A and series B preferred stock. As a result
      our
      executive officers may be able to significantly influence the management of
      the
      company and all matters requiring stockholder approval, including the election
      of directors. Such concentration of ownership may also have the effect of
      delaying or preventing a change in control of our company.





**We
      rely on a few large customers.**





While
      we
      consider our relationships with our customers to be satisfactory, given the
      concentration of our sales to a few key customers, our continued relationships
      may be subject to the policies and practices of the customers. We continue
      to
      concentrate our efforts on expanding our customer base in order to reduce our
      reliance on our current customers.





**We
      may not be able to compete favorably in the highly competitive
      HVAC** **business.**





Competition
      in our various markets could cause us to reduce our prices or lose market share,
      or could negatively affect our cash flow, which could have an adverse effect
      on
      our future financial results. Substantially all of the markets in which we
      participate are highly competitive. The most significant competitive factors
      we
      face are product reliability, product performance, service and price, with
      the
      relative importance of these factors varying among our product line. Other
      factors that affect competition in the HVAC
      market include the development and application of new technologies and an
      increasing emphasis on the development of more efficient HVAC
      products. Moreover, new product introductions are an important factor in the
      market categories in which our products compete. Several of our competitors
      have
      greater financial and other resources than we have, allowing them to invest
      in
      more extensive research and development. We may not be able to compete
      successfully against current and future competition and current and future
      competitive pressures faced by us may materially adversely affect our business
      and results of operations.





**Our
      quarterly results are subject to fluctuation.**





Our
      quarterly operating results may fluctuate significantly in the future as a
      result of a variety of factors, most of which are outside our control, including
      the demand for our services, seasonal trends in purchasing, the amount and
      timing of capital expenditures; price competition or pricing changes in the
      industry; technical difficulties or system downtime; general economic
      conditions, and economic conditions specific to our industry. Our quarterly
      results may also be significantly impacted by the impact of the accounting
      treatment of acquisitions, financing transactions or other matters. Particularly
      at our early stage of development, occurrences such as accounting treatment
      can
      have a material impact on the results for any quarter. Due to the foregoing
      factors, among others, it is likely that our operating results will fall below
      our expectations or those of investors in some future quarter.





**We
      have no independent directors.**





We
      cannot
      guarantee that our board of directors will have a majority of independent
      directors in the future. In the absence of a majority of independent directors,
      our executive officers, could establish policies and enter into transactions
      without independent review and approval thereof. This could present the
      potential for a conflict of interest between us and our stockholders generally
      and the controlling officers, stockholders or directors.




6





**We
      have agreed to indemnify our directors and officers.**





Our
      officers and directors are required to exercise good faith and high integrity
      in
      our management affairs. Our articles of incorporation provide, however, that
      our
      officers and directors shall have no liability to our stockholders for losses
      sustained or liabilities incurred which arise from any transaction in their
      respective managerial capacities unless they violated their duty of loyalty,
      did
      not act in good faith, engaged in intentional misconduct or knowingly violated
      the law, approved an improper dividend or stock repurchase, or derived an
      improper benefit from the transaction. Our articles and bylaws also provide
      for
      the indemnification by us of the officers and directors against any losses
      or
      liabilities they may incur as a result of the manner in which they operate
      our
      business or conduct the internal affairs, provided that in connection with
      these
      activities they act in good faith and in a manner that they reasonably believe
      to be in, or not opposed to, our best interests, and their conduct does not
      constitute gross negligence, misconduct or breach of fiduciary
      obligations.





**We
      may not manage growth effectively.**





We
      may
      experience rapid growth which will place a significant strain on our managerial,
      operational, and financial systems resources. To accommodate our current size
      and manage growth, we must continue to implement and improve our financial
      strength and our operational systems, and expand, train and manage our sales
      and
      distribution base. There is no guarantee that we will be able to effectively
      manage the expansion of our operations, or that our facilities, systems,
      procedures or controls will be adequate to support our expanded operations.
      Our
      inability to effectively manage our future growth would have a material adverse
      effect on us.





**Substantial
      sales of our stock may impact the market price of our common stock.**




Future
      sales of substantial amounts of our common stock, including shares that we
      may
      issue upon exercise of options and warrants, could adversely affect the market
      price of our common stock. Further, if we raise additional funds through the
      issuance of common stock or securities convertible into or exercisable for
      common stock, the percentage ownership of our stockholders will be reduced
      and
      the price of our common stock may fall.




**The
      marketability and profitability of our products is subject to unknown economic
      conditions** .





The
      marketability and profitability of our products may be adversely affected by
      local, regional, national and international economic conditions beyond our
      control and/or the control of our management. Favorable changes may not
      necessarily enhance the marketability or profitability of the products. Even
      under the most favorable marketing conditions, there is no guarantee that our
      products can be sold or, if sold, that such sale will be made upon favorable
      prices and terms.





**Any
      projections used in this prospectus may not be accurate** .





Any
      and
      all projections and estimates contained in this annual report or otherwise
      prepared by us are based on information and assumptions which management believes to
      be
      accurate; however, they are mere projections and no assurance can be given
      that
      actual performance will match or approximate the projections.





**Issuing
      preferred stock with rights senior to those of our common stock could adversely
      affect holders of common stock.**




Our
      charter documents give our board of directors the authority to issue series
      of
      preferred stock without a vote or action by our stockholders. The board also
      has
      the authority to determine the terms of preferred stock, including price,
      preferences and voting rights. The rights granted to holders of preferred stock
      may adversely affect the rights of holders of our common stock. For example,
      a
      series of preferred stock may be granted the right to receive a liquidation
      preference - a pre-set distribution in the event of a liquidation - that would
      reduce the amount available for distribution to holders of common stock. In
      addition, the issuance of preferred stock could make it more difficult for
      a
      third party to acquire a majority of our outstanding voting stock. As a result,
      common stockholders could be prevented from participating in transactions that
      would offer an optimal price for their shares.





**RISKS
      RELATED TO OUR SECURITIES**




7





**We
      have issued a substantial number of securities convertible into shares of our
      common stock which will result in substantial dilution to the ownership
      interests of our existing stockholders.**





As
      of
      March 27, 2007, approximately 463 million shares of our common stock were
      reserved for issuance upon exercise or conversion of the following securities:
      (i) 363 million shares representing shares of common stock issuable upon
      conversion in full of the outstanding convertible promissory notes issued and
      issuable pursuant to that Subscription Agreement dated as of March 22, 2007
      (without regard to any limitations on conversion); and (ii) 100,000,000 shares
      of common stock issuable upon exercise of in full of the warrants issued to
      the
      holders of the convertible debentures issued pursuant to that Subscription
      Agreement dated as of March 22, 2007 (without regard to any limitations on
      exercise). The convertible notes have a variable conversion price based upon
      the
      trading price of our common stock, with a floor conversion of $0.001 per share.
      If the entire $3 million convertible note was converted at the floor conversion
      price, we would be obligated to issue 3 billion shares of common
      stock.





The
      exercise or conversion of these securities will result in a significant increase
      in the number of outstanding shares and substantially dilute the ownership
      interests of our existing shareholders.





**Our
      convertible securities are convertible into shares of common stock at a discount
      to market price. Most of these shares are eligible for public resale. The
      trading price of our common stock and our ability to raise additional financing
      may be adversely affected by the influx into the market of such a substantial
      number of shares.**





Our
      outstanding convertible notes are presently convertible into approximately
      363
      million shares of common stock at a per share conversion price (based upon
      a 25%
      discount to market price at time of conversion) of approximately $0.00825 (based
      on a March 27, 2007 closing price of 0.011) which is less than the current
      trading price of our shares. Although many of the shares issuable upon
      conversion of our convertible warrants are eligible for public resale under
      Securities and Exchange Commission Rule 144, we have agreed to file a
      registration statement to cover the public resale of all of these shares. This
      significant increase in number of shares available for public sale may have
      a
      negative impact on the trading price of our shares and substantially dilute
      the
      ownership interest of our existing shareholders. In order to raise additional
      financing we would likely be required to issue additional shares of common
      stock
      or securities convertible into common stock at a purchase or conversion price
      as
      applicable, on similar terms. To the extent these factors are viewed negatively
      by the market, it may provide an incentive for persons to execute short sales
      of
      our common stock that could adversely affect the trading price of our common
      stock.





**Our
      recent financing requires a registration statement to become effective within
      90
      days after the filing deadline of April 16, 2007 and if this fails to happen
      we
      will incur liquidated damages.**





We
      recently received financing from an accredited investor pursuant to a
      Subscription Agreement dated March 22, 2007. Such financing requires us to
      file
      a registration statement and have the registration statement declared effective
      by the SEC within 90 days of the filing deadline of April 16, 2007. If such
      registration statement is not declared effective by July16, 2007, we begin
      incurring liquidated damages equal to 2% of the principal of the promissory
      notes issued for each 30 day period that this registration statement is not
      declared effective after July 16, 2007.





**The
      conversion price of the promissory notes based on our recent financing is based
      on an average of our closing bid price of our intra day trading prices of our
      common stock over a certain period of time prior to conversion and the decrease
      of the intra day trading price will result in issuance of a significant increase
      of shares resulting in dilution to our shareholders.**





The
      conversion price of the promissory notes in our recent financing is equal to
      the
      lesser of (i) .075 and (ii) 75% of the lowest bid price for the Common Stock
      during the twenty (20) trading day period prior to conversion but in no event
      shall the conversion price be less than $0.001 per share.. The price of our
      common shares may fluctuate and the lower intra-day trading price in the future,
      will result in a conversion ratio resulting in issuance of a significant amount
      of our common shares to the promissory note holders. This will result in our
      present shareholders being diluted.





**Selling
      shareholders may impact our stock value through the execution of short sales
      which may decrease the value of our common stock.**




8





Short
      sales are transactions in which a selling shareholder sells a security it does
      not own. To complete the transaction, a selling shareholder must borrow the
      security to make delivery to the buyer. The selling shareholder is then
      obligated to replace the security borrowed by purchasing the security at the
      market price at the time of replacement. The price at such time may be higher
      or
      lower than the price at which the security was sold by the selling shareholder.
      If the underlying security goes down in price between the time the selling
      shareholder sells our security and buys it back, the selling shareholder will
      realize a gain on the transaction. Conversely, if the underlying security goes
      up in price during the period, the selling shareholder will realize a loss
      on
      the transaction. The risk of such price increases is the principal risk of
      engaging in short sales. The selling shareholders in this registration statement
      could short the stock by borrowing and then selling our securities in the
      market, and then converting the stock through either the Note or Warrants at
      a
      discount to replace the security borrowed. Because the selling shareholders
      control a large portion of our common stock, the selling shareholders could
      have
      a large impact on the value of our stock if they were to engage in short selling
      of our stock. Such short selling could impact the value of our stock in an
      extreme and volatile manner to the detriment of other shareholders.





**Our
      common stock is deemed to be a “penny stock” which may make it more difficult
      for investors to sell their shares due to suitability
      requirements** .





Our
      common stock is deemed to be a "penny stock" as that term is defined in Rule
      3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks
      are
      stock:





-
      With a
      price of less than $5.00 per share;





-
      That
      are not traded on a "recognized" national exchange;





-
      Whose
      prices are not quoted on the NASDAQ automated quotation system; or





-
      Of
      issuers with net tangible assets of less than $2.0 million (if the issuer has
      been in continuous operation for at least three years) or $5.0 million (if
      issuer has been in continuous operation for less than three years), or with
      average revenues of less than $6.0 million for the last three
      years.





Broker/dealers
      dealing in penny stocks are required to provide potential investors with a
      document disclosing the risks of penny stocks. Moreover, broker/dealers are
      required to determine whether an investment in a penny stock is a suitable
      investment for a prospective investor. These requirements may reduce the
      potential market for our common stock by reducing the number of potential
      investors. This may make it more difficult for our shareholders to sell shares
      to third parties or to otherwise dispose of them. This could cause our share
      price to decline.





9


**We
      do not expect to pay dividends for the foreseeable future.**





For
      the
      foreseeable future, it is anticipated that earnings, if any, that may be
      generated from our operations will be used to finance our operations and that
      cash dividends will not be paid to holders of our common stock.





**ITEM
      2. DESCRIPTION OF PROPERTY.**





Our
      principal offices are located at 9103 Emmott Road, Building 6, Suite A, Houston
      Texas 77040. We lease our offices and warehouse facilities under three operating
      lease which all expire on May 31, 2007. **** The
      monthly cost of the lease is $4,075.00. We are currently seeking new facilities
      and/or properties to erect new facilities.





**ITEM
      3. LEGAL PROCEEDINGS.**





None.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





No
      matters were submitted to a vote of our security holders during the quarter
      ended December 31, 2006.





10


**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





Our
      common stock trades on the OTC Bulletin Board under the symbol “MMIO.” The
      following table shows the high and low bid prices for our common stock for
      each
      quarter since January 1, 2005 as reported by the OTC Bulletin Board. All share
      prices have been adjusted to provide for the 1-for-500 reverse stock split
      which
      was effected on November 19, 2004, the 1-for-1000 reverse stock split which
      was
      effected on March 17, 2005 and the 1 for 100 reverse stock split which was
      effected on January 26, 2006. We consider our stock to be “thinly traded” and
      any reported sale prices may not be a true market-based valuation of the stock.
      Some of the bid quotations from the OTC Bulletin Board set forth below may
      reflect inter-dealer prices, without retail mark-up, mark-down or commission
      and
      may not represent actual transactions.




January
                  1, 2006 to December 31, 2006 (OTC Bulletin Board)
              
              High
                  Bid
              
              Low
                  BidFirst
                  quarter
              
              $
              0.29
              
              $
              0.07Second
                  quarter
              
              
              0.33
              
              
              0.07Third
                  quarter
              
              
              0.21
              
              
              0.05Fourth
                  quarter
              
              
              0.06
              
              
              0.01
 
 January
                  1, 2005 to December 31, 2005 (OTC Bulletin Board)
              
              High
                  Bid
              
              Low
                  BidFirst
                  quarter
              
              $
              162.50
              
              $
              0.79Second
                  quarter
              
              
              5.90
              
              
              0.16Third
                  quarter
              
              
              3.10
              
              
              0.29Fourth
                  quarter
              
              
              4.90
              
              
              0.17




As
      of
      March 29, 2007, there were approximately 163 record holders of our common
      stock.





We
      have
      not paid any cash dividends since our inception and do not contemplate paying
      dividends in the foreseeable future. It is anticipated that earnings, if any,
      will be retained to retire debt and for the operation of the
      business.





Shares
      eligible for future sale could depress the price of our common stock, thus
      lowering the value of a buyer’s investment. Sales of substantial amounts of
      common stock, or the perception that such sales could occur, could adversely
      affect prevailing market prices for shares of our common stock.





Our
      revenues and operating results may fluctuate significantly from quarter to
      quarter, which can lead to significant volatility in the price and volume of
      our
      stock. In addition, stock markets have experienced extreme price and volume
      volatility in recent years. This volatility has had a substantial effect on
      the
      market prices of securities of many smaller public companies for reasons
      unrelated or disproportionate to the operating performance of the specific
      companies. These broad market fluctuations may adversely affect the market
      price
      of our common stock.





**Securities
      Authorized for Issuance Under Equity Compensation Plans.** The
      following provides information concerning compensation plans under which our
      equity securities are authorized for issuance as of December 31,
      2006: ****





**(a)**
            
            **(b)**
            
            **(c)****Plan
                Category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))**Equity
                compensation plans approved by security holders
            
            
            --
            
            
            --
            
            
            1,015,418,219
                (1
            )Equity
                compensation plans not approved by security holders
            
            
            --
            
            
            --
            
            
            --Total
            
            
            
            
            
            
            
            
            1,015,418,219
                (1
            )


(1)
      Represents shares available for issuance under our Stock Plan for the Year
      2005
      No. 2. We did not issue any options, warrants or securities with vesting
      provisions or exercise prices in 2006.





11




**RECENT
      SALES OF UNREGISTERED SECURITIES**





In
      March
      2007, we issued a $3,000,000 convertible secured debenture with a related
      warrant to purchase 100,000,000 shares of our common stock to a single
      accredited investor. The issuance was exempt under Section 4(2) and Regulation
      D
      of the Securities Act. (See “Description of Securities - March 2007 Private
      Placement”)





In
      November 2006, we issued 2,000,000 shares of our common stock to a single
      accredited investor for an aggregate purchase price of $50,000. This issuance
      was exempt under Regulation S.





On
      September 5, 2006, the holder of all of our series A preferred stock converted
      250,000 shares of his series A preferred stock upon which he received 10 million
      shares of our common stock. The issuance was exempt under Section 3(a)(9) of
      the
      Securities Act of 1933, as amended.





In
      May
      2006, our wholly owned subsidiary, Marmion Investments, Inc. amended and
      restated a  promissory note in the amount of $55,949 (plus $13,653
      accrued interest) held by an accredited investor. The amended and
      restated note is convertible into our common stock at a rate of $.005 per
      share and is guaranteed by us. This note has been partially converted as of
      the
      date of this report. The amendment and restatement of the note and the
      conversion of the note into common stock were exempt pursuant to Section 3
      (a)(9) and 4 (2) of the Securities Act.




In
      May
      2006, our wholly owned subsidiary, Marmion Investments, Inc. amended and
      restated a promissory note in the amount of $72,788 (plus $17,763
      accrued interest) held by an accredited investor. The amended and
      restated note is convertible into our common stock at a rate of $.005 per
      share and is guaranteed by us. This note has been partially converted as of
      the
      date of this report. The amendment and restatement of the note and the
      conversion of the note into common stock were exempt pursuant to Section 3
      (a)(9) and 4 (2) of the Securities Act.





In
      March
      2006, our wholly owned subsidiary, Marmion Investments, Inc. issued a
      convertible promissory note in the amount of $24,262.70 (plus $5,802 accrued
      interest) to a single accredited investor in exchange for cancellation of a
      note
      of similar amount. This note is convertible into our common stock at a rate
      of
      $.005 per share and is guaranteed by us. This note has been converted in full
      as
      of the date of this report.




**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.**





The
      following discussion and analysis should be read in conjunction with our audited
      consolidated financial statements and related notes included in this report.
      This report contains “forward-looking statements” within the meaning of the
      Private Securities Litigation Reform Act of 1995. The statements contained
      in
      this report that are not historic in nature, particularly those that utilize
      terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“estimates,” “believes,” or “plans” or comparable terminology are
      forward-looking statements based on current expectations and
      assumptions.





Various
      risks and uncertainties could cause actual results to differ materially from
      those expressed in forward-looking statements. Factors that could cause actual
      results to differ from expectations include, but are not limited to, those
      set
      forth under the section “Risk Factors” set forth in this report.





The
      forward-looking events discussed in this annual report, the documents to which
      we refer you and other statements made from time to time by us or our
      representatives, may not occur, and actual events and results may differ
      materially and are subject to risks, uncertainties and assumptions about us.
      For
      these statements, we claim the protection of the “bespeaks caution” doctrine.
      All forward-looking statements in this document are based on information
      currently available to us as of the date of this report, and we assume no
      obligation to update any forward-looking statements. Forward-looking statements
      involve known and unknown risks, uncertainties and other factors that may cause
      the actual results to differ materially from any future results, performance
      or
      achievements expressed or implied by such forward-looking
      statements.





***General***




12





Beginning
      in the second quarter of 2004, we have entered the business of manufacturing
      and
      marketing of the explosion proof air conditioners, refrigeration systems,
      chemical filtration systems and building pressurizers. This entry was effected
      by Mr. Wilbert H. Marmion’s, our key officer and director, contribution to us of
      his controlling interest in Marmion Investments, Inc., (d/b/a Marmion Air
      Service), a Texas corporation. The explosion-proof market encompasses industries
      including: 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 also provide residential and commercial HVAC service in Texas,
      as
      well as specialty service to Fortune 500 clients.




Our
      executive offices are located at 9103 Emmott Road, Building 6, Suite A, Houston,
      Texas, 77040 and telephone number (713) 466-6585. We maintain a website at
      www.marmionair.com.





**Current
      Business Plan**




We
      manufacture and modify heating, ventilation and air conditioning (HVAC)
      equipment for the petrochemical industry specifically for hazardous location
      applications. We custom engineer special systems for strategic industrial
      environments. Additionally we perform new commercial HVAC construction services
      currently in the Houston, Texas area.




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. Commercially we are emerging into the new
      HVAC
      construction market to take advantage of the constant new development taking
      place in the Houston area.




With
      the
      demand for oil and the price constantly in today's market, our position in
      this
      industry is poised to take advantage of the increasing boom in petroleum
      expansion taking place both here in the national market as well as the
      international markets emerging in Mexico, the Middle East and South America.
      We
      foresee the next cycle of renovation and new construction in the commercial
      market, and population expansion currently taking place in the gulf-coast area
      to continue long into the future.




In
      November of 2004 our State of Texas Air Conditioning Contractor’s License for
      Marmion Air Service (TACLA019367C) was upgraded to ”A” status allows us to sell
      air conditioners to unlimited tonnages, as opposed to the “B” license which
      limited us to sell equipment up to 20 tons. In October 2005, we received our
      Mechanical and Sheet Metal Contractor License in the State of Louisiana (Lic.
      No. 44001) allowing us to perform projects in that State.




Marmion
      Industries Corp. began eight years ago as a HVAC company in Beaumont, Texas.
      We
      then moved to Houston to take advantage of the accessibility to a larger market
      in and around the Houston area. Marmion Industries Corp. has always been owned
      and operated by W. H. Marmion and Ellen Raidl Marmion, who are husband and
      wife.
      In the first few years we acquired an agreement with Nextel Corporation to
      provide service and replacement of HVAC machines across southern Texas. This
      enabled Marmion to grow at a rapid pace as we completed Nextel's 3-G upgrade
      in
      2000 and generated $1.1 million in gross revenues. In early 2001 Marmion began
      building industrial grade machines and providing them to petrochemical customers
      in the Houston area. At that time Nextel began tightening their services budgets
      due to the low price of their stock and approached us to reduce our pricing
      to a
      rate below our cost factor. As a result, we terminated our contract with Nextel
      and made a strategic decision to concentrate on the Industrial markets and
      develop our line of explosion-proof machines as our core business. We developed
      and refined our product line and continued to market to a growing list of
      customers primarily in the Houston area. Our alliance with a major wall mount
      air conditioner manufacturer Marvair, a subsidiary of AHI Holding, Inc., allowed
      us to gain a substantial market share in the industrial market as a reseller
      of
      Marvair products to two large national building manufacturers.




We
      believe that diversification is a key factor to maintain market share in the
      industrial and commercial markets. Accordingly, in 2004 we began making plans
      to
      open a commercial division and hired personnel to bid and supervise commercial
      projects. We have opened our 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 two projects for the Pasadena Independent
      School District in Pasadena, Texas and midway through two additional projects
      for the Houston Independent School District. Until 2003 we operated as an S
      corporation and in 2003 converted to C corp. in anticipation of accessing the
      public markets to enable us to raise capital to grow our business. Today Marmion
      has ten full time employees and depending on the commercial projects undertaken
      as many or more subcontractors to accomplish our business objectives.




13




One
      of
      our challenges continues to be our ability to attract and keep excellent
      employees to accomplish our business objectives. This challenge is highlighted
      due to the fact that we do not offer any type of benefits program to our
      employees. Cash flow has and remains a major challenge due to the fact that
      we
      are outgrowing our receivables and increasing our growth rate beyond 30 percent
      annually. Our customers normally pay on 45 to 60 day intervals and our suppliers
      bill us on 30 day terms. We need larger facilities and equipment to increase
      profitability and meet increasing demand and we are currently seeking new
      facilities and/or property to erect facilities. We have generally outsourced
      5%
      of our manufacturing. In November 2005, we acquired several pieces metal
      manufacturing equipment which has allowed us to reduce our outsourcing needs.
      This new equipment will allow us to take on a diversified work load, which
      could
      increase our profitability.




Our
      long-term plans for growth include continued expansion of our industrial base
      into Louisiana and abroad. We have recently started servicing the commercial
      market in the Houston area and have obtained the necessary licenses in Louisiana
      and have begun bidding on commercial projects in that area as well. We believe
      that, with right personnel and growth capital, we can grow our industrial and
      commercial division over the next two years.




We
      have
      acquired third party certification (ETL Certification) for the wallmount line
      for our products and have begun the process of getting our hazardous location
      package units as well as our pressurizers certified as well. These third parties
      certify our hazardous location equipment, saying it is indeed explosion-proof
      on
      our industrial line of equipment which will enable us to bid on new jobs and
      we
      believe the certification will allow us to be successful on our bids\. Because
      of third party certification, we will now be able to be listed as an “approved
      supplier/provider” for large multi-national petrochemical company’s
      specifications, as some large oil companies will spec in the company A/C’s they
      want. Normally they will require a UL/CSA listing or another third party
      certification from their suppliers/providers This will allow us to increase
      our
      profit margin on the certified equipment. We are currently educating engineering
      companies in Houston of the options now available to them and their customers.




By
      attracting and keeping better employees and retaining our current ones we
      believe that we can maintain our current growth rate over the next 3-5
      years.





**Basis
      of Presentation**




The
      results of operations set forth below for the years ended December 31, 2006
      and
      2005 are those of the continuing operations of Marmion Industries Corp.




The
      following table sets forth, for the periods indicated, certain selected
      financial data from continuing operations:




Year
                EndedDecember
                31,2006
            
            
            2005Revenues
            
            $
            4,613,282
            
            $
            2,491,736Cost
                of Sales
            
            
            3,721,102
            
            
            1,982,053Gross
                Margin
            
            
            892,180
            
            
            509,683Salaries
                and employee benefits
            
            
            551,626
            
            
            382,920General
                and administrative (included is equity based compensation of $893,236
                and
                $1,985,043, respectively)
            
            
            1,447,935
            
            
            2,352,867Depreciation
                and amortization
            
            
            32,912
            
            
            31,584Loss
                from Operations
            
            $
            (1,140,293
            )
            $
            (2,257,688
            )





14




**Comparison
      of the Years ended December 31, 2006 and December 31,
      2005**




**Revenues** .
      Our
      revenues increased to $4,613,282, an increase of approximately 85%, for the
      year
      ended December 31, 2006, from $2,491,736 for the year ended December 31, 2005.
      This increase is primarily attributable to the award of several large commercial
      projects.




**Cost
      of Sales** .
      Cost of
      sales increased to $3,721,102, an increase of approximately 88%, for the year
      ended December 31, 2006, from $1,982,053 for the year ended December 31, 2005.
      As a percentage of revenues, cost of sales increased to approximately 81% of
      revenues for the year ended December 31, 2006, versus approximately 80% of
      revenues for the year ended December 31, 2005. The increase in cost of sales
      as
      a percentage of revenues resulted primarily from new quality and purchasing
      controls, as well as performing more commercial projects which realizes a 7%
      to
      10% margin. The company generated a gross margin of $892,180, or approximately
      19%, for the year ended December 31, 2006, compared to a gross profit margin
      of
      $509,683, or approximately 20%, for the year ended December 31, 2005.




**Salaries
      and employee benefits** .
      Salaries and employee benefits increased to $551,626, or an increase of
      approximately 44% for the year
      ended December 31, 2006 from
      $382,920 for the year ended December 31, 2005. This increase is attributable
      primarily to the hiring of 3 new administrative employees.






**General
      and administrative** .
      General
      and administrative expenses decreased to $1,447,935 for the year
      ended December 31, 2006 ,
      from
      $2,352,867 for the year
      ended December 31, 2005 .
      Included in general and administrative expense is equity based compensation
      expense of $893,236 and $1,985,043 for the years ended December 31, 2006 and
      2005, respectively. As a percentage of revenues, general and administrative
      expenses were approximately 31% for the year
      ended December 31, 2006 ,
      as
      compared to approximately 94% for the comparable period in 2005. The decrease
      in
      general and administrative expenses primarily results from decreased stock
      issued to consultants in connection with our research and business development
      activities, offset by expanding operations requiring additional square footage
      and normal economic increases.




**Depreciation
      and Amortization.** Depreciation
      and amortization expense increased to $32,912 for the year ended December 31,
      2006, from $31,584 for the year ended December 31, 2005.




**Loss
      from operations.** We
      incurred an operating loss of $1,140,293 for the year ended December 31, 2006,
      compared to an operating loss of $2,257,688 for the year ended December 31,
      2005. The company had lower operating losses in the year ended December 31,
      2006
      compared to the prior year primarily because of a decrease in administrative
      expenses, and equity based compensation.




**Liquidity
      and Capital Resources**




We
      have
      financed our operations, acquisitions, debt service, and capital requirements
      through cash flows generated from operations, debt financing, and issuance
      of
      securities. Our working capital deficit at December 31, 2006 was $720,574,
      and
      at December 31, 2005 it was $613,149. We had cash of $1,785 at December 31,
      2006, compared to having cash of $22,774 at December 31, 2005.




Our
      operating activities used $316,343 in cash for the year ended December 31,
      2006
      compared to using $666,189 for the year ended December 31, 2005.




Net
      cash
      flows used by investing activities was $8,712 for the year ended December 31,
      2006, compared to $63,107 for the year ended December 31, 2005. These cash
      flows
      were related to the purchase of property and equipment, net of $46,500 in
      proceeds from sale of property and equipment in the year ended December 31,
      2005.




15




Net
      cash
      flows provided by financing activities was $304,066 for the year ended December
      31, 2006, compared to net cash provided by financing activities of $726,478
      in
      the year ended December 31, 2005.




We
      have
      recently completed a financing (See March 2007 Private Offering below) through
      our sale of convertible promissory notes and related warrants. Pursuant to
      such
      offering, we have received gross proceeds of $750,000 and will receive an
      additional $2,250,000 in gross proceeds upon filing of a registration statement
      related to such offering which we expect to file on or before April 16, 2007.
      We
      expect these proceeds to be sufficient to fund our operations through December
      2007. In the event we seek to expand our operations or launch new products
      for
      sale into the marketplace, or in the event we seek to acquire a company or
      business or business opportunity, or in the event that our cash flows from
      operations are insufficient to fund our operations, working capital
      requirements, and debt service requirements, we would need to finance our
      operations through additional debt or equity financing, in the form of a private
      placement or a public offering, a strategic alliance, or a joint venture. Such
      additional financing, alliances, or joint venture opportunities might not be
      available to us, when and if needed, on acceptable terms or at all. If we are
      unable to obtain additional financing in sufficient amounts or on acceptable
      terms under such circumstances, our operating results and prospects could be
      adversely affected. In addition, any debt financings or significant capital
      expenditures require the written consent of our lender under the March private
      placement.





Our
      working capital is not sufficient to meet our obligations. These factors raise
      substantial doubt about our ability to continue as a going concern.




**March
      2007 Private Offering**





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 (as defined) 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 (as defined) 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” (as defined) 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.




16




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.





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.





**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
      other 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.





***ALLOWANCE
      FOR DOUBTFUL ACCOUNTS***





Earnings
      are charged with a provision for doubtful accounts based on a current review
      of
      collectibility of accounts receivable. Accounts deemed uncollectible are applied
      against the allowance for doubtful accounts. The allowance for doubtful accounts
      at December 31, 2006 and December 31, 2005 was $88,463 and $24,914,
      respectively. Management considers this allowance adequate to cover probable
      future losses due to uncollectible trade receivables.





***REVENUE
      RECOGNITION***





The
      Company recognizes revenue when persuasive evidence of an arrangement exists,
      delivery has occurred, the sales price is fixed or determinable and
      collectibility is probable. These criteria are generally met at the time product
      is shipped or services are performed. Shipping and handling costs are included
      in cost of goods sold.





The
      Company from time to time may enter into a long term construction project,
      which
      such services may be performed over a few months. The Company records such
      revenues from long term contracts on a percentage of completion basis. At each
      report date an evaluation is made to determine if there is a loss contingency
      to
      record for such long term contracts. There were no such long term contracts
      outstanding as at December 31, 2005. At December 31, 2006, there were six long
      term contracts outstanding. The Company recorded $27,836 and $198,552 in costs
      and estimated earnings in excess of billings, and billings in excess of costs
      and estimated earnings, respectively, at December 31, 2006 in regard to these
      contracts.





***STOCK-BASED
      COMPENSATION***





In
      December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based
      Compensation -Transition and Disclosure. This statement amends SFAS No. 123
      -
      Accounting for Stock-Based Compensation, providing alternative methods of
      voluntarily transitioning to the fair market value based method of accounting
      for stock based employee compensation. SFAS 148 also requires disclosure of
      the
      method used to account for stock-based employee compensation and the effect
      of
      the method in both the annual and interim financial statements. The provisions
      of this statement related to transition methods are effective for fiscal years
      ending after December 15, 2002, while provisions related to disclosure
      requirements are effective in financial reports for interim periods beginning
      after December 31, 2002.





In
      December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based Payment"
      ("SFAS No. 123R"). SFAS No. 123R addresses all forms of share-based payment
      ("SBP") awards, including shares issued under certain employee stock purchase
      plans, stock options, restricted stock and stock appreciation rights. SFAS
      No.123R will require the Company to expense SBP awards with compensation cost
      for SBP transactions measured at fair value. The FASB originally stated a
      preference for a lattice model because it believed that a lattice model more
      fully captures the unique characteristics of employee stock options in the
      estimate of fair value, as compared to the Black-Scholes model which the Company
      currently uses for its footnote disclosure. The FASB decided to remove its
      explicit preference for a lattice model and not require a particular valuation
      methodology. SFAS No. 123R requires us to adopt the new accounting provisions
      beginning in our first quarter of 2006. We do not expect a material impact
      on
      our consolidated results of operations, as we do not intend to issue employee
      stock options in the near future.




17





***ACCOUNTING
      FOR INCOME TAXES***





As
      part
      of the process of preparing our financial statements we are required to estimate
      our income taxes. Management judgment is required in determining a provision
      of
      our deferred tax asset. We recorded a valuation for the full-deferred tax asset
      from our net operating losses carried forward due to the Company not
      demonstrating any consistent profitable operations. In the event that the actual
      results differ from these estimates or we adjust these estimates in future
      periods we may need to adjust such valuation recorded.





***GOING
      CONCERN***





The
      financial statements of the Company have been prepared assuming that the Company
      will continue as a going concern. The Company has had negative working capital
      for each of the least two years ended December 31, 2006 and 2005. The Company
      has incurred significant losses for these years and has a negative working
      capital position. Those conditions raise substantial doubt about the Company’s
      ability to continue as a going concern. The financial statements of the Company
      do not include any adjustments that might be necessary should the Company be
      unable to continue as a going concern.





**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      February 2006, the FASB issued FASB Statement No. 155, which is an amendment
      of
      FASB Statements No. 133 and 140. This Statement; a) permits fair value
      remeasurement for any hybrid financial instrument that contains an embedded
      derivative that otherwise would require bifurcation, b) clarifies which
      interest-only strip and principal-only strip are not subject to the requirements
      of Statement 133, c) establishes a requirement to evaluate interests in
      securitized financial assets to identify interests that are freestanding
      derivatives or that are hybrid financial instruments that contain an embedded
      derivative requiring bifurcation, d) clarifies that concentrations of credit
      risk in the form of subordination are not embedded derivatives, e) amends
      Statement 140 to eliminate the prohibition on a qualifying special-purpose
      entity from holding a derivative financial instrument that pertains to a
      beneficial interest other than another derivative financial instrument. 
This Statement is effective for financial statements for fiscal years beginning
      after September 15, 2006. Earlier adoption of this Statement is permitted
      as of the beginning of an entity’s fiscal year, provided the entity has not yet
      issued any financial statements for that fiscal year. Management believes this
      Statement will have no impact on the financial statements of the Company once
      adopted.





In
      March
      2006, the FASB issued FASB Statement No. 156, which amends FASB Statement No.
      140. This Statement establishes, among other things, the accounting for all
      separately recognized servicing assets and servicing liabilities. This Statement
      amends Statement 140 to require that all separately recognized servicing assets
      and servicing liabilities be initially measured at fair value, if practicable.
      This Statement permits, but does not require, the subsequent measurement of
      separately recognized servicing assets and servicing liabilities at fair value.
      An entity that uses derivative instruments to mitigate the risks inherent in
      servicing assets and servicing liabilities is required to account for those
      derivative instruments at fair value. Under this Statement, an entity can elect
      subsequent fair value measurement to account for its separately recognized
      servicing assets and servicing liabilities. By electing that option, an entity
      may simplify its accounting because this Statement permits income statement
      recognition of the potential offsetting changes in fair value of those servicing
      assets and servicing liabilities and derivative instruments in the same
      accounting period. This Statement is effective for financial statements for
      fiscal years beginning after September 15, 2006. Earlier adoption of this
      Statement is permitted as of the beginning of an entity’s fiscal year, provided
      the entity has not yet issued any financial statements for that fiscal year.
      Management believes this Statement will have no impact on the financial
      statements of the Company once adopted.




In
      June
      2006, the FASB issued Interpretation No. 48, Accounting
      for Uncertainty in ** Income
      Taxes- an ** interpretation
      of FASB Statement No. 109, Accounting for Income Taxes .
      The
      Statement clarifies the accounting for uncertainty in income taxes recognized
      in
      an enterprise’s financial statements, and prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. This
      interpretation also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure, and transition. FIN
      48
      is effective for fiscal years beginning after December 15, 2006. Management
      believes this Statement will have no impact on the financial statements of
      the
      Company once adopted.




18




In
      September 2006, the FASB issued FASB Statement No. 157. This Statement defines
      fair value, establishes a framework for measuring fair value in generally
      accepted accounting principles (GAAP), and expands disclosures about fair value
      measurements. This Statement applies under other accounting pronouncements
      that
      require or permit fair value measurements, the Board having previously concluded
      in those accounting pronouncements that fair value is a relevant measurement
      attribute. Accordingly, this Statement does not require any new fair value
      measurements. However, for some entities, the application of this Statement
      will
      change current practices. This Statement is effective for financial statements
      for fiscal years beginning after November 15, 2007. Earlier application is
      permitted provided that the reporting entity has not yet issued financial
      statements for that fiscal year. Management believes this Statement will have
      no
      impact on the financial statements of the Company once adopted.




**Insider
      and Affiliate Loans**




We
      received advances from our controlling stockholder during fiscal 2006 totaling
      $322,412. Total advances from this stockholder aggregate $524,056 as of December
      31, 2006. The advances are unsecured and payable upon demand. Interest on these
      advances is being accrued at 6% per annum and accrued interest on these advances
      totals $29,605 as of December 31, 2006.





**Off-Balance
      Sheet Arrangements**





None.





**ITEM
      7. FINANCIAL STATEMENTS.**





The
      financial statements and related notes are included as part of this report
      as
      indexed in the appendix on page F-1 through F-18.





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





Effective
      July 16, 2005, we dismissed our independent auditor, Lopez, Blevins, Bork &
Associates LLP ("Lopez, Blevins").





The
      report of Lopez, Blevins on the Registrant's consolidated financial statements
      as of and for the year ended December 31, 2004 did not contain any adverse
      opinion or a disclaimer of opinion, nor were they qualified or modified as
      to
      audit scope or accounting principles. However, the report did contain a
      modification paragraph that raised substantial doubt about our ability to
      continue as a going concern.





The
      decision to change accountants was approved by the Registrant's Board of
      Directors.





During
      the two most recent fiscal years and any subsequent interim period through
      July
      16, 2005 there were no disagreements between the Registrant and Lopez, Blevins
      on any matter of accounting principles or practices, financial statement
      disclosure, or auditing scope or procedure, which disagreements, if not resolved
      to the satisfaction of Lopez, Blevins, would have caused Lopez, Blevins to
      make
      reference to the subject matter of the disagreements in connection with his
      reports on the financial statements for such periods.





On
      July
      16, 2005, we engaged Sherb & Co., LLP (Sherb) as our independent accountant
      to report on our balance sheet as of December 31, 2005, and the related combined
      statements of income, stockholders' equity and cash flows for the years then
      ended. The decision to appoint Sherb was approved by our Board of
      Directors.





During
      the Registrant's two most recent fiscal years and any subsequent interim period
      prior to the engagement of Sherb, neither we nor anyone on our behalf consulted
      with Sherb regarding either (i) the application of accounting principles to
      a
      specified transaction, either contemplated or proposed, or the type of audit
      opinion that might be rendered on our financial statements or (ii) any matter
      that was either the subject of a “disagreement" or a "reportable event," as
      those terms are defined in Regulation S-K, Items 304(a)(1)(iv) and
      304(a)(1)(v).




19





We
      provided Lopez, Blevins with a copy of the Current Report before our filing
      with
      the Commission. We requested Lopez, Blevins to furnish us with a letter
      addressed to the Commission stating whether they agree with the statements
      made
      by us in that Report and, if not, stating the respects in which they do not
      agree. We filed the former auditor's letter as an exhibit to our Current Report
      on Form 8-K dated August 12, 2005.





**ITEM
      8A. CONTROLS AND PROCEDURES.**





Disclosure
      controls and procedures are controls and other procedures 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 Securities and Exchange
      Commission's rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by us in the reports that we file under
      the


Exchange
      Act is accumulated and communicated to our management, including our principal
      executive and financial officers, as appropriate to allow timely decisions
      regarding required disclosure.





Evaluation
      of disclosure and controls and procedures. As of the end of the period covered
      by this Annual report, we conducted an evaluation, under the supervision and
      with the participation of our chief executive officer and chief financial
      officer, of our disclosure controls and procedures (as defined in Rules
      13a-15(e) of the Exchange Act). Based on this evaluation, our chief executive
      officer and treasurer, the sole officers and directors of the company, concluded
      that our disclosure controls and procedures are effective to ensure that
      information required to be disclosed by us in reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in Securities and Exchange Commission rules and
      forms.





Changes
      in internal controls over financial reporting. There was no change in our
      internal controls, which are included within disclosure controls and procedures,
      during our most recently completed fiscal quarter that has materially affected,
      or is reasonably likely to materially affect, our internal
      controls.





**ITEM
      8B. OTHER INFORMATION.**





1.
      On
      October 5, 2006, we filed a certificate of amendment to our articles of
      incorporation with the Nevada Secretary of State to increase our authorized
      common stock from 50,000,000 shares to 500,000,000 shares. This amendment was
      unanimously approved by our board of directors and by a majority of our
      stockholders by written consent. An information statement on Form 14C notifying
      shareholders of action taken by written consent was mailed to shareholders
      (of
      record on August 29, 2006) on September 14, 2006.





2.  In
      November 2006, we issued 2,000,000 shares of our common stock to a single
      accredited investor for an aggregate purchase price of $50,000. This issuance
      was exempt under Regulation S.




20


**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(A) OF THE EXCHANGE ACT.**





**Executive
      Officer and Directors**





Our
      executive officers and directors, the positions held by them, and their ages
      are
      as follows:


**Name**
              **Age**
              **Position**Wilbert
                  H. Marmion, III
              49
              Director,
                  Chief Executive OfficerEllen
                  Raidl
              40
              Director,
                  Secretary, Treasurer




**Wilbert
      H. Marmion** has
      served as our President , Chief Executive Officer and as a director since
      January 2004. Mr. Marmion founded Marmion Air Service, our wholly owned
      subsidiary in 1998 and has served as its president since that time. Mr. Marmion
      also serves as Vice President of Mar-Len Distributing, a privately held
      corporation. Mr. Marmion is married to Ellen Raidl, our Secretary, Treasurer
      and
      director .





**Ellen
      Raidl** has
      served as our Secretary, Treasurer and director since January 2004. Previously,
      Ms. Raidl worked in multi family property management, most recently with Hanover
      Company in Houston, Texas. Ms. Raidl currently serves as the President of
      Mar-Len Distributing, a privately held corporation. Ms. Raidl is married to
      Wilbert H. Marmion, our President, Chief Executive Officer and
      director.





**Audit
      Committee**





We
      do not
      have an audit committee at this time.


.


**Code
      of Ethics**





Our
      board
      of directors has adopted a Code of Ethics. The board of directors believes
      that
      our Code of Business Conduct and Ethics provides standards that are reasonably
      designed to deter wrongdoing and to promote the following: (1)
      honest and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional relationships; (2)
      full,
      fair, accurate, timely, and understandable disclosure in reports and documents
      that we file with, or submits to, the Securities and Exchange
      Commission ;
      (3)
      compliance with applicable governmental laws, rules and regulations; the
      prompt internal reporting of violations of the Code of Business Conduct and
      Ethics to an appropriate person or persons; and (4)
      accountability for adherence to the Code of Business Conduct and Ethics. Our
      Code of Business Conduct andwas
      filed
      as an exhibit to our Annual report for the period ended December 31, 2003,
      and
      filed with the Commission on April 14, 2004,
      and we
      will provide a copy of our Code of Business Conduct and Ethics by mail to any
      person without charge upon written request to us at9103
      Emmott Rd., Bldg. 6, Ste. A, Houston, Texas 77040.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section 16(a)
      of the Securities Exchange Act of 1934, as amended, requires our directors,
      executive officers, and stockholders holding more than 10% of our outstanding
      common stock, to file with the Securities and Exchange Commission initial
      reports of ownership and reports of changes in beneficial ownership of our
      common stock. Executive officers, directors and greater-than-10% stockholders
      are required by SEC regulations to furnish us with copies of all
      Section 16(a) reports they file. To our knowledge, based solely on review
      of the copies of such reports furnished to us for the period ended December
      31,
      2006, no Section 16(a) reports required to be filed by our executive
      officers, directors and greater-than-10% stockholders were filed on a timely
      basis.





**ITEM
      10 EXECUTIVE COMPENSATION**





The
      following table sets forth the cash compensation paid to our President Chief
      Executive Officer, the principal executive officer for services rendered during
      the fiscal years ended December 31, 2006 and 2005. No other employee or
      executive officer had total compensation in excess of $100,000 during the fiscal
      years ended December 31, 2006 and 2005.




21





**SUMMARY
                COMPENSATION TABLE****Name
                and Position**
            
            **Year**
            
            **Salary**
            
            **Stock
                Awards**
            
            **Total**Wilbert
                H. Marmion, III
            
            
            2006
            
            $
            120,000
            
            
            -0-*President
                Chief Executive Officer *and
                Director**
            
            
            2005
            
            
            120,000
            
            $
            6.,000(1
            )
            
            -0-






(1)
            Based
                on 30,000,000 shares of Series B Preferred Stock granted to Mr. Marmion
                in
                2005.





**STOCK
      OPTION GRANTS**





No
      stock
      options, warrants or stock appreciation rights were issued to any executive
      officers or other employees in fiscal 2006. There are no unexercised options,
      unvested stock awards or equity incentive plan awards for any executive officers
      in 2006 or 2005





**DIRECTOR
      COMPENSATION**





Directors
      who are also employees are not entitled to receive any compensation for their
      services as directors. We currently have only 1 director who is also an
      employee.





**EMPLOYMENT
      AGREEMENTS**





None.





**CONFIDENTIALITY
      AGREEMENTS**





None.





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The
      following table sets forth certain information regarding the beneficial
      ownership of our common stock as of March 27, 2007 by the following
      persons:





·
            each
                person who is known to be the beneficial owner of more than five
                percent
                (5%) of our issued and outstanding shares of common
                stock;


·
            each
                of our directors and executive officers;
                and


·
            all
                of our directors and executive officers as a
                group.





The
      following table assumes that there are 57,709,990 common shares issued and
      outstanding immediately before this offering. Except as set forth in the
      footnotes to the table, the persons names in the table have sole voting and
      investment power with respect to all shares of common stock shown as
      beneficially owned by them, subject to community property laws where applicable.
      A person is considered the beneficial owner of any securities as of a given
      date
      that can be acquired within 60 days of such date through the exercise of any
      option, warrant or right. Shares of common stock subject to options, warrants
      or
      rights which are currently exercisable or exercisable within 60 days are
      considered outstanding for computing the ownership percentage of the person
      holding such options, warrants or rights, but are not considered outstanding
      for
      computing the ownership percentage of any other person.








**Name
                And Address (1)**
            
            **Number
                Of Shares****Beneficially
                Owned**
            
            **Percentage
                Owned**Wilbert
                H. Marmion, III
            
            
            3,390,000,100
            (2)
            
            >90
            %Ellen
                Raidl
            
            
            0
            
            
            *All
                directors and officers as a group (2 persons)
            
            
            3,390,000,100
            
            
            >90
            %


----------------------------------------------


*
      Less
      than 1% of the outstanding shares of common stock.





(1)
            Unless
                otherwise noted, the address for each person is 9103 Emmott Road,
                Building
                6, Suite A.





(2)
            Includes
                (i) 380,000,000 shares of common stock issuable upon conversion of
                9,500,000 shares of series A preferred stock and (ii) 3,000,000,000
                issuable upon conversion of 30,000,000 shares of series B preferred
                stock.
                By their terms, the series A and series B preferred stock convert
                into
                more shares of common stock than we have authorized.





22





There
      are
      no arrangements, known to us, including any pledge by any person of our
      securities, the operation of which may at a subsequent date result in a change
      in control of Marmion Industries Corp. There are no arrangements or
      understandings among members of both the former and the new control groups
      and
      their associates with respect to election of directors or other
      matters.





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**





On
      May
      20, 2004, Wilbert H. Marmion, III, our President and Chief Executive Officer,
      contributed all of his shares of common stock in Marmion Investments, Inc.,
      a
      Texas corporation d/b/a Marmion Air Service, to us as a contribution to our
      capital. The shares contributed to us by Wilbert H. Marmion constitute one
      hundred percent of the issued and outstanding shares in Marmion Investments,
      Inc.





From
      December 2003 through May 2004, a corporation controlled by the sister-in-law
      of
      our majority stockholder advanced $500,000 to Marmion Investments, Inc, our
      wholly owned subsidiary. These advances were evidenced by 6% promissory notes.
      As of December 31, 2005, the principal amount due on this note was $153,000,
      with accrued interest of $34,293 (the “SAS Note”). During fiscal 2006, this note
      was sold (in 3 separate tranches) to an unrelated third party.





To
      date,
      our wholly owned subsidiary Marmion Investments, Inc. has received net advances
      from its majority stockholder and our President of $201,645. These advances
      are
      evidenced by 10% demand notes





We
      received advances from our controlling stockholder during fiscal 2006 totaling
      $322,412. Total advances from this stockholder aggregate $524,056 as of December
      31, 2006. The advances are unsecured and payable upon demand. Interest on these
      advances is being accrued at 6% per annum and accrued interest on these advances
      totals $29,605 as of December 31, 2006.








**ITEM
      13. EXHIBITS.**




EXHIBIT
                NO.
              
              IDENTIFICATION
                OF EXHIBIT3.1*
              
              Articles
                  of Incorporation.3.2*
              
              Articles
                  of Amendment to the Articles of Incorporation, filed effective
                  June 3,
                  2004.3.3*
              
              Certificate
                  of Designation establishing Series A Preferred Stock, filed effective
                  May
                  25, 2004.3.4*
              
              Articles
                  of Merger3.5*
              
              Certificate
                  of Amendment to the Certificate of Designation for the Series A
                  preferred
                  stock, filed effective July 15, 2004.3.6*
              
              Certificate
                  of Amendment to the Articles of Incorporation, filed effective
                  November
                  16, 2004.3.7*
              
              Certificate
                  of Designation establishing Series B Preferred Stock, filed effective
                  January 26, 2005.3.8*
              
              Certificate
                  of Amendment to the Articles of Incorporation, filed effective
                  January 25,
                  20063.9*
              
              Certificate
                  of Amendment to Certificate of Designation of Class A Preferred
                  Stock
                  filed August 7, 2006.3.10*
              
              Certificate
                  of Amendment to Certificate of Designation of Class A Preferred
                  Stock
                  filed August 7, 2006.




23




3.11**
            
            Certificate
                of Amendment to Certificate of Incorporation filed October 5,
                2006.3.12*
            
            By-laws.4.1*
            
            Marmion
                Industries Corp. Amended Employee Stock Incentive Plan for the Year
                2005
                No. 24.2*
            
            Marmion
                Industries Corp. Non-Employee Directors & Consultants Retainer Stock
                Plan for the Year 2005 No. 210.1*
            
            Plan
                and Agreement of Merger.10.2*
            
            Purchase
                and Escrow Agreement.10.3*
            
            M/S
                Al Dunia Contract10.4*
            
            DT
                Construction Contract10.5*
            
            Subscription
                Agreement dated March 22, 200710.6*
            
            Registration
                Rights Agreement dated March 22, 200710.7*
            
            Form
                of Debenture dated March 22, 200710.8*
            
            Security
                Agreement dated March 22, 200710.9*
            
            Form
                of Warrant dated March 22, 200714
                *
            
            Code
                of Ethics21*
            
            Subsidiaries.23.1**
            
            Consent
                of Independent Registered Accounting Firm31.1
                **
            
            Certification
                of Wilbert H. Marmion, President and Chief Executive Officer of Marmion
                Industries Corp., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant
                to
                Sec.302 of the Sarbanes-Oxley Act of 2002.31.2
                **
            
            Certification
                of Ellen Raidl, Treasurer of Marmion Industries Corp., pursuant to
                18
                U.S.C. Sec.1350, as adopted pursuant to Sec.302 of the Sarbanes-Oxley
                Act
                of 2002.32.1
                **
            
            Certification
                of Wilbert H. Marmion, President and Chief Executive Officer of Marmion
                Industries Corp., pursuant to 18 U.S.C. Sec.1350, as adopted pursuant
                to
                Sec.906 of the Sarbanes-Oxley Act of 2002.32.2
                **
            
            Certification
                of Ellen Raidl, Treasurer of Marmion Industries Corp., pursuant to
                18
                U.S.C. Sec.1350, as adopted pursuant to Sec.906 of the Sarbanes-Oxley
                Act
                of 2002.


*Previously
        Filed


**Filed
      Herewith





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





**AUDIT
      FEES**





Sherb
      & Co., L.L.P., billed us $20,000 in fees for our annual audit for the year
      ended December 31, 2006, and $7,500 in fees for the review of our quarterly
      financial statements for that year.





Sherb
      & Co., L.L.P., billed us $20,000 in fees for our annual audit for the year
      ended December 31, 2005, and $5,000 in fees for the review of our quarterly
      financial statements for that year.





**AUDIT-RELATED
      FEES**





We
      did
      not pay any fees to Sherb & Co., L.L.P. for
      assurance and related services that are reasonably related to the performance
      of
      the audit or review of our financial statements for fiscal years 2006 and
      2005.





**TAX
      FEES**





We
      did
      not pay any fees to Sherb & Co., L.L.P. for tax compliance, tax advice, tax
      planning or other work during our fiscal years 2006 and 2005.





**ALL
      OTHER FEES**





There
      were no other fees billed by Sherb & Co, LLP for professional services
      rendered, other than as stated under the captions Audit Fees, Audit-Related
      Fees, and Tax Fees.





With
      respect to the audit of our financial statements as of December 31, 2006 and
      2005 and for the years then ended, none of the hours expended on Sherb &
Co., L.L.P. engagement to audit those financial statements were attributed
      to
      work by persons other than Sherb & Co., L.L.P.’s full-time, permanent
      employees.





24




**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      as
      amended, the Registrant has duly caused this Annual report to be signed on
      its
      behalf by the undersigned, thereunto duly authorized.




MARMION
                INDUSTRIES
                CORP.Date:
                March 30, 2007
              By:
              /s/ Wilbert H. Marmion, IIIWilbert
                H. Marmion, IIIPresident
                and
                Chief Executive Officer


Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, this
      Annual report has been signed by the following persons on behalf of the
      registrant and in the capacities and on the dates indicated.




Signature
              
              Title
              
              Date/s/
                  Wilbert H. Marmion III
              
              President
                  and Chief Executive Officer
              
              March
                  30, 2007Wilbert
                  H. Marmion, III
              
              and
                  Director/s/
                  Ellen Raidl
              
              Secretary,
                  Director
              
              March
                  30, 2007Ellen
                  Raidl
              
              and
                  Treasurer




25





MARMION
      INDUSTRIES CORP.





INDEX
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





Report
                of Independent Registered Accounting Firm - Sherb & Co.,
                LLP
            F-2Consolidated
                Balance Sheet as of December 31, 2006
            F-3.Consolidated
                Statements of Operations for Years Ended December 31, 2006 and
                2005
            F-4.Consolidated
                Statements of Stockholders' Deficit Years Ended December 31, 2006
                and
                2005
            F-5.Consolidated
                Statements of Cash Flows Years Ended December 31, 2006 and 2005
            F-6.Notes
                to Consolidated Financial Statements
            F-7.







F
          - 1




REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Stockholders
        and Directors
 Marmion
        Industries Corp.
 Houston,
        Texas
 
 We
        have
        audited the accompanying consolidated balance sheet of Marmion Industries
        Corp.
        as of December 31, 2006, and the related consolidated statements of operations,
        stockholders’ deficit and cash flows for each of the years then ended December
        31, 2006 and 2005. These consolidated financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. 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 that our audit provides 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 Marmion Industries Corp.
        as
        of December 31, 2006, and the results of its operations and its cash flows
        for
        each of the years then ended December 31, 2006 and 2005 in conformity with
        accounting principles generally accepted in the United States.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. The Company has suffered recurring
        losses from operations, including a net loss of approximately $7.0 million
        for
        the year ended December 31, 2006, and has a substantial working capital
        deficiency as of December 31, 2006. These factors raise substantial doubt
        the
        Company’s ability to continue as a going concern. The consolidated financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
 
 /s/
                    Sherb & Co., LLPCertified
                    Public AccountantsNew
                    York, New YorkMarch
                    29, 2007
  F
              -
              2




**MARMION
                  INDUSTRIES CORPORATION****CONSOLIDATED
                  BALANCE SHEET**
 
 December
                    31,2006ASSETSCurrent
                    Assets:Cash
                
                $
                1,785Accounts
                    receivable, net of allowance for doubtful accounts of $88,463
                
                
                1,222,695Costs
                      and estimated earnings in excess of billings on uncompleted
                    contracts
                
                
                27,836Inventory
                
                
                169,888Prepaid
                    Expenses
                
                
                2,905Total
                    Current Assets
                
                
                1,425,109Property
                    and equipment, net of $126,998 accumulated
                    depreciation
                
                
                100,494Total
                    Assets
                
                $
                1,525,603LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
                    LIABILITIES:Accounts
                    Payable
                
                $
                806,519Accrued
                    Expenses
                
                
                56,525Accrued
                    Salaries - Officers
                
                
                344,592Advances-Stockholder
                
                
                524,056Current
                    Maturities of Notes Payable
                
                
                78,277Factor
                    Payable
                
                
                137,162Billings
                    in excess of costs and estimated earnings on uncompleted
                    contracts
                
                
                198,552Total
                    Current Liabilities
                
                
                2,145,683Notes
                    Payable, net of current maturities
                
                
                33,654Total
                    Liabilities
                
                
                2,179,337COMMITMENTS
                    AND CONTINGENCIES
                
                
                -STOCKHOLDERS'
                    EQUITY (DEFICIT):Series
                    A preferred stock, $.001 par value, 500,000,000 shares
                    designated,9,500,000 shares issued and
                    outstanding
                
                
                9,500Series
                      B preferred stock, $.001 par value, 30,000,000 shares
                      designated, 30,000,000
                      shares issued and outstanding
                
                
                30,000Common
                      stock, $.001 par value, 500,000,000 shares authorized,42,609,990
                      shares issued and outstanding
                
                
                42,610Additional
                    paid-in capital
                
                
                12,332,788Accumulated
                    deficit
                
                
                (13,068,632
                )Total
                    Stockholders' Equity (Deficit)
                
                
                (653,734
                )Total
                    Liabilities and Stockholders' Equity (Deficit)
                
                $
                1,525,603


See
                  notes to consolidated financial
                  statements.




F
          -
          3


**MARMION
                  INDUSTRIES CORPORATION****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****YEARS
                  ENDED DECEMBER 31, 2006 AND
                  2005**


2006
              
              2005REVENUES
              
              $
              4,613,282
              
              $
              2,491,736COSTS
                  OF SALES
              
              
              3,721,102
              
              
              1,982,053GROSS
                  MARGIN
              
              
              892,180
              
              
              509,683COSTS
                  AND EXPENSES:Salaries
                  and employee benefits
              
              
              551,626
              
              
              382,920General
                  and administrative (included is equity based compensation of $893,236
                  and
                  $1,985,043 respectively)
              
              
              1,447,935
              
              
              2,352,867Depreciation
                  and amortization
              
              
              32,912
              
              
              31,584TOTAL
                  COSTS AND EXPENSES
              
              
              2,032,473
              
              
              2,767,371LOSS
                  FROM OPERATIONS
              
              
              (1,140,293
              )
              
              (2,257,688
              )OTHER
                  INCOME (EXPENSE):Interest
                  expense (included is equity based interest expense of $5,805,805
                  and $0
                  respectively)
              
              
              (5,815,610
              )
              
              (18,799
              )Other
                  income
              
              
              538
              
              
              -NET
                  LOSS
              
              $
              (6,955,365
              )
              $
              (2,276,487
              )Net
                  loss per share:Basic
                  and diluted net loss per share
              
              $
              (0.35
              )
              $
              (1.22
              )Weighted
                  average shares outstanding:Basic
                  and diluted
              
              
              19,979,947
              
              
              1,864,016
  See
                  notes to consolidated financial
                  statements.




F
          -
          4




MARMION
                      INDUSTRIES CORPORATIONCONSOLIDATED
                      STATEMENTS OF STOCKHOLDERS' DEFICITYEARS
                      ENDED DECEMBER 31, 2006 AND 2005
  AdditionalPreferred
                      Stock
                  
                  Preferred
                      Stock
                  
                  
                  
                  
                  
                  Paid-In
                  
                  AccumulatedSeries
                      A
                  
                  Series
                      B
                  
                  Common
                      Stock
                  
                  Capital
                  
                  Deficit
                  
                  TotalShares
                  
                  Amount
                  
                  Shares
                  
                  Amount
                  
                  Shares
                  
                  AmountBalances,
                      December 31, 2004
                  
                  
                  9,750,000
                  
                  $
                  9,750
                  
                  
                  -
                  
                  $
                  -
                  
                  
                  3,229
                  
                  $
                  3
                  
                  $
                  2,893,513
                  
                  $
                  (3,836,780
                  )
                  $
                  (933,514
                  )Common
                      stock issued for services
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,120,574
                  
                  
                  2,121
                  
                  
                  1,435,259
                  
                  
                  
                  
                  
                  1,437,380Preferred
                      stock issued for services
                  
                  
                  
                  
                  
                  
                  
                  
                  30,000,000
                  
                  
                  30,000
                  
                  
                  
                  
                  
                  
                  
                  
                  (24,000
                  )
                  
                  
                  
                  
                  6,000Options
                      exercised
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,601,000
                  
                  
                  1,601
                  
                  
                  685,615
                  
                  
                  
                  
                  
                  687,216Intrinsic
                        value of optionsissued to employees
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  547,663
                  
                  
                  
                  
                  
                  547,663Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (2,276,487
                  )
                  
                  (2,276,487
                  )Balances,
                      December 31, 2005
                  
                  
                  9,750,000
                  
                  
                  9,750
                  
                  
                  30,000,000
                  
                  
                  30,000
                  
                  
                  3,724,803
                  
                  
                  3,725
                  
                  
                  5,538,050
                  
                  
                  (6,113,267
                  )
                  
                  (531,742
                  )Common
                      stock issued for services
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,185,187
                  
                  
                  7,185
                  
                  
                  886,051
                  
                  
                  
                  
                  
                  893,236Conversion
                      of debt to equity
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  19,700,000
                  
                  
                  19,700
                  
                  
                  78,800
                  
                  
                  
                  
                  
                  98,500Conversion
                        of Series A PreferredStock to common stock
                  
                  
                  (250,000
                  )
                  
                  (250
                  )
                  
                  
                  
                  
                  
                  
                  
                  10,000,000
                  
                  
                  10,000
                  
                  
                  (9,750
                  )
                  
                  
                  
                  
                  -Sale
                      of common stock for cash
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,000,000
                  
                  
                  2,000
                  
                  
                  48,000
                  
                  
                  
                  
                  
                  50,000Beneficial
                      conversion cost
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5,791,637
                  
                  
                  
                  
                  
                  5,791,637Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (6,955,365
                  )
                  
                  (6,955,365
                  )Balances,
                      December 31, 2006
                  
                  
                  9,500,000
                  
                  $
                  9,500
                  
                  
                  30,000,000
                  
                  $
                  30,000
                  
                  
                  42,609,990
                  
                  $
                  42,610
                  
                  $
                  12,332,788
                  
                  $
                  (13,068,632
                  )
                  $
                  (653,734
                  )
  See
                      notes to consolidated financial
                      statements.




F
          -
          5




**MARMION
                  INDUSTRIES CORPORATION****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****YEARS
                  ENDED DECEMBER 31, 2006 AND
                  2005**
  2006
              
              
              2005OPERATING
                ACTIVITIES:Net
                  Loss
              
              $
              (6,955,365
              )
              $
              (2,276,487
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Loss
                  on disposal of fixed assets
              
              
              -
              
              
              2,067Depreciation
                  and amortization
              
              
              32,912
              
              
              31,584Common
                  Stock issued for services
              
              
              893,236
              
              
              1,437,380Cost
                  of beneficial conversion feature on notes payable
              
              
              5,791,637
              
              
              -Preferred
                  Stock issued for services
              
              
              -
              
              
              6,000Stock
                  options
              
              
              -
              
              
              547,663Changes
                  in assets and liabilities:Accounts
                  receivable
              
              
              (881,246
              )
              
              4,580Inventory
              
              
              91,056
              
              
              (139,033
              )Prepaid
                  expenses
              
              
              18,575
              
              
              (227,333
              )Costs
                  and estimated earnings in excess of billings
              
              
              (27,836
              )
              
              -Accounts
                  payable
              
              
              519,266
              
              
              (61,028
              )Accrued
                  expenses
              
              
              2,870
              
              
              8,418Billings
                  in excess of costs and estimated earnings
              
              
              198,552
              
              
              -Net
                  cash used in operating activities
              
              
              (316,343
              )
              
              (666,189
              )INVESTING
                  ACTIVITIES:Proceeds
                  from sale of property and equipment
              
              
              -
              
              
              46,500Purchase
                  of property and equipment
              
              
              (8,712
              )
              
              (109,607
              )Net
                  cash used in investing activities
              
              
              (8,712
              )
              
              (63,107
              )FINANCING
                  ACTIVITIES:Proceeds
                  from exercise of common stock warrants
              
              
              -
              
              
              687,216Proceeds
                  from sale of common stock
              
              
              50,000
              
              
              -Advances,
                  stockholder (net)
              
              
              322,412
              
              
              24,342Repayment
                  of notes payable - related party
              
              
              (153,000
              )
              
              (202,326
              )Net
                  reduction in factor payable
              
              
              (64,159
              )
              
              205,853Proceeds
                  from notes payable
              
              
              153,000
              
              
              53,357Repayments
                  of notes payable
              
              
              (4,187
              )
              
              (41,964
              )Net
                  cash provided by financing activities
              
              
              304,066
              
              
              726,478NET
                  CHANGE IN CASH
              
              
              (20,989
              )
              
              (2,818
              )CASH,
                  beginning of period
              
              
              22,774
              
              
              25,592CASH,
                  end of period
              
              $
              1,785
              
              $
              22,774SUPPLEMENTAL
                  CASH FLOW INFORMATION:Interest
                  paid
              
              $
              6,795
              
              $
              10,438Income
                  taxes paid
              
              $
              -
              
              $
              -NON
                  CASH FINANCING ACTIVITIES:Conversion
                  of Preferred Stock to Common Stock
              
              $
              250
              
              $
              -Conversion
                  of debt to equity
              
              $
              98,500
              
              $
              -Common
                  Stock issued for services
              
              $
              893,236
              
              $
              1,437,380
  See
                  notes to consolidated financial
                  statements.




F
          -
          6







**MARMION
      INDUSTRIES CORP.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED DECEMBER 31, 2006 and 2005**




Nature
      of
      our Business





Marmion
      Industries Corp., a Texas corporation d/b/a Marmion Air Service (“Marmion Air”)
      (“the Company”), was incorporated on June 8, 1995. Marmion Air Service commenced
      operations in 1998 in residential and commercial HVAC service. Marmion Air
      specializes in explosion-proof heating, ventilation, cooling pressurization
      and
      chemical filtration solutions for mission-critical applications. The Marmion
      Air
      customer base is centrally located in the state of Texas.





On
      May
      20, 2004, Wilbert H. Marmion, the President and Chief Executive Officer of
      Marmion Industries Corporation (formerly International Trust & Financial
      Systems, Inc.) contributed all of his shares of common stock in Marmion
      Investments, Inc., a Texas corporation d/b/a Marmion Air Service, to Marmion
      Industries Corporation (formerly International Trust & Financial Systems,
      Inc.) as a contribution to Marmion Industries Corp.’s capital. The shares
      contributed to Marmion Industries Corporation (formerly International Trust
      & Financial Systems, Inc.) represent one hundred percent of the issued and
      outstanding shares in Marmion Investments, Inc.





For
      accounting purposes this transaction was treated as an acquisition of Marmion
      Industries Corporation (formerly International Trust & Financial Systems,
      Inc.) and a recapitalization of Marmion Investments, Inc. Marmion Investments,
      Inc. is the accounting acquirer and the results of its operations carry over.
      Accordingly, the operations of Marmion Industries Corporation (formerly
      International Trust & Financial Systems, Inc.) were not carried over and
      were adjusted to $0.





NOTE
      1 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





BASIS
      OF
      PRESENTATION - Going Concern





Marmion
      Air has incurred losses totaling $13,068,632 through December 31, 2006 and
      has a
      working capital deficit of $720,574 at December 31, 2006. Because of these
      conditions, Marmion Air will require additional working capital to develop
      business operations. Marmion Air intends to raise additional working capital
      either through private placements, public offerings and/or bank
      financing.





There
      are
      no assurances that Marmion Air will be able to achieve a level of revenues
      adequate to generate sufficient cash flow from operations or obtain additional
      financing through private placements, public offerings and/or bank financing
      necessary to support Marmion Air’s working capital requirements. To the extent
      that funds generated from any private placements, public offerings and/or bank
      financing are insufficient, Marmion Air will have to raise additional working
      capital. No assurance can be given that additional financing will be available,
      or if available,
      will be on terms acceptable to Marmion Air. If adequate working capital is
      not
      available Marmion Air may not increase its operations.




F
          - 7





These
      conditions raise substantial doubt about Marmion Air's ability to continue
      as a
      going concern. The financial statements do not include any adjustments relating
      to the recoverability and classification of asset carrying amounts or the amount
      and classification of liabilities that might be necessary should Marmion Air
      be
      unable to continue as a going concern.





Consolidation





The
      accompanying consolidated financial statements of Marmion Industries Corp (the
      "Company"), include the accounts of the Company and its wholly owned subsidiary,
      Marmion Investments Inc., which is an inactive company. All significant
      intercompany accounts and transactions are eliminated in
      consolidation.





Basis
      of
      Accounting





Marmion
      Air maintains its accounts on the accrual method of accounting in accordance
      with accounting principles generally accepted in the United States of
      America.





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 at the date of the balance sheet. Actual results could differ from
      those estimates.





Allowance
      for Doubtful Accounts





Earnings
      are charged with a provision for doubtful accounts based on a current review
      of
      collectibility of accounts receivable. Accounts deemed uncollectible are applied
      against the allowance for doubtful accounts. The allowance for doubtful accounts
      at December 31, 2006 and December 31, 2005 was $88,463 and $24,914,
      respectively. Management considers this allowance adequate to cover probable
      future losses due to uncollectible trade receivables.





Inventory





Finished
      goods are stated at the lower of cost or net realizable value using a first-in,
      first-out method of costing. At December 31, 2006, inventory totaling $169,888
      consisted of $42,142 in finished goods and $127,746 in raw
      material.





Property
      and Equipment





Property
      and equipment are stated at cost less accumulated depreciation. Major renewals
      and improvements are capitalized; minor replacements, maintenance and repairs
      are charged to current operations. Depreciation is computed by applying the
      straight-line method over the estimated useful lives, which are generally three
      to seven years.




F
          - 8





Long
      Lived Assets





The
      Company reviews for impairment of long-lived assets whenever events or changes
      in circumstances indicate that the carrying amount of an asset may not be
      recoverable. An impairment loss would be recognized when estimated future cash
      flows expected to result from


the
      use
      of the asset and its eventual disposition are less than its carrying amount.
      The
      Company has not identified any such impairment losses.





Revenue
      Recognition





The
      Company recognizes revenue when persuasive evidence of an arrangement exists,
      delivery has occurred, the sales price is fixed or determinable and
      collectibility is probable. These criteria are generally met at the time product
      is shipped or services are performed.





The
      Company from time to time may enter into a long term construction project,
      which
      such services may be performed over a few months. The Company records such
      revenues from long term contracts on a percentage of completion basis. At each
      report date an evaluation is made to determine if there is a loss contingency
      to
      record for such long term contracts. There were no such long term contracts
      outstanding as at December 31, 2005. At December 31, 2006, there were six long
      term contracts outstanding. The Company recorded $27,836 and $198,552 in costs
      and estimated earnings in excess of billings, and billings in excess of costs
      and estimated earnings, respectively, at December 31, 2006 in regard to these
      contracts. At December 31, 2006, there was $86,227 billed out but not paid
      by customers because of retainage provisions. For these long term
      construction projects, there is still $1.3 million to be billed out in
      subsequent periods as the work is completed.





We
      extend
      a one year parts warranty on all equipment manufactured and one year parts
      and
      labor warranty on all equipment manufactured and in service within one hundred
      miles of our facility. We recognized a warranty expense of $10,739 and $2,975
      for the years 2006 and 2005. There is no warranty accrual at December 31, 2006.
      Any returns are accepted within 30 days of sale with a 35% restock
      fee.





Shipping
      and Handling Costs





Shipping
      and handling costs are normally FOB the Company’s factory, prepay and add. These
      costs are included in cost of goods sold.





Advertising
      Costs





The
      Company expenses the cost of advertising in the period in which the advertising
      takes place. Advertising for the year ended December 31, 2006 and 2005 were
      $12,610 and $12,377, respectively.





Fair
      Value of Financial Instruments





The
      Company's financial instruments consist of accounts receivable, accounts
      payable, accrued liabilities, factor payable and notes payable. The carrying
      amount of these financial instruments approximates fair value due either to
      length of maturity or interest rates that approximate prevailing market rates
      unless otherwise disclosed in these consolidated financial statements. Amounts
      due from related parties were not evaluated for their fair value, due to the
      nature of such debt.




F
          - 9





Concentration
      of Credit Risk





Occasionally,
      the Company may have cash balances in its bank accounts that exceed $100,000,
      the federal insured limits. In addition, the Company maintains relationships
      with major customers and vendors as disclosed in note 9.





Income
      Taxes





Income
      taxes are computed using the asset and liability method. Under the asset and
      liability method, deferred income tax assets and liabilities are determined
      based on the differences between the financial reporting and tax bases of assets
      and liabilities, and are measured using the currently enacted tax rates and
      laws. A valuation allowance is provided for the amount of deferred tax assets
      that, based on available evidence, are not expected to be realized.





Loss
      per
      Share





Basic
      loss per share is computed by dividing net loss attributable to common
      stockholders by the weighted average number of common shares outstanding during
      the year. Diluted earnings per


share
      would be calculated as the per share amount that would have resulted if dilutive
      potential stock had been converted to common stock, as prescribed by SFAS 128.
      The Company has not presented diluted per share amounts, as the dilution would
      reduce the loss per share. The common stock equivalents at December 31, 2006
      and
      2005 was zero and 585,000 respectively.





Reclassifications





Certain
      reclassifications have been made to the prior year financials to be in
      conformity to the current year presentations.





Statements
      of Cash Flows





For
      purposes of the statements of cash flows the Company considers all highly liquid
      investments purchased with a remaining maturity of three months or less to
      be
      cash equivalents.





Reverse
      Stock Split





On
      January 25, 2006, the Board of Directors of the Company authorized a reverse
      stock split of 1 share for every 100 shares outstanding. As a result all share
      and per share data have been adjusted retroactively to give effect to this
      1 for
      100 reverse stock split.





Stock
      Based Compensation





We
      previously accounted for stock-based compensation issued to our employees under
      Accounting Principles Board Opinion 25, (APB 25). Accordingly, no compensation
      costs for stock options issued to employees, measured as the excess, if any,
      of
      the fair value of our common stock at the date of grant over the exercise price
      of the options, was recorded. The pro forma net earnings per share amounts
      as if
      the fair value method had been used are presented below for the year ended
      December 30, 2005, in accordance with the Company’s adoption of SFAS 123(R).




F
          - 10





Marmion
      Industries granted 2,703,000 options to purchase common stock to employees
      in
      the year ended December 31, 2005. All options vest immediately, have an exercise
      price of 85 percent of market value on the date of grant and expire 10 years
      from the date of grant. Marmion Industries recorded compensation expense of
      $547,663 under the intrinsic value method during the year ended December 31,
      2005. Marmion Air did not grant options to purchase common stock to employees
      in
      the year ending December 31, 2006.





For
      purposes of the following disclosures during the transition period of the
      adoption of SFAS 123(R), the weighted average fair value of options has been
      estimated on the date of grant using the Black-Scholes options pricing model.
      The following table illustrates the effect on net loss and net loss per share
      if
      Marmion Air had applied the fair value provisions of FASB Statement No. 123, *Accounting
      for Stock-Based Compensation* ,
      to
      stock-based employee compensation.








December
                31, 2005Net
                loss available to common stockholders, as reported
            
            $
            (2,276,487
            )Add:
                stock based compensationdetermined
                under intrinsic valuebased
                method
            
            
            547,663Less:
                stock based compensationdetermined
                under fair valuebased
                method
            
            
            (1,150,010
            )Pro
                forma net loss
            
            $
            (2,878,834
            )Basic
                and diluted net income(loss)
                per share:As
                reported
            
            $
            (1.22
            )Pro
                forma
            
            $
            (1.54
            )





The
      fair
      value of each option granted is estimated on the date of grant using the
      Black-Scholes option-pricing model with the following weighted average
      assumptions: dividend yield of $0, expected volatility of 308%, risk-free
      interest rate of 4.26%, and expected lives of 0.167 years.





Recent
      Accounting Pronouncements





In
      February 2006, the FASB issued FASB Statement No. 155, which is an amendment
      of
      FASB Statements No. 133 and 140. This Statement; a) permits fair value
      remeasurement for any hybrid financial instrument that contains an embedded
      derivative that otherwise would require bifurcation, b) clarifies which
      interest-only strip and principal-only strip are not subject to the requirements
      of Statement 133, c) establishes a requirement to evaluate interests in
      securitized financial assets to identify interests that are freestanding
      derivatives or that are hybrid financial instruments that contain an embedded
      derivative requiring bifurcation, d) clarifies that concentrations of credit
      risk in the form of subordination are not embedded derivatives, e) amends
      Statement 140 to eliminate the prohibition on a qualifying special-purpose
      entity from holding a derivative financial instrument that pertains to a
      beneficial interest other than another derivative financial instrument. 
This Statement is effective for financial statements for fiscal years beginning
      after September 15, 2006. Earlier adoption of this Statement is permitted
      as of the beginning of an entity’s fiscal year, provided the entity has not yet
      issued any financial statements for that fiscal year. Management believes this
      Statement will have no impact on the financial statements of the Company once
      adopted.




F
          - 11





In
      March
      2006, the FASB issued FASB Statement No. 156, which amends FASB Statement No.
      140. This Statement establishes, among other things, the accounting for all
      separately recognized servicing assets and servicing liabilities. This Statement
      amends Statement 140 to require that all separately recognized servicing assets
      and servicing liabilities be initially measured at fair value, if practicable.
      This Statement permits, but does not require, the subsequent measurement of
      separately recognized servicing assets and servicing liabilities at fair value.
      An entity that uses derivative instruments to mitigate the risks inherent in
      servicing assets and servicing liabilities is required to account for those
      derivative instruments at fair value. Under this Statement, an entity can elect
      subsequent fair value measurement to account for its separately recognized
      servicing


assets
      and servicing liabilities. By electing that option, an entity may simplify
      its
      accounting because this Statement permits income statement recognition of the
      potential offsetting changes in fair value of those servicing assets and
      servicing liabilities and derivative instruments in the same accounting period.
      This Statement is effective for financial statements for fiscal years beginning
      after September 15, 2006. Earlier adoption of this Statement is permitted as
      of
      the beginning of an entity’s fiscal year, provided the entity has not yet issued
      any financial statements for that fiscal year. Management believes this
      Statement will have no impact on the financial statements of the Company once
      adopted.





In
      June
      2006, the FASB issued Interpretation No. 48, Accounting
      for Uncertainty in ** Income
      Taxes- an ** interpretation
      of FASB Statement No. 109, Accounting for Income Taxes .
      The
      Statement clarifies the accounting for uncertainty in income taxes recognized
      in
      an enterprise’s financial statements, and prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. This
      interpretation also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure, and transition. FIN
      48
      is effective for fiscal years beginning after December 15, 2006. Management
      believes this Statement will have no impact on the financial statements of
      the
      Company once adopted.





In
      September 2006, the FASB issued FASB Statement No. 157. This Statement defines
      fair value, establishes a framework for measuring fair value in generally
      accepted accounting principles (GAAP), and expands disclosures about fair value
      measurements. This Statement applies under other accounting pronouncements
      that
      require or permit fair value measurements, the Board having previously concluded
      in those accounting pronouncements that fair value is a relevant measurement
      attribute. Accordingly, this Statement does not require any new fair value
      measurements. However, for some entities, the application of this Statement
      will
      change current practices. This Statement is effective for financial statements
      for fiscal years beginning after November 15, 2007. Earlier application is
      permitted provided that the reporting entity has not yet issued financial
      statements for that fiscal year. Management believes this Statement will have
      no
      impact on the financial statements of the Company once adopted.




F
          - 12





NOTE
      2 -
      PROPERTY AND EQUIPMENT





Components
      of property and equipment, at December 31, 2006 are as follows:





December
                31, 2006Vehicles
            
            $
            149,989Warehouse
                equipment
            
            
            51,189Computers
            
            
            14,821Furniture
                and fixtures
            
            
            6,498Software
            
            
            4,995227,492Less:
                accumulated depreciation and amortization
            
            
            (126,998
            )$
            100,494





Depreciation
      and amortization expense totaled $32,912 and $31,584 in 2006 and 2005,
      respectively.





In
      2005,
      Marmion Air received $46,500 in the disposition of a vehicle resulting in a
      loss
      of $2,067. The proceeds were used to pay off the remaining balance of the note
      for the vehicle.





NOTE
      3 -
      FACTOR PAYABLE





In
      September 2006, the Company terminated its factoring arrangement for the
      financing of selected receivables and engaged a new factoring agreement.. The
      receivables factored are subject to a full recourse repurchase guarantee
      arrangement. The factoring fee can be up to 10% per receivable factored, but
      is
      usually less depending on the timeliness of the payments by the customers due
      to
      rebates of the factoring fee. As of December 31, 2006 and 2005 there were
      $137,162 and $257,316 of receivables factored with recourse. Both the
      receivables and the full factor payable are presented on the balance sheets.





NOTE
      4 -
      RELATED PARTY TRANSACTIONS





ADVANCES
      - STOCKHOLDER





Marmion
      Air has received net advances from its Series A preferred stockholder of
      $322,412 during fiscal year 2006 to increase such advances outstanding to such
      stockholder to $524,056 as of December 31, 2006. The advances are unsecured
      and
      are due upon demand. Interest is being accrued at 6% per annum. Accrued interest
      as of December 31, 2006 for the stockholder advances is $29,605.





NOTES
      PAYABLE - RELATED PARTY




F
          - 13





As
      of
      December 31, 2003, the sister in-law of the stockholder advanced $245,000 to
      Marmion Air. The same related party then advanced $15,000 per week though May
      12, 2004 bringing the total cash advanced to $500,000. Starting May 20, 2004
      Marmion Air began re-paying the loan at a rate of $25,000 per week. The
      repayment terms were orally agreed to. Interest for the loan is being accrued
      at
      the rate of 6% per year. As of December 31, 2005, the principle balance due
      was
      $153,000 and accrued interest totaled $34,293. During fiscal 2006, the balance
      of the note and accrued interest was sold to unrelated third parties (see note
      6, Convertible Debt). As of December 31, 2006, the outstanding balance due
      to
      the related party was $-0-.







OFFICERS





The
      CEO
      and Treasurer, sole officers of the Company, are married to each
      other.





NOTE
      5 -
      NOTES PAYABLE





Marmion
      Air entered into two financing agreements to purchase automobiles in 2005
      totaling $31,064 and $22,293 with interest rates of 9.2% and 16.4%,
      respectively. Monthly payments on the vehicles are $648 and $551, respectively.
      The notes are secured by the vehicles. The financing agreements are for a period
      of 60 months and expire in fiscal year 2010.





Future
      maturities of these notes are as follows:





Year
                Ending December 31,2007
            
            $
            9,6092008
            
            
            10,8472009
            
            
            12,2602010
            
            
            10,54743,263Less:
                current portion
            
            
            (9,609
            )$
            33,654





NOTE
      6 -
      CONVERTIBLE DEBT





During
      fiscal year 2006, the note payable to related party (see note 4) in the amount
      of $153,000 and accrued interest totaling $37,218 was sold to unrelated third
      parties. The Company reconfirmed the note and issued guarantees for the payments
      of the new notes and related interest. The Company did not receive any new
      monies as a result of these transactions. The notes and accrued interest are
      convertible at will by the holders into common stock at the rate of $.005 per
      share The four resulting notes payable are as follows:





(1)
            $24,263
                of the related party note plus accrued interest approximating
                $5,802.


As
      of
      December 31, 2006, all of the debt and accrued interest totaling $5,737 had
      been
      converted to 6,000,000 shares.





(2)
            $52,569
                of the related party note plus accrued interest approximating
                $12,828.


As
      of
      December 31, 2006, all of the principal and accrued interest totaling $8,431
      had
      been converted to 12,200,000 shares.




F
          - 14




(3)
            $20,219
                of the related party note plus accrued interest approximating
                $4,935.


As
      of
      December 31, 2006 none of the debt or accrued interest had been
      converted.





(4)
            $55,949
                of the related party note plus accrued interest approximating
                $13,653.


As
      of
      December 31, 2006, $7,500 of the principal had been converted to 1,500,000
      shares.





As
      of
      December 31, 2006, the total unpaid principal and accrued interest relating
      to
      these notes was $68,668 and $26,920, respectively.





The
      Company recorded charges totaling $5,791,637 as a form of compensation expense
      for these convertible debt securities due on demand, based on the conversion
      of
      such debt into shares of common stock. The expense recorded relates to the
      intrinsic value of the conversion price of $.005 per share as compared to the
      market price of the shares at time of issue.





The
      accounting for these convertible debt securities with beneficial conversion
      features was provided for under the interpretative guidance of EITF 98-5, EITF
      00-27 and SFAS No. 133 as the effective dilution to the common shareholders
      as
      of December 31, 2006, including the pro-forma effects providing for second
      re-issuance of debt to have been fully converted, would be to have issued 99%
      of
      the outstanding shares of common stock to these debt holders for the conversion
      of $160,000 in debt, at the option of the holder of such debt.





NOTE
      7 -
      INCOME TAXES





The
      Company follows Statement of Financial Accounting Standards Number 109 (SFAS
      109), “Accounting for Income Taxes.” Deferred income taxes reflect the net
      effect of (a) temporary difference between carrying amounts of assets and
      liabilities for financial purposes and the amounts used for income tax reporting
      purposes, and (b) net operating loss carryforwards. No net provision for
      refundable Federal income tax has been made in the accompanying statement of
      loss because no recoverable taxes were paid previously. Similarly, no deferred
      tax asset attributable to the net operating loss carryforward has been
      recognized, as it is not deemed likely to be realized.





The
      provision for Federal income tax consists of the following:





December
                31,
            
            December
                31,2006
            
            2005Federal
                income tax attributable to:Current
                Operations
            
            $
            (2,430,000
            )
            $
            (800,000
            )Permanent
                Timing Differences
            
            
            2,126,000
            
            
            380,000Less,
                Change in valuation allowance
            
            
            304,000
            
            
            420,000Net
                amount
            
            $
            -
            
            $
            -





The
      cumulative tax effect at the expected rate of 35% of significant items
      comprising our net deferred
      tax amount is as follows:




F
          - 15





December
                31,2006Deferred
                tax asset attributable to:Net
                operating loss carryover
            
            $
            1,273,000Plus,
                Change in valuation allowance
            
            
            304,000Net
                deferred tax asset
            
            $
            1,578,000





At
      December 31, 2006, we had an unused net operating loss carryover approximating
      $4,520,000 that
      is
      available to offset future taxable income; it expires beginning in 2023 through
      2027. In accordance with Section 382 of the Internal Revenue Code of 1986,
      as
      amended, a change in equity ownership of greater than 50% of the Company within
      a three year period can result in an annual limitation on the Company’s ability
      to utilize its NOL carryforwards that were created during tax periods prior
      to
      the change in ownership.





The
      valuation of the deferred tax asset increased by approximately $304,000 for
      2006.





NOTE
      8 -
      COMMITMENTS





*Office
      Lease*





Marmion
      Air leases office and warehouse facilities at the same location under three
      operating leases all commencing June 1, 2006 and expiring May 31, 2007. Combined
      rent expense is $4,075 per month. Rent expense was $45,472 and $35,825 for
      2006
      and 2005, respectively.





*Officers
      Salaries*





Accrued
      Salaries - Officers consists of salaries to two officers under oral agreements.
      The officers’ salaries are $120,000 and $72,000 per year.





NOTE
      9 -
      MAJOR CUSTOMERS AND VENDORS





Major
      customers during the year ended December 31, 2006 and 2005 as shown as a percent
      of total revenue were:





2006
            
            2005Customer
                A
            
            
            24
            %
            
            34
            %Customer
                B
            
            
            1
            %
            
            26
            %Customer
                C
            
            
            7
            %
            
            13
            %Customer
                D
            
            
            34
            %
            
            0
            %Customer
                E
            
            
            11
            %
            
            0
            %





In
      2006
      Marmion Air purchased 24% of its goods from one vendor. In 2005 Marmion Air
      purchased just over 50% of their goods from one vendor.





NOTE
      10 -
      EQUITY





In
      November 2004 Marmion Industries approved a change to their articles of
      incorporation bringing the number of authorized shares of common stock to
      3,000,000,000 and authorized shares of preferred stock to 500,000,000. In
      January 2006, such articles were amended to reduce the authorized shares of
      common stock to 50,000,000, and in September 2006 the articles were again
      amended to increase the authorized shares of common stock to
      500,000,000.




F
          - 16





The
      terms
      of the Series A and B Preferred shares are as follows:





The
      9,500,000 Series A Preferred Shares outstanding have preferences which include
      a
      liquidation right of $.001 per share or $9,500, and conversion rights into
      40
      shares of common stock for each share of preferred stock.





The
      30,000,000 Series B Preferred Shares outstanding have preferences which include
      a liquidation right of $.001 per share or $30,000, and conversion rights into
      100 shares of common stock for each share of preferred stock.





Prior
      to
      August 2006 the conversion rights of both the Series A and B Preferred shares
      had an adjustment clause, which essentially provided for an adjustment to be
      the
      equivalent of an offset to any stock split, stock dividend or recapitalization
      to increase or decrease such conversion factor to ensure a majority voting
      control in the Company. In August 2006 we filed a certificate of amendment
      to
      our certificate of designation for both Series A and B Preferred shares deleting
      the adjustment of conversion rate upon subdivision or combination of the common
      stock. In addition, the holders of the Preferred shares waived all prior
      adjustments to the conversion rate for previous subdivisions and combinations
      of
      our common stock.





On
      September 5, 2006, the Series A Preferred shareholder elected to convert 250,000
      shares of Series A Preferred shares to 10,000,000 shares of common
      stock.





In
      November 2004, Marmion Industries declared a reverse stock split effected in
      the
      form of 1 common share for each 500 issued and outstanding common shares of
      Marmion Industries common stock. In March 2005, Marmion Industries declared
      a
      reverse stock split effected in the form of 1 common share for each 1,000 issued
      and outstanding common shares of Marmion Industries common stock. In
      January 2006, the Board of Directors authorized a reverse stock split of 1
      share
      for every 100 shares outstanding. All share and per share data have been
      adjusted retroactively to give effect to these stock splits.





During
      the twelve months ended December 31, 2005, the Company issued 2,120,574 shares
      of common stock to various consultants. Expense of $1,437,380 was recorded
      related to these shares, which was the market value of such shares issued at
      prices varying from $0.22 to $160.





The
      Company recorded $547,663 of expense due to the issuance of 2,703,000 stock
      options to employees in fiscal 2005. These options were issued at 85% of the
      then market price, and were exercised within a short period of time. The
      recorded expense was to be representative of the below market exercise price
      and
      a value was placed on the related party event of a large amount of options
      issued to employees which potentially could have affected ownership
      control.





During
      the twelve months ended December 31, 2005, employees exercised options to
      acquire 1,601,000 shares of common stock. The Company received proceeds totaling
      $687,216 upon exercise of these options.




F
          - 17





During
      the twelve months ended December 31, 2006, the Company issued 7,185,187 shares
      of common stock to various consultants. Expense of $893,236 was recorded related
      to these shares, which was the market value of such shares at prices varying
      from $0.026 to $0.25.





During
      the twelve months ended December 31, 2006, the Company issued 19,700,000 shares
      of common stock to convert debt totaling $98,500 to equity.





During
      the twelve months ended December 31, 2006, the Company sold 2,000,000 shares
      of
      common stock for cash proceeds totaling $50,000.





As
      of
      December 31, 2006 Mr. Marmion controls in excess of 90% of the votes available
      based on his stock ownership. The Series A and Series B Preferred Stock are
      currently convertible into more common stock than we have authorized and as
      such
      his ownership is determined on a basis of conversion into all common stock
      currently authorized. We do not consider his ownership of the Series A and
      Series B Preferred Stock to include derivative liability instruments due to
      the
      related party nature of his holdings and he already owns a controlling ownership
      in the Company.





The
      following table summarizes stock option activity:





Weighted
                AverageStock
                Options
            
            Exercise
                PriceOutstanding
            
            Exercisable
            
            Outstanding
            
            ExercisableGranted
                2005
            
            
            2,703,000
            
            
            2,703,000
            
            $
            0.39
            
            $
            0.39Cancelled
                or Expired 2005
            
            
            (517,000
            )
            
            (517,000
            )
            
            (0.24
            )
            
            (0.24
            )Exercised
                2005
            
            
            (1,601,000
            )
            
            (1,601,000
            )
            
            (0.43
            )
            
            (0.43
            )Outstanding,
                December 31, 2005
            
            
            585,000
            
            
            585,000
            
            
            0.44
            
            
            0.44Cancelled
                2006
            
            
            (585,000
            )
            
            (585,000
            )
            
            (0.44
            )
            
            (0.44
            )Outstanding,
                December 31, 2006
            
            
            -0-
            
            
            -0-
            
            $
            -0-
            
            $
            -0-





The
      options and stock issued for services in 2005 were issued pursuant to an
      employee stock incentive plan and a non-employee directors and consultants
      retainer stock plan both adopted in January 2005. The weighted average fair
      value of options granted for the years ended December 31, 2006 and 2005 are
      $0
      and $0.43, respectively.





In
      January 2006 these 585,000 options were cancelled.





NOTE
      11 -
      SUBSEQUENT EVENTS





In
      January 2007 through March 2007, the Company issued 600,000 shares of common
      stock to consultants. Expense of $8,400 was recorded related to these
      shares.





In
      January 2007 through March 2007, the Company issued 14,500,000 shares of common
      stock to convert debt totaling $72,500 to equity.





In
      January 2007, the Series A preferred stockholder advanced another $60,000 to
      the
      Company.




F
          - 18





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 a 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.




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.




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.




F
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