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: September 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 Avenue, 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 November 30, 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
Page
----
Consolidated Balance Sheets - September 30, 2010 (Unaudited) and
December 31, 2009 (Restated) F-1
Consolidated Statements of Operations (Unaudited) - Three and Nine
months ended September 30, 2010 and 2009
and From January 1, 2010 through September 30, 2010 F-2
Consolidated Statements of Stockholders' Deficit -
From January 1, 2010 through September 30, 2010
(Unaudited) F-3
Consolidated Statements of Cash Flows (Unaudited) - Nine months ended
September 30, 2010 and 2009 and
From January 1, 2010 through September 30, 2010 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 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable 7
Item 1A. Risk Factors - Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 7
- - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable 7
Item 4. (Removed and Reserved) 7
Item 5. Other Information - Not Applicable 7
Item 6. Exhibits 8
SIGNATURES 9
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MOMENTUM BIOFUELS, INC.
(A Development Stage Company)
Consolidated Balance Sheets
September 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 $ 1,946,659 $ 2,016,749
Advances - related parties 107,778 107,778
--------------------- --------------------
Total Current Liabilities 2,054,437 2,124,527
--------------------- --------------------
Long Term Liabilities
Senior secured convertible note - net of discount - -
--------------------- --------------------
Total Long Term Liabilities - -
--------------------- --------------------
Total Liabilities 2,054,437 2,124,527
--------------------- --------------------
Stockholders' Equity (Deficit)
Common stock, $0.01 par value; 500,000,000 shares authorized, 93,224,444 and
47,724,444 shares issued and outstanding on September 30, 2010 and December 31,
2009, respectively 932,244 932,244
Additional paid-in capital 15,899,448 15,679,090
Accumulated Deficit (18,735,861) (18,735,861)
Deficit accumulated during development stage (150,268) -
--------------------- --------------------
Total Stockholders' Equity (Deficit) (2,054,437) (2,124,527)
--------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ - $ -
===================== ====================
See the accompanying notes to the consolidated financial statements.
F-1
MOMENTUM BIOFUELS, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September Nine Months Ended September Period From
January 1, 2010
to September
2010 2009 2010 2009 30, 2010
------------ ----------- ----------- ----------- ----------------
Revenue $ - $ - $ - $ - $ -
Cost of goods sold - - - - -
------------ ----------- ----------- ----------- ----------------
Gross profit - - - - -
Operating Expenses
General and administrative 34,606 14,000 150,268 89,802 150,268
------------ ----------- ----------- ----------- ----------------
Total operating expenses 34,606 14,000 150,268 89,802 150,268
------------ ----------- ----------- ----------- ----------------
Loss from operations (34,606) (14,000) (150,268) (89,802) (150,268)
------------ ----------- ----------- ----------- ----------------
Net Loss from Operations $ (34,606) $ (14,000) $ (150,268) $ (89,802) $ (150,268)
============ =========== =========== =========== ================
Loss from discontinued operations $ - $ (576,268) $ - $(2,238,842) $ -
============ =========== =========== =========== ================
Net loss $ (34,606) $ (590,268) $ (150,268) $(2,328,644) $ (150,268)
============ =========== =========== =========== ================
Per Share Information:
Weighted average number of common shares
outstanding 93,224,444 47,524,444 93,224,444 47,724,444
============ =========== =========== ===========
Net loss per share from continuing
operations $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============ =========== =========== ===========
Net loss per share from discontinued
operations $ - $ (0.01) $ - $ (0.05)
============ =========== =========== ===========
Net loss per share $ (0.00) $ (0.01) $ (0.00) $ (0.05)
============ =========== =========== ===========
See the accompanying notes to the consolidated financial statements.
F-2
MOMENTUM BIOFUELS, INC.
(A Development Stage Company)
Consolidated Statement of Stockholders' Deficit
For the Period from January 1, 2010 through September 30, 2010
(Unaudited)
Common Stock Additional Accumulated Deficit
Shares Amount Paid-In Deficit Accumulated Totals
Capital During the
Development
Stage
--------------- -------------- --------------- ----------------- ------------------- ---------------
Balance - January 1, 2010 93,224,444 $ 932,244 $ 15,679,090 $ (18,735,861) $ - $ (2,124,527)
Cash contributed for
services - - 220,358 - - 220,358
Net Income (Loss) - (150,268) (150,268)
--------------- -------------- --------------- ----------------- ------------------- ---------------
Balance -
September 30, 2010 93,224,444 $ 932,244 $ 15,899,448 $ (18,735,861) $ (150,268) $ (2,054,437)
=============== ============== =============== ================= =================== ===============
See the accompanying notes to the consolidated financial statements.
F-3
MOMENTUM BIOFUELS, INC.
(A Development Stage Company
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30, Period From
January 1, 2010
to
2010 2009 September 30, 2010
----------------- ------------------ -----------------
Cash Flows from Operating Activities
Net loss $ (150,268) $ (2,328,644) $ (150,268)
Adjustments to reconcile net loss to cash used in operating
activities
Depreciation - 340,254 -
Gain (Loss) on sale of assets - - -
Bad debt expense - - -
Deferred loan cost expense - 39,780 -
Interest expense - amortization of debt discount - 51,936 -
Share based compensation - 1,183,185 -
Changes in Assets and Liabilities
Accounts receivable - 2,190 -
Inventory - 73,552 -
Prepaid expenses and other current assets - 32,063 -
Accounts payable (70,090) 1,072,487 (70,090)
Accrued expenses - (406,725) -
----------------- ------------------ -----------------
Net Cash Provided (Used) in Operating Activities (220,358) 60,078 (220,358)
Cash Flows used in Investing Activities
Other Assets - (50,000) -
----------------- ------------------ -----------------
Net Cash Provided (Used) in Investing Activities - (50,000) -
Cash Flows from Financing Activities
Payment of note payable - (150,000) -
Loans from shareholders - 2,009 -
Stock issued for cash - (80,000) -
Cash contributed for services 220,358 - 220,358
Proceeds from loan payable - 105,200 -
Proceeds from convertible notes 80,000 -
----------------- ------------------ -----------------
Net Cash Provided (Used) by Financing Activities 220,358 (42,791) 220,358
----------------- ------------------ -----------------
Net (Decrease) increase in Cash - (32,713) -
Cash and cash equivalents - Beginning of period - 34,559 -
----------------- ------------------ -----------------
Cash and cash equivalents - End of period $ - $ 1,846 $ -
================= ================== =================
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the period for:
Interest $ - $ 105,453 $ -
================= ================== =================
Financing activities
Loan Discount $ - $ 51,936 $ -
================= ================== =================
See the accompanying notes to the consolidated financial statements.
F-4
Momentum Biofuels, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Nine months Ended September 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 and 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. Additionally the December 31, 2009
financial statements will be restated to properly account for the transaction
with Hunt. Consequently the December 31, 2009 financial statement and the
interim period financial statement for the period March 31, 2010 and June 30
2010 should not be relied upon.
Basis of Presentation
Restatement of Results
Subsequent to the issuance of the Company's unaudited financial statements for
the nine months ended September 30, 2010, the Company determined that it would
restate its financial statements for the nine months ended September 30, 2009,
to show discontinued operations for its operations. The unaudited statements of
operations for the three and nine months ended September 30, 2009 herewith have
been restated to show such discontinued operations.
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
Development Stage Company
The Company has returned to a development stage company due to the change of
business plan and strategies in January 2010. Accordingly, the Company's
activities have been accounted for as those of a "Development Stage Company."
Therefore, the Company's financial statements of operations, stockholders'
equity(deficit) and cash flows disclose activity since the date of the Company's
entry into the development stage.
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.
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.
F-6
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 nine months ended
September 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.
F-7
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
=================== ===================
In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-6,
"Improving Disclosures about Fair Value Measurements." This update requires
additional disclosure within the roll forward of activity for assets and
liabilities measured at fair value on a recurring basis, including transfers of
assets and liabilities between Level 1 and Level 2 of the fair value hierarchy
and the separate presentation of purchases, sales, issuances and settlements of
assets and liabilities within Level 3 of the fair value hierarchy. In addition,
the update requires enhanced disclosures of the valuation techniques and inputs
used in the fair value measurements within Levels 2 and 3. The new disclosure
requirements are effective for interim and annual periods beginning after
December 15, 2009, except for the disclosure of purchases, sales, issuances and
settlements of Level 3 measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010. As ASU 2010-6 only requires enhanced
disclosures, the Company does not expect that the adoption of this update will
have a material effect on its financial statements.
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 nine months ended September 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 and an accumulated deficit
during the development stage of $150,268 at September 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 relating to
the recoverabililty and classification of recorded asset amounts, or amounts
and classification of liabilities that might result from this uncertainty.
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.
F-8
Note 5- Discontinued Operations
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 and 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.
As a consequence to the above, the Company has returned to a development stage
company due to the discontinuing of its prior operations. Discontinued
operations consist of the following:
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30, 2009
2010 2009 2010
Net Sales 0 0 0 182,718
Cost of Sales 0 0 0 (161,973)
---------------- ----------------- --------------- -------------------
Gross profit 0 0 0 20,745
Operating expense 0 (568,736) 0 (2,243,936)
Other income (expense) 0 (21,532) 0 (105,453)
---------------- ----------------- --------------- -------------------
Net loss on discontinued operations 0 (590,268) 0 (2,328,644)
================ ================= =============== ===================
Note 6 - Equity Transactions
During the nine months ended September 30, 2010, Momentum did not issue any
shares of its common stock.
The Company's primary shareholder Hunt Group, contributed $220,358 to capital to
cover for legal and professional expense and for payment of aged vendor balance.
Note 7 - Options
Options were originally issued in conjunction with employment agreements for key
employees and consultants.
At September 30, 2010, there were 9,250,000 issued and outstanding options, all
fully vested. The weighted average exercise price for all options outstanding as
of September 30, 2010 was $1. Option activity September 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
========== ======= =========== ===========
F-9
Note 8 - Warrant Activity
Warrants activity through September 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 September
30, 2010 was $0.48.
Note 9 - Litigation
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.
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 September 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
raise necessary financing to execute the Company's business plan; (4) potential
litigation with our shareholders, creditors and/or former or current investors;
(5) the Company's ability to comply with all applicable federal, state and local
government and international rules and regulations; and (6) 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
3 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 September 30, 2010 Compared To The
Three Months Ended September 30, 2009.
The Company did not recognize any revenues from its operational activities,
during the three months ended September 30, 2010 and 2009.
During the three months ended September 30, 2010, the Company incurred $34,606
in expenses compared to expenses of $14,000 during the three months ended
September 30, 2009. The increase in total expenses of $20,606 is a result of an
increase in legal and accounting expenses.
Results of Operations For Nine months ended September 30, 2010 compared To The
Nine months ended September 30, 2009. The Company did not recognize any revenues
for the nine months ending September 30, 2010 and 2009. During the nine months
ended September 30, 2010, the Company incurred operating expenses of $150,268
compared to $89,809 during the nine months ended September 30, 2009 The increase
was a result of increased legal and accounting fees associated with the
discontinued operation. During the nine months ended September 30, 2010, the
Company recognized a net loss of $150,268 compared with a net loss of $89,802
for the nine months ended September 30, 2009.
2
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2010, the Company had $0 in cash and $0 in other assets with
which to conduct its operations. At September 30, 2010, the Company had total
liabilities of $2,054,437.
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 used by operating activities during the nine months ended September 30,
2010 was $220,358. During the nine months ended September 30, 2009, the Company
provided net cash of $60,078 in operating activities. During the nine months
ended September 30, 2009, net losses of $2,238,644 were adjusted for the
non-cash items of $340,254 in depreciation and amortization expense and
$1,183,185 in share based compensation.
During the nine months ended September 30, 2010, the net cash used by its
investing activities was $0. During the nine months ended September 30, 2009,
the Company used $50,000 in its investing activities.
Net cash provided by financing activities during the nine months ended September
30, 2010 was $220,358. During the nine months ended September 30, 2009,
financing activities used net funds in the amount of $42,791.
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.
3
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.
The Company believes that the following are some of the more significant
accounting policies and methods used by the Company:
o share-based compensation
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- NOT APPLICABLE
4
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.
There was no change in our internal control over financial reporting that
occurred during the quarter ended September 30, 2010, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
5
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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
7
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: November 22, 2010 By: /s/George Sharp
---------------
George Sharp,
Chief Executive Officer,
and Principal Accounting Officer
9