UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2009
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number: 000-50619
MOMENTUM BIOFUELS, INC.
(Exact name of Company as specified in its charter)
Colorado 84-1069035
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
7609 Ralston Rd., Arvada, Colorado 80002
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code:
(303) 305-0325
Securities registered pursuant to Section 12(b) of the Act:
Title of each class registered Name of each exchange
on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of class)
Indicate by check mark if the Company is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the Company is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. |_|
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the Company has submitted electronically and
posted on its corporate Website, if any, every Interactive Data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the Company was required to submit and post such files) Yes |_| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Company's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. |X|
Indicate by check mark whether the Company is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
Large accelerated filer [___] Accelerated filer [___] Non-accelerated filer
[___] Smaller reporting company [_X_]
Indicate by check mark whether the Company is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The aggregate market value of voting stock held by non-affiliates of the Company
was $639,589 on December 31, 2009.
There were 93,224,444 shares outstanding of the Company's Common Stock as of
February 26, 2010.
TABLE OF CONTENTS
PART I Page
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ITEM 1 Business 1
ITEM 1 A. Risk Factors 4
ITEM 1 B. Unresolved Staff Comments 9
ITEM 2 Properties 9
ITEM 3 Legal Proceedings 9
ITEM 4 Removed and Reserved. 10
PART II
ITEM 5 Market for Company's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 10
ITEM 6 Selected Financial Data 12
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of
Results of Operations 12
ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 16
ITEM 8 Financial Statements and Supplementary Data 16
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial
Statements and Supplementary Data 16
ITEM 9 A. Controls and Procedures 17
ITEM 9 A(T). Controls and Procedures 17
ITEM 9B Other Information 19
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 19
ITEM 11 Executive Compensation 20
ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 24
ITEM 13 Certain Relationships and Related Transactions, and Director Independence 26
ITEM 14 Principal Accounting Fees and Services 26
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 27
SIGNATURES 28
Note about Forward-Looking Statements
This From 10-K contains forward-looking statements, such as statements relating
to our financial condition, results of operations, plans, objectives, future
performance and business operations. These statements relate to expectations
concerning matters that are not historical facts. These forward-looking
statements reflect our current views and expectations based largely upon the
information currently available to us and are subject to inherent risks and
uncertainties. Although we believe our expectations are based on reasonable
assumptions, they are not guarantees of future performance and there are a
number of important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. By making
these forward-looking statements, we do not undertake to update them in any
manner except as may be required by our disclosure obligations in filings we
make with the Securities and Exchange Commission under the Federal securities
laws. Our actual results may differ materially from our forward-looking
statements.
PART I
ITEM 1. BUSINESS
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General
The following is a summary of some of the information contained in this
document. Unless the context requires otherwise, references in this document to
"Momentum," or the "Company" are to Momentum Biofuels, Inc.
MOMENTUM BIOFUELS, INC.
Momentum Biofuels, Inc. was incorporated on January 29, 1987, in the state of
Colorado, as Tonga Capital Corporation ("Tonga") and was a non-operating entity
classified as a shell company under Rule 12b-2 of the Securities Exchange Act of
1934. Prior to May 2006, the Company had limited activities and was essentially
dormant. Momentum Biofuels, Inc. ("Momentum-Texas") was incorporated in Texas on
May 8, 2006 and was to engage in the production of biodiesel. On May 31, 2006,
Tonga signed an Agreement and Plan of Reorganization with Momentum-Texas. The
shareholders of Momentum-Texas received 38,000,000 shares of common stock of
Tonga in exchange for 38,000,000 shares of Momentum-Texas. This transaction was
accounted for as a reverse merger with Tonga being treated as the accounting
acquirer. On October 10, 2007, at the Annual Shareholders' Meeting, the majority
of the shareholders approved a resolution to change Tonga's name to Momentum
Biofuels, Inc. ("Momentum-Colorado"). Momentum-Texas became a wholly owned
subsidiary of Momentum-Colorado.
COMPANY OVERVIEW
Momentum-Texas was acquired and initially operated as a "pure play" biodiesel
producer focused on servicing the U.S. Gulf Coast and in its future, the
national and international biodiesel markets. From May 2006 through January of
2009, Momentum was engaged in the manufacturing of high quality, low cost and
socially responsible biodiesel fuels that complement and integrate with the
existing diesel fuel supply chain through its subsidiary Momentum-Texas.
Biodiesel is a domestic, renewable fuel for use in diesel engines that is
derived from natural vegetable oils and animal fats. Biodiesel contains no
petroleum, but can be used in any concentration with petroleum-based diesel fuel
in existing diesel engines without engine modification.
1
From June 2006 through the end of January 2009, Momentum-Texas focused its
business efforts on the construction and operation of a biodiesel production
facility located in LaPorte, Texas. Construction on the production facility was
completed during the quarter ended June 30, 2007 and at that time we had the
capability to produce biodiesel and sell product.
In January 2009, after limited production and operational activities, the Board
of Directors voted to direct management to suspend operations, reduce all
unnecessary expenses and explore options to maximize shareholder value.
On August 21, 2009, Momentum-Texas entered into an Agreement with Hunt Global
Resources, Inc. ("Hunt"), under the terms of which Hunt agreed to assume certain
the obligations of Momentum-Texas and Momentum-Colorado through the assignment
of a certain Senior Secured Promissory Note in the amount of $600,000 issued by
Momentum-Colorado to a group of investors arranged by Bathgate Capital Partners,
LLC, of Denver, Colorado. Those obligations assumed by Hunt included fixed
assets of $3,470,758 for $600,000 in debt, $200,000 in outstanding payables,
$600,000 in future lease obligations, $220,000 in outtstanding secured
promissory notes, accrued interest payable on certain debt in exchange for
Momentum - Colorado stock. Hunt further agreed to assume Momentum-Texas
obligations under a sub-lease agreement between Momentum-Texas and Brand
Infrastructure and Services, Inc., including all past due rent, assessments
other charges related to the property covered by the sub-lease agreement, all in
exchange for a conveyance of all of the right title and interest of
Momentum-Texas, in and to all of its physical assets, including the biodiesel
plant located in Pasadena, Texas and all intellectual property, processes,
techniques and formulas for creating Biofuels and related products.
Further, Momentum-Texas entered into a License Agreement with Hunt, which
provided that in exchange for a grant of a license to use, improve, sublicense
and commercialize the intellectual property described in the Agreement, in
exchange for an agreement by Hunt to pay to Momentum-Texas, a royalty of 3% of
the gross and collected revenue received by Hunt from the sale of bio-diesel and
related products and from revenues received by Hunt from its proposed Commercial
Sand business. Momentum-Texas assigned its rights to receive the royalty from
Hunt as described in the License Agreement to its parent, (Momentum-Colorado) in
exchange for common shares of Momentum-Colorado equal to 39% of the issued and
outstanding stock at such date, or 40,000,000 shares, whichever sum is greater
to be issued to Hunt. Such shares were to be issued by Momentum-Colorado as
fully paid, non-assessable and subject to a non dilution agreement in favor of
Hunt.
On October 9, 2009, the agreements between Hunt, Momentum-Texas and
Momentum-Colorado were consummated upon the execution of additional agreements
and on December 31, 2009, the Company issued 40,000,000 shares of its Common
Stock to Hunt.
As a result of the transactions, the officers of Momentum resigned. All officers
and employees resigned as of December 31, 2009. New officers and two replacement
directors assume authority and responsibility as of 1/1/2010.
New Operational Focus
Momentum-Colorado is now an intellectual property company owning specific
royalty agreements as its sole source of revenue. It is the intent of management
to pursue additional royalty and licensing agreements in the furtherance of its
business objectives to maximize shareholder value and profitability. Management
is also considering other opportunities in other non-related businesses.
Current Royalty Agreements
Momentum-Colorado has contracted to receive a royalty of 3% of the gross
revenues of Hunt Global Resources, Inc., from the sale of Biofuels produced by
Hunt Biosolutions, Inc., a subsidiary of Hunt, and from the sale of sand,
gravel or other minerals from a 300 acre leasehold held by Hunt.
2
General Business Plan
We intend to seek, investigate and, if such investigation warrants, acquire
royalty and license agreements. We will not restrict our search to any specific
business, industry or geographical location, and we may participate in business
ventures of virtually any nature. This discussion of our proposed business is
purposefully general and is not meant to be restrictive of our unlimited
discretion to search for and enter into potential business opportunities. We
anticipate that we may be able to participate in only one potential business
venture because of our lack of financial resources.
We expect that the selection of a business opportunity will be complex. Due to
general economic conditions, rapid technological advances being made in some
industries and shortages of available capital, we believe that there are
numerous firms seeking the benefits of an issuer who has complied with the 1934
Act. Such benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, providing liquidity (subject
to restrictions of applicable statutes) for all stockholders and other factors.
Potentially, available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex. We have, and will continue to have, essentially
no assets to provide the owners of business opportunities. However, we will be
able to offer owners of acquisition candidates the opportunity to acquire a
controlling ownership interest in an issuer who has complied with the 1934 Act
without incurring the cost and time required to conduct an initial public
offering.
The analysis of new business opportunities will be undertaken by, or under the
supervision of, our Board of Directors. We intend to concentrate on identifying
preliminary prospective business opportunities which may be brought to our
attention through present associations of our director, professional advisors or
by our stockholders. In analyzing prospective business opportunities, we will
consider such matters as (i) available technical, financial and managerial
resources; (ii) working capital and other financial requirements; (iii) history
of operations, if any, and prospects for the future; (iv) nature of present and
expected competition; (v) quality, experience and depth of management services;
(vi) potential for further research, development or exploration; (vii) specific
risk factors not now foreseeable but that may be anticipated to impact the
proposed activities of the company; (viii) potential for growth or expansion;
(ix) potential for profit; (x) public recognition and acceptance of products,
services or trades; (xi) name identification; and (xii) other factors that we
consider relevant. As part of our investigation of the business opportunity, we
expect to meet personally with management and key personnel. To the extent
possible, we intend to utilize written reports and personal investigation to
evaluate the above factors.
We will not acquire or merge with any company for which audited financial
statements cannot be obtained within a reasonable period of time after closing
of the proposed transaction.
As part of our investigation, we expect to meet personally with management and
key personnel, visit and inspect material facilities, obtain independent
analysis of verification of certain information provided, check references of
management and key personnel, and take other reasonable investigative measures,
to the extent of our limited financial resources and management expertise. The
manner in which we participate in an opportunity will depend on the nature of
the opportunity, the respective needs and desires of both parties, and the
management of the opportunity.
3
We will participate in a business opportunity only after the negotiation and
execution of appropriate written business agreements. Although the terms of such
agreements cannot be predicted, generally we anticipate that such agreements
will (i) require specific representations and warranties by all of the parties;
(ii) specify certain events of default; (iii) detail the terms of closing and
the conditions which must be satisfied by each of the parties prior to and after
such closing; (iv) outline the manner of bearing costs, including costs
associated with the Company's attorneys and accountants; (v) set forth remedies
on defaults; and (vi) include miscellaneous other terms.
Competition
We believe we are an insignificant participant among the firms which engage in
the acquisition of royalty and license agreements. There are many established
businesses, venture capital and financial concerns that have significantly
greater financial and personnel resources and technical expertise than we have.
In view of our limited financial resources and limited management availability,
we will continue to be at a significant competitive disadvantage compared to our
competitors.
Investment Company Act 1940
Although we will be subject to regulation under the Securities Act of 1933, as
amended, and the 1934 Act, we believe we will not be subject to regulation under
the Investment Company Act of 1940 (the "1940 Act") insofar as we will not be
engaged in the business of investing or trading in securities. In the event we
engage in business combinations that result in us holding passive investment
interests in a number of entities, we could be subject to regulation under the
1940 Act. In such event, we would be required to register as an investment
company and incur significant registration and compliance costs. We have
obtained no formal determination from the SEC as to our status under the 1940
Act and, consequently, any violation of the 1940 Act would subject us to
material adverse consequences. We believe that, currently, we are exempt under
Regulation 3a-2 of the 1940 Act.
Number of Persons Employed.
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As of March 1, 2010, the Company and its subsidiaries had no paid employees.
ITEM 1A. RISK FACTORS
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Risk Factors
COMPANY RISK FACTORS
THE COMPANY'S LACK OF BUSINESS DIVERSIFICATION COULD RESULT IN THE DEVALUATION
OF THE COMPANY'S COMMON STOCK IF REVENUES FROM LICENSE FEES DO NOT MEET
PROJECTIONS.
The Company expects its business to consist of the receipt of royalties from
Hunt Global Resources, Inc. ("Hunt"). The Company does not have any other lines
of business or other sources of revenue if Hunt is unable to generate revenue
from the production and sale of biodiesel and the mining and sale of sand and
gravel. This lack of business diversification could cause investors to lose all
or some of their investment if the Company is unable to generate additional
revenues by the successful acquisition and operation of other revenue generating
businesses or other royalty agreements. Presently, management has not identified
any other lines of business or alternative revenue sources.
4
THE COMPANY'S OFFICERS AND DIRECTORS ARE NOT EMPLOYED FULL-TIME BY THE COMPANY
WHICH COULD BE DETRIMENTAL TO THE BUSINESS.
The Company's directors and officers are, or may become, in their individual
capacities, officers, directors, controlling shareholder and/or partners of
other entities engaged in a variety of businesses. Thus, there exist potential
conflicts including time and efforts involved in participation with such other
business entities. Each officer and director of the Company is engaged in
business activities outside of the Company's business, and the amount of time
they devote as Officers and Directors to the Company's business will be up to 40
hours per week.
The Company does not know of any reason other than outside business interests
that would prevent its officers and directors from devoting full-time to the
business of the Company, when the business may demand such full-time.
THE COMPANY HAS AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS
PROVIDED BY COLORADO REVISED STATUTE.
Colorado Revised Statutes provide for the indemnification of our directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities our behalf. Momentum
will also bear the expenses of such litigation for any of our directors,
officers, employees, or agents, upon such person's promise to repay us therefore
if it is ultimately determined that any such person shall not have been entitled
to indemnification. This indemnification policy could result in substantial
expenditures by us that we will be unable to recoup.
THE COMPANY'S DIRECTORS' LIABILITY TO ITS AND SHAREHOLDERS IS LIMITED.
Colorado Revised Statutes exclude personal liability of Company's directors and
its shareholders for monetary damages for breach of fiduciary duty except in
certain specified circumstances. Accordingly, the Company and its shareholders
will have a much more limited right of action against the directors than
otherwise would be the case. This provision does not affect the liability of any
director under federal or applicable state securities laws.
THE COMPANY MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY NOT BE AVAILABLE ON
REASONABLE TERMS AND AS NEEDED.
To supplement the business experience of the Company's officers and directors,
the company may be required to employ accountants, technical experts,
appraisers, attorneys, or other consultants or advisors. Company's Board,
without any input from stockholders, will make the selection of any such
advisors. Furthermore, Company anticipates that such persons will be engaged on
an "as needed" basis without a continuing fiduciary or other obligation to us.
In the event Company considers it necessary to hire outside advisors, it may
elect to hire persons who are affiliates, if they are able to provide the
required services.
WE INTEND TO PURSUE THE ACQUISITION OF ROYALTY AND LICENSE AGREEMENTS
Our sole strategy is to acquire a royalty and licensing agreements. Successful
implementation of this strategy depends on our ability to identify a suitable
acquisition candidate, acquire such agreements on acceptable terms and integrate
its operations. In pursuing acquisition opportunities, we compete with other
companies with similar strategies. Competition for such agreements may result in
increased prices of acquisition targets. Acquisitions involve a number of other
risks, including risks of acquiring undisclosed or undesired liabilities,
acquired in-process technology, stock compensation expense, diversion of
management attention, potential disputes with the seller of one or more acquired
entities and possible failure to retain key acquired personnel. Any acquired
entity or assets may not perform relative to our expectations. Our ability to
meet these challenges has not been established.
5
SCARCITY OF AND COMPETITION FOR OPPORTUNITIES AND COMBINATIONS
We believe we are an insignificant participant among the firms which engage in
the acquisition of business opportunities. There are many established venture
capital and financial concerns that have significantly greater financial and
personnel resources and technical expertise than we have. Nearly all such
entities have significantly greater financial resources, technical expertise and
managerial capabilities than us and, consequently, we will be at a competitive
disadvantage in identifying possible business opportunities and successfully
completing agreements. Moreover, we will also compete in seeking merger or
acquisition candidates with numerous other small public companies. In view of
our limited financial resources and limited management availability, we will
continue to be at a significant competitive disadvantage compared to our
competitors.
WE HAVE ESTABLISHED NO STANDARDS FOR LICENSE AND ROYALTY AGREEMENTS
There can be no assurance that we will be successful in identifying and
evaluating suitable opportunities or in concluding agreements. We have not
identified any particular industry or specific business within an industry for
evaluation. There is no assurance we will be able to negotiate an agreement on
terms favorable, if at all. We have not established a specific length of
operating history or specified level of earnings, assets, net worth or other
criteria which we will require a target business opportunity to have achieved,
and without which we would not consider an agreement. Accordingly, we may enter
into agreements with a business opportunity having no significant operating
history, losses, limited or no potential for earnings, limited assets, negative
net worth or other negative characteristics.
OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST WHICH MAY NOT BE RESOLVED FAVORABLY
TO US.
Certain conflicts of interest may exist between our directors and us. Our
Directors have other business interests to which they devote their attention,
and may be expected to continue to do so although management time should be
devoted to our business. As a result, conflicts of interest may arise that can
be resolved only through exercise of such judgment as is consistent with
fiduciary duties to us. See "Directors, Executive Officers, Promoters and
Control Persons" and "Conflicts of Interest."
RISK FACTORS RELATED TO OUR STOCK
THERE ARE LIMITED TRADING MARKETS FOR THE COMPANY'S COMMON STOCK, THEREBY
LIMITING A SHAREHOLDERS' OPPORTUNITY TO SELL SUCH COMMON STOCK.
Currently, only a limited trading market exists for the Company's common stock.
The common stock trades on the Over-The-Counter Bulletin Board ("OTCBB") under
the symbol "MMBF." The OTCBB is a limited market and subject to substantial
restrictions and limitations in comparison to the NASDAQ system. Any
broker/dealer that makes a market in the Company's stock or other person that
buys or sells our stock could have a significant influence over its price at any
given time. The Company cannot assure its shareholders that a market for the
Company's common stock will be sustained. There is no assurance that the
Company's common stock will have any greater liquidity than shares that do not
trade on a public market. A shareholder may be required to retain their shares
for an indefinite period of time, and may not be able to liquidate their shares
in the event of an emergency or for any other reasons.
6
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY
OF OUR SECURITIES.
We are a "penny stock" company. None of our securities currently trade in any
market and, if ever available for trading, will be subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
THE COMPANY WILL PAY NO DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid dividends on our common stock and do not ever anticipate paying
such dividends in the foreseeable future.
7
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. Rule 144 provides in essence that a person who has held
restricted securities for six months may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a company's outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. There is
no limit on the amount of restricted securities that may be sold by a
non-affiliate after the owner has held the restricted securities for a period of
two years. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of shares of common stock of
present stockholders, may have a depressive effect upon the price of the common
stock in any market that may develop.
THE COMPANY'S STOCK WILL IN ALL LIKELIHOOD BE THINLY TRADED AND AS A RESULT YOU
MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE
YOUR SHARES.
The shares of the Company's common stock may be thinly-traded on the OTC
Bulletin Board, meaning that the number of persons interested in purchasing our
common shares at or near ask prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of factors, including
the fact that Company is a small company which is relatively unknown to stock
analysts, stock brokers, institutional investors and others in the investment
community that generate or influence sales volume, and that even if Company came
to the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven, early stage company such as ours or purchase or
recommend the purchase of any of Company's Securities until such time as we
became more seasoned and viable. As a consequence, there may be periods of
several days or more when trading activity in Company's Securities is minimal or
non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous sales without
an adverse effect on Securities price. We cannot give you any assurance that a
broader or more active public trading market for Company's common Securities
will develop or be sustained, or that any trading levels will be sustained. Due
to these conditions, Company can give investors no assurance that they will be
able to sell their shares at or near ask prices or at all if you need money or
otherwise desire to liquidate the Securities of the Company.
COMPANY'S COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK
THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU
MAY PAY FOR THE SECURITY.
Because of the limited trading market for Company's common stock and because of
the possible price volatility, you may not be able to sell your shares of common
stock when you desire to do so. The inability to sell your Securities in a
rapidly declining market may substantially increase your risk of loss because of
such illiquidity and because the price for our shares may suffer greater
declines because of Company's our price volatility.
8
The price of Company's common stock that will prevail in the market after this
offering may be higher or lower than the price you may pay. Certain factors,
some of which are beyond the control of Company, that may cause our share price
to fluctuate significantly include, but are not limited to the following:
o Variations in quarterly operating results;
o Loss of a key relationship or failure to complete
significant transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies common stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
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Not Applicable.
ITEM 2. PROPERTIES
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Corporate Offices
Our headquarters are located at 7609 Ralston Rd., Arvada, Colorado 80002
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
There are no pending or threatened legal proceedings involving
Momentum-Colorado. However, Momentum-Texas is a defendant in the following legal
proceedings:
Jason Gehrig v. Momentum Biofuels, Inc. filed in the District Court of Harris
County, Texas. - This lawsuit involves a claim for breach of an employment
contract. Depositions were completed over a year ago and there has been no
activity in this litigation since.
Harris County Tax Authority v. Momentum Biofuels, Inc. filed in the District
Court of Harris County, Texas. - This suit involves a claim for property taxes
in the amount of approximately $80,000. The company has been negotiating a
payment plan and expects to be able to pay the taxes due from royalties and
licensing fees.
South Shore Development Corporation v. Momentum Biofuels, Inc. filed in the
District Court of Galveston County, Texas. - This suit involves a claim for
rents due under a lease of office space at 2600 South Shore Blvd., Suite 100,
League City, Texas. Judgment was rendered in favor of Plaintiff in December,
2009 in the amount of $263,074.40 plus attorney fees of $6,627.22.
9
Stuart Cater and James O'Neil v. Momentum Biofuels, Inc. filed in the District
Court of Harris County, Texas. - This suit involves a claim for payment under
the terms of employment settlement agreements. The issues were the subject of an
arbitration in mid-2009 which resulted in an award of $52,500 for each of the
claimants and attorney's fees of $40,000. Arbitration award was reduced to a
judgment and a Receiver was appointed to collect the judgment.
Quality Carriers, Inc. v. Momentum Biofuels, Inc. filed in the District Court of
Harris County, Texas. - This suit involves a claim for rental fees for tank
trailers in the amount of $19,000 and seeks legal fees in the amount of $6,335.
City of LaPorte Taxing Authority v. Momentum Biofuels, Inc. - This suit involves
a claim for property taxes in the amount of approximately $40,000. The
litigation is pending in the District Court of Harris County, Texas.
ITEM 4. REMOVED AND REVISED
- ---------------------------
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
- ---------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
- -------------------------------------
Market Information
PRICE RANGE OF COMMON STOCK
The Common Stock is presently traded on the over-the-counter market on the OTC
Bulletin Board maintained by the Financial Industry Regulatory Authority
("FINRA"). The Common Stock of the Company trades on the OTC Bulletin Board
under the trading symbol "MMBF."
The following table sets forth the range of high and low bid quotations for the
common stock of each full quarterly period during the fiscal year or equivalent
period for the fiscal periods indicated below. The quotations were obtained from
information published by the FINRA and reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
High Low
---- ---
2009 Fiscal Year
----------------
March 31, 2009 $0.35 $0.02
June 30, 2009 $0.20 $0.02
September 30, 2009 $0.04 $0.01
December 31, 2009 $0.05 $0.01
2008 Fiscal Year
----------------
March 31, 2008 $0.99 $0.35
June 30, 2008 $0.88 $0.28
September 30, 2008 $0.70 $0.08
December 31, 2008 $0.35 $0.07
10
Holders
As of December 31, 2009, there were 421 shareholders of record. There are
beneficial shareholders. In many instances, a registered stockholder is a broker
or other entity holding shares in street name for one or more customers who
beneficially own the shares.
Our transfer agent is Mountain Share Transfer, Inc. 1625 Abilene Drive,
Broomfield, Colorado 80020. The telephone number is 303-460-1149.
Dividend Policy
Holders of Company's common stock are entitled to receive such dividends as may
be declared by Company's board of directors. The Company has not declared or
paid any dividends on its common shares and it does not plan on declaring any
dividends in the near future. The Company currently intends to use all available
funds to finance the operation and expansion of its business.
Shares Eligible for Future Sale
The Company currently has 93,224,444 shares of common stock outstanding as of
December 31, 2009. A current shareholder who is an "affiliate" of Momentum,
defined in Rule 144 as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
Momentum will be required to comply with the resale limitations of Rule 144. Of
these shares a total of 21,245,500 shares have been held for 6 months or more
and are eligible for resale under Rule 144. Sales by affiliates will be subject
to the volume and other limitations of Rule 144, including certain restrictions
regarding the manner of sale, notice requirements, and the availability of
current public information about Momentum. The volume limitations generally
permit an affiliate to sell, within any three month period, a number of shares
that does not exceed the greater of one percent of the outstanding shares of
common stock or the average weekly trading volume during the four calendar weeks
preceding his sale. A person who ceases to be an affiliate at least three months
before the sale of restricted securities beneficially owned for at least two
years may sell the restricted securities under Rule 144 without regard to any of
the Rule 144 limitations.
Recent Sales of Unregistered Securities
During the year ended December 31, 2009, the Company made the following sales of
its unregistered securities.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
- ---------------------- --------------------- -------------- --------------- ---------------------
Assumption of $600,000
10/09/09 Common Stock 30,000,000 Promissory Note Business Associate
10/09/09 Common Stock 10,000,000 Assumption of $600,000 Business Associate
Promissory Note
10/09/09 Common Stock 5,000,000 Services Business Associate
10/09/09 Common Stock 500,000 Interest Business Associate
11
Exemption From Registration Claimed
All of the sales by Momentum of its unregistered securities were made in
reliance upon Section 4(2) of the Securities Act of 1933, as amended (the "1933
Act"). The entity listed above that purchased the unregistered securities was an
existing shareholder, known to the Company and its management, through
pre-existing business relationships, as a long standing business associate. The
entity was provided access to all material information, which it requested, and
all information necessary to verify such information and was afforded access to
Momentum's management in connection with the purchases. The purchaser of the
unregistered securities acquired such securities for investment and not with a
view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
Issuer Purchases of Equity Securities
Momentum did not repurchase any shares of its common stock during the year ended
December 31, 2009.
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
FORWARD-LOOKING STATEMENTS CAUTIONARY
This Report on Form 10-K for the year ended December 31, 2009 may contain
"forward-looking statements" regarding Momentum Biofuels, Inc. (the "Company" or
"Momentum"). In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or the negative of such terms and other comparable terminology. These
forward-looking statements include, without limitation, statements about our
market opportunity, our strategies, competition, expected activities and
expenditures as we pursue our business plan, and the adequacy of our available
cash resources. Although we believe that the expectations reflected in any
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Actual results may differ
materially from the predictions discussed in these forward-looking statements.
Changes in the circumstances upon which we base our predictions and/or
forward-looking statements could materially affect our actual results.
Additional factors that could materially affect these forward-looking statements
and/or predictions include, among other things: (1) our limited operating
history; (2) our ability to pay down existing debt; (3) the Company's ability to
obtain contracts with suppliers of raw materials (for the Company's production
of biodiesel fuel) and distributors of the Company's biodiesel fuel product; (4)
the risks inherent in the mutual performance of such supplier and distributor
contracts (including the Company's production performance (5) the Company's
ability to secure and retain management capable of managing growth; (6) the
Company's ability to raise necessary financing to execute the Company's business
plan; (7) potential litigation with our shareholders, creditors and/or former or
current investors; (8) the Company's ability to comply with all applicable
federal, state and local government and international rules and regulations; and
(9) other factors over which we have little or no control.
12
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2009, includes a "going concern"
explanatory paragraph that describes substantial doubt about the Company's
ability to continue as a going concern.
OPERATIONS
From June 2006 through the end of January 2009, Momentum-Texas focused its
business efforts on the construction and operation of a biodiesel production
facility located in LaPorte, Texas. Construction on the production facility was
completed during the quarter ended June 30, 2007 and at that time we had the
capability to produce biodiesel and sell product.
In January 2009, after limited production and operational activities, the Board
of Directors voted to direct management to suspend operations, reduce all
unnecessary expenses and explore options to maximize shareholder value.
On August 21, 2009, Momentum-Texas entered into an Agreement with Hunt Global
Resources, Inc. ("Hunt"), under the terms of which Hunt agreed to assume the
obligations of Momentum-Texas and Momentum-Colorado through the assignment of a
certain Senior Secured Promissory Note in the amount of $600,000 issued by
Momentum-Colorado to a group of investors arranged by Bathgate Capital Partners,
LLC, of Denver, Colorado. Hunt further agreed to assume Momentum-Texas
obligations under a sub-lease agreement between Momentum-Texas and Brand
Infrastructure and Services, Inc., including all past due rent, assessments
other charges related to the property covered by the sub-lease agreement, all in
exchange for a conveyance of all of the right title and interest of
Momentum-Texas, in and to all of its physical assets, including the biodiesel
plant located in Pasadena, Texas and all intellectual property, processes,
techniques and formulas for creating Biofuels and related products.
Further, Momentum-Texas entered into a License Agreement with Hunt, which
provided that in exchange for a grant of a license to use, improve, sublicense
and commercialize the intellectual property described in the Agreement, in
exchange for an agreement by Hunt to pay to Momentum-Texas, a royalty of 3% of
the gross and collected revenue received by Hunt from the sale of bio-diesel and
related products and from revenues received by Hunt from its proposed Commercial
Sand business. Momentum-Texas assigned its rights to receive the royalty
described in the License Agreement to its parent, Momentum-Colorado in exchange
for common shares of Momentum-Colorado equal to 39% of the issued and
outstanding stock at such date, or 40,000,000 shares, whichever sum is greater.
Such shares were to be issued by Momentum-Colorado as fully paid, non-assessable
and subject to a non dilution agreement in favor of Hunt.
On October 9, 2009, the agreements between Hunt, Momentum-Texas and
Momentum-Colorado were consummated upon the execution of additional agreements
and on December 31, 2009, the Company issued 40,000,000 shares of its common
stock to Hunt.
As a result of the transactions, the officers of Momentum resigned. All officers
and employees resigned as of December 31, 2009. New officers and two replacement
directors \assume authority and responsibility as of 1/1/2010.
New Operational Focus
Momentum-Colorado is now an intellectual property company owning specific
royalty agreements as its sole source of revenue. It is the intent of management
to pursue additional royalty and licensing agreements in the furtherance of its
business objectives to maximize shareholder value and profitability. Management
is also considering other opportunities in other non-related businesses.
13
RESULTS OF OPERATIONS
- ---------------------
For the Year Ended December 31, 2009 Compared to the Year Ended December 31,
2008
The Company recognized revenue of $185,718 from biodiesel tolling agreements for
the year ended December 31, 2009, compared to $418,263 of revenue during the
year ended December 31, 2008. The $232,545 decrease was a result of the rising
costs of raw materials and the decrease in demand for biodiesel.
During the year ended December 31, 2009, the Company incurred $166,916 in cost
of sales, resulting in a gross profit of $18,802 compared to $256,265 in cost of
goods sold; resulting in a gross loss of $161,998 for the year ended December
31, 2008.
During the year ended December 31, 2009, the Company incurred operating expenses
of $3,118,602 compared to $4,297,162 during the year ended December 31, 2008.
The decrease of $1,178,560 was a result of a discontinuing the plant operations
in 2009. Operating expenses during the year ended December 31, 2009 included,
$555,351 in plant expenses and $2,563,251 in general and administrative
expenses, compared to $1,463,792 in plant expenses and $2,833,370 in
administrative expenses for the year ended December 31, 2008.
During the year ended December 31, 2009, the Company incurred net interest
expense of $193,903, compared to $97,816 for the year ended December 31, 2008.
During the year ended December 31, 2009, the Company recognized a net loss of
$5,670,625 compared with a net loss of $4,232,980 for the year ended December
31, 2008. The decrease of $1,437,645 was due primarily to the $2,376,922 loss on
the sale of assets.
The net loss per share for the year ended December 31, 2009, was $0.06 per share
compared to a net loss per share of $0.09 for the year ended December 31, 2008.
LIQUIDITY
- ---------
At December 31, 2009, the Company had $0 cash and $0 in total current assets
with which to conduct its operations. At December 31, 2009, total current
liabilities were $2,244,527. At December 31, 2009, the Company has a total
working capital deficit of $2,244,527. $1,959,236 of liabilities were at the
subsidiary level from operation of the biodiesel plant.
There can be no assurance that the Company will be able to carry out its
business plan. Historically, our cash needs have been satisfied primarily
through proceeds from private placements of our equity securities and debt
instruments, but we cannot guarantee that such financing activities will be
sufficient to fund our current and future projects and our ability to meet our
cash and working capital needs. No commitments to provide additional funds have
been made by management or other stockholders. Irrespective of whether the
Company's cash assets prove to be inadequate to meet the Company's operational
needs, the Company might seek to compensate providers of services by issuances
of its common stock in lieu of cash.
Net cash provided by operating activities during the year ended December 31,
2009 was $71,873, compared $1,356,657 used in operating activities in the year
ended December 31, 2008. During the year ended December 31, 2009, net losses of
$5,384,826 were adjusted for non-cash items that included $340,254 in
depreciation and amortization expense and $1,577,580 in share based
compensation, other non-cash adjustments totaled $3,538,865. During the year
ended December 31, 2008, net losses of $4,232,980 were adjusted for the non-cash
items of $522,781 in depreciation and amortization expense, $1,518,439 in share
based compensation, other non-cash adjustments totaled $805,237.
14
During the year ended December 31, 2009, the Company provided $50,000 in cash by
its investing activities. During the year ended December 31, 2008, the Company
used $112,726 in its investing activities for the acquisition of property and
plant equipment.
Net cash used by financing activities during the year ended December 31, 2009
was $56,432. During the year ended December 31, 2008, the Company received funds
of $501,319 from its financing activities.
On October 9, 2009, the Company sold fixed assets worth $3,470,758 for $600,000
in debt, $200,000 in outstanding payables, $600,000 in future lease obligations,
$220,000 in outstanding secured promissory notes, accrued interest payable on
certain debt and 40 million shares of common stock.
Management will need to seek and obtain additional funding, via loans or private
placements of stock, for future operations and to provide required working
capital. Management cannot make any assurances it will be able to complete such
a transaction.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------
The preparation of financial statements included in this Annual Report on Form
10-K requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, management evaluates its estimates and
judgments. Management bases its estimates and judgments on historical
experiences and on various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The more significant
accounting estimates inherent in the preparation of the Company's financial
statements include estimates as to the valuation of equity related instruments
issued, and valuation allowance for deferred income tax assets. Our accounting
policies are described in the notes to financial statements included in this
Annual Report on Form 10K. The more critical accounting policies are as
described below.
The Company believes that the following are some of the more significant
accounting policies and methods used by the Company:
o revenue recognition
o allowance for accounts receivable o value of long-lived assets
o inventories
o share-based compensation
REVENUE RECOGNITION
The Company will recognize revenue when the product has been delivered to the
customer, the sales price is fixed or determinable, and collectability is
reasonably assured.
ALLOWANCE FOR ACCOUNTS RECEIVABLE
Accounts receivable are presented at face value, net of the allowance for
doubtful accounts. The allowance for doubtful accounts is established through
provisions charged against income and is maintained at a level believed adequate
by management to absorb estimated bad debts based on historical experience and
current economic conditions. Management believes all receivables will be
collected and therefore the allowance has been established to be zero at
December 31, 2009.
15
VALUATION OF LONG-LIVED ASSETS
The Company assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Factors the Company considers important which could trigger an
impairment review include negative projected operating performance by the
Company and significant negative industry or economic trends. The Company does
not believe that there has been any impairment to long-lived assets as of
December 31, 2009.
INVENTORIES
Inventories are stated at the lower of average cost basis or market. Abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
(spoilage) are recognized as current-period charges. Fixed production overhead
is allocated to the costs of conversion into inventories based on the normal
capacity of the production facilities.
SHARE-BASED COMPENSATION
Momentum measures all share-based payments, including grants of employee stock
options, using a fair-value based method. The cost of services received in
exchange for awards of equity instruments is recognized in the statement of
operations based on the grant date fair value of those awards amortized over the
requisite service period. Momentum utilizes a standard option pricing model, the
Black-Scholes model, to measure the fair value of stock options granted.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has reviewed recently issued accounting pronouncements and the
Company does not expect that the adoption of recently issued accounting
pronouncements will have a material impact on its financial position, results of
operations or cash flows
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
Momentum's operations do not employ financial instruments or derivatives which
are market sensitive. Short term funds are held in non-interest bearing accounts
and funds held for longer periods are placed in interest bearing accounts. Large
amounts of funds, if available, will be distributed among multiple financial
institutions to reduce risk of loss. The Company's cash holdings do not generate
interest income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
The audited financial statements of Momentum Biofuels, Inc. for the years ended
December 31, 2009 and 2008, start on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
16
ITEM 9A. CONTROLS AND PROCEDURES
- --------------------------------
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Executive Officer (Principal
Executive Officer) to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer carried out an
evaluation under the supervision and with the participation of our management,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period
covered by this report. Based on the foregoing evaluation, our Chief Executive
Officer concluded that our disclosure controls and procedures are not effective
in timely alerting them to material information required to be included in our
periodic SEC filings, as a result of material weaknesses in our internal control
over financial reporting discussed below.
ITEM 9A(T). CONTROLS AND PROCEDURES
- -----------------------------------
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes
those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our
assets;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation
(iii)provide reasonable assurance regarding prevention or timely detection
of unauthorized
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management's assessment of the effectiveness of the small business issuer's
internal control over financial reporting is as of the year ended December 31,
2009. In making this assessment, Management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control--Integrated Framework. Based on the evaluation, management
concluded that there is a material weakness in our internal control over
financial reporting. The material weakness relates to the monitoring and review
of work performed by contracted accounting personnel in the preparation of audit
and financial statements, footnotes and financial data provided to Momentum's
registered public accounting firm in connection with the annual audit. Until
October 2007, all of our financial reporting is carried out by our Chief
Financial Officer; during the year ended December 31, 2009 the Company continued
to function without a Chief Financial Officer. This lack of an accounting staff
results in a lack of segregation of duties and accounting technical expertise
necessary for an effective system of internal control.
17
This annual report does not include an attestation report of the company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the SEC that
permit the Company to provide only management's report in this annual report.
There was no change in our internal control over financial reporting that
occurred during the fiscal year ended December 31, 2009, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
- --------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
- ---------------------------------------------------------------
The following table sets forth information as to persons who currently serve as
Momentum Biofuels, Inc. directors or executive officers, including their ages as
of December 31, 2009.
Name Age Position
- ---------------------------- ------------------------- -------------------------
Gregory A. Enders 55 Former Chief Executive
Officer and Director
David M. Fick 57 Director
Jeffrey P. Ploen 58 Former Director
George Sharp 67 Chairman and CEO
Jewel Hunt 53 Director
Adreena Betti 40 President and Director
Momentum's directors serve an annual term.
The directors named above will serve until the next annual meeting of Momentum's
stockholders. Thereafter, directors will be elected for one-year terms at the
annual stockholders' meeting. Officers will hold their positions at the pleasure
of the board of directors absent any employment agreement. There is no
arrangement or understanding between the directors and officers of Momentum and
any other person pursuant to which any director or officer was or is to be
selected as a director or officer.
Changes in Management:
On December 30, 2009, George Sharp, President of Hunt, Jewel Hunt, Chairman of
Hunt, and Adreena Betti, President of US MedAlerts, Inc. were elected as
Directors of the Company. On December 31, 2009, Gregory A. Enders resigned as
Chairman of the Board, Director, President and CEO of the Company and Jeffrey P.
Ploen resigned as a Director. At a Board meeting on December 31, 2009, George
Sharp was elected Chairman of the Board and CEO of the Company and Adreena Betti
was elected President of the Company.
18
Biographical Information
GEORGE SHARP. Mr. Sharp is an entrepreneur with 35 years executive experience as
the CEO/President of several companies. He founded a number of companies, the
stock of several of which traded on the public market. Mr. Sharp was also
involved in several leveraged byouts and has formerly served as President and
CEO of: Matrix Computer Systems, Inc. Citadel Computer Systems, Inc. (NASD:
CITN); Sharp Holding Corporation (NASD: SHAR) and was President and co-founder
of Hunt Global Resources, Inc. Mr. Sharp currently serves as Chairman of the
Board and CEO of the Company.
ADREENA BETTI. Ms. Betti has over 15 years of operational and executive
experience in a variety of public and private high-tech companies in the areas
of general management, sales, marketing, administration and operational
controls. Ms. Betti has previously served as Vice President and Director of
Sales for Citadel Computer Systems, Inc. (NASD: CITN), General Manager of Sharp
Holding Corporation (NASD: SHAR) and executive management position at Bluegate
Corporation (NASD: BGAT), CITOC, Inc. and Hunt Global Resources, Inc. Ms. Betti
currently serves as President of US MedAlerts, Inc. and serves as the President
and a director of the Company.
JEWEL HUNT. Mr Hunt served as President and CEO of Norris Forest Products, Inc.,
with responsibility for domestic management and international sales and
operations. In his capacity at Norris, Mr. Hunt oversaw the operations of this
family owned business, which is one of the largest independently owned
timberland management companies and saw-mill operators in Texas. Mr. Hunt is a
specialist in industrial plant manufacturing production processes with further
expertise in managing global operations. Mr. Hunt has also worked as a field
services operator for Schlumberger, a leading global oilfield services provider.
Mr. Hunt currently serves as Chairman of the Board of Hunt Global Resources,
Inc. Mr. Hunt serves as a Director of the Company.
DAVID M. FICK. Mr. Fick has served as a director of the Company since October 9,
2007. Mr. Fick has participated as an active investor and entrepreneur in
numerous projects involving wind, biodiesel, ethanol, and farm related
businesses. Mr. Fick is currently President of several investment funds working
with value added ventures for farming. He owns and operates a farm implement
business that sells over 50 manufacturer lines. He is a past board member of
Badger State Ethanol. Mr. Fick and his family have been a part of the farming
community in Minnesota and South Dakota for almost 40 years including interests
in dairy, corn, beets, soybeans and alfalfa. He has served in the National Guard
and has held multiple leadership roles with local farm organizations, civic
organizations and his church.
Former Officers and Directors
GREGORY A. ENDERS. Mr. Enders has served as the Chief Executive Officer and a
Director of the Company since October 20, 2007. Mr. Enders has served as Chief
Executive Officer of several public and private companies including Stratasoft,
Inc., Commerciant Holdings, Inc., Intermat, Inc., Strategic Distribution, MRO
Software, Inc., Integration Systems, Inc. (d/b/a Bizmart Computer Super Centers)
and Computer Productivity, Inc. Most of these companies have been involved in
existing and emerging technologies and have included high volume hardware sales,
technology development, professional skills training, communications and
electronics. In addition, Mr. Enders has served as President and CEO of GEAM,
Inc., an acquisitions and management company established for the purpose of
consulting in the areas of business acquisitions, financial restructuring,
strategic planning and implementation of client companies. Mr. Enders served in
the United States Air Force (both active duty and reserves) from 1972 - 1978.
From 2002 until August of 2007 Mr. Enders served on the Development Board of
Texas A&M's Mays Business School. As of December 31, 2009, Mr. Enders resigned
all titles and positions in the Company to assume a senior role in Hunt.
19
JEFFREY PLOEN. Mr. Ploen was re-elected to the Board of Directors in October
2006. Mr. Ploen has served as a director of the Company since July 2004. He
served as the acting Chief Executive Officer and acting Chief Financial Officer
of the Company until June 2006. He has been a member of the investment banking
industry for over 25 years specializing in small or micro cap firms. He is a
founding partner and is currently the CEO and Chairman of the Board of Iofina
Natural Gas PLC. He served as the former Chairman, President and CEO of Tonga
Capital Corp. He was the former Chairman and CEO of Paradigm Holdings, Inc. He
is the former hedge fund manager of the Olive Fund LLC. Mr. Ploen held positions
with several small cap brokerage houses from 1972 through 1994 including Engler
and Budd, Cohig and Associates, Neidiger, Tucker and Brunner and Institutional
Securities, Inc. For the past ten years Mr. Ploen has been President of J. Paul
Consulting Corp., a firm specializing in financing for small and micro cap
firms. As of December 31, 2009, Mr. Ploen resigned as a Director of the Company.
Committees of the Board of Directors
The Company is managed under the direction of its board of directors.
Executive Committee
The Company does not have an executive committee, at this time.
Audit Committee
The Company does not have an audit committee at this time.
Conflicts of Interest - General.
The Company's directors and officers are, or may become, in their individual
capacities, officers, directors, controlling shareholder and/or partners of
other entities engaged in a variety of businesses. Thus, there exist potential
conflicts of interest including, among other things, time, efforts and
corporation opportunity, involved in participation with such other business
entities.
Conflicts of Interest - Corporate Opportunities
Presently no requirement contained in the Company's Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of the Company's
business to disclose to Momentum business opportunities which come to their
attention. The Company's officers and directors do, however, have a fiduciary
duty of loyalty to Momentum to disclose to it any business opportunities which
come to their attention, in their capacity as an officer and/or director or
otherwise. Excluded from this duty would be opportunities which the person
learns about through his involvement as an officer and director of another
company. The Company has no intention of merging with or acquiring an affiliate,
associate person or business opportunity from any affiliate or any client of any
such person.
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
The following table sets forth the compensation paid to officers and board
members during the fiscal years ended December 31, 2009, 2008 and 2007. The
table sets forth this information for Garner Investments, Inc., including
salary, bonus, and certain other compensation to the Board members and named
executive officers for the past three fiscal years and includes all Board
Members and Officers as of December 31, 2009
20
SUMMARY EXECUTIVES COMPENSATION TABLE
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
Non-equity
incentive Non-qualified o
Stock Option plan deferred All other
Salary Bonus awards awards compensation compensation compensation Total
Name & Position Year ($) ($) ($) ($) ($) earnings ($) ($) ($)
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
2009 0 0 0 0 0 0 0 0
Gregory A. Enders, 2008 122,170 0 0 0 0 0 0 122,170
Former CEO (1) 2007 45,000 0 0 3,313,565 0 0 0 3,358,565
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
2009 0 0 0 0 0 0 0 0
Barent W. Carter 2008 0 0 0 0 0 0 0 0
(2) 2007 0 0 0 1,952,764 0 0 0 1,952,764
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
Stuart Carter (3) 2009 0 0 0 0 0 0 0 0
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
George Sharp (4) 2009 0 0 0 0 0 0 0 0
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
Adreena Betti (5) 2009 0 0 0 0 0 0 0 0
- -------------------- -------- --------- -------- -------- --------- ------------- -------------- ----------- ----------
(1) Mr. Enders was appointed the Chief Executive Officer on October 20, 2007 and
resigned such position on December 31, 2009. Mr. Enders received $122,170 in
salary in 2008; regular salary payments under his employment agreement were
discontinued by the Company in July 2008. Mr. Ender's employment agreement
states he receives an annual salary of $216,000. In addition in 2007, he
received an option exercisable for 5,000,000 shares which vests over a three
year period and was valued using the Black-Scholes model at $3,313,565.
(2) Mr. Barent Cater served as our Chief Executive Officer from March 1, 2007
through October 9, 2007. During 2007, Mr. Cater worked without receiving a
salary. He was awarded 5,000,000 options as part of his employment contract.
Upon his separation he forfeited 3,500,000 options.
(3) Mr. Stuart Cater served as our Chief Financial Officer from March 1, 2007
through October 10, 2007. He was awarded 2,000,000 options as part of his
employment contract. Upon his separation he forfeited 1,625,000 options. As part
of a separation agreement Mr. Cater will receive $150,000, of which $60,000 was
paid upon execution of the agreement, the balance paid in twelve monthly
installments of $7,500, starting November 15, 2007. The Company was unable to
continue payments and entered into a settlement agreement to be funded as cash
allows.
(4) Mr. Sharp was appointed the Chief Executive Officer of the Company on
December 31, 2009.
(5) Ms. Betti was appointed the President of the Company on December 31, 2009.
21
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
--------------------------------------------
The following table sets forth certain information concerning outstanding equity
awards held by the President and the Company's most highly compensated executive
officers for the fiscal year ended December 31, 2009 (the "Named Executive
Officers"):
- ------------- ------------------------------------------------------------- ---------------------------------------
Option Awards Stock awards
- ------------- ------------------------------------------------------------- ---------------------------------------
Equity
incentive
Equity plan
incentive awards:
Market plan Market
Number value awards: or
Equity of of Number payout
incentive shares shares of value of
plan or of unearned unearned
awards: units units shares, shares,
Number of Number of of of units or units or
securities Number of securities stock stock other others
underlying securities underlying that that rights rights
unexercised underlying unexercised Option have have that that
options unexercised unearned exercise Option not not have not have not
(#) options (#) options price expiration vested vested vested vested
Name exercisable unexercisable (#) ($) date (#) ($) (#) ($)
- ------------- ------------ ------------- ------------- --------- ---------- -------- -------- ---------- ----------
Gregory A. 0 5,000,000 0 1.00 10/16/12 0 0 0 0
Enders, (1)
- ------------- ------------ ------------- ------------- -------- ----------- -------- -------- ---------- ----------
(1) Mr. Enders was appointed the Chief Executive Officer on October 20, 2007 and
resigned from such position on December 31, 2009. Mr. Ender's employment
agreement states he receives 5,000,000 options vested over three years and
vesting 100% with a change in control.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
During the year ended December 31, 2008, Momentum created the Momentum 2008
Stock Option and Award Plan. There was no grant of stock options to the Chief
Executive Officer and other named executive officers during the fiscal year
ended December 31, 2009.
Employment Agreements and Termination of Employment and Change-In-Control
Arrangements
Ender's Employment Agreement
On October 16, 2007, Momentum entered into an Employment Agreement with Mr.
Gregory A. Enders, the Chef Executive Officer and President. The Employment
Agreement has a term of 3 years and provides for an automatic renewal for 1 year
terms. The Employment Agreement can be terminated by either party at an earlier
date. As part of the Employment Agreement, Mr. Enders receives an annual base
salary of $216,000 per year. If business objectives set by the Board of
Directors and Mr. Enders are met after a period of six months, Mr. Enders is to
receive an additional $2,000 per month. Mr. Ender's salary is subject to annual
review by the Board of Directors. In July 2008, the Company discontinued regular
salary payments under the Employment Agreement and began accruing salary for
future payment.
22
As part of his Employment Agreement, Mr. Enders was issued an option exercisable
for 5,000,000 shares of common stock. The option has an exercise price of $1.00
per share and a term of 3 years. The option vests at a rate of 1,250,000 shares
in six months from the date of issuance, 1,250,000 shares in twelve months from
the date of issuance, 1,250,000 shares on the second anniversary of issuance and
1,250,000 shares on the third anniversary of issuance or at a change in control.
Director Compensation
The Company does not pay any Directors fees for meeting attendance.
The following table sets forth certain information concerning compensation paid
to the Company's directors during the year ended December 31, 2009:
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
Non-qualified
Non-equity deferred
Fees incentive compensation All other
earned or Stock Option plan earnings compensation Total
Name paid in awards ($) awards ($) compensation ($) ($) ($)
cash ($)
($)
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
Gregory A.
Enders (1) $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
Jeffrey A. Ploen $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
(2)
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
David Fick $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
George Sharp (3) $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
Jewell Hunt (4) $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
Adreena Betti
(5) $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
- -------------- ----------- ----------- ----------- --------------- ---------------- --------------- ---------
(1) Mr. Enders resigned as a director and officer of the Company on
December 31, 2009.
(2) Mr. Ploen resigned as a director of the Company on December 31, 2009.
(3) Mr. Sharp was appointed a director of the Company on December 30,
2009.
(4) Mr. Hunt was appointed a director of the Company on December 30, 2009.
(5) Ms. Betti was appointed a director of the Company on December 30, 2009.
All of the Company's officers and/or directors will continue to be active in
other companies. All officers and directors have retained the right to conduct
their own independent business interests.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Momentum's officers and directors are indemnified as provided by the Colorado
Revised Statutes and the bylaws.
23
Under the Colorado Revised Statutes, director immunity from liability to a
company or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. The
Company's Articles of Incorporation do not specifically limit the directors'
immunity. Excepted from that immunity are: (a) a willful failure to deal fairly
with Momentum's or its shareholders in connection with a matter in which the
director has a material conflict of interest; (b) a violation of criminal law,
unless the director had reasonable cause to believe that his or her conduct was
lawful or no reasonable cause to believe that his or her conduct was unlawful;
(c) a transaction from which the director derived an improper personal profit;
and (d) willful misconduct.
The Company's bylaws provide that it will indemnify the directors to the fullest
extent not prohibited by Colorado law; provided, however, that it may modify the
extent of such indemnification by individual contracts with the directors and
officers; and, provided, further, that the Company shall not be required to
indemnify any director or officer in connection with any proceeding, or part
thereof, initiated by such person unless such indemnification: (a) is expressly
required to be made by law, (b) the proceeding was authorized by the board of
directors, (c) is provided by the Company, in sole discretion, pursuant to the
powers vested under Colorado law or (d) is required to be made pursuant to the
bylaws.
The Company's bylaws provide that it will advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of Garner Investments as a
director or executive officer of another company, partnership, joint venture,
trust or other enterprise, prior to the final disposition of the proceeding,
promptly following request therefore, all expenses incurred by any director or
officer in connection with such proceeding upon receipt of an undertaking by or
on behalf of such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified under the bylaws
or otherwise.
EQUITY COMPENSATION PLAN INFORMATION
The Company has not established an equity compensation plan or Incentive Stock
Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
- --------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS.
- ---------------------------
The following table sets forth information with respect to the beneficial
ownership of Garner Investments, Inc. outstanding common stock by:
o each person who is known by Momentum to be the beneficial owner of
five percent (5%) or more of Momentum's common stock;
o Momentum's chief executive officer, its other executive officers, and
each director as identified in the "Management -- Executive
Compensation" section; and
o all of the Company's directors and executive officers as a group.
24
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
60 days of the date of this document into shares of the Company's common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of Momentum Biofuels,
Inc.'s common stock that Momentum believes was beneficially owned by each person
or entity as of December 31, 2009.
Title of Class Name and Address of Beneficial Owner Amount and Nature Percent of
of Beneficial Class (1)
Owner*
- ------------------------ --------------------------------------- ------------------- ---------------
Common shares Charles T. Phillips 6,075,698 5.81%
Common shares Donald Guggenheim 4,800,000 4.59%
Common shares Coastal Safety and Environmental, LLC 6,445,000 6.16%
Common shares Hunt Global Resources, Inc.(3) 30,000,000 29.62%
Common shares Crown Financial, LLC 10,000,000 9.56%
Common shares David Fick, Director/ 3,000,000 2.87%
TES Energy Partners, LLC (2)
Common shares Jewell Hunt, Director (3) 30,000,000 29.62%
Common shares Gregory Enders, Director 1,000,000 0.9%
Common shares George Sharp, Officer and Director 0 0%
Common shares Adreena Betti, Officer and Director 0 0%
- ------------------------ --------------------------------------- ------------------- ---------------
Common shares All officers and directors (5 individuals) 34,000,000 32.1%
(1) Based upon 93,224,444 shares of common stock issued and outstanding, options
exercisable for 9,250,000 shares of common stock and warrants exercisable for
2,182,000 shares of common stock for 106,006,444 shares on a fully diluted basis
on December 31, 2009.
(2) David Fick, a director of the Company, is President of TES Energy Partners
and substantially owns shares through the partnership. Mr. Fick votes the TES
Energy Partner shares.
(3) Jewel Hunt, a director of the Company, is President and CEO of Hunt Global
Resources and votes the shares of Hunt Global Resources. Mr. Hunt does not hold
any shares of the Company directly.
25
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person. Included in
this table are only those derivative securities with exercise prices that Garner
Investments believes have a reasonable likelihood of being "in the money" within
the next sixty days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Other than the stock transactions discussed below, the Company has not entered
into any transaction nor is there any proposed transactions in which any of the
founders, directors, executive officers, shareholders or any members of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
Year Ended December 31, 2009
- ----------------------------
During the year ended December 31, 2009, there were no related party
transactions.
Year Ended December 31, 2009
- ----------------------------
Ender's Employment Agreement
On October 16, 2007, Momentum entered into an Employment Agreement with Mr.
Gregory A. Enders, the Chief Executive Officer and President. The Employment
Agreement has a term of 3 years and provides for an automatic renewal for 1 year
terms. The Employment Agreement can be terminated by either party at an earlier
date. As part of the Employment Agreement, Mr. Enders receives an annual base
salary of $216,000 per year. If business objectives set by the Board of
Directors and Mr. Enders are met after a period of six months, Mr. Enders is to
receive an additional $2,000 per month. Mr. Ender's salary is subject to annual
review by the Board of Directors. In July 2008, the Company discontinued regular
salary payments under the Employment Agreement and began accruing salary to be
paid at a later date.
As part of his Employment Agreement, Mr. Enders was issued an option exercisable
for 5,000,000 shares of common stock. The option has an exercise price of $1.00
per share and a term of 3 years. The option vests at a rate of 1,250,000 shares
in six months from the date of issuance, 1,250,000 shares in twelve months from
the date of issuance, 1,250,000 shares on the second anniversary of issuance and
1,250,000 shares on the third anniversary of issuance or accelerated at change
of control.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
- -----------------------------------------------
GENERAL. Larry O'Donnell, CPA, P.C. ("O'Donnell") is the Company's principal
auditing accountant firm. The Company's Board of Directors has considered
whether the provisions of audit services are compatible with maintaining
O'Donnell's independence. Prior to November 10, 2008, Malone and Bailey served
as our principal auditing accountant firm.
26
The following table represents aggregate fees billed to the Company for the
years ended December 31, 2009 and December 31, 2008.
Year Ended December 31,
2009 2008
----------------------------- ----------------------------
Audit Fees $13,837 $73,325
Audit-related Fees $0 $0
Tax Fees $0 $0
All Other Fees $0 $0
----------------------------- ----------------------------
Total Fees $13,837 $73,325
All audit work was performed by the auditors' full time employees.
During the year ended December 31, 2008, audit fees of $49,775 were paid to
Malone and Bailey and fees of $0 were paid to Larry O'Donnell, CPA, PC.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
- ------------------------------------------------
The following is a complete list of exhibits filed as part of this Form 10K.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-K.
(a) Audited financial statements for years ended December 31, 2009 and 2008
(b) Exhibit No. Description
----------- -----------
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the
32.1 Certification of Principal Executive Officer pursuant to
Section 906 of the
*Filed herewith.
27
Larry O'Donnell, CPA, P.C.
Telephone (303) 745-4545 2228 South Fraser Street
Fax (303) 369-9384 Unit I
Email larryodonnellcpa@msn.com Aurora, Colorado 80014
www.larryodonnellcpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Momentum Biofuels, Inc.
I have audited the accompanying balance sheet of Momentum Biofuels, Inc. as of
December 31, 2009 and 2008, and the related statements of operations, changes in
stockholders' deficit and cash flows for years then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audits provide a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Momentum Biofuels, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has an
accumulated deficit of $18,855,861 at December 31, 2009. Additionally, for the
year ended December 31, 2009, the Company had a net loss of $5,670,625. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regards to these matters are also described
in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/Larry O'Donnell, CPA, PC
- ------------------------
Larry O'Donnell, CPA, PC
April 14, 2010
F-1
MOMENTUM BIOFUELS, INC.
Consolidated Balance Sheets
December 31, 2009 & 2008
2009 2008
------------------------------------
ASSETS
Current Assets
Cash $ - $ 34,559
Accounts Receivable, net - 2,190
Inventory - 73,552
Prepaid insurance - 32,063
----------------- ----------------
Total current assets - 142,364
Property & equipment, net of accumulated depreciation and
amortization - 2,617,902
Other Assets - 327,469
----------------- ----------------
TOTAL ASSETS $ - $ 3,087,735
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,016,749 $ 569,779
Accrued expenses - 491,330
Advances - related parties 107,778 14,210
Loan payable - 150,000
Short term notes payable - related parties
----------------- ----------------
Total Current Liabilities 2,124,527 1,225,319
----------------- ----------------
Long Term Liabilities
Convertible notes payable - net of discount - related parties - 53,318
Senior secured convertible note - net of discount 120,000 217,608
----------------- ----------------
Total Long Term Liabilities 120,000 270,926
------------------------------------
Total Liabilities 2,244,527 1,496,245
----------------- ----------------
Stockholders' (Deficit) Equity
Common stock, $0.01 par value; 500,000,000
shares authorized, 93,224,44 and 47,724,444 shares
issued and outstanding on December 31, 2009 and
2008, respectively
Additional paid-in capital 15,679,090 14,299,482
Accumulated Deficit (18,855,861) (13,185,236)
----------------- ----------------
Total Stockholders' (Deficit) Equity (2,244,527) 1,591,490
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ - $ 3,087,735
================= ================
See the accompanying notes to the consolidated financial statements.
F-2
MOMENTUM BIOFUELS, INC.
Consolidated Statements of Operations
For the Years Ended December 31, 2009 & 2008
2009 2008
---------------- ----------------
Revenue $ 185,718 $ 418,263
Cost of goods sold 166,916 256,265
---------------- ----------------
Gross profit 18,802 161,998
Operating Expenses
Plant expenses 555,351 1,463,792
General and administrative 2,563,251 2,833,370
---------------- ----------------
Total Operating Expenses 3,118,602 4,297,162
---------------- ----------------
Loss from operations (3,099,800) (4,135,164)
---------------- ----------------
Other Income (Expense)
Interest income - 1,311
Interest expense (193,903) (99,127)
Loss on Sale of Assets (2,376,922) -
---------------- ----------------
Total Other Income (Expense) (2,570,825) (97,816)
---------------- ----------------
Net Loss (5,670,625) (4,232,980)
================ ================
Per Share Information:
Weighted average number of common shares outstanding Basic
and Diluted 93,224,444 48,559,181
================ ================
Net Loss per Share $ (0.06) $ (0.09)
================ ================
See the accompanying notes to the consolidated financial statements.
F-3
MOMENTUM BIOFUELS, INC.
Consolidated Statement of Stockholders' (Deficit) Equity
For the Period from January 1, 2008 through December 31, 2009
Common Stock Additional Accumulated
Shares Amount Paid-In Deficit Totals
--------------- -------------- --------------- ----------------- ---------------
Balance - January 1, 2008 54,828,756 $ 548,287 $ 11,853,153 $ (8,952,256) $3,449,184
Cancelled shares (7,500,000) (75,000) 75,000 - -
Shares issued in private
placement for cash 200,000 2,000 78,000 - 80,000
Share based compensation 195,688 1,957 1,604,840 - 1,606,797
Debt Discount - - 389,518 - 389,518
Warrants issued for services - - 298,971 - 298,971
Net loss (4,232,980) (4,232,980)
--------------- -------------- --------------- ----------------- ---------------
Balance - December 31, 2008 47,724,444 $ 477,244 $ 14,299,482 $ (13,185,236) $1,591,490
--------------- -------------- --------------- ----------------- ---------------
Shares issued in private
placement to assume debt 40,000,000 400,000 307,600 - 707,600
Shares issued in private
placement for services 500,000 5,000 3,845 - 8,845
Shares issued in private
placement for interest 5,000,000 50,000 38,450 - 88,450
Debt Discount - - (547,867) - (547,867)
Share based compensation - - 1,577,580 - 1,577,580
Net loss - - - (5,670,625) (5,670,625)
--------------- -------------- --------------- ----------------- ---------------
Balance - December 31, 2009 93,224,444 $ 932,244 $ 15,679,090 $ (18,855,861) $(2,244,527)
=============== ============== =============== ================= ===============
See the accompanying notes to the consolidated financial statements.
F-4
MOMENTUM BIOFUELS, INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2009 & 2008
2009 2008
----------------- ------------------
Cash Flows from Operating Activities
Net loss $ (5,670,625) $ (4,232,980)
Adjustments to reconcile net loss to cash used in operating
activities
Depreciation 340,254 522,781
Bad debt expense - 29,866
Deferred loan cost expense 45,463 39,780
Interest expense - amortization of debt discount 51,936 45,444
Share based compensation 1,577,580 1,518,439
Shares issued for service and debt 2,663,822 88,358
Changes in Assets and Liabilities
Accounts receivable 2,190 (28,197)
Inventory 73,552 (16,793)
Prepaid expenses and other current assets 32,063 1,703
Accounts payable 1,446,970 375,553
Accrued expenses (491,332) 299,389
----------------- ------------------
Net Cash Provided (Used) in Operating Activities 71,873 (1,356,657)
Cash Flows used in Investing Activities
Acquisition of fixed assets - (22,274)
Sale of fixed assets (50,000) 135,000
----------------- ------------------
Net Cash Provided (Used) in Investing Activities (50,000) 112,726
Cash Flows from Financing Activities
Payment of note payable (150,000) (315,891)
Loans from shareholders (7,991) 14,210
Stock issued for cash - 80,000
Offering costs - (42,000)
Proceeds from loan payable 101,559 150,000
Proceeds from convertible notes 615,000
----------------- ------------------
Net Cash Provided (Used) by Financing Activities (56,432) 501,319
----------------- ------------------
Net (Decrease) increase in Cash (34,559) (742,612)
Cash and cash equivalents - Beginning of period 34,559 777,171
----------------- ------------------
Cash and cash equivalents - End of period $ - $ 34,559
================= ==================
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the period for:
Interest $ 105,453 $ 28,513
================= ==================
Income Taxes $ - $ -
================= ==================
Non-Cash Transactions - Investing activities:
Stock issued for services $ - $ 88,358
================= ==================
Warrants issued for services $ - $ 298,971
================= ==================
Financing activities
Cancellation of common shares $ - $ 75,000
================= ==================
Loan Discount $ 51,936 $ -
================= ==================
See the accompanying notes to the consolidated financial statements.
F-5
Momentum Biofuels, Inc.
Notes to Consolidated Financial Statements
December 31, 2009
Note 1 - Organization and Nature of Operations
Tonga Capital Corporation was incorporated on January 29, 1987, in Colorado, and
was a non-operating entity classified as a shell company under Rule 12b-2 of the
Securities Exchange Act of 1934. Momentum Biofuels, Inc. was incorporated in
Texas on May 8, 2006, and was to engage in the business of the production of
biodiesel fuel. On May 31, 2006, Tonga Capital Corporation (Tonga), a Colorado
Corporation, signed an Agreement and Plan of Reorganization with Momentum
Biofuels, Inc. The shareholders of Momentum Biofuels, Inc. received 38,000,000
shares of common stock of Tonga in exchange for 38,000,000 shares of Momentum
Biofuels, Inc., being all of its issued and outstanding shares. This transaction
was accounted for as a reverse merger with Momentum Biofuels, Inc. being treated
as the accounting acquirer. On October 10, 2007, at the Annual Shareholders'
Meeting, the majority of the shareholders approved a resolution to change
Tonga's name to Momentum Biofuels, Inc. However, Momentum Biofuels, Inc., a
Texas corporation, is a wholly owned subsidiary of Momentum Biofuels, Inc., a
Colorado corporation, the public company.
On August 21, 2009, Momentum Biofuels, Inc. ("Momentum-Texas"), a Texas
corporation, entered into an Agreement with Hunt Global Resources, Inc.
("Hunt"), under the terms of which Hunt agreed to assume the obligations of
Momentum-Texas and Momentum Biofuels, Inc., a Colorado corporation
("Momentum-Colorado") through the assignment of a certain Senior Secured
Promissory Note in the amount of $600,000 issued by Momentum-Colorado to a group
of investors arranged by Bathgate Capital Partners, LLC, of Denver, Colorado.
Hunt further agreed to assume Momentum-Texas obligations under a sub-lease
agreement between Momentum-Texas and Brand Infrastructure and Services, Inc.,
including all past due rent, assessments other charges related to the property
covered by the sub-lease agreement, all in exchange for a conveyance of all of
the right title and interest of Momentum-Texas, in and to all of its physical
assets, including the biodiesel plant located in Pasadena, Texas and all
intellectual property, processes, techniques and formulas for creating Biofuels
and related products.
Further, Momentum-Texas entered into a License Agreement with Hunt, which
provided that in exchange for a grant of a license to use, improve, sublicense
and commercialize the intellectual property described in the Agreement, in
exchange for an agreement by Hunt to pay to Momentum-Texas, a royalty of 3% of
the gross and collected revenue received by Hunt from the sale of bio-diesel and
related products and from revenues received by Hunt from its proposed Commercial
Sand business. Momentum-Texas assigned its rights to receive the royalty
described in the License Agreement to its parent, Momentum-Colorado in exchange
for common shares of Momentum-Colorado equal to 39% of the issued and
outstanding stock at such date, or 40,000,000 shares, whichever sum is greater.
Such shares were to be issued by Momentum-Colorado as fully paid, non-assessable
and subject to a non dilution agreement in favor of Hunt.
On October 9, 2009, the agreements between Hunt, Momentum-Texas and
Momentum-Colorado were consummated upon the execution of additional agreements
and the issuance of the shares of common stock by Momentum-Colorado to Hunt on
December 31, 2009.
F-6
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Momentum and its wholly- owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. Our significant estimates
primarily relate to the assessment of warrants and debt and equity transactions
and the estimated lives and methods used in determining depreciation of fixed
assets. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents include highly liquid investments purchased with original
maturities of three months or less.
Accounts Receivable
Accounts receivable are presented at face value, net of the allowance for
doubtful accounts. The allowance for doubtful accounts is established through
provisions charged against income and is maintained at a level believed adequate
by management to absorb estimated bad debts based on historical experience and
current economic conditions. Management believes all receivables will be
collected and therefore the allowance has been established to be zero at
December 31, 2009.
Inventories
Inventories are stated at the lower of average cost basis or market. Abnormal
amounts of idle facility expense, freight, handling costs, and wasted materials
(spoilage) are recognized as current-period charges. Fixed production overhead
is allocated to the costs of conversion into inventories based on the normal
capacity of the production facilities.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are
computed using the straight-line method for financial reporting purposes at
rates based on the following estimated useful lives:
Description Life
- -------------------------------------------------------- --------------------
Office equipment, furniture and fixtures 5 years
Computer equipment and software 3 years
Plant equipment 7 years
Leasehold improvements 5-6 years
F-7
The cost of asset additions and improvements that extend the useful lives of
property and equipment are capitalized. Routine maintenance and repair items are
charged to current operations. The original cost and accumulated depreciation of
asset dispositions are removed from the accounts and any gain or loss is
reflected in the statement of operations in the period of disposition.
In accordance with Financial Accounting Standards Board Accounting Standards
Codification (FASB ASC ) 360-10-35, "Impairment or Disposal of Long-Lived
Assets," management reviews long-lived asset groups for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
group may not be recoverable. Recoverability of asset groups to be held and used
is measured by a comparison of the carrying amount of an asset group to future
net cash flows expected to be generated by the asset group. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset group exceeds the fair value of
the assets in the group. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Assets Being Developed for Our Own Use
Assets being developed for our own use are stated at cost, which includes the
cost of construction and other direct costs attributable to the construction. No
provision for depreciation is made on assets developed for our own use until
such time as the relevant assets are completed and put into service.
Revenue Recognition
Momentum recognizes revenue from product sales when the products are shipped or
delivered and the title and risk pass to the customer. Provisions for any
product returns or discounts given to customers are accounted for as reductions
in revenues in the same period revenues are recorded.
Share-Based Compensation
Momentum measures all share-based payments, including grants of employee stock
options, using a fair-value based method. The cost of services received in
exchange for awards of equity instruments is recognized in the statement of
operations based on the grant date fair value of those awards amortized over the
requisite service period. Momentum utilizes a standard option pricing model, the
Black-Scholes model, to measure the fair value of stock options granted.
Income Taxes
Momentum and its subsidiary file a consolidated federal tax return. Momentum
uses the asset and liability method in accounting for income taxes. Deferred tax
assets and liabilities are recognized for temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, and are measured using the tax rates expected to be in effect when
the differences reverse. Deferred tax assets are also recognized for operating
loss and tax credit carryforwards. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date. A valuation allowance is used to
reduce deferred tax assets when uncertainty exists regarding their realization.
Net Loss per Common Share
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares by the weighted average number of common and common
equivalent shares outstanding during the period. For the years ended December
31, 2009 and 2008, there were no potential common equivalent shares used in the
calculation of weighted average common shares outstanding as the effect would be
anti-dilutive because of the net loss.
F-8
Description 2009 2008
- ---------------------------------------------------------------------------------------------- -------------------
Weighted average shares used to compute basic and
diluted net loss per common share: 68,589,285 48,559,181
Securities convertible into shares of common stock, not used
because the effect would be anti-dilutive:
Stock warrants related to notes payable 120,000 120,000
Stock warrants for common stock 2,062,000 2,062,000
Options awarded to executives and consultants 9,250,000 9,250,000
------------------- -------------------
Total securities convertible into shares of common stock 11,582,000 11,582,000
=================== ===================
Recent Accounting Pronouncements
Momentum does not expect that adoption of recently issued accounting
pronouncements will have a material impact on its financial position, results of
operations or cash flows.
Note 3 - Going Concern
Momentum has incurred significant losses from operations since inception and has
limited financial resources. These factors raise substantial doubt about
Momentum's ability to continue as a going concern. Momentum's financial
statements for the year ended December 31, 2009 have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The company currently has an
accumulated deficit of $18,855,861 through December 31, 2009. Momentum's ability
to continue as a going concern is dependent upon its ability to develop
additional sources of capital and, ultimately, achieve profitable operations.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Note 4 - Concentration of Credit Risk
At various times during the year, Momentum may have bank deposits in excess of
the FDIC insurance limits. Momentum has not experienced any losses from
maintaining cash accounts in excess of the federally insured limit. Management
believes that it is not exposed to any significant credit risk on cash accounts.
Note 5 - Inventories
As of December 31, 2009 and 2008, inventory consisted of the following:
Description 2009 2008
- ----------- ---- ----
Finished Goods $ 0 $ 1,980
Raw Materials 0 71,572
---- ---------
Total $ 0 $ 73,552
==== =========
F-9
Note 6 - Property and Equipment
Property, plant and equipment as of December 31, 2009 and 2008 consisted of the
following:
- ---------------------------------------------------------------------------------------------------
Description 2009 2008
- ----------- ---- ----
Plant $ - 3,279,592
Plant machinery and equipment - 44,455
Office furniture and equipment - 52,239
Computer software - 3,220
Leasehold Improvements - 41,251
--------------------- ------------------
Total Assets - 3,420,757
--------------------- ------------------
Accumulated Depreciation & Amortization - (280,074)
--------------------- ------------------
$ - $2,617,902
==================== ==================
Note 7 - Assets Being Developed For Our Own Use
The asset developed for our own use consists of a biodiesel refinery plant for
which construction was completed in early 2007. On June 25, 2007, these assets
were placed into service pursuant to applicable accounting principles. For the
years ended December 31, 2009 and 2008, depreciation and amortization expense
was $277,896 and $340,254, respectively.
Note 8 - Loans Payable
Notes payable as of December 31, 2009 and 2008, consisted of the following:
Description 2009 2008
- ------------------------------------------------------------------------ -------------------- ---------------------
Account purchasing agreement payable to Crown Financial, to sell
certain accounts to Crown Financial. The agreement bore interest at
12% per annum and was entered into on December 1, 2008 and was paid in
full with accrued interest ($15,000) on January 31, 2009. $ - $ 150,000
==================== =====================
F-10
Note 9 - Notes Payable to Related Parties
Notes payable to related parties as of December 31, 2009 & 2008 consist of the
following:
Description 2009 2008
- ------------------------------------------------------------------------ -------------------- ---------------------
Notes payable originally issued to Richard Robert, Richard Cilento, David Fick
and J. Paul Consulting. The interest rate is 10% per annum, payable quarterly.
These notes are secured by all of the assets and property of Momentum. The notes
may be converted into shares of MMBI's common stock at any time at a conversion
price of $0.40 per share. If the notes are prepaid before May 1, 2010, Momentum
will issue the lenders a warrant to Purchase one share of Momentum common stock
for each $1.00 principal amount of the note. The notes were assumed by Hunt
Global Resources, Inc. on October 9, 2009.
- 125,000
-------------------- ---------------------
The loan discount was calculated using the beneficial conversion feature. The
warrants were valued per the Black Scholes method. The assumptions used to value
the Warrants included an expected term of 7 years, a risk-free interest rate of
3.78%, expected volatility using comparable company volatility of 215%, an
exercise price of $0.40 and a stock price on the date of grant of $0.50. The
discount will be amortized
over the life of the notes. - (71,682)
==================== =====================
Total $ - $ 53,318
==================== =====================
F-11
Note 10 - Convertible Notes Payable
Convertible notes payable as of December 31, 2009 and 2008 consisted of the
following:
Description 2009 2008
- ---------------------------------------------------------------------------------- ------------------ -----------------
Notes payable originally issued to ten lenders. The interest rate is 10% per
annum, payable quarterly. These notes are secured by all of the assets and
property of Momentum. The notes may be converted into shares of MMBI's common
stock at any time at a conversion price of $0.40 per share. If the notes are
prepaid before May 1, 2010, Momentum will issue the lenders a warrant to
Purchase one share of Momentum common stock for each $1.00 principal amount of
the note. The notes were assumed by Hunt Global Resources, Inc. on October 9, $ - $ 475,000
2009. ------------------ ------------------
The loan discount was calculated using the Beneficial conversion feature. The
warrants were valued per the Black Scholes method. The assumptions used to value
the Warrants included an expected term of 7 years, a risk-free interest rate of
3.78%, expected volatility using comparable company volatility of 215%, an
exercise price of $0.40 and a stock price on the date of grant of $0.50. The
discount will be amortized over the life of the notes.
- (272,392)
Note payable originally issued to Thomas Prasil in the amount of $95,000. The
interest rate is 10% per annum, payable quarterly. This note is unsecured. The
notes may be converted into shares of MMBI's common stock at any time at a
conversion price of $0.40 per share. If the notes are prepaid before May 1,
2010, Momentum will issue the lenders a warrant to Purchase one share of
Momentum common stock for each $1.00 principal amount of the note. Momentum does
not consider prepayment likely. The notes mature on May 1, 2013. 95,000 15,000
Note payable originally issued to Darryl Wishnewsky in the amount of $25,000.
The interest rate is 10% per annum, simple interest. This note is secured by
250,000 shares of common stock. The notes may be converted into shares of MMBI's
common stock at any time at a conversion price of $0.10 per share. If the notes
are prepaid before May 1, 2010, Momentum will issue the lenders a warrant to
Purchase one share of Momentum common stock for each $1.00 principal amount of
the note. Momentum does not consider prepayment likely. The notes mature on
April 8, 2014.
25,000 -
------------------ -----------------
Total $ 120,000 $ 217,608
================== =================
In conjunction with the notes payable referred to above, a lending agent was
paid a placement fee of $42,000. In addition the agent was issued 600,000
warrants with an exercise price of $0.40. Further explanation of the valuation
of the warrants is found in Note 15.
F-12
Note 11 - Obligations and Commitments
Momentum had leased office and plant space and also office and plant equipment.
On August 21, 2009, Momentum entered into an agreement with Hunt Global
Resources, Inc. to assume Momentum's rental obligations. The agreement was
accepted and signed on October 9, 2009.
Rental expense for the year ended December 31, 2009 was 210,280. Rental expense
for the year ended December 31, 2008 was $287,592.
Note 12 - Income Taxes
Momentum did not incur any income tax expense due to operating losses and the
related increase in the valuation allowance. The tax effects of the temporary
differences that give rise to deferred tax assets and liabilities as of December
31, 2009 and 2008 are as follows:
2009 2008
------------------ -------------------
Deferred tax assets:
Loss carry forwards $ 2,655,608 $ 1,439,000
Less valuation allowance (2,655,608) (1,439,000)
------------------ -------------------
Net deferred tax assets $ - $ -
================== ===================
As of December 31, 2009, Momentum had a net operating loss carryforward for
federal income tax purposes of approximately $4,824,518 that may be offset
against future taxable income. As more fully disclosed in Note 1, Momentum
experienced a change in control during 2006. Internal Revenue Code Section 382
imposes restrictions upon a company's ability to utilize net operating loss
carryforwards subsequent to a change in control. Any limitations upon Momentum's
ability to utilize its net operating loss carryforwards against future taxable
income have not yet been determined.
Momentum has established a valuation allowance for the full amount of the
deferred tax assets as management does not currently believe that it is more
likely than not that these assets will be recovered in the foreseeable future.
To the extent not utilized, the net operating loss carryforwards will expire
starting in 2026.
Note 13 - Equity Transactions
During the year ended December 31, 2008, Momentum issued 200,000 shares of its
restricted common stock for cash of $80,000. The shares were sold at a price of
$0.40 per share.
On February 12, 2008, the Board of Directors of Momentum voted to cancel the
shares of the common stock held by the Momentum Employees & Consultant Trust.
The Momentum Employees & Consultant Trust held 7,500,000 shares of restricted
common stock. The shares were previously controlled by Charles Phillips, a
shareholder and former director of Momentum, and the shares were cancelled with
his consent.
F-13
On August 21, 2009, Momentum entered into an agreement with Hunt Global
Resources, Inc. to assume certain liabilities, in exchange for the assumption
Momentum agreed to issue Hunt Global Resources, Inc. 40,000,000 shares of common
stock. As part of the agreement, Momentum agreed to issue the note holders
5,000,000 shares of common stock. An agent was issued 500,000 shares of Momentum
common stock as compensation for arranging the transaction.
Note 14 - Options
Options were originally issued in conjunction with employment agreements for key
employees and consultants.
As of August 21, 2009, there were 9,250,000 outstanding options. As a result of
the change of control, all the outstanding options fully vested. At December 31,
2009, there were 9,250,000 issued and outstanding options. The weighted average
exercise price for all options outstanding as of December 31, 2009 was $1.
Option activity for the period from January 1, 2009 through December 31, 2009 is
as follows:
Expiration Exercise
Grant Date Date Price Beginning Granted Exercised Ending
- ------------ ----------- --------- ---------- -------- ---------- -----------
04/20/07 04/20/12 $1.00 2,250,000 2,250,000
10/16/07 10/16/12 $1.00 6,000,000 6,000,000
11/01/07 11/01/12 $1.00 1,000,000 1,000,000
--------- ------- ----------- -----------
9,250,000 9,250,000
========== ======= =========== ===========
Note 15 - Warrant Activity
Warrants activity for the period from January 1, 2009 through December 31, 2009
is as follows:
Number of Price Per
Shares Share
Outstanding at January 1, 2008 1,282,000 $1.00
Granted (1) (2) 900,000 $1.00
Expired -- --
Cancelled/Expired -- --
---------------- ---------------
Outstanding at January 1, 2009 2,182,000 $1.00
Granted -- --
Expired -- --
Cancelled/Expired (1,150,000) $1.00
---------------- ---------------
Outstanding at December 31, 2009 1,032,000 $1.00
================ ===============
Exercisable at December 31, 2009 1,032,000 $1.00
================ ===============
F-14
The weighted average exercise price for all warrants outstanding as of December
31, 2009 was $1.
(1) Momentum calculated the fair value of these 600,000 of these warrants at
$149,624 using the Black-Scholes option pricing model and allocated a portion of
the original proceeds to these warrants as a discount to the note through
additional paid-in capital. The assumptions used to value the warrants included
an expected term of 7 years, a risk-free interest rate of 3.78%, expected
volatility using comparable company volatility of 215%, an exercise price of
$0.40 and a stock price on the date of grant of $0.50. The relative fair value
of these warrants was combined with the value of the beneficial conversion
feature of the convertible notes described in Note 9, and recorded as a discount
on the notes.
(2) Momentum calculated the fair value of 300,000 of these warrants at $298,971
using the Black-Scholes option pricing model and allocated a portion of the
original proceeds to these warrants as a discount to the note through additional
paid-in capital. The assumptions used to value the warrants included an expected
term of 7 years, a risk-free interest rate of 3.78%, expected volatility using
comparable company volatility of 215%, an exercise price of $0.40 and a stock
price on the date of grant of $0.50.
During the year ended December 31, 2009, warrants exercisable for 1,150,000
shares of common stock expired.
Note 16 - Litigation
There are no pending or threatened legal proceedings involving
Momentum-Colorado. However, Momentum-Texas is a defendant in the following legal
proceedings:
Jason Gehrig v. Momentum Biofuels, Inc. filed in the District Court of Harris
County, Texas. - This lawsuit involves a claim for breach of an employment
contract. Depositions were completed over a year ago and there has been no
activity in this litigation since.
Harris County Tax Authority v. Momentum Biofuels, Inc. filed in the District
Court of Harris County, Texas. - This suit involves a claim for property taxes
in the amount of approximately $80,000. The company has been negotiating a
payment plan and expects to be able to pay the taxes due from royalties and
licensing fees.
South Shore Development Corporation v. Momentum Biofuels, Inc. filed in the
District Court of Galveston County, Texas. - This suit involves a claim for
rents due under a lease of office space at 2600 South Shore Blvd., Suite 100,
League City, Texas. Judgment was rendered in favor of Plaintiff in December,
2009 in the amount of $263,074.40 plus attorney fees of $6,627.22.
Stuart Cater and James O'Neil v. Momentum Biofuels, Inc. filed in the District
Court of Harris County, Texas. - This suit involves a claim for payment under
the terms of employment settlement agreements. The issues were the subject of an
arbitration in mid-2009 which resulted in an award of $52,500 for each of the
claimants and attorney's fees of $40,000. Arbitration award was reduced to a
judgment and a Receiver was appointed to collect the judgment.
Quality Carriers, Inc. v. Momentum Biofuels, Inc. filed in the District Court of
Harris County, Texas. - This suit involves a claim for rental fees for tank
trailers in the amount of $19,000 and seeks legal fees in the amount of $6,335.
F-15
City of LaPorte Taxing Authority v. Momentum Biofuels, Inc. - This suit involves
a claim for property taxes in the amount of approximately $40,000. The
litigation is pending in the District Court of Harris County, Texas.
Note 16 - Subsequent Events
The Company has evaluated it activities subsequent to the year ended December
31, 2009 through April 14, 2010 and found no reportable subsequent event.
F-16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Momentum Biofuels, Inc.
Dated: April 14, 2010
By:/s/George Sharp
-----------------------------------------
George Sharp, Chief Executive Officer,
Chief Accounting Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Dated: April 14, 2010
Momentum Biofuels, Inc.
/s/George Sharp
--------------------------------------
George Sharp, Director
/s/Jewel Hunt
--------------------------------------
Jewel Hunt, Director
/s/Adreena Betti
--------------------------------------
Adreena Betti, Director
28