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, 2011
[ ] 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) 421-1656
--------------
( 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 [X ] 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 8, 2011, there were 93,224,444 shares of the registrant's sole
class of common shares outstanding.
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -June 30, 2011 (Unaudited) and
December 31, 2010 (Audited) F-1
Consolidated Statements of Operations (Unaudited) - Three and Six
months ended June 30, 2011 and 2010
and From January 1, 2010 (Inception) through June 30, 2011 F-2
Consolidated Statements of Cash Flows (Unaudited) - Six months ended
June 30, 2011 and 2010 and From January 1, 2010 (Inception)
through June 30, 2011 F-3
Notes to the Unaudited Consolidated Financial Statements F-4
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
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable 5
Item 1A. Risk Factors - Not Applicable 5
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - 5
Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable 5
Item 4. (Removed and Reserved) 5
Item 5. Other Information - Not Applicable 5
Item 6. Exhibits 6
SIGNATURES 7
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
MOMENTUM BIOFUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
June 30, 2011 December 31, 2010
----------------------------------------
Unaudited Audited
ASSETS
TOTAL ASSETS $ - $ -
================= ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 1,911,959 $ 1,856,576
Accrued expenses - 17,500
Advances - related parties 230,086 204,336
----------------- --------------------
Total current liabilities 2,142,045 2,078,412
----------------- --------------------
Total liabilities 2,142,045 2,078,412
----------------- --------------------
Stockholders' Deficit
Common stock, $0.01 par value; 500,000,000 shares authorized,
93,224,444 and 93,244,444 shares issued and outstanding on June
30, 2011 and December 31, 2010, respectively 932,444 932,444
Additional paid-in capital 16,378,498 16,378,498
Accumulated deficit (19,135,592) (19,135,592)
Defict accumulated during development stage (317,195) (253,562)
----------------- --------------------
Total stockholders' deficit (2,142,045) (2,078,412)
----------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ - $ -
================= ====================
See the accompanying notes to the consolidated financial statements.
F-1
MOMENTUM BIOFUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Period From
August 21, 2009 to
Three Months Ended June 30, Six Months Ended June 30, June 30,
2011 2010 2011 2010 2011
------------ ------------- ------------- ------------ --------------
Operating Expenses
General and administrative $ 35,280 $ 55,484 $ 63,633 $ 90,627 $ 243,984
------------ ------------- ------------- ------------ --------------
Total operating expenses 35,280 55,484 63,633 90,627 243,984
------------ ------------- ------------- ------------ --------------
Interest and penalties - - - - 73,211
------------ ------------- ------------- ------------ --------------
Net loss from continuing operations (35,280) (55,484) (63,633) (90,627) (317,195)
============ ============= ============= ============ ==============
Net loss (35,280) (55,484) (63,633) (90,627) -
============ ============= ============= ============ ==============
Net loss per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============ ============= ============= ============
Per Share Information:
Weighted average number of common shares
outstanding - Basic 93,224,444 93,224,444 93,224,444 93,224,444
See the accompanying notes to the consolidated financial statements.
F-2
MOMENTUM BIOFUELS, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Period From
August 21, 2009 to
Six Months Ended June 30, June 30,
2011 2010 2011
----------------- ----------------- ---------------------
Cash Flows from Operating Activities
Net loss $ (63,633) $ (90,627) $ (317,195)
Changes in Operating Assets and Liabilities
Accounts payable 55,383 (20,410) 98,010
Accrued expenses (17,500) (6,500) -
----------------- ----------------- ---------------------
Net cash used in operating activities (25,750) (117,537) (219,185)
Cash Flows from Financing Activities
Advances from shareholder 25,750 117,537 214,619
----------------- ----------------- ---------------------
Net cash provided by financing activities 25,750 117,537 214,619
----------------- ----------------- ---------------------
Net decrease in cash - - (4,566)
Cash and cash equivalents - Beginning of period - - 4,566
----------------- ----------------- ---------------------
Cash and cash equivalents - End of period $ - $ - $ -
================= ================= =====================
See the accompanying notes to the consolidated financial statements.
F-3
Momentum Biofuels, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Operation
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 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, 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, 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.
Note 2 - Summary of Significant Accounting Policies
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, 2010, as reported in the Form 10-K have been omitted.
F-4
Development Stage Company
The Company has returned to a development stage company due to the change of
business plan and strategies on August 21, 2009. 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 the disposal of its prior operating activities purchased by
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.
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.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers highly liquid
financial instruments purchased with a maturity of three months or less to be
cash equivalents.
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.
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.
F-5
Note 2 - Summary of Significant Accounting Policies - continued
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 carry forwards. 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, 2011 and 2010, 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 2011 2010
--------------------------------------------------------------------------------
Weighted average shares used to compute basic
and diluted net loss per common share: 93,244,444 93,244,444
Securities convertible into shares of common
stock, not used
Stock warrants for common stock 1,032,000 1,032,000
Options awarded to executives and
consultants 9,250,000 9,250,000
----------------- ----------------
Total securities convertible
into shares of common stock 10,402,000 10,402,000
================= ================
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.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements through ASU 2011-05
and believes that none of them will have a material effect on the Company's
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 three and six month ended June 30, 2011 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 $19,135,592 and an accumulated deficit
during development stage of $317,195 at June 30, 2011. 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 consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or
amounts and classification of liabilities that might result from this
uncertainty.
F-6
Note 4 - Equity Transactions
During the six months ended June 30, 2011, Momentum did not issue any shares of
its common stock.
Note 5 - Related Party Transactions
During the six months ended June 30, 2011 and 2010, Hunt Global Resources, Inc.,
the Company's majority shareholder, advanced funds to the Company totaling
$25,750 and $117,537, respectively to support its legal and accounting
functions. These funds are unsecured, non interest bearing and due on demand.
The Company has Advances-related party balances of $230,086 and $204,336 as of
June 30, 2011 and December 31, 2010, respectively.
Note 6 - 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 $88,600. 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 $30,000. 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.
LaPorte Independent School District v. Momentum Biofuels, Inc. - This suit
involves a claim for property taxes on behalf of the school district and the
Clear Lake City Water Authority in the amount of approximately $108,500. The
litigation is pending in the District Court of Harris County, Texas.
American National Insurance Company v. Momentum Biofuels, Inc. in connection
with a breach of an office lease agreement. A default judgment was entered in
this case in the amount of $261,294 together with attorney's fees of $6,627.
F-7
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, 2011 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, and 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 risks inherent in
the mutual performance of such supplier and distributor contracts (including the
Company's production performance (4) the Company's ability to secure and retain
management capable of managing growth; (5) the Company's ability to raise
necessary financing to execute the Company's business plan; (6) potential
litigation with our shareholders, creditors and/or former or current investors;
(7) the Company's ability to comply with all applicable federal, state and local
government and international rules and regulations; and (8) 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, 2010, 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 the disposal of its prior operating activities purchased by
Hunt Global Resources, Inc 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.
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.
1
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, 2011 Compared to the Three
months Ended June 30, 2010.
During the three months ended June 30, 2011 and 2010, the Company did not
recognize any revenues from its operational activities.
During the three months ended June 30, 2011, the Company incurred $35,280 in
expenses compared to expenses of $55,484 during the three months ended June 30,
2010. The decrease in total expenses of $20,204 is a result of a decrease in the
Company's administrative activities over the prior period.
During the three months ended June 30, 2011, the Company recognized a net loss
of $35,280 compared to a net loss of $55,484 during the three months ended June
30, 2010. The $20,204 decrease in net loss is a result of the decrease in
operational expenses as a result of the Company's decrease in administrative
activities. Management of the Company does not expect these expenses to continue
to decrease as it explores business plan opportunities.
Results of Operations For Six Months Ended June 30, 2011 Compared To The Six
months Ended June 30, 2010.
During the six months ended June 30, 2011 and 2010, the Company did not
recognize any revenues from its operational activities.
During the six months ended June 30 2011, the Company incurred $63,633 in
expenses compared to expenses of $90,627 during the six months ended June 30,
2010. The decrease in total expenses of $26,994 is a result of a decrease in the
Company's administrative activities over the prior period.
During the six months ended June 30, 2011, the Company recognized a net loss of
$63,633 compared to a net loss of $90,627 during the six months ended June 30,
2010. The $26,994 decrease in net loss is a result of the decrease in
operational expenses as a result of the Company's decrease in administrative
activities. Management of the Company does not expect these expenses to continue
to decrease as it explores business plan opportunities.
2
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2011, the Company had no assets with which to conduct its
operations. At June 30, 2011, the Company had total liabilities of $2,142,045,
consisting of accounts payable of $1,911,959 and related party advances of
$230,086.
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 in operating activities during the six months ended June 30, 2011
was $25,750. During the six months ended June 30, 2010, the Company used net
cash of $117,537 in operating activities. During the six months ended June 30,
2011 and 2010, net losses of $63,633 and $90,627, were not adjusted for any
non-cash items.
During the six months ended June 30, 2011 and 2010, the Company did not receive
or use any funds in its investing activities.
Net cash provided by financing activities during the six months ended June 30,
2011 and 2010, was $25,750 and $117,537, respectively from advances from its
majority shareholder. This was made up of advances from its majority shareholder
Hunt Global Resources, Inc. At June 30, 2011, the Company owed Hunt Global
Resources, Inc. $230,086, due on demand. There can be no assurance that Hunt
Global Resources, Inc. will continue to provide us with further funding on an
ongoing basis.
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.
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
3
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 and Principal Financial 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 June 30, 2011, that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.
4
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 $88,600. 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 $30,000. 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.
LaPorte Independent School District v. Momentum Biofuels, Inc. - This suit
involves a claim for property taxes on behalf of the school district and the
Clear Lake City Water Authority in the amount of approximately $108,500. The
litigation is pending in the District Court of Harris County, Texas.
American National Insurance Company v. Momentum Biofuels, Inc. in connection
with a breach of an office lease agreement. A default judgment was entered in
this case in the amount of $261,294.30 together with attorney's fees of
$6,627.22 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.
101.INS XBRL Instance Document (1)
101.SCH XBRL Taxonomy Extension Schema Document (1)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1)
(1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not
filed for purposes of Section 18 of the Securities Exchange Act of 1934,
and otherwise is not subject to liability under these sections.
*Filed herewith.
6
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 9, 2011 By: /s/George Sharp
---------------
George Sharp,
Chief Executive Officer,
and Principal Accounting Officer
7