ITEM 1. BUSINESS ----------------
General
The following is a summary of some of the information contained in this document. Unless the context requires otherwise, references in this document to "Momentum" or the "Company" are to Momentum Biofuels, Inc.
MOMENTUM BIOFUELS, INC. ----------------------
Momentum Biofuels, Inc. was incorporated on January 29, 1987, in the state of Colorado, as Tonga Capital Corporation ("Tonga") and was a non-operating entity classified as a shell company under Rule 12b-2 of the Securities Exchange Act of 1934. Prior to May 2006, the Company had limited activities and was essentially dormant. Momentum Biofuels, Inc. ("Momentum-Texas") was incorporated in Texas on May 8, 2006 and was to engage in the production of biodiesel. On May 31, 2006, Tonga signed an Agreement and Plan of Reorganization with Momentum-Texas. The shareholders of Momentum-Texas received 38,000,000 shares of common stock of Tonga in exchange for 38,000,000 shares of Momentum-Texas. This transaction was accounted for as a reverse merger with Tonga being treated as the accounting acquirer. On October 10, 2007, at the Annual Shareholders' Meeting, the majority of the shareholders approved a resolution to change Tonga's name to Momentum Biofuels, Inc. ("Momentum-Colorado"). Momentum-Texas became a wholly owned subsidiary of Momentum-Colorado.
On August 21, 2009, Momentum-Texas entered into an Agreement with Hunt Global Resources, Inc. ("Hunt"), under the terms of which Hunt agreed to assume certain obligations of Momentum-Texas and Momentum-Colorado through the assignment of a certain Senior Secured Promissory Note in the amount of $600,000 issued by Momentum-Colorado to a group of investors arranged by Bathgate Capital Partners, LLC, of Denver, Colorado. Those obligations assumed by Hunt included fixed assets of $3,470,758 for $600,000 in debt, $200,000 in outstanding payables, $600,000 in future lease obligations, $220,000 in outstanding secured promissory notes, accrued interest payable on certain debt in exchange for 40,000,000 shares of Momentum-Colorado common stock. Hunt further agreed to assume Momentum-Texas obligations under a sub-lease agreement between Momentum-Texas and Brand Infrastructure and Services, Inc., including all past due rent, assessments other charges related to the property covered by the sub-lease agreement, all in exchange for a conveyance of all of the right title and interest of Momentum-Texas, in and to all of its physical assets, including the biodiesel plant located in Pasadena, Texas and all intellectual property, processes, techniques and formulas for creating Biofuels and related products.
Further, Momentum-Texas entered into a License Agreement with Hunt, which provided that in exchange for a grant of a license to use, improve, sublicense and commercialize the intellectual property described in the Agreement, in exchange for an agreement by Hunt to pay to Momentum-Texas, a royalty of 3% of the gross and collected revenue received by Hunt from the sale of bio-diesel and related products and from revenues received by Hunt from its proposed Commercial Sand business. Momentum-Texas assigned its rights to receive the royalty from Hunt, as described in the License Agreement to its parent (Momentum-Colorado) in exchange for common shares of Momentum-Colorado equal to 39% of the issued and outstanding stock at such date, or 40,000,000 shares, whichever sum is greater to be issued to Hunt. Such shares were to be issued by Momentum-Colorado as fully paid, non-assessable and subject to a non dilution agreement in favor of Hunt.
On October 9, 2009, the agreements between Hunt, Momentum-Texas and Momentum-Colorado were consummated upon the execution of additional agreements and on December 31, 2009, the Company issued 40,000,000 shares of its Common Stock to Hunt.
COMPANY OVERVIEW ----------------
From June 2006 through the end of January 2009, Momentum-Texas focused its business efforts on the construction and operation of a biodiesel production facility located in LaPorte, Texas. Construction on the production facility was completed during the quarter ended June 30, 2007 and at that time we had the capability to produce biodiesel and sell product. In January 2009, after limited production and operational activities, the Board of Directors voted to direct management to suspend operations, reduce all unnecessary expenses and explore options to maximize shareholder value.
New Operational Focus
Momentum-Colorado is now an intellectual property company owning specific royalty agreements as its sole source of revenue. It is the intent of management to pursue additional royalty and licensing agreements in the furtherance of its business objectives to maximize shareholder value and profitability. Management is also considering other opportunities in other non-related businesses.
Current Royalty Agreements
Momentum-Colorado has contracted to receive a royalty of 3% of the gross revenues of Hunt Global Resources, Inc., from the sale of Biofuels produced by Hunt Biosolutions, Inc., a subsidiary of Hunt, and from the sale of sand, gravel or other minerals from a 300 acre leasehold held by Hunt.
General Business Plan
We intend to seek, investigate and, if such investigation warrants, acquire royalty and license agreements. We will not restrict our search to any specific business, industry or geographical location, and we may participate in business ventures of virtually any nature. This discussion of our proposed business is purposefully general and is not meant to be restrictive of our unlimited discretion to search for and enter into potential business opportunities. We anticipate that we may be able to participate in only one potential business venture because of our lack of financial resources.
We expect that the selection of a business opportunity will be complex. Due to general economic conditions, rapid technological advances being made in some industries and shortages of available capital, we believe that there are numerous firms seeking the benefits of an issuer who has complied with the 1934 Act. Such benefits may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of applicable statutes) for all stockholders and other factors. Potentially, available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. We have, and will continue to have, essentially no assets to provide the owners of business opportunities. However, we will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in an issuer who has complied with the 1934 Act without incurring the cost and time required to conduct an initial public offering.
The analysis of new business opportunities will be undertaken by, or under the supervision of, our Board of Directors. We intend to concentrate on identifying preliminary prospective business opportunities which may be brought to our attention through present associations of our director, professional advisors or by our stockholders. In analyzing prospective business opportunities, we will consider such matters as (i) available technical, financial and managerial resources; (ii) working capital and other financial requirements; (iii) history of operations, if any, and prospects for the future; (iv) nature of present and expected competition; (v) quality, experience and depth of management services; (vi) potential for further research, development or exploration; (vii) specific risk factors not now foreseeable but that may be anticipated to impact the proposed activities of the company; (viii) potential for growth or expansion; (ix) potential for profit; (x) public recognition and acceptance of products, services or trades; (xi) name identification; and (xii) other factors that we consider relevant. As part of our investigation of the business opportunity, we expect to meet personally with management and key personnel. To the extent possible, we intend to utilize written reports and personal investigation to evaluate the above factors.
We will not acquire or merge with any company for which audited financial statements cannot be obtained within a reasonable period of time after closing of the proposed transaction.
As part of our investigation, we expect to meet personally with management and key personnel, visit and inspect material facilities, obtain independent analysis of verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of our limited financial resources and management expertise. The manner in which we participate in an opportunity will depend on the nature of the opportunity, the respective needs and desires of both parties, and the management of the opportunity.
We will participate in a business opportunity only after the negotiation and execution of appropriate written business agreements. Although the terms of such agreements cannot be predicted, generally we anticipate that such agreements will (i) require specific representations and warranties by all of the parties; (ii) specify certain events of default; (iii) detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and after such closing; (iv) outline the manner of bearing costs, including costs associated with the Company's attorneys and accountants; (v) set forth remedies on defaults; and (vi) include miscellaneous other terms.
Competition
We believe we are an insignificant participant among the firms which engage in the acquisition of royalty and license agreements. There are many established businesses, venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than we have. In view of our limited financial resources and limited management availability, we will continue to be at a significant competitive disadvantage compared to our competitors.
Investment Company Act 1940
Although we will be subject to regulation under the Securities Act of 1933, as amended, and the 1934 Act, we believe we will not be subject to regulation under the Investment Company Act of 1940 (the "1940 Act") insofar as we will not be engaged in the business of investing or trading in securities. In the event we engage in business combinations that result in us holding passive investment interests in a number of entities, we could be subject to regulation under the 1940 Act. In such event, we would be required to register as an investment company and incur significant registration and compliance costs. We have obtained no formal determination from the SEC as to our status under the 1940 Act and, consequently, any violation of the 1940 Act would subject us to material adverse consequences. We believe that, currently, we are exempt under Regulation 3a-2 of the 1940 Act.
Number of Persons Employed. --------------------------
As of March 1, 2011, the Company and its subsidiaries had no paid employees.
ITEM 1A.
ITEM 1A. RISK FACTORS ---------------------
Risk Factors
COMPANY RISK FACTORS
THE COMPANY'S LACK OF BUSINESS DIVERSIFICATION COULD RESULT IN THE DEVALUATION OF THE COMPANY'S COMMON STOCK IF REVENUES FROM LICENSE FEES DO NOT MEET PROJECTIONS.
The Company expects its business to consist of the receipt of royalties from Hunt Global Resources, Inc. ("Hunt"). The Company does not have any other lines of business or other sources of revenue if Hunt is unable to generate revenue from the production and sale of biodiesel and the mining and sale of sand and gravel. This lack of business diversification could cause investors to lose all or some of their investment if the Company is unable to generate additional revenues by the successful acquisition and operation of other revenue generating businesses or other royalty agreements. Presently, management has not identified any other lines of business or alternative revenue sources.
THE COMPANY'S OFFICERS AND DIRECTORS ARE NOT EMPLOYED FULL-TIME BY THE COMPANY WHICH COULD BE DETRIMENTAL TO THE BUSINESS.
The Company's directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts including time and efforts involved in participation with such other business entities. Each officer and director of the Company is engaged in business activities outside of the Company's business, and the amount of time they devote as Officers and Directors to the Company's business will be up to 40 hours per week.
The Company does not know of any reason other than outside business interests that would prevent its officers and directors from devoting full-time to the business of the Company, when the business may demand such full-time.
THE COMPANY HAS AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS PROVIDED BY COLORADO REVISED STATUTE.
Colorado Revised Statutes provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities our behalf. Momentum will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person's promise to repay us therefore if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us that we will be unable to recoup.
THE COMPANY'S DIRECTORS' LIABILITY TO ITS AND SHAREHOLDERS IS LIMITED.
Colorado Revised Statutes exclude personal liability of Company's directors and its shareholders for monetary damages for breach of fiduciary duty except in certain specified circumstances. Accordingly, the Company and its shareholders will have a much more limited right of action against the directors than otherwise would be the case. This provision does not affect the liability of any director under federal or applicable state securities laws.
THE COMPANY MAY DEPEND UPON OUTSIDE ADVISORS, WHO MAY NOT BE AVAILABLE ON REASONABLE TERMS AND AS NEEDED.
To supplement the business experience of the Company's officers and directors, the company may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. Company's Board, without any input from stockholders, will make the selection of any such advisors. Furthermore, Company anticipates that such persons will be engaged on an "as needed" basis without a continuing fiduciary or other obligation to us. In the event Company considers it necessary to hire outside advisors, it may elect to hire persons who are affiliates, if they are able to provide the required services.
WE INTEND TO PURSUE THE ACQUISITION OF ROYALTY AND LICENSCE AGREEMENTS
Our sole strategy is to acquire a royalty and licensing agreements. Successful implementation of this strategy depends on our ability to identify a suitable acquisition candidate, acquire such agreements on acceptable terms and integrate its operations. In pursuing acquisition opportunities, we compete with other companies with similar strategies. Competition for such agreements may result in increased prices of acquisition targets. Acquisitions involve a number of other risks, including risks of acquiring undisclosed or undesired liabilities, acquired in-process technology, stock compensation expense, diversion of management attention, potential disputes with the seller of one or more acquired entities and possible failure to retain key acquired personnel. Any acquired entity or assets may not perform relative to our expectations. Our ability to meet these challenges has not been established.
SCARCITY OF AND COMPETITION FOR OPPORTUNITIES AND COMBINATIONS
We believe we are an insignificant participant among the firms which engage in the acquisition of business opportunities. There are many established venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than we have. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than us and, consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing agreements. Moreover, we will also compete in seeking merger or acquisition candidates with numerous other small public companies. In view of our limited financial resources and limited management availability, we will continue to be at a significant competitive disadvantage compared to our competitors.
WE HAVE ESTABLISHED NO STANDARDS FOR LICENSE AND ROYALTY AGREEMENTS
There can be no assurance that we will be successful in identifying and evaluating suitable opportunities or in concluding agreements. We have not identified any particular industry or specific business within an industry for evaluation. There is no assurance we will be able to negotiate an agreement on terms favorable, if at all. We have not established a specific length of operating history or specified level of earnings, assets, net worth or other criteria which we will require a target business opportunity to have achieved, and without which we would not consider an agreement. Accordingly, we may enter into agreements with a business opportunity having no significant operating history, losses, limited or no potential for earnings, limited assets, negative net worth or other negative characteristics.
OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST WHICH MAY NOT BE RESOLVED FAVORABLY TO US.
Certain conflicts of interest may exist between our directors and us. Our Directors have other business interests to which they devote their attention, and may be expected to continue to do so although management time should be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through exercise of such judgment as is consistent with fiduciary duties to us. See "Directors, Executive Officers, Promoters and Control Persons" and "Conflicts of Interest."
RISK FACTORS RELATED TO OUR STOCK
THERE ARE LIMITED TRADING MARKETS FOR THE COMPANY'S COMMON STOCK, THEREBY LIMITING A SHAREHOLDERS' OPPORTUNITY TO SELL SUCH COMMON STOCK.
Currently, only a limited trading market exists for the Company's common stock. The common stock trades on the Over-The-Counter Bulletin Board ("OTCBB") under the symbol "MMBF." The OTCBB is a limited market and subject to substantial restrictions and limitations in comparison to the NASDAQ system. Any broker/dealer that makes a market in the Company's stock or other person that buys or sells our stock could have a significant influence over its price at any given time. The Company cannot assure its shareholders that a market for the Company's common stock will be sustained. There is no assurance that the Company's common stock will have any greater liquidity than shares that do not trade on a public market. A shareholder may be required to retain their shares for an indefinite period of time, and may not be able to liquidate their shares in the event of an emergency or for any other reasons.
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY OF OUR SECURITIES.
We are a "penny stock" company. None of our securities currently trade in any market and, if ever available for trading, will be subject to a Securities and Exchange Commission rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from executing trades in penny stocks. Consequently, the rule will affect the ability of purchasers in this offering to sell their securities in any market that might develop therefore because it imposes additional regulatory burdens on penny stock transactions.
In addition, the Securities and Exchange Commission has adopted a number of rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. Because our securities constitute "penny stocks" within the meaning of the rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange Commission, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.
THE COMPANY WILL PAY NO DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid dividends on our common stock and do not ever anticipate paying such dividends in the foreseeable future.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock held by our present officers, directors, and affiliate stockholders are "restricted securities" within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted Shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company's outstanding common stock or the average weekly trading volume during the four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted securities for a period of two years. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
THE COMPANY'S STOCK WILL IN ALL LIKELIHOOD BE THINLY TRADED AND AS A RESULT YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO LIQUIDATE YOUR SHARES.
The shares of the Company's common stock may be thinly-traded on the OTC Bulletin Board, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that Company is a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if Company came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of any of Company's Securities until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in Company's Securities is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on Securities price. We cannot give you any assurance that a broader or more active public trading market for Company's common Securities will develop or be sustained, or that any trading levels will be sustained. Due to these conditions, Company can give investors no assurance that they will be able to sell their shares at or near ask prices or at all if you need money or otherwise desire to liquidate the Securities of the Company.
COMPANY'S COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SECURITIES AT OR ABOVE THE PRICE THAT YOU MAY PAY FOR THE SECURITY.
Because of the limited trading market for Company's common stock and because of the possible price volatility, you may not be able to sell your shares of common stock when you desire to do so. The inability to sell your Securities in a rapidly declining market may substantially increase your risk of loss because of such illiquidity and because the price for our shares may suffer greater declines because of Company's our price volatility.
The price of Company's common stock that will prevail in the market after this offering may be higher or lower than the price you may pay. Certain factors, some of which are beyond the control of Company, that may cause our share price to fluctuate significantly include, but are not limited to the following:
o Variations in quarterly operating results;
o Loss of a key relationship or failure to complete significant transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the over-the-counter markets in particular, have experienced extreme price and volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance. In the past, class action litigation often has been brought against companies following periods of volatility in the market price of those companies common stock. If we become involved in this type of litigation in the future, it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS ----------------------------------
Not Applicable.
ITEM 2.
ITEM 2. PROPERTIES ------------------
Corporate Offices
Our mailing address is 7450 West 52nd Avenue, Suite M-115, Arvada, 80002.. We do not believe it will be necessary to maintain an office at any time in the foreseeable future in order to carry out our plan of operations described herein.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS ------------------------
There are no pending or threatened legal proceedings involving Momentum-Colorado. However, Momentum-Texas is a defendant in the following legal proceedings:
Jason Gehrig v. Momentum Biofuels, Inc. filed in the District Court of Harris County, Texas. - This lawsuit involves a claim for breach of an employment contract. Depositions were completed over a year ago and there has been no activity in this litigation since.
Harris County Tax Authority v. Momentum Biofuels, Inc. filed in the District Court of Harris County, Texas. - This suit involves a claim for property taxes in the amount of approximately $80,000. The Company has been negotiating a payment plan and expects to be able to pay the taxes due from royalties and licensing fees.
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 were appointed to collect the judgment.
Quality Carriers, Inc. v. Momentum Biofuels, Inc. filed in the District Court of Harris County, Texas. - This suit involves a claim for rental fees for tank trailers in the amount of $19,000 and seeks legal fees in the amount of $6,335.
City of LaPorte Taxing Authority v. Momentum Biofuels, Inc. - This suit involves a claim for property taxes in the amount of approximately $40,000. The litigation is pending in the District Court of Harris County, Texas.
ITEM 4.
ITEM 4. REMOVED AND RESERVED. ----------------------------
PART II
ITEM 5.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND -------------------------------------------------------------------------------- ISSUER PURCHASES OF EQUITY SECURITIES -------------------------------------
Market Information
PRICE RANGE OF COMMON STOCK
The Common Stock is presently traded on the over-the-counter market on the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority ("FINRA"). The Common Stock of the Company trades on the OTC Bulletin Board under the trading symbol "MMBF."
The following table sets forth the range of high and low bid quotations for the common stock of each full quarterly period during the fiscal year or equivalent period for the fiscal periods indicated below. The quotations were obtained from information published by the FINRA and reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
High Low ---- --- 2010 Fiscal Year ---------------- March 31, 2010 $0.07 $0.0311 June 30, 2010 $0.0475 $0.0250 September 30, 2010 $0.03 $0.0008 December 31, 2010 $0.06 $0.0150
2009 Fiscal Year ---------------- March 31, 2009 $0.35 $0.02 June 30, 2009 $0.20 $0.02 September 30, 2009 $0.04 $0.01 December 31, 2009 $0.05 $0.01
Holders
As of December 31, 2010, there were 421 shareholders of record. There are beneficial shareholders. In many instances, a registered stockholder is a broker or other entity holding shares in street name for one or more customers who beneficially own the shares.
Our transfer agent is Mountain Share Transfer, Inc. 1625 Abilene Drive, Broomfield, Colorado 80020. The telephone number is 303-460-1149.
Dividend Policy
Holders of Company's common stock are entitled to receive such dividends as may be declared by Company's board of directors. The Company has not declared or paid any dividends on its common shares and it does not plan on declaring any dividends in the near future. The Company currently intends to use all available funds to finance the operation and expansion of its business.
Recent Sales of Unregistered Securities
During the year ended December 31, 2010 and 2009, the Company made the following sales of its unregistered securities.
Exemption From Registration Claimed -----------------------------------
All of the sales by Momentum of its unregistered securities were made in reliance upon Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). The entity listed above that purchased the unregistered securities was an existing shareholder, known to the Company and its management, through pre-existing business relationships, as a long standing business associate. The entity was provided access to all material information, which it requested, and all information necessary to verify such information and was afforded access to Momentum's management in connection with the purchases. The purchaser of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to the Company. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition.
Issuer Purchases of Equity Securities
Momentum did not repurchase any shares of its common stock during the year ended December 31, 2010.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA -------------------------------
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS -------------------------------------------------------------------------------- OF OPERATIONS -------------
FORWARD-LOOKING STATEMENTS CAUTIONARY
This Report on Form 10-K for the year ended December 31, 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, 2010, includes a "going concern" explanatory paragraph that describes substantial doubt about the Company's ability to continue as a going concern.
OPERATIONS
In January 2009, after limited production and operational activities, the Board of Directors voted to direct management to suspend operations, reduce all unnecessary expenses and explore options to maximize shareholder value.
New Operational Focus
Momentum-Colorado is now an intellectual property company owning specific royalty agreements as its sole source of revenue. It is the intent of management to pursue additional royalty and licensing agreements in the furtherance of its business objectives to maximize shareholder value and profitability. Management is also considering other opportunities in other non-related businesses.
RESULTS OF OPERATIONS ---------------------
For the Year Ended December 31, 2010 Compared to the Year Ended December 31,
During the years ended December 31, 2010 and 2009, the Company did not recognize revenues from its limited operational activities.
During the years ended December 31, 2010, the Company incurred operational expenses of $131,333 compared to $101,431 during the year ended December 31, 2009. The increase of $29,902 was a result of an increase in accounting and legal expenses over the prior year. The Company expects to continue to incur high legal expenses as it handles its outstanding litigation issues and continues to maintain its reporting status while pursuing the activities discussed above.
During the year ended December 31, 2010, the Company recognized a net loss of $204,544 compared to $5,864,776 during the year ended December 31, 2009. The decrease of $5,660,232, was a result of the $29,902 increase in operational expenses offset by the recognition of a $2,571,626 loss from discontinued operations during the year ended December 31, 2009, as a result of our decision to cease our biodiesel operations.
The net loss per share for the year ended December 31, 2010, was less than $0.01 per share compared to a net loss per share of $0.08 for the year ended December 31, 2009.
LIQUIDITY ---------
At December 31, 2010, the Company had no current assets and no cash on hand with which to conduct its operations. At December 31, 2010, total current liabilities were $2,078,412. At December 31, 2010, the Company has a total working capital deficit of $2,078,412.
Net cash used by operating activities during the year ended December 31, 2010 was $153,417, compared $92,431 used in operating activities in the year ended December 31, 2009. During the year ended December 31, 2010, net losses of $204,544 were not adjusted for any non-cash items. During the year ended December 31, 2009, net losses of $2,673,057 were adjusted for the non-cash item of $2,571,626 loss on the disposal of asset..
During the years ended December 31, 2010 and 2009, the Company did not receive or use funds in investing activities.
During the year ended December 31, 2010 and 2009, the Company received $153,417 and $50,919 from its financing activities, respective. This was made up of advances from its majority shareholder Hunt Global Resources, Inc. At December 31, 2010, the Company owed Hunt Global Resources, Inc. $204,336, 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.
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.
Going Concern
The Company's financial statements for the year ended December 31, 2010 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported an accumulated deficit of $19,839,154 and accumulated during development stage as of $253,562 as of December 31, 2010. The Company recognized a net loss of $204,544 during the year ended December 31, 2010. At December 31, 2010, the Company had no assets and total current liabilities of $2,078,412 for a working capital deficit of $2,078,412. This condition raises substantial doubt about the Company's ability to continue as a going concern.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES ------------------------------------------
The preparation of financial statements included in this Annual Report on Form 10-K requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Management bases its estimates and judgments on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The more significant accounting estimates inherent in the preparation of the Company's financial statements include estimates as to the valuation of equity related instruments issued, and valuation allowance for deferred income tax assets. Our accounting policies are described in the notes to financial statements included in this Annual Report on Form 10K. The more critical accounting policies are as described below.
The Company believes that the following are some of the more significant accounting policies and methods used by the Company:
o revenue recognition
o allowance for accounts receivable
o value of long-lived assets
o inventories
o share-based compensation
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company has reviewed recently issued accounting pronouncements and the Company does not expect that the adoption of recently issued accounting pronouncements will have a material impact on its financial position, results of operations or cash flows
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -------------------------------------------------------------------
Momentum's operations do not employ financial instruments or derivatives which are market sensitive. Short term funds are held in non-interest bearing accounts and funds held for longer periods are placed in interest bearing accounts. Large amounts of funds, if available, will be distributed among multiple financial institutions to reduce risk of loss. The Company's cash holdings do not generate interest income.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ---------------------------------------------------
The audited financial statements of Momentum Biofuels, Inc. for the years ended December 31, 2010 and 2009 and the period from August 21, 2009 (Inception) to December 31, 2010 start on page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND -------------------------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------
Change in Auditors
Larry O'Donnell, CPA, P.C. formerly the independent registered public accountant for Momentum the Company, was dismissed as the Company's independent registered public accountant on November 3, 2010. Effective December 14, 2010, the Public Accounting Oversight Board ("PCAOB") revoked Larry O'Donnell, CPA, P.C.'s registration as a registered public accountant.
On November 3, 2010, the Board of the Company approved the engagement of new auditors, De Joya Griffith & Company, LLC of Henderson, Nevada to be the Company's independent registered public accountant. No audit committee exists, other than the members of the Board of Directors.
The action to engage new auditors was approved by the Board of Directors. No audit committee exists, other than the members of the Board of Directors.
In connection with audit of fiscal years ended December 31, 2009 and 2008 and the cumulative period of January 1, 2010 through June 30, 2010 and through the date of termination of the accountants, no disagreements exist with the former independent registered public accountant on any matter of accounting principles or practices, financial statement disclosure, internal control assessment, or auditing scope of procedure, which disagreements if not resolved to the satisfaction of the former accountant would have caused them to make reference in connection with their report to the subject of the disagreement(s).
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES --------------------------------
Disclosures Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, Mr. Sharp 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.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's assessment of the effectiveness of the small business issuer's internal control over financial reporting is as of the year ended December 31, 2009. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control--Integrated Framework. Based on the evaluation, management concluded that there is a material weakness in our internal control over financial reporting. The material weakness relates to the monitoring and review of work performed by contracted accounting personnel in the preparation of audit and financial statements, footnotes and financial data provided to Momentum's registered public accounting firm in connection with the annual audit. Until October 2007, all of our financial reporting is carried out by our Chief Financial Officer; during the year ended December 31, 2009 the Company continued to function without a Chief Financial Officer. This lack of an accounting staff results in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control.
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 permanent rules of the SEC that permit the Company to provide only management's report in this annual report.
There was no change in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION --------------------------
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ---------------------------------------------------------------
The following table sets forth information as to persons who currently serve as Momentum Biofuels, Inc. directors or executive officers, including their ages as of December 31, 2010.
Name Age Position ---------------------------- ------------------------- ------------------------- George Sharp 68 Chairman and CEO Jewel Hunt 54 Director Adreena Betti 41 President and Director
Momentum's directors serve an annual term.
The directors named above will serve until the next annual meeting of Momentum's stockholders. Thereafter, directors will be elected for one-year terms at the annual stockholders' meeting. Officers will hold their positions at the pleasure of the board of directors absent any employment agreement. There is no arrangement or understanding between the directors and officers of Momentum and any other person pursuant to which any director or officer was or is to be selected as a director or officer.
Biographical Information
GEORGE SHARP. Mr. Sharp is an entrepreneur with 35 years executive experience as the CEO/President of several companies. He founded a number of companies, the stock of several of which traded on the public market. Mr. Sharp was also involved in several leveraged buyouts and has formerly served as President and CEO of: Matrix Computer Systems, Inc. Citadel Computer Systems, Inc. (NASD: CITN); Sharp Holding Corporation (NASD: SHAR) and was President and co-founder of Hunt Global Resources, Inc. Mr. Sharp serves as the Chief Executive Officer and Director of Hunt Global Resources, Inc. Mr. Sharp currently serves as Chairman of the Board and CEO of the Company. Mr. Sharp is the step father of Ms. Betti.
ADREENA BETTI. Ms. Betti has over 15 years of operational and executive experience in a variety of public and private high-tech companies in the areas of general management, sales, marketing, administration and operational controls. Ms. Betti has previously served as Vice President and Director of Sales for Citadel Computer Systems, Inc. (NASD: CITN), General Manager of Sharp Holding Corporation (NASD: SHAR) and executive management position at Bluegate Corporation (NASD: BGAT), CITOC, Inc. and Hunt Global Resources, Inc. Ms. Betti currently serves as President of US MedAlerts, Inc. and serves as the President and a director of the Company. Ms. Betti is the step-daughter of Mr. Sharp.
JEWEL HUNT. Mr. Hunt served as President and CEO of Norris Forest Products, Inc., with responsibility for domestic management and international sales and operations. In his capacity at Norris, Mr. Hunt oversaw the operations of this family owned business, which is one of the largest independently owned timberland management companies and saw-mill operators in Texas. Mr. Hunt is a specialist in industrial plant manufacturing production processes with further expertise in managing global operations. Mr. Hunt has also worked as a field services operator for Schlumberger, a leading global oilfield services provider. Mr. Hunt currently serves as Chairman of the Board and Director of Hunt Global Resources, Inc. Mr. Hunt serves as a Director of the Company.
Committees of the Board of Directors
The Company is managed under the direction of its board of directors.
Executive Committee
The Company does not have an executive committee, at this time.
Audit Committee
The Company does not have an audit committee at this time.
Conflicts of Interest - General.
The Company's directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including, among other things, time, efforts and corporation opportunity, involved in participation with such other business entities.
Conflicts of Interest - Corporate Opportunities
Presently no requirement contained in the Company's Articles of Incorporation, Bylaws, or minutes which requires officers and directors of the Company's business to disclose to Momentum business opportunities which come to their attention. The Company's officers and directors do, however, have a fiduciary duty of loyalty to Momentum to disclose to it any business opportunities which come to their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through his involvement as an officer and director of another company. The Company has no intention of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such person.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to officers and board members during the fiscal years ended December 31, 2010, 2009 and 2008. The table sets forth this information for the Company., including salary, bonus, and certain other compensation to the Board members and named executive officers for the past three fiscal years and includes all Board Members and Officers as of December 31, 2010.
(1) Mr. Enders was appointed the Chief Executive Officer on October 20, 2007 and resigned such position on December 31, 2009. Mr. Enders received $122,170 in salary in 2008; regular salary payments under his employment agreement were discontinued by the Company in July 2008. (2) Mr. Sharp was appointed the Chief Executive Officer of the Company on December 31, 2009 and does not receive compensation, at this time for his services. (3) Ms. Betti was appointed the President of the Company on December 31, 2009 and does not receive compensation at this time for her services.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END --------------------------------------------
At December 31, 2010, the Company's Chief Executive Officer and President did not hold any outstanding equity awards.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
During the year ended December 31, 2008, Momentum created the Momentum 2008 Stock Option and Award Plan. There was no grant of stock options to the Chief Executive Officer and other named executive officers during the fiscal year ended December 31, 2010.
Employment Agreements and Termination of Employment and Change-In-Control Arrangements
Mr. Sharp and Ms. Betti do not have Employment Agreements with the Company and at this time do not have a compensation arrangement with the Company.
Director Compensation
The Company does not pay any Directors fees for meeting attendance.
The following table sets forth certain information concerning compensation paid to the Company's directors during the year ended December 31, 2010:
All of the Company's officers and/or directors will continue to be active in other companies. All officers and directors have retained the right to conduct their own independent business interests.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Momentum's officers and directors are indemnified as provided by the Colorado Revised Statutes and the bylaws.
Under the Colorado Revised Statutes, director immunity from liability to a company or its shareholders for monetary liabilities applies automatically unless it is specifically limited by a company's Articles of Incorporation. The Company's Articles of Incorporation do not specifically limit the directors' immunity. Excepted from that immunity are: (a) a willful failure to deal fairly with Momentum's or its shareholders in connection with a matter in which the director has a material conflict of interest; (b) a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal profit; and (d) willful misconduct.
The Company's bylaws provide that it will indemnify the directors to the fullest extent not prohibited by Colorado law; provided, however, that it may modify the extent of such indemnification by individual contracts with the directors and officers; and, provided, further, that the Company shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof, initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized by the board of directors, (c) is provided by the Company, in sole discretion, pursuant to the powers vested under Colorado law or (d) is required to be made pursuant to the bylaws.
The Company's bylaws provide that it will advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company, or is or was serving at the request of Momentum BioFuels as a director or executive officer of another company, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefore, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under the bylaws or otherwise.
EQUITY COMPENSATION PLAN INFORMATION
During the year ended December 31, 2008, Momentum created the Momentum 2008 Stock Option and Award Plan ("Stock Plan"). Awards made under the Stock Plan are done so at the discretion of the Board of Directors or committee designated by the Board of Directors. During the years ended December 31, 2010 and 2009, no awards were made under the Stock Plan.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND -------------------------------------------------------------------------------- RELATED STOCKHOLDER MATTERS. ---------------------------
The following table sets forth information with respect to the beneficial ownership of Momentum Biofuels , Inc. outstanding common stock by:
o each person who is known by Momentum to be the beneficial owner of five percent (5%) or more of Momentum's common stock;
o Momentum's chief executive officer, its other executive officers, and each director as identified in the "Management -- Executive Compensation" section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock and options, warrants and convertible securities that are currently exercisable or convertible within 60 days of the date of this document into shares of the Company's common stock are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of Momentum Biofuels, Inc.'s common stock that Momentum believes was beneficially owned by each person or entity as of December 31, 2010.
(1) Based upon 93,224,444 shares of common stock issued and outstanding, options exercisable for 9,250,000 shares of common stock and warrants exercisable for 1,032,000 shares of common stock for 103,506,444 shares on a fully diluted basis on December 31, 2010.
(2) Coastal Safety and Environmental is in the process of transferring its 6,000,000 shares to Hunt Global Resources, Inc., of which Mr. Sharp an officer and director of the Company, is the Chief Executive Officer and Director of. At the time of this filing such transfer has not been completed
(3) Mr. George Sharp is the Chief Executive Officer and a Director of Hunt Global Resources, Inc. He does not hold any shares of the Company directly. Mr. Sharp has the power to vote the shares of Hunt Global Resources, Inc. Mr. Sharp is the CFO of Crown Financial LLC and has beneficial ownership of the 10,000,000 shares held by them.
(4) Mr. Jewel Hunt, a director of the Company is a director of Hunt Global Resources, Inc. Mr. Hunt does not hold any shares of the Company directly.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------------------------------------------------------
Other than the stock transactions discussed below, the Company has not entered into any transaction nor is there any proposed transactions in which any of the founders, directors, executive officers, shareholders or any members of the immediate family of any of the foregoing had or is to have a direct or indirect material interest.
During the year ended December 31, 2010 and 2009, Hunt Global Resources, Inc., the Company's majority shareholder, advanced the Company funds totaling $204,336 and $50,919 to support its legal and accounting functions. These funds are due on demand.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES -----------------------------------------------
GENERAL. Dejoya Griffith & Company, LLC ("Dejoya") is the Company's principal auditing accountant firm. The Company's Board of Directors has considered whether the provisions of audit services are compatible with maintaining Dejoya's independence. The engagement of our independent registered public accounting firm was approved by our board of directors functioning as our audit committee prior to the start of the audit of our consolidated financial statements for the year ended December 31, 2010.
Prior to November 3, 2010, Larry O'Donnell, CPA P.C. served as our principal auditing accountant firm.
The following table represents aggregate fees billed to the Company for the years ended December 31, 2010 and December 31, 2009.
Year Ended December 31, 2010 2009 ----------------------------- ---------------------- Audit Fees $1,500 $13,837
Audit-related Fees $0 $0
Tax Fees $0 $0
All Other Fees $0 $0 ----------------------------- ---------------------- Total Fees $1,500 $13,837
All audit work was performed by the auditors' full time employees.
During the year ended December 31, 2010, audit fees of $1,500 were paid to Dejoya and fees of $13,837 were paid to Larry O'Donnell, CPA, PC.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ------------------------------------------------
The following is a complete list of exhibits filed as part of this Form 10K. Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of Regulation S-K.
(a) Audited financial statements for years ended December 31, 2010 and 2009
(b) Exhibit No. Description ----------- ----------- 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act *
32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act *
*Filed herewith.
DeJoya Griffith & Company, LLC Certified Public accountants & Consultants
-------------------------------------------------------------------------------- 2580 Anthem Village Dr., Henderson, NV 89052 Telephone (702) 563-1600 ? Facsimile (702) 920-8049
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders Momentum Biofuels, Inc.
We have audited the accompanying consolidated balance sheet of Momentum Biofuels, Inc. (A Development Stage Company) (the "Company") as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders' deficit and cash flows for the years then ended and from (August 21, 2009) through December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Momentum Biofuels, Inc. (A Development Stage Company) as of December 31, 2010 and 2009 and the results of its operations and cash flows from inception (August 21, 2009) through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ De Joya Griffith & Company, LLC Henderson, Nevada April 14, 2011
Momentum Biofuels, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements December 31, 2010
Note 1 - Organization and Nature of 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 Momentum Biofuels, Inc., a Colorado corporation ("Momentum-Colorado") through the assignment of a certain Senior Secured Promissory Note in the amount of $600,000 issued by Momentum-Colorado to a group of investors arranged by Bathgate Capital Partners, LLC, of Denver, Colorado. Hunt further agreed to assume Momentum-Texas obligations under a sub-lease agreement between Momentum-Texas and Brand Infrastructure and Services, Inc., including all past due rent, assessments other charges related to the property covered by the sub-lease agreement, all in exchange for a conveyance of all of the right title and interest of Momentum-Texas, in and to all of its physical assets, including the biodiesel plant located in Pasadena, Texas and all intellectual property, processes, techniques and formulas for creating Biofuels and related products.
Further, Momentum-Texas entered into a License Agreement with Hunt, which provided that in exchange for a grant of a license to use, improve, sublicense and commercialize the intellectual property described in the Agreement, in exchange for an agreement by Hunt to pay to Momentum-Texas, a royalty of 3% of the gross and collected revenue received by Hunt from the sale of bio-diesel and related products and from revenues received by Hunt from its proposed Commercial Sand business. Momentum-Texas assigned its rights to receive the royalty described in the License Agreement to its parent, Momentum-Colorado in exchange for common shares of Momentum-Colorado equal to 39% of the issued and outstanding stock at such date, or 40,000,000 shares, whichever sum is greater. Such shares were to be issued by Momentum-Colorado as fully paid, non-assessable and subject to a non dilution agreement in favor of Hunt.
On October 9, 2009, the agreements between Hunt, Momentum-Texas and Momentum-Colorado were consummated upon the execution of additional agreements and the issuance of the shares of common stock by Momentum-Colorado to Hunt on December 31, 2009.
Due to the above transaction Mometum_Colorado has effectively reentered development stage.
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.
Revenue Recognition
Momentum recognizes revenue from product sales when the products are shipped or delivered and the title and risk pass to the customer. Provisions for any product returns or discounts given to customers are accounted for as reductions in revenues in the same period revenues are recorded.
Share-Based Compensation
Momentum measures all share-based payments, including grants of employee stock options, using a fair-value based method. The cost of services received in exchange for awards of equity instruments is recognized in the statement of operations based on the grant date fair value of those awards amortized over the requisite service period. Momentum utilizes a standard option pricing model, the Black-Scholes model, to measure the fair value of stock options granted.
Income Taxes
Momentum and its subsidiary file a consolidated federal tax return. Momentum uses the asset and liability method in accounting for income taxes. Deferred tax assets and liabilities are recognized for temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities, and are measured using the tax rates expected to be in effect when the differences reverse. Deferred tax assets are also recognized for operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is used to reduce deferred tax assets when uncertainty exists regarding their realization.
Net Loss per Common Share
Basic net loss per common share is calculated by dividing the net loss applicable to common shares by the weighted average number of common and common equivalent shares outstanding during the period. For the years ended December 31, 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.
Recent Accounting Pronouncements 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 year ended December 31, 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 $19,135,592 and an accumulated deficit during development stage of $253,562 at December 31, 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 recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. Note 4- 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:
Note 5- Equity Transactions
On August 21, 2009, Momentum entered into an agreement with Hunt Global Resources, Inc. to assume certain liabilities, in exchange for the assumption Momentum agreed to issue Hunt Global Resources, Inc. 40,000,000 shares of common stock. As part of the agreement, Momentum agreed to issue the note holders 5,000,000 shares of common stock. An agent was issued 500,000 shares of Momentum common stock as compensation for arranging the transaction.
Note 6 - Options
Options were originally issued in conjunction with employment agreements for key employees and consultants.
As of August 21, 2009, there were 9,250,000 outstanding options. As a result of the change of control, all the outstanding options fully vested. At December 31, 2010, there were 9,250,000 issued and outstanding options. The weighted average exercise price for all options outstanding as of December 31, 2010 was $1. Option activity for the period from January 1, 2010 through December 31, 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 7 - Warrant Activity
Warrants activity for the period from January 1, 2010 through December 31, 2010 is as follows:
Number of Price Per Shares Share
Outstanding at January 1, 2009 2,182,000 $1.00 Granted -- -- Expired -- -- Cancelled/Expired (1,150,000) -- ---------------- ---------------
Outstanding at January 1, 2009 1,032,000 $1.00 Granted -- -- Expired -- -- Cancelled/Expired -- -- ---------------- --------------- Outstanding at December 31, 2010 1,032,000 $1.00 ================ =============== Exercisable at December 31, 2010 1,032 ,000 $1.00 ================ ===============
The weighted average exercise price for all warrants outstanding as of December 31, 2010 was $1.
Note 8 - 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 were 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.
Note 9 - Related Party Transactions
During the year ended December 31, 2010 and 2009, Hunt Global Resources, Inc., the Company's majority shareholder, advanced the Company funds to the Company totaling $204,336 and $50,919, respectively to support its legal and accounting functions. These funds are due on demand.
Note 10 - Income Tax
At December 31, 2010 and 2009, the Company had federal operating loss carryforwards of $9,290,309 and $9,085,765, respectively.
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31, 2010 and 2009:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Momentum Biofuels, Inc.
Dated: April 15, 2011 By:/s/George Sharp ---------------- George Sharp, Chief Executive Officer, Chief Accounting Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Dated: April 15, 2011 Momentum Biofuels, Inc.
/s/George Sharp ------------ George Sharp, Director
/s/Adreena Betti ---------------- Adreena Betti, Director