-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B+jjOGdkxo5HKjbSYkh84qlG41OI1Ji0z+0QRUAmOEENBQmGFCZi7Sg0i3L1fuwl xUwFxLZLNUVA5kPKsD0usg== 0001072588-08-000405.txt : 20081119 0001072588-08-000405.hdr.sgml : 20081119 20081119170015 ACCESSION NUMBER: 0001072588-08-000405 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081119 DATE AS OF CHANGE: 20081119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOMENTUM BIOFUELS, INC. CENTRAL INDEX KEY: 0000813718 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 841069035 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-50619 FILM NUMBER: 081201583 BUSINESS ADDRESS: STREET 1: 2600 SOUTH SHORE BLVD. STREET 2: SUITE 100 CITY: LEAGUE CITY STATE: TX ZIP: 77573 BUSINESS PHONE: 281 334 5161 MAIL ADDRESS: STREET 1: 2600 SOUTH SHORE BLVD. STREET 2: SUITE 100 CITY: LEAGUE CITY STATE: TX ZIP: 77573 FORMER COMPANY: FORMER CONFORMED NAME: TONGA CAPITAL CORP DATE OF NAME CHANGE: 19920703 10-Q 1 mmbfq908.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2008 [ ] 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) 2600 South Shore Blvd, Suite 100 League City, TX 77573 (281) 334-5161 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 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 October 31, 2008, there were 47,724,444 shares of the registrant's sole class of common shares outstanding. PART I -- FINANCIAL INFORMATION Item 1. Financial Statements. For financial information, please see the financial statements and the notes thereto, attached hereto and incorporated herein by this reference. The financial statements have been prepared by Momentum Biofuels, Inc. without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These financial statements include all of the adjustments which, in the opinion of management, are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the audited financial statements at December 31, 2007, included in the Company's Form 10-KSB.
PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Page ---- Consolidated Balance Sheets -September 30, 2008 (Unaudited) and December 31, 2007(Audited) F-1 Consolidated Statements of Operations (Unaudited) - Three and Nine months ended September 30, 2008 and 2007 F-2 Consolidated Statements of Changes in Shareholders' Equity - (Unudited) September 30, 2008 F-3 Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2008 and 2007 and F-4 Notes to the Unaudited Consolidated Financial Statements F-5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 1 Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable 5 Item 4. Controls and Procedures 6 Item 4T. Controls and Procedures 6 PART II - OTHER INFORMATION Item 1. Legal Proceedings - Not Applicable 8 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 8 Item 3. Defaults Upon Senior Securities - Not Applicable 8 Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable 8 Item 5. Other Information - Not Applicable 8 Item 6. Exhibits 8 SIGNATURES 9
MOMENTUM BIOFUELS, INC. AND SUBSIDIARY Consolidated Balance Sheets (Unaudited) September 30, 2008 December 31, 2007 ------------------ ------------------ (Unaudited) (Audited) ASSETS Current Assets Cash $ 831 $ 777,171 Accounts Receivable, net 750 3,859 Inventory 2,239 56,759 Prepaid insurance 11,020 33,766 ------------------ ------------------ Total current assets 14,840 871,555 Property & equipment, net of accumulated depreciation and amortization 2,882,225 3,253,410 Other Assets 344,518 26,278 ------------------ ------------------ TOTAL ASSETS $ 3,241,583 $ 4,151,243 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 434,892 $ 194,226 Accounts payable - related parties 34,052 - Accrued expenses 347,431 191,942 Advances - related parties 10,000 - Short term notes payable - related parties - 315,891 ------------------ ------------------ Total Current Liabilities 826,375 702,059 ------------------ ------------------ Long Term Liabilities Convertible notes payable - net of discount - related parties 49,262 - Senior secured convertible note - net of discount 187,188 - ------------------ ------------------ Total Long Term Liabilities 236,450 - ------------------ ------------------ Total Liabilities 1,062,825 702,059 ------------------ ------------------ Stockholders' Equity Common stock, $0.01 par value; 500,000,000 shares authorized, 47,724,444 and 54,828,756 shares issued and outstanding on September 30, 2008 and December 31, 2007, respectively 477,244 548,287 Additional paid-in capital 13,905,087 11,853,153 Accumulated Deficit (12,203,573) (8,952,256) ------------------ ------------------ Total Stockholders' Equity 2,178,758 3,449,184 ------------------ ------------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,241,583 $ 4,151,243 ================== ================== See the accompanying notes to the consolidated financial statements. F-1
MOMENTUM BIOFUELS, INC. AND SUBSIDIARY Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 ---------------- ---------------- ---------------- ---------------- Revenue $ 37,594 $ 389,697 $ 385,951 $ 487,486 Cost of goods sold 4,642 434,313 256,265 561,534 ---------------- ---------------- ---------------- ---------------- Gross profit 32,952 (44,616) 129,686 (74,048) Operating Expenses Plant expenses 314,898 379,564 1,102,838 485,426 General and administrative 710,882 2,095,565 2,230,821 6,650,409 ---------------- ---------------- ---------------- ---------------- Total Operating Expenses 1,025,780 2,475,129 3,333,659 7,135,835 ---------------- ---------------- ---------------- ---------------- Loss from operations (992,828) (2,519,745) (3,203,973) (7,209,883) ---------------- ---------------- ---------------- ---------------- Other Income (Expense) Interest income - 8,913 1,311 10,954 Interest expense (43,705) (24,666) (48,655) (42,133) ---------------- ---------------- ---------------- ---------------- Total Other Income (Expense) (43,705) (15,753) (47,344) (31,179) ---------------- ---------------- ---------------- ---------------- Net Loss $(1,036,533) $(2,535,498) $(3,251,317) $(7,241,062) ================ ================ ================ ================ Per Share Information: Weighted average number of common shares outstanding - Basic and diluted 47,500,965 52,791,432 49,407,753 51,315,424 ================ ================ ================ ================ Net Loss per Share $ (0.02) $ (0.05) $ (0.07) $ (0.14) ================ ================ ================ ================ See the accompanying notes to the consolidated financial statements. F-2
MOMENTUM BIOFUELS, INC. AND SUBSIDIARY Consolidated Statement of Stockholders' Equity For the Period from January 1, 2008 through September 30, 2008 (Unaudited) Common Stock Additional Accumulated Deficit Shares Amount Paid-In Totals Capital ---------------- --------------- ----------------- ------------------ --------------- Balance - December 31, 2007 54,828,756 $ 548,287 $11,853,153 $ (8,952,256) $ 3,449,184 Cancelled shares (7,500,000) (75,000) 75,000 - - Shares issued in private placement for cash 200,000 2,000 78,000 - 80,000 Share based compensation 195,688 1,957 1,210,445 - 1,212,402 Debt Discount - - 389,518 - 389,518 Warrants issued for services - - 298,971 - 298,971 Net loss - - - (3,251,317) (3,251,317) ------------------------------------------------------------------------------------------ Balance - September 30, 2008 47,724,444 $ 477,244 $13,905,087 $ (12,203,573) $ 2,178,758 ========================================================================================== See the accompanying notes to the consolidated financial statements. F-3
MOMENTUM BIOFUELS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2008 2007 ------------------- ------------------ Cash Flows from Operating Activities Net loss $ (3,251,317) $ (7,241,062) Adjustments to reconcile net loss to cash used in operating activities: Depreciation 393,458 146,688 Bad debt expense 29,866 - Deferred loan cost expense 22,731 - Interest expense - amortization of debt discount 25,968 - Share based compensation 1,124,044 5,676,109 Shares issued for service 88,358 - Changes in Assets and Liabilities Accounts receivable (26,757) (49,686) Inventory 54,520 (31,671) Prepaid expenses and other current assets 22,746 (16,156) Accounts payable 274,718 (418,572) Accrued expenses 155,490 129,514 ------------------- ------------------ Net Cash Used in Operating Activities (1,086,175) (1,804,836) Cash Flows used in Investing Activities Other Assets (42,000) - Acquisition of fixed assets (22,274) (945,184) ------------------- ------------------ Net Cash Used in Investing Activities (64,274) (945,184) Cash Flows from Financing Activities Payment of note payable (315,891) (230,556) Loans from shareholders 10,000 67,736 Stock issued for cash 80,000 5,111,500 Offering costs - (90,863) Proceeds from convertible notes 600,000 - ------------------- ------------------ Net Cash Provided by Financing Activities 374,109 4,857,817 ------------------- ------------------ Net (Decrease) increase in Cash (776,340) 2,107,797 Cash and cash equivalents - Beginning of period 777,171 19,477 ------------------- ------------------ Cash and cash equivalents - End of period $ 831 $ 2,127,274 =================== ================== Supplemental Disclosure of Cash Flow Information: Cash Paid During the period for: Interest $ 12,661 $ 40,403 =================== ================== Income Taxes $ - $ - =================== ================== Non-Cash Transactions - Investing activities: Warrants issued for services $ 298,971 $ - =================== ================== Capitalized interest during construction period $ - $ 36,953 =================== ================== Financing activities Cancellation of common shares $ 75,000 $ - =================== ================== Note payable converted to stock $ - $ 500,000 =================== ================== See the accompanying notes to the consolidated financial statements. F-4
Momentum Biofuels, Inc. Notes to the Consolidated Financial Statements As of September 30, 2008 (Unaudited) Note 1. -Basis of 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-KSB. 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 fiscal 2007 as reported in the Form 10-KSB have been omitted. Note 2 - Going Concern In Momentum's Annual Report on Form 10-KSB for 2007, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about the Company's ability to continue as a going concern. Momentum's financial statements for the nine months ended September 30, 2008 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 had an accumulated deficit of $12,203,573 at September 30, 2008. 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 that might result from the outcome of these uncertainties. F-5 Note 3 - Notes Payable to Related Parties
Notes payable as of September 30, 2008 and December 31, 2007 consisted of the following: Description 2008 2007 - ------------------------------------------------ --------------- --------------- Non-interest bearing note payable to Ultimate Investments Corporation, a company wholly-owned by a shareholder. The note was paid in full in January, 2008. $ - $ 315,891 Notes payable originally issued to Richard Robert, Richard Cilento, David Fick and J. Paul Consulting. The interest rate is 10% per annum, payable quarterly. These notes are secured by all of the assets and property of Momentum. The notes may be converted into shares of MMBI's common stock at any time at a conversion price of $0.40 per share. If the notes are prepaid before May 1, 2010, Momentum will issue the lenders a warrant to Purchase one share of Momentum common stock for each $1.00 principal amount of the note. Momentum does not consider prepayment likely. The notes mature on May 1, 2013. 125,000 The loan discount was calculated using the Beneficial conversion feature. The warrants were valued per the Black Scholes method. The assumptions used to value the Warrants included an expected term of 7 years, a risk-free interest rate of 3.78%, expected volatility using comparable company volatility of 215%, an exercise price of $0.40 and a stock price on the date of grant of $0.50. The discount will be amortized over the life of the notes. (75,738) - --------------- --------------- Total $ 49,262 $ 315,891 =============== ==============
Note 4 - Advances from Related Parties During the nine months ended September 30, 2008, a director of the Company, Jeffery Ploen, who beneficially owns J. Paul Consulting Corporation, advanced the Company funds of $34,052. The advance is non-interesting bearing and is due upon demand. F-6 Note 5 - Convertible Notes Payable Notes payable as of September 30, 2008 and December 31, 2007 consisted of the following:
Description 2008 2007 - ------------------------------------------------ --------------- --------------- Notes payable originally issued to ten lenders. The interest rate is 10% per annum, payable quarterly. These notes are secured by all of the assets and property of Momentum. The notes may be converted into shares of MMBI's common stock at any time at a conversion price of $0.40 per share. If the notes are prepaid before May 1, 2010, Momentum will issue the lenders a warrant to Purchase one share of Momentum common stock for each $1.00 principal amount of the note. Momentum does not consider prepayment likely. The notes mature on May 1, 2013. $ 475,000 $ - The loan discount was calculated using the Beneficial conversion feature. The warrants were valued per the Black Scholes method. The assumptions used to value The Warrants included an expected term of 7 years, a risk-free interest rate of 3.78%, expected volatility using comparable company volatility of 215%, an exercise price of $0.40 and a stock price on the date of grant of $0.50. The discount will be amortized over the life of the notes. (287,812) --------------- -------------- Total $ 187,188 $ - =============== ==============
In conjunction with the notes payable referred to above and in Note 3, a lending agent was paid a placement fee of $42,000. In addition the agent was issued 600,000 warrants with an exercise price of $0.40. Further explanation of the valuation of the warrants is found in Note 8. Note 6 - Equity Financing During the nine months ended September 30, 2008, Momentum issued 200,000 shares of its restricted common stock for cash of $80,000. The shares were sold at a price of $0.40 per share. On February 12, 2008, the Board of Directors of Momentum voted to cancel the shares of the common stock held by the Momentum Employees & Consultant Trust. The Momentum Employees & Consultant Trust held 7,500,000 shares of restricted common stock. The shares were previously controlled by Charles Phillips, a shareholder and former director of Momentum, and the shares were cancelled with his consent. F-7 Note 7 - Options Options were originally issued in conjunction with employment agreements for key employees and consultants. Option activity for the nine months ended September 30, 2008 is as follows:
Expiration Exercise Grant Date Date Price Beginning Granted Forfeited Ending - ----------- ------------- ---------- ------------- ---------- ------------ ----------- 04/20/07 04/20/12 $1.00 2,250,000 2,250,000 10/15/07 10/15/10 $1.00 50,000 (50,000) - 10/16/07 10/16/12 $1.00 7,000,000 (1,000,000) 6,000,000 11/01/07 11/01/12 $1.00 1,000,000 1,000,000 ------------ ---------- ------------- ---------- 10,300,000 (1,050,000) 9,250,000 ============ ========== ============= ========== The weighted average exercise price for all options outstanding as of September 30, 2008 was $1.00.
F-8
Note 8 - Warrant Activity Warrants activity for the nine months ended September 30, 2008 is as follows: Expiration Exercise Grant Date Date Price Beginning Granted Exercised Ending - ------------ ------------ ----------- -------------- ---------- ---------- ------------ 06/27/2006 06/27/2016 $1.00 100,000 (1) 100,000 11/30/2006 11/30/2016 $1.00 10,000 (2) 10,000 12/31/2006 12/31/2016 $1.00 10,000 (2) 10,000 01/31/2007 01/31/2017 $1.00 10,000 (3) 10,000 02/01/2007 02/01/2012 $1.00 2,000 (3) 2,000 08/31/2007 08/31/2009 $1.00 1,000,000 (4) 1,000,000 10/04/2007 10/04/2009 $1.00 150,000 (5) 150,000 06/25/2008 06/25/2015 $0.40 (6) 300,000 300,000 06/25/2008 06/25/2015 $0.40 (7) 600,000 600,000 --------------- ---------- ---------- ----------- $ 1,282,000 900,000 $ 2,182,000 =============== ========== ========== ===========
The weighted average exercise price for all warrants outstanding as of September 30, 2008 was $1. (1) Momentum calculated the relative fair value of these warrants at $162,822 using the Black-Scholes option pricing model and allocated a portion of the original proceeds to these warrants as a discount to the note through additional paid-in capital. The assumptions used to value the warrants included an expected term of 10 years, a risk-free interest rate of 4.98%, expected volatility using comparable company volatility of 145%, an exercise price of $1 and a stock price on the date of grant of $1.65. (2) Momentum calculated the fair value of these warrants at $33,558 using the Black-Scholes option pricing model and this amount has been charged to general and administrative expenses and credited to additional paid-in capital for the period from inception (May 8, 2006) through December 31, 2006. The assumptions used to value the warrants include an expected term of 10 years, a risk free interest rate of 4.98%, expected volatility using comparable company volatility of 145%, an exercise price of $1 and an average stock price on the date of grant of $1.65. (3) Momentum calculated the fair value of these warrants at $18,895 using the Black-Scholes option pricing model and this amount has been charged to general and administrative expenses and credited to additional paid-in capital for the year ending December 31, 2007. The assumptions used to value the warrants include an expected term of 10 years, a risk free interest rate of 4.98%, expected volatility using comparable company volatility of 145%, an exercise price of $1 and a stock price on the date of grant of $1.60. (4) Momentum calculated the fair value of these warrants at $547,579 using the Black-Scholes option pricing model and this amount has been charged to general and administrative expenses and credited to additional paid-in capital for the year ending December 31, 2007. The assumptions used to value the warrants include an expected term of 2 years, a risk free interest rate of 6.50%, expected volatility using comparable company volatility of 154%, an exercise price of $1 and a stock price on the date of grant of $0.95. F-9 (5) Momentum calculated the fair value of these warrants at $95,746 using the Black-Scholes option pricing model and this amount has been charged to general and administrative expenses and credited to additional paid-in capital for the year ending December 31, 2007. The assumptions used to value the warrants include an expected term of 2 years, a risk free interest rate of 4.17%, expected volatility using comparable company volatility of 186%, an exercise price of $1 and a stock price on the date of grant of $0.80. (6) Momentum calculated the fair value of these warrants at $149,624 using the Black-Scholes option pricing model and allocated a portion of the original proceeds to these warrants as a discount to the note through additional paid-in capital. The assumptions used to value the warrants included an expected term of 7 years, a risk-free interest rate of 3.78%, expected volatility using comparable company volatility of 215%, an exercise price of $0.40 and a stock price on the date of grant of $0.50. The relative fair value of these warrants was combined with the value of the beneficial conversion feature of the convertible notes described in Note 9, and recorded as a discount on the notes. (7) Momentum calculated the fair value of these warrants at $298,971 using the Black-Scholes option pricing model and allocated a portion of the original proceeds to these warrants as a discount to the note through additional paid-in capital. The assumptions used to value the warrants included an expected term of 7 years, a risk-free interest rate of 3.78%, expected volatility using comparable company volatility of 215%, an exercise price of $0.40 and a stock price on the date of grant of $0.50. F-10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS CAUTIONARY This Item 2 and the report on Form 10-Q for the period ended September 30, 2008 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, 2007, includes a "going concern" explanatory paragraph that describes substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 2 to the unaudited quarterly financial statements. PLAN OF OPERATIONS Momentum is a "pure play" biodiesel producer focused on servicing the U.S. Gulf Coast and in the future, international biodiesel markets. Momentum plans to manufacture high quality, low cost and socially responsible biodiesel fuels that complement and integrate with the existing diesel fuel supply chain. Biodiesel is a domestic, renewable fuel for use in diesel engines that is derived from natural vegetable oils and animal fats. Biodiesel contains no petroleum, but can be used in any concentration with petroleum-based diesel fuel in existing diesel engines without engine modification. 1 Our initial plant in LaPorte, Texas, has been completed and is currently in limited production. The Company's initial focus will be on efficiently operating the LaPorte plant at its planned capacity and on sales of our product. Our marketing strategy will focus on wholesale distribution to fuel jobbers, corporate fleets and government users. We will also use established alternative fuel brokers where appropriate. RESULTS OF OPERATIONS Results of Operations For Three Months Ended September 30, 2008 Compared To The Three Months Ended September 30, 2007 The Company recognized revenue of $37,594 for the three months ending September 30, 2008, compared to $389,697 of revenue during the three months ended September 30, 2007. During the three months ended September 30, 2008, the Company incurred $4,642 in cost of sales, resulting in a gross profit of $32,952 compared to $434,313 in cost of goods sold; resulting in a gross loss of $44,616 for the three months ended September 30, 2007. During the three months ended September 30, 2008, the Company incurred operating expenses of $1,025,780 compared to $2,475,129 during the three months ended September 30, 2007. Operating expenses during the three months ended September 30, 2008 included, $314,898 in plant expenses and $710,882 in general and administrative expenses, compared to $379,564 in plant expenses and $2,095,565 in administrative expenses for the three months ended September 30, 2007. Included in the general and administrative expenses for the three months ended September 30, 2008 is $394,395 for executive stock options. Included in the general and administrative expenses for the three months ended September 30, 2007 was $794,878 of expenses for executive stock options. In addition, included in the general and administrative expenses for the three months ended September 30, 2007 were $547,579 relating to the warrants awarded to TES Energy Development, LLC and $450,000 relating to stock provided to members of the Board of Directors as compensation. During the three months ended September 30, 2008, the Company incurred net interest expense of $43,705, compared to $15,753 for the three months ended September 30, 2007. During the three months ended September 30, 2008, the Company recognized a net loss of $1,036,533 compared with a net loss of $2,535,498 for the three months ended September 30, 2007. The decrease of $1,498,965 was due primarily to decrease in warrant expense, Board of Director compensation and share based compensation, as discussed above. The net loss per share for the three months ended September 30, 2008, was $0.02 per share compared to a net loss per share of $0.05 for the three months ending September 30, 2007. Results of Operations For The Nine Months Ended September 30, 2008 Compared To The Nine Months Ended September 30, 2007 The Company recognized revenue of $385,951 for the nine months ending September 30, 2008, compared to $487,486 of revenue during the nine months ended September 30, 2007. The Company's revenues were from its activities in processing and sale of its biodiesel product. During the nine months ended September 30, 2008, the Company incurred cost of goods sold of $256,265, resulting in a gross profit of $129,686 compared to $561,534 in cost of goods sold; resulting in a gross loss of $74,048 for the nine months ended September 30, 2007. 2 During the nine months ended September 30, 2008, the Company incurred operating expenses of $3,333,659 compared to $7,135,835 during the nine months ended September 30, 2007. Included in the operating expenses for the nine months ended September 30, 2008 are share based compensation costs of $1,124,044 compared to $4,659,635 for the nine months ended September 30, 2007. The increase in total expenses, net of the share based compensation of $266,585 is a result of the increased operations of the Company during the nine months ended September 30, 2008. Total expenses during the nine months ended September 30, 2008 included, $1,102,838 in plant expenses and $2,230,821 in general and administrative expenses. During the nine months ended September 30, 2008, the Company recognized a net loss of $3,251,317 compared with a net loss of $7,241,062 for the nine months ending September 30, 2007. The decrease of $3,989,745 was due primarily to decrease in share based compensation and increases in plant operations and general and administrative expenses, as discussed above. The net loss per share for the nine months ended September 30, 2008, was $0.07 per share compared to a net loss per share of $0.14 for the nine months ending September 30, 2007. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2008, the Company had $831 in cash and $3,240,752 in other assets with which to conduct its operations. 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 nine months ended September 30, 2008 was $1,086,175. During the nine months ended September 30, 2007, the Company used net cash of $1,804,836 in operating activities. During the nine months ended September 30, 2008, net losses of $3,251,317 were adjusted for non-cash items that included $393,458 in depreciation and amortization expense and $1,124,044 in share based compensation. During the nine months ended September 30, 2007, net losses of $7,241,062 were adjusted for the non-cash items of $146,688 in depreciation and amortization expense and $5,676,109 in share based compensation. During the nine months ended September 30, 2008, the Company used $64,274 in cash in its investing activities. During the nine months ended September 30, 2007, the Company used $945,184 in its investing activities. Net cash received by financing activities during the nine months ended September 30, 2008 was $374,109. During the nine months ended September 30, 2007, the Company received funds of $4,857,817 from its financing activities. On March 7, 2008, Momentum initiated a private placement of 8,000,000 shares of common stock at a price of $0.40 per share. During the nine months ended September 30, 2008, the Company sold 200,000 shares of its restricted common stock for cash of $80,000. The shares were sold for $0.40 per share. 3 On January 11, 2008, the Company made final payment on the outstanding $400,000 promissory note held by Ultimate Investment Corp ("Ultimate"). The promissory note had an issue date of June 30, 2006 and had been accruing interest at a rate of 12% per annum, at the default rate. The final payment was $319,792, cash, including accrued interest of $3,901. On June 25, 2008, the Company closed $600,000 of Senior Secured Convertible Debt. The notes are held by fourteen different lenders, four of which are related parties. The note has an issue date of June 25, 2008 and accrues interest at 10% per annum, payable quarterly. Note holders may at any time convert the balance of the note into common shares at a conversion price of $0.40. The notes mature on May 1, 2013. In addition to the Convertible Notes, the Company has issued Investor Warrants exercisable for a total of 300,000 shares of the Company's common stock. The warrants have an exercise price of $0.40 per share and a term of 7 years. The warrants provide for cashless exercise and have piggy back registration rights. The Company issued 1 warrant for each $1.00 note sold, to the Placement Agent, in total 600,000 were issued to the Agent. The warrants have an exercise price of $0.40 per share and a term of 7 years. The warrants provide for cashless exercise and have piggy back registration rights. 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 the Annual Report on Form 10-K. 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 value of long-lived assets; o inventories; and o income taxes. 4 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. INVENTORIES Inventories are stated at the lower of average cost basis or market. Abnormal amounts of idle facility expenses, freight, handling costs, and wasted materials are recognized as current period charges. Fixed production overhead is allocated to the costs of conversion into inventories based on the normal capacity of the production facility. VALUATION OF LONG-LIVED ASSETS The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include negative projected operating performance by the Company and significant negative industry or economic trends. The Company does not believe that there has been any impairment to long-lived assets as of September 30, 2008. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - - NOT APPLICABLE 5 ITEM 4 CONTROLS AND PROCEDURES Disclosures Controls and Procedures Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). As a result of this evaluation, we identified material weaknesses in our internal control over financial reporting as of December 31, 2007. Accordingly, we concluded that our disclosure controls and procedures were not effective as of December 31, 2007. 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 has 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 and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of the deficiency in our internal control over financial reporting discussed below. The material weakness identified in our annual report on Form 10-KSB for the year ended December 31, 2007 was related to a lack of an accounting staff resulting in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control. ITEM 4T. CONTROLS AND PROCEDURES Management's Quarterly Report on Internal Control over Financial Reporting. Management's assessment of the effectiveness of the registrant's internal control over financial reporting is as of the period ended September 30, 2008. Based on the evaluation, management concluded that there is a material weakness in our internal control over financial reporting. All of our financial reporting was carried out by our Chief Financial Officer, and we did not have an audit committee established until October 12, 2007. 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. A material weakness is a control deficiency, or combination of control deficiencies, in ICFR such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by employees in the normal course of their assigned functions. Notwithstanding this material weakness, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our consolidated financial position and results of operations as of and for the period ended September 30, 2008. 6 Remediation of Material Weakness As discussed in Management's Annual Report on Internal Control over Financial Reporting, as of December 31, 2007, there were material weaknesses in our internal control over financial reporting. We have analyzed our processes for all business units and the established policies and procedures with necessary segregation of duties, which will establish mitigating controls to compensate for the risk due to lack of segregation of duties. In addition, we have evaluated the necessary steps to improve our controls over financial reporting and we are in the initial planning phase of upgrading, where possible, certain of our information technology systems impacting financial reporting. Through these steps, we believe we are addressing the deficiencies that affected our internal control over financial reporting as of December 31, 2007 and September 30, 2008. However, the effectiveness of any system of internal controls is subject to inherent limitations and there can be no assurance that our internal control over financial reporting will prevent or detect all errors. Because the remedial actions require hiring of additional personnel, upgrading certain of our information technology systems, and relying extensively on manual review and approval, the successful operation of these controls for at least several quarters may be required before management may be able to conclude that the material weakness has been remediated. The aggregate costs of remediation are unknown at this time. Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the period ended September 30, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 7 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company did not make any unregistered sales of its securities from July 1, 2008 through September 30, 2008. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None ITEM 5. OTHER INFORMATION. None 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 Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 32.1 Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. 8 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOMENTUM BIOFUELS, INC. (The Registrant) Date: November 14, 2008 By: /s/ Gregory A. Enders --------------------- Gregory A. Enders, President, Chief Executive Officer, and Principal Accounting Officer 9 EX-31 2 ex31.txt EXHIBIT 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss. 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Gregory A. Enders, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Momentum Biofuels, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrants's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's 4th quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financing reporting. Date: November 14, 2008 By: /s/ Gregory A. Enders --------------------- Gregory A. Enders, President & Chief Executive Officer EX-32 3 ex32.txt EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Momentum Biofuels, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"). I, Gregory A. Enders, President and Acting Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief. (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Gregory A. Enders --------------------- Gregory A. Enders, President & Acting Chief Financial Officer Date: November 14, 2008 -----END PRIVACY-ENHANCED MESSAGE-----