UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: June 30, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________________ to ________________
Commission file number 000-50619
MOMENTUM BIOFUELS, INC.
-----------------------
(Name of registrant in its Charter)
COLORADO 84-1069035
-------- ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
7450 West 52nd Ave, Suite M-115, Arvada, CO 80002
-------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(303) 305-0325
(TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] (Do
not check if a smaller reporting company) Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X]
As of August 15, 2010, there were 93,224,444 shares of the registrant's sole
class of common shares outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Consolidated Balance Sheets - June 30, 2010 (Unaudited) and
December 31, 2009 (Audited) F-1
Consolidated Statements of Operations (Unaudited) -
Three and Six months ended June 30, 2010 and 2009 F-2
Consolidated Statements of Changes in Shareholders' Equity -
(Unaudited) June 30, 2010 F-3
Consolidated Statements of Cash Flows (Unaudited) -
Six months ended June 30, 2010 and 2009 F-4
Notes to the Unaudited Consolidated Financial Statements F-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable 4
Item 4. Controls and Procedures 4
Item 4T. CONTROLS AND PROCEDURES 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable 6
Item 1A. Risk Factors - Not Applicable 6
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 6
- - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable 6
Item 4. (Removed and Reserved) 6
Item 5. Other Information - Not Applicable 6
Item 6. Exhibits 7
SIGNATURES 8
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MOMENTUM BIOFUELS, INC.
Consolidated Balance Sheets
June 30, 2010 December 31, 2009
----------------------------------------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash $ - $ -
Accounts Receivable, net - -
Inventory - -
Prepaid insurance - -
----------------- --------------------
Total current assets - -
Property & equipment, net of accumulated depreciation and amortization - -
Other Assets - -
----------------- --------------------
TOTAL ASSETS $ - $ -
================= ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,016,749 $ 2,016,749
Advances - related parties 107,778 107,778
----------------- --------------------
Total Current Liabilities 2,124,527 2,124,527
----------------- --------------------
Long Term Liabilities
Senior secured convertible note - net of discount - 120,000
----------------- --------------------
Total Long Term Liabilities - 120,000
----------------------------------------
Total Liabilities 2,124,527 2,244,527
----------------- --------------------
Common stock, $0.01 par value; 500,000,000 shares authorized,
93,224,444 and 47,724,444 shares issued and outstanding on
June 30, 2010 and December 31, 2009, respectively 932,244 932,244
Additional paid-in capital 15,679,090 15,679,090
Accumulated Deficit (18,735,861) (18,855,861)
----------------- --------------------
Total Stockholders' Equity (Deficit) (2,124,527) (2,244,527)
----------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ - $ -
================= ====================
See the accompanying notes to the consolidated financial statements.
F-1
MOMENTUM BIOFUELS, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2010 2009 2010 2009
------------- ------------- ------------- --------------
Revenue $ - $ - $ - $ 182,718
Cost of goods sold - - - 161,973
------------- ------------- ------------- --------------
Gross profit - - - 20,745
Operating Expenses
Plant expenses - 283,011 - 511,482
General and administrative - 526,477 - 1,163,718
------------- ------------- ------------- --------------
Total Operating Expenses - 809,488 - 1,675,200
------------- ------------- ------------- --------------
Loss from operations - (809,488) - (1,654,455)
------------- ------------- ------------- --------------
Other Income (Expense)
Gains (Loss) on sale of assets 120,000 - 120,000 -
Interest income - - - -
Interest expense - (39,530) - (83,921)
------------- ------------- ------------- --------------
Total Other Income (Expense) 120,000 (39,530) 120,000 (83,921)
------------- ------------- ------------- --------------
Net (Income Loss) $120,000 $(849,018) $120,000 $(1,738,376)
============= ============= ============= ==============
Per Share Information:
Weighted average number of common shares outstanding Basic
and Diluted 93,224,444 47,724,444 93,224,444 47,724,444
============= ============= ============= ==============
Net Loss per Share $ - $ (0.02) $ - $ (0.04)
============= ============= ============= ==============
See the accompanying notes to the consolidated financial statements.
F-2
MOMENTUM BIOFUELS, INC.
Consolidated Statement of Stockholders' Equity
For the Period from January 1, 2010 through June 30, 2010
(Unaudited)
Common Stock Additional Accumulated
Shares Amount Paid-In Deficit Totals
--------------- -------------- --------------- ----------------- ---------------
Balance - January 1, 2010 93,224,444 $ 932,244 $ 15,679,090 $ (18,855,861) $(2,244,527)
Net income 120,000 120,000
--------------- -------------- --------------- ----------------- ---------------
Balance - June 30, 2010 93,224,444 $ 932,244 $ 15,679,090 $ (18,735,861) $(2,124,527)
=============== ============== =============== ================= ===============
See the accompanying notes to the consolidated financial statements.
F-3
MOMENTUM BIOFUELS, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2010 & 2009
(Unaudited)
2010 2009
----------------- ------------------
Cash Flows from Operating Activities
Net Income (loss) 120,000 $ (1,738,376)
Adjustments to reconcile net loss to cash used in
operating activities
Depreciation - 342,419
Gain (loss) on sales of assets (120,000) -
Bad debt expense -
Deferred loan cost expense - 17,049
Interest expense - amortization of debt discount - 38,952
Share based compensation - 788,790
Changes in Assets and Liabilities
Accounts receivable - 2,190
Inventory - 73,552
Prepaid expenses and other current assets - 32,063
Accounts payable - 421,777
Accrued expenses - 118,168
----------------- ------------------
Net Cash Provided (Used) in Operating Activities - 96,584
Cash Flows used in Investing Activities
Other Assets 17,049
----------------- ------------------
Net Cash Provided (Used) in Investing Activities - 17,049
Cash Flows from Financing Activities
Payment of note payable - (150,000)
Loans from shareholders - 2,009
Stock issued for cash - -
Offering costs - -
Proceeds from loan payable - -
Proceeds from convertible notes -
----------------- ------------------
Net Cash Provided (Used) by Financing Activities - (147,991)
----------------- ------------------
Net (Decrease) increase in Cash - (34,358)
Cash and cash equivalents - Beginning of period - 34,559
----------------- ------------------
Cash and cash equivalents - End of period $ - $ 201
================= ==================
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the period for:
Interest $ - $ 83,921
================= ==================
Financing activities
Loan Discount $ - $ 38,952
================= ==================
See the accompanying notes to the consolidated financial statements.
F-4
Momentum Biofuels, Inc.
Notes to Consolidated Financial Statements
For the Six Months Ended June 30, 2010 and 2009
(Unaudited)
1. BASIS OF PRESENTATION, MANAGEMENT'S PLAN AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
Presentation of Interim Information:
The accompanying unaudited financial statements include the accounts of Momentum
Biofuels, Inc. (the Company), a Colorado corporation and its wholly-owned
subsidiary, Momentum Biofuels, Inc., a Texas corporation ("Momentum -Texas").
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 the Company 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, the Company in exchange for
common shares of the Company equal to 39% of the issued and outstanding stock at
such date, or 40,000,000 shares, whichever sum is greater. Such shares were
issued by the Company as fully paid, non-assessable and subject to a
non-dilution agreement in favor of Hunt.
Basis of Presentation
Interim Presentation
The accompanying unaudited interim financial statements of Momentum Biofuels,
Inc. (the Company), have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission (SEC), and should be read in conjunction with
the audited financial statements and notes thereto contained in Momentum's
Annual Report filed with the SEC on Form 10-K. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year. Notes to the financial statements which substantially duplicate
the disclosure contained in the audited financial statements for the year ended
December 31, 2009, as reported in the Form 10-K have been omitted.
F-5
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. The accounts receivable balance at June 30, 2010
was zero.
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
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.
F-6
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 six months ended June
30, 2010 and 2009, 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.
Description 2010 2009
- ---------------------------------------------------------------------------------------------- -------------------
Weighted average shares used to compute basic and
diluted net loss per common share: 93,244,444 47,724,444
Securities convertible into shares of common stock, not used
Stock warrants related to notes payable -
Stock warrants for common stock 1,032,000 2,062,000
Options awarded to executives and consultants 9,250,000 9,250,000
------------------- -------------------
Total securities convertible into shares of common stock 10,402,000 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.
F-7
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 six months ended June 30, 2010 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 $18,735,861 through June 30, 2010. 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 - 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 - -
================== ===================
F-8
As of December 31, 2009 Momentum had a net operating loss carryforward for
federal income tax purposes of approximately $7,480,126 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 6 - Equity Transactions
During the six months ended June 30, 2010, Momentum did not issue any shares of
its common stock.
Note 7 - 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 June 30,
2010, there were 9,250,000 issued and outstanding options. The weighted average
exercise price for all options outstanding as of June 30, 2010 was $1.
Option activity for the period from January 1, 2010 through June 30, 2010 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 8 - Warrant Activity
Warrants activity for the period from January 1, 2010 through June 30, 2010 is
as follows:
Exercise
Grant Date Expiration Date Price Beginning Granted Exercised Ending
- ----------------- ------------------ -------------- ---------------- ------------ --------- -------------------
06/27/06 06/27/16 $1.00 100,000 100,000
11/30/06 11/30/16 $1.00 10,000 10,000
12/31/06 12/31/16 $1.00 10,000 10,000
01/31/07 01/31/17 $1.00 10,000 10,000
02/01/07 02/01/17 $1.00 2,000 2,000
06/25/08 06/25/15 $0.40 300,000 300,000
06/25/08 06/25/15 $0.40 600,000 600,000
- ----------------- ------------------ -------------- ---------------- ------------ --------- -------------------
1,032,000 1,032,000
The weighted average exercise price for all warrants outstanding as of June 30,
2010 was $0.48.
F-9
Note 9 - Litigation
There are no pending or threatened legal proceedings involving the Company.
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.
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
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.
Note 10 - Subsequent Events
The Company has evaluated it activities subsequent to the six months ended June
30, 2010 through August 10, 2010 and found no reportable subsequent event.
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FORWARD-LOOKING STATEMENTS CAUTIONARY
This Item 2 and the report on Form 10-Q for the period ended June 30, 2010 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.
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. Management's plans in regard to the
factors prompting the explanatory paragraph are discussed below and also in Note
2 to the unaudited quarterly financial statements.
OPERATIONS
The Company after minimal operations during the year ended December 31, 2009 and
its acquisition by the Hunt Group has changed its operational focus to being 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. No agreements have been
entered into at the time of this filing.
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.
1
We intend to 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.
The Company is dependent on raising additional equity and/or, debt to fund any
negotiated settlements with its outstanding creditors and meet the Company's
ongoing operating expenses. There is no assurance that Momentum will be able to
raise the necessary equity and/or debt that it will need to be able to negotiate
acceptable settlements with its outstanding creditors or fund its ongoing
operating expenses. Momentum cannot make any assurances that it will be able to
raise funds through such activities.
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.
RESULTS OF OPERATIONS
- ---------------------
Results of Operations For Three Months Ended June 30, 2010 Compared To The Three
Months Ended June 30, 2009.
During the three months ended June 30, 2010 and 2009, the Company did not
recognize any revenues from its operational activities.
During the three months ended June 30, 2010, the Company did not incur any
expenses compared to expenses of $809,488 during the three months ended June 30,
2009. The decrease in total expenses of $809,488 is a result of the ceased
operations of the Company. Total expenses during the three months ended June 30,
2009 included, $283,011 in plant expenses and $526,477 in general and
administrative expenses.
During the three months ended June 30, 2010, the Company recognized a net income
of $120,000 compared with a net loss of $849,018 for the three months ending
June 30, 2009. The change of $969,018 was a result of the recognition of the
gain on sale of $120,000 in promissory notes. The net loss per share for the
three months ended June 30, 2010, was $0.00 per share compared to a net loss per
share of $0.02 for the three months ending June 30, 2009.
Results of Operations For Six months ended June 30, 2010 compared To The Six
months ended June 30, 2009.
The Company recognized did not recognize any revenues for the six months ending
June 30, 2010, compared to $182,718 of revenue during the six months ended June
30, 2009.
During the six months ended June 30, 2009, the Company incurred $161,973 in cost
of goods sold; resulting in a gross profit of $20,745. During the six months
ended June 30, 2010, the Company incurred operating expenses of $0 compared to
$1,675,200 during the six months ended June 30, 2009. Operating expenses during
the six months ended June 30, 2009 included $511,482 in plant expenses and
$1,163,718 in administrative expenses for the six months ended June 30, 2009.
2
During the six months ended June 30, 2010, the Company incurred net interest
expense of $0, compared to $83,921 for the six months ended June 30, 2009.
During the six months ended June 30, 2010, the Company recognized net income of
$120,000 compared with a net loss of $1,739,376 for the six months ended June
30, 2009. The change of $1,859,376 was a result of the recognition on the gain
on the sale of $120,000 in promissory notes. The net loss per share for the six
months ended June 30, 2010, was $0.00 per share compared to a net loss per share
of $0.04 for the six months ending June 30, 2009.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2010, the Company had $0 in cash and $0 in other assets with which
to conduct its operations. At June 30, 2010, the Company had total liabilities
of $2,124,527.
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 six months ended June 30,
2010 was $0. During the six months ended June 30, 2009, the Company provided net
cash of $96,585 in operating activities. During the six months ended June 30,
2009, net losses of $1,738,376 were adjusted for the non-cash items of $342,419
in depreciation and amortization expense and $788,790 in share based
compensation.
During the six months ended June 30, 2010, the net cash used by its investing
activities was $0. During the six months ended June 30, 2009, the Company
provided $17,049 in its investing activities.
Net cash used by financing activities during the six months ended June 30, 2010
was $0. During the six months ended June 30, 2009, financing activities used net
funds in the amount of $147,991.
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 Quarterly Report on
Form 10-Q 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.
3
The Company believes that the following are some of the more significant
accounting policies and methods used by the Company:
o revenue recognition
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.
SHARE-BASED COMPENSATION
The Company 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. The Company 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- NOT APPLICABLE
ITEM 4 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.
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ITEM 4T. CONTROLS AND PROCEDURES
Management's Quarterly 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 of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations
of our management and directors; and
(iii)provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
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 quarter ended June 30,
2010. 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; the Company continues 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.
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 quarter ended June 30, 2010, that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending or threatened legal proceedings involving the Company.
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.
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
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 1A. RISK FACTORS.
Not applicable to smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. REMOVED AND RESERVED.
ITEM 5. OTHER INFORMATION. None
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ITEM 6. EXHIBITS.
The following is a complete list of exhibits filed as part of this Form 10-Q.
Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of
Regulation S-K.
31.1 Certification by the Chief Executive and Accounting Officer
pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1 Certification by the Chief Executive and Accounting Officer
pursuant to Section 906 of the Sarbanes-Oxley Act.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOMENTUM BIOFUELS, INC.
(The Registrant)
Date: August __, 2010 By: /s/George Sharp
---------------
George Sharp,
Chief Executive Officer,
and Principal Accounting Officer
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