SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934; For the Fiscal Year Ended: June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24682
WORLDWIDE PETROMOLY, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1125214
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1300 Post Oak Boulevard, Suite 1985
Houston, Texas 77056
(Address of principal executive offices, including zip code)
(713) 892-5823
(Registrant's telephone number, including area code)
_________________
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on which Registered
- - ---------------------- -----------------------------------------------
N/A N/A
Securities registered pursuant to 12(g) of the Exchange Act:
Title of Each Class
-------------------
Common Stock, no par value
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (ii) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[X]
Issuer's revenues for the year ended June 30, 1998 were $301,150. The aggregate
market value of Common Stock held by non-affiliates of the registrant as of
October 6, 1998, based upon the last reported sales prices on the OTCBB, was
$3,177,281. As of October 6, 1998, there were 17,317,500 shares of Common Stock
outstanding.
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TABLE OF CONTENTS
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PART I
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 4
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
Item 7. Consolidated Financial Statements F-1 - F-18
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of The Exchange Act 12
Item 10. Executive Compensation 14
Item 11. Security Ownership of Certain Beneficial Owners
and Management 17
Item 12. Certain Relationships and Related Transactions 17
Item 13. Exhibits and Reports on Form 8-K 18
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PART I
Item 1. BUSINESS
GENERAL
Worldwide PetroMoly, Inc., formerly known as Ogden, McDonald & Company (the
"Company") was incorporated under the laws of the State of Colorado on October
13, 1989. The Company was originally formed for the primary purpose of seeking
out acquisitions of properties, businesses, or merger candidates, without
limitation as to the nature of the business operations or geographic area of the
acquisition candidate. In August 1994, the Company filed a registration
statement with the Securities and Exchange Commission on Form 10-SB, wherein it
registered its common stock under Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). As a result, the Company became a
reporting company under the Exchange Act, which management believed enhanced the
Company's ability to attract a suitable private merger or acquisition candidate.
Until July 22, 1996, when the Company acquired 100% of the outstanding
common stock of Worldwide PetroMoly Corporation, the Company had no operations
other than issuing stock to its original shareholders. As such, the Company
was a "shell" company whose sole purpose was to locate and consummate a merger
or acquisition with a private entity. On July 22, 1996 the Company effected a
3-for-1 stock split which resulted in 1,500,000 shares being outstanding. Also
on July 22, 1996, the Company completed a reverse acquisition of 100% of the
outstanding common stock of Worldwide PetroMoly Corporation in exchange for
14,507,500 shares of the Company's Common Stock which resulted in the
shareholders of Worldwide PetroMoly Corporation acquiring approximately 90.6% of
the shares outstanding in the Company. The Company then changed its name to
Worldwide PetroMoly, Inc. Unless the context otherwise requires, the term
"Company" as used herein refers to the Company and its wholly-owned subsidiary,
Worldwide PetroMoly Corporation.
DESCRIPTION OF BUSINESS
The Company is engaged in the business of manufacturing, marketing and
distributing a line of molybdenum fortified lubricant products called
PetroMoly (tm), which uses the Company's proprietary technology called Molytech
(tm) to blend an extended drain, high performance engine oil designed to enhance
and maintain all types of engines at their peak levels. Prior to the completion
of the Company's private offering during July 1996, the Company had focused its
efforts on product development, field testing and the development of a small
customer base to acquire testimonial support for the product technology. The
Company's immediate focus is on planning for a regional retail campaign, while
adding new industrial and commercial customers to its customer base.
The industrial and commercial sales process takes three to six months because
such customers typically want to test the Company's products for 90 days before
making any decisions. Some of the Company's current customers are Continental
Airlines, Enron, American Equipment, a division of Flour Daniels, Americana
Energy, Mooney Oil, the City of Coral Springs, Bennett Auto Supply and The Oil
Connection Lube Centers.
Based on various tests which have been conducted, the Company believes that
its product line offers several competitive advantages over other products.
These benefits include an increase in the time between oil changes, an increase
in fuel economy, longer engine life, and an ability to substantially reduce
harmful exhaust emissions, engine wear and friction.
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ENGINE OIL AND OIL ADDITIVE PRODUCTS
The Company currently offers the following products for the markets
indicated:
1. Industrial Oil - HD SAE 40 Engine Oil - This was the Company's first
product and it is used as a general purpose industrial oil. It is available in
one quart containers, fifty-five gallon drums and in bulk shipments.
2. Railroads - HD SAE 40 RR Engine Oil - The railroad industry is a major
market for the Company. The Company has received favorable test results from
Kyle Railroad, North Coast Railroad and Washington Central Railroad. This
product is available in fifty-five gallon drums up to rail car quantities.
3. Passenger Cars, Light Duty Trucks, Vans and Utility Vehicles - SAE HP
10W-30, HP 5W-30, HP 20W-40, and LDF SAE 15W-40.
4. Natural Gas Compressor Applications - NGC SAE 30 or SAE 40, Premium AA
and LA.
5. Automotive Additive - PetroMoly Oil Treatment - This product is sold by
the pint or in eight ounce containers to be added at every oil change.
PATENTS, TRADEMARKS AND LICENSES
During November, 1994, the Company filed an application with the United
States Patent and Trademark Office for a patent on PetroMoly. During December
1995, the Company received a Notice of Allowability indicating that a patent
would be granted for PetroMoly provided that certain formalities are met. The
Company has filed a continuance for three years to protect the disclosure in the
patent application from the public. The Company also holds the rights to the
registered trademark "PetroMoly (tm)."
COMPETITION
Management believes that there is no other fully formulated motor oil like
PetroMoly on the market. The major competitive products are the synthetic
oils; however, their additional expense is often not justified by actual
benefits. In many industrial applications there are also operational
limitations to the synthetic oils. Conventional motor oils differ according to
their additive packages. Most general use oils are similar in their makeup. As
a result, there is heavy competition in the consumer oils market due to the
similarity of the products. Pennzoil has been the market share leader in
passenger car motor oils for 12 years. It introduced its first synthetic motor
oil, Performax 5W-50, in late 1992. Pennzoil has a nationwide distribution
system and they continue to expand to the international market. The Quaker
State Corporation is another major competitor in the passenger car motor oil
industry with distribution and products very similar to Pennzoil. The
industrial market has substantially less competition due to the unique
operational requirements of many industrial applications. In these
applications the customers are less sensitive to the purchase price of the
product and base their purchasing decisions on extensive real-life testing to
determine operational advantages and cost savings from prospective products.
This process is more time consuming than traditional consumer sales due to its
one-on-one sales requirements. The Company intends to compete both in the
industrial and consumer motor oil markets by offering a product which the
Company believes provides significant benefits over competing products. The
major focus in the past has been in the commercial and industrial areas, and now
the Company is ready for retail exposure.
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MARKETING
Currently nearly all of the Company's personnel are involved in marketing
the Company's products. The target markets are industrial, commercial user
markets, and consumer markets for passenger cars and light trucks. The Company
also has begun to approach the direct retail markets through the Company's sales
personnel. The Company is seeking premium shelf space in automobile parts
retail chains and lube center chains. The Company also desires to sell
PetroMoly (tm) Oil Treatment using television infomercials, and is presently
seeking marketing alliances for this purpose.
MANUFACTURING
Fully formulated PetroMoly is not a synthetic, has no exotic ingredients,
and is relatively inexpensive to produce. The secret to PetroMoly's success is
the proprietary blending process which combines common components with
high-grade base oil stock. To provide rapid response to market needs without
significant capital investment, the Company has chosen to use existing contract
blending companies to produce the Company's products. The primary blending
facility at this point is Mega Lubricants, Inc., locate in Houston, Texas. The
Company also uses Forsythe Lubrication Association, Ltd. in Canada as a blender.
Mega Lubricants is producing all of the Company's packaged goods (i.e. quarts
and gallons) for the passenger car and light truck markets. Forsythe is
producing railroad products, such as 15W-40 and 10W-30. LSC in California and
South Coast Terminals in Texas are also under contract for production and will
expand as the market grows. With these three producers, the Company is able to
produce and ship products economically to any locality in the United States or
Canada. Additional manufacturers will be selected as necessary.
RESEARCH AND DEVELOPMENT
The Company spent approximately $59,000 and $23,000 on research and
development during the fiscal years ended June 30, 1998 and 1997, in connection
with methods of formulation and production of its products.
EMPLOYEES
The Company presently has 11 employees, of which 4 are in management
positions, including corporate and administrative operations, and 7 are engaged
in sales.
MAJOR CUSTOMERS
During the year ended June 30, 1998, approximately 17% of the Company's
revenues were received from one customer, as compared to June 30, 1997 where
77% of the Company's revenues were received from two customers
Y2K
The Company believes that its computers are Y2K compliant. This would
include the Company's suppliers and customers in relation to the inventory
electronically purchased and sold.
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Item 2. PROPERTIES
The Company maintains its corporate offices at 1300 Post Oak Boulevard,
Houston, Texas 77056. The Company rents approximately 932 square feet at this
location in Suite 1985 and pays approximately $1,200 per month for rent pursuant
to a lease, which expires on December 14, 2001. The Company also subleases
approximately 1,200 square feet at this location in Suite 2222 and pays
approximately $1,500 per month for subleasing this suite pursuant to a sublease,
which expires on May 1, 1999. The Company also rents approximately 5,184 square
feet at 757 Kenrick, Suite 112, Houston, Texas 77060, pursuant to a lease which
requires monthly payments of approximately $2,330 and which expires September
30, 1999. The Company believes that its properties are suitable and adequate
for its present and contemplated operations.
Item 3. LEGAL PROCEEDINGS
The Company is not currently a party to any pending litigation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1998, there were no matters submitted
to a vote of the Security Holders, through solicitation of proxies or otherwise.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the OTCBB under the symbol "MOLY."
The following table sets forth the quarterly high and low bid prices per share
for the Common Stock, as reported by the OTCBB.
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High Bid Low Bid
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1997
- - ----
First Quarter $ 8.00 $ 6-1/4
Second Quarter $ 6-1/4 $ 3-1/2
Third Quarter $ 4-7/8 $ 2-9/16
Fourth Quarter $ 2-7/8 $ 1-7/16
1998
- - ----
First Quarter $ 2.00 $ 1.00
Second Quarter $ 1.00 $ 1.00
Third Quarter $ 1-1/16 $ 13/16
Fourth Quarter $ 1-1/4 $ 11/16
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On October 6, 1998, the closing bid for the Common Stock as reported by the
OTCBB was $0.5625 per share. On October 6, 1998, there were approximately 2,100
stockholders of record of the Common Stock.
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The Company has not paid, and the Company does not currently intend to pay,
cash dividends on its Common Stock in the foreseeable future. The current
policy of the Company's Board of Directors is to retain all earnings, if any, to
provide funds for the operation and expansion of the Company's business. The
declaration of dividends, if any, will be subject to the discretion of the Board
of Directors, which may consider such factors as the Company's results of
operations, financial condition, capital needs and acquisition strategy, among
others.
In January, 1998 the Company compensated Norton Cooper with 500,000 shares
of restricted common stock of the Company and with an option to purchase 500,000
shares of common stock of the Company at an exercise price of $2.00 which
expires on January 7, 2003, all in connection with Mr. Cooper becoming a
Director of the Company. These securities were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 as amended. Mr. Cooper became a Director of the Company at the time these
securities were issued, and in that capacity he was knowledgeable about the
Company's operations and financial condition and he was able to evaluate the
risks and merits of receipt of these securities, and he agreed to accept the
shares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes. See, Consolidated
Financial Statements.
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this Annual
Report on Form 10-KSB to make applicable and take advantage of the safe harbor
provision of the Private Securities Litigation Reform act of 1995 for any
forward-looking statements made by, or on behalf of the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements that are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and, accordingly,
involve risks and uncertainties, which could cause actual results, or outcomes
to differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, important factors that, in the
view of the Company, could cause actual results to differ materially from those
discussed in the forward-looking statements include demand for the Company's
products, the ability of the Company to attain widespread market acceptance of
its products, the ability of the Company to obtain acceptable forms and amounts
of financing, demand for the Company's products, competitive factors, regulatory
approvals and developments, economic conditions, the impact of competition and
pricing, and other factors affecting the Company's business that are beyond the
Company's control. The Company has no obligation to update or revise these
forward-looking statements to reflect the occurrence of future events or
circumstances.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS - GENERAL
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In July 1996, the Company's operating subsidiary, Worldwide PetroMoly
Corporation, was acquired through a reverse acquisition by Ogden McDonald &
Company (former symbol-OGDM) preceded by approximately $4,000,000 of investment
capital to provide the Company adequate funding to build a foundation for growth
and industrial brand awareness of its new lubricating technology. While keeping
in perspective the acquisition of Worldwide PetroMoly Corporation, now a
subsidiary, by the Company (name changed to Worldwide PetroMoly Inc.
Symbol-MOLY), the Company's structure changed significantly in its first year of
operation to reflect the activities of this subsidiary. Since the first year
ended, The Company has continued to invest in supporting its sales force and
further establishing the Company's infrastructure. These activities included the
hiring of experienced and qualified personnel. The focus has been on expanding
and improving the product lines and developing lines of distribution to enhance
sales volume, and spending the appropriate and necessary amount of capital for
product certification and quality control. The two areas of focus has been
primarily the commercial and industrial market, and secondarily the
retail/passenger car market. Also product development successfully focused on
applying the proprietary technology to produce new products such as cutting oils
for threading, armament oil to private label, a gear oil treatment, a two cycle
engine oil additive for motorcycles and outboard motors, a moly-grease, an
emissions reducing fuel treatment, and a very effective oil additive called
PetroMoly Oil Treatment designed for automobiles and light trucks. Also, a
specially formulated moly racing-oil designed for NASCAR and INDY style motors
is presently being tested by world class racecar drivers.
Other activities include: the redesigning and upgrading of the corporate
website, product brochures, product labels and packaging; the purchasing of
additional operational equipment, printing investor brochures along with related
marketing materials. The Company also invested in lab equipment and test engines
for the purpose of testing its oil treatment to document stringent scientific
tests required by the Federal Trade Commission to make claims on engine
enhancements, emissions reduction, and fuel economy improvement. The Company
intends to use the test results derived to promote this additive product on
television infomercials and other mediums.
The Company has continued extensive field testing and objective lab testing
of its fully formulated engine oil, while several major multinational customers
continue extended final evaluation tests of the PetroMoly products on their
complex high-end machinery and fleet vehicles. These tests have been complicated
and time consuming, but all of the results have been excellent. Management
anticipates a material rise in sales volume in the prospective production of
contracts and agreements, giving a significant rise to the PetroMoly revenues
and customer base within the next fiscal year. During the past year, sales
concentration was targeting various industrial leaders and massive fleet
operators. For these larger customers there are usually test periods that the
PetroMoly products are subjected to which can last anywhere from three months to
a year, depending on each market and end-user. Co-generation, bus and gas
compressor engines, for example, are very expensive and complex machinery,
requiring constant monitoring. Therefore, the addition of PetroMoly's new
lubrication technology to an entire line or fleet is gradual. However progress
has been made, and the products' performance and tests results are very
compelling to the customers' management in referencing overall savings. In July
1997, the Company received a Technology Innovation Award from Aviation Week and
Space Technology magazine for the products' continual demonstrations of
advantages enjoyed by Continental Airlines ground support.
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The Company has enjoyed an increased amount of activity due to the test results
that PetroMoly achieved from subjecting its product to various independent US
Environmental Protection Agency sanctioned lab tests that documented and
certified the superior results of PetroMoly engine oil on the most complex
machinery. Although these tests are costly as well as time consuming, Management
believes the results of such tests will be of high value to the Company and
further its ability to market the Company's technology. The Environmental
Protection Agency has scheduled a listing of PetroMoly in the Federal register
sometime in second fiscal quarter of 1999. In September 1997 the Company
submitted its product to an EPA lab in Maryland at the request of the US Postal
Service. The test was successful, showing a 10 percent improvement in fuel
economy, 14 percent reduction in emissions and 37 percent reduction in used oil.
The Company is presently in the process of being assigned a full postal station
to convert to using PetroMoly on its postal vehicles to further substantiate and
demonstrate the product's usefulness (although there is no time commitment for
when this is scheduled).
This year's sales activities included a radio advertising campaign with Metro
Traffic reports and 60 second spots in the South Florida and surrounding area as
a brand awareness test market. Based on the new distributor agreements and
continued demand in retail in this market, Management is convinced that the
focus must now shift to gaining market share in the retail sectors, as it's
success in creating product awareness works synergistically with the commercial
and industrial sectors. In October 1997 the campaign began with shelf space in
33 auto supply stores (Bennett Auto Supply) and 10 full service lube-centers,
all with in the Florida market. In January 1998 the Company was awarded a
service agreement with Browning Transportation, a mass transit bus company in
Florida. In May 1998, the Company signed on two distributors, Dixie Oil and RHB
Services, both located in the Florida market. And in July 1998 the Company
received a service agreement with the City of Coral Springs in Florida to
service their 660 municipal vehicles. Management will continue its promotional
efforts in Florida and will expand its proven methodology to other strategic
markets in the next fiscal year.
Other sales activities included a service agreement with American Equipment
Services (AMECO), a subsidiary of the Fluor Corporation, to service its 600
machines at its South Texas location. Also a service agreement with Pride
Pipeline, Inc., a crude oil transportation company in Houston, to service its
120 international trucks. And an agreement with El Expreso Bus Company, a
Coach USA subsidiary, after demonstrating a 17 percent average fuel economy
improvement.
Also the Web site has become a more popular place for purchasing the Company's
automotive products over the last two fiscal quarters, averaging 12 purchases a
week.
YEAR ENDED JUNE 30, 1998, COMPARED TO YEAR ENDED JUNE 30, 1997
Total net sales for the year ended June 30, 1998 were $301,150 as compared
to $216,887 for the year ended June 30, 1997, a 39% increase. The reason for
the increase is Management's decision to expand to retail markets in the last
two quarters of fiscal 1998 versus last year's strategy to concentrate the sales
resources on procuring a few large industrial customers that are known industry
leaders. Sales discounts, selective sampling of products, together with long
attentive testing periods were however continued to be practiced to educate the
strategic customers about the new lubricant technology. The potential of these
relationships was deemed a more practical investment rather than a light
frequency on a wide customer reach. The Company continued to attract
considerable publicity from its association with Continental Airlines, and this
has lead to discussions and testing with other very large industry related
companies. Management believes that the next fiscal year will prove that the
past year's sales strategy will reward the Company with increased revenues and
fiscal commitments via service agreements.
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Cost of sales as a percentage of net sales decreased from 89% for the year
ended June 30, 1997, to 71% for the year ended June 30, 1998. Temporary sales
discounts and sampling out inventory to large potential customers were factored
into 1997's cost of sales that reduce the sales margins as this practice was
reduced in 1998 as well as improved manufacturing negotiated costs. During the
last fiscal quarter of 1997, the Company negotiated lower costs of production
with its suppliers as well as more favorable freight rates for distribution,
which resulted in cost savings in fiscal 1998. The Company is currently
interviewing several strategically located blending facilities throughout North
America, South America and Europe. Once these blending agreements are in place,
proximity will dictate lower freight cost thus reducing the cost of goods. A
more material drop in costs should be realized due to the economies of scale
with increased volume production runs. The demand associated with the caliber
of customers that the Company has been targeting could qualify it for a dramatic
drop in cost of production runs with only a few, or in some cases one, service
agreement.
Selling, general and administrative expenses decreased to $2,372,476 for
the year ended June 30, 1998, from $4,475,836 for the year ended June 30, 1997.
The large decrease in expenses was mainly due to 1997 non-cash transactional
payments in the form of shares and options granted as compensation to totaling
$2,934,158 as compared to $578,455 for fiscal 1998.
Interest expense increased from $9,211 in the year June 30, 1997, to
$15,709 in the year ended June 30, 1998, due to increased borrowings during the
year.
Interest income in 1998 was $104,822, and in 1997 was $151,539 due to the
interest received from the investments in certificates of deposit and commercial
paper with the Company's cash reserves.
LIQUIDITY AND CAPITAL RESOURCES.
At June 30, 1998, the Company had a positive working capital in the amount
of $291,274 including $34,375 unrestricted cash, and $276,579 restricted cash
under line of credit arrangements, as compared to a working capital of
$1,911,708 at June 30, 1997. The decrease in working capital was primarily due
to the losses from operations and continued expansion of operating activities
and development.
Operating activities for the year ended June 30, 1998, utilized cash of
$1,531,725 as compared to $1,594,825 for the year ended June 30, 1997. The
decreased utilization of cash resulted primarily from the fiscal 1997 net loss
resulting from Common Stock and Stock Options for non-employees expense and
accounts payable changes (see Statement of Consolidated Cash Flows page F-7).
Net cash used from investing activities amounted to $1,543,419 in 1997,
Which consists principally of to a loan the Company made to another public
company through a related party transaction, and investments in certificates
of deposit and capital expenditures.
Net cash provided by investing activities in fiscal 1998 amounted to
$861,545, which consist principally of liquidating certificates of deposit and
the repayment of loans to related parties.
As of June 30, 1998, the Company had no material commitments for capital
expenditures.
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At June 30, 1998, the Company has recorded a full valuation allowance against
all deferred tax assets because it could not determine whether it was more
likely than not that the deferred tax asset would be utilized.
The Company believes that its computers are Y2K compliant. This would
include the Company's suppliers and customers in relation to the inventory
electronically purchased and sold.
For the years ended June 30, 1998 and 1997, the Company incurred net losses
totaling $2,193,554 and $4,287,123 respectively. In the event that the Company
is unable to generate sufficient revenues from operations, or is unable to
obtain additional financing, it may be unable to continue to develop and support
its present cost levels, and raises substantial doubt about the Company's
ability to continue as a going concern. However, Management strongly believes,
the operational activities that the Company invested its time and resources in
should have a positive impact in fiscal 1999. Furthermore, the Company is
presently seeking to raise additional equity through the sale of its common
stock and/or the contracting with third parties for financing to develop a
direct-market advertising campaign, to expand its marketing efforts in order to
generate additional revenues. No assurance can be given that the Company will
be successful in achieving its revenue growth strategy; or that it will obtain
proper financing.
GOING CONCERN RISK
The financial statements of the Company include a going concern qualification by
the Company's independent auditors. The Company's operating losses and the
Company's need for financing raises substantial doubt about the Company's
ability to continue as a going concern.
OUTLOOK
The year ended June 30, 1998 was a year of development for the Company as
its strategic focus expanded to the development of a retail approach that
encompasses a product awareness campaign in strategic regions. This approach is
expected to increase sales volumes and promote relationships with regional
leaders in the industrial markets, which are end users, or already have
established lines of distribution and marketing capital, and are known as
opinion leaders of new technologies. Management foresees an ending in fiscal
year 1998 of the "testing periods" that the Company has invested with these
groups, followed by qualified revenue producing contracts, and testimonials that
will attract other companies in similar industries for a greater market share.
As stated earlier, any one of the substantial customers that the Company is
presently working with is capable of increasing the volume production to much
greater economies of scale. These savings will decrease cost of sales, and
possibly decrease the cost to the customers as well.
In 1998, the Company trademarked the name "molytech" that embodies the Company's
proprietary technology that the US patent office accepted and is ready to be
patented. Management is actively pursuing licensing agreements with major oil
companies to utilize molytech in their existing lines, where the Company would
receive royalty income with pre-negotiated minimum volumes.
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Management is extremely eager to begin marketing the newly developed oil
additive, PetroMoly Oil Treatment, which uses the same proprietary technology to
suspend molybdenum in motor oil for cars and light trucks. An advertising
campaign is planned for this particular product beginning with an infomercial to
create consumer awareness and educate the general public about the Company's
new technology. This exposure will possibly facilitate a demand for the other
PetroMoly products as well. During this campaign, distribution will be
maintained through fulfillment houses. Later a full-scale retail campaign is
planned as the product is sold in the auto after-market stores and retail
chains. Reports to management show this oil additive product, being a new
technology in a proven direct response category, is projected to carry an
enormous demand.
With a proper financing, along with the progressing sales relationships
maturing and the new product lines being marketed, the Company expects operating
margins and revenues to improve appreciably during fiscal 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 provides a different method of calculating earnings per share than was
formerly used in APB Opinion 15. SFAS 128 provides for the calculation of basic
and diluted earnings per share. Basic earnings per share includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Dilutive
earnings per share reflects the potential dilution of securities that could
share in the earnings of the Company. The Company was required to adopt this
standard in the second quarter of fiscal 1998. Using the principles set forth
in SFAS 128, basic and diluted earnings per share are identical and are not
materially different from that which would have been presented under APB 15,
since outstanding stock options would be antidilutive. The outstanding stock
options (Note 10) could become potentially dilutive in the future.
Statement of Financial Accounting Standards No. 129, Disclosure of Information
about Capital Structure ("SFAS 129"), effective for periods ending after
December 15, 1997, establishes standards for disclosing information about an
entity's capital structure. SFAS 129 requires disclosure of the pertinent
rights and privileges of various securities outstanding (stock, options,
warrants, preferred stock, debt and participating rights) including dividend and
liquidations preferences, participant rights, call prices and dates, conversion
or exercise prices and redemption requirements. Adoption of SFAS 129 has had no
effect on the Company as it currently discloses the information specified.
In June 1997, the Financial Accounting Standards Board issued two new disclosure
standards. The Company's results of operations and financial position are
unaffected by implementation of these new standards.
Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive
Income", establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from investments
by owners and distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
10
<PAGE>
SFAS 131, "Disclosure about Segments of a Business Enterprise", establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company only operates in one segment of business, the
marketing and distribution of engine lubrication products. Major customers are
disclosed in Note 1.
SFAS 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", was issued in February 1998 and is effective for fiscal years
beginning after December 15, 1998. This statement revises and standardizes
employers' disclosures about pension and other postretirement benefits plans.
It does not change the measurement or recognition of those plans. This
statement is not expected to have any effect on the Company's disclosures since
the Company currently has no such plans.
The Company does not expect any impact from any of the new statements disclosed
above.
Item 7. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On September 19, 1996, the Company's former auditors resigned and the
Company engaged BDO Seidman, LLP as its independent certified public accountants
for the fiscal year ended June 30, 1996. The details of this change in
accountants have been previously reported in the Company's Form 8-K dated
September 19, 1996.
BDO Seidman, LLP served until August 14, 1998, when BDO Seidman, LLP was
terminated and the firm of Jackson & Rhodes, P.C. was appointed as the Company's
independent auditors for the fiscal year ended June 30, 1998. The details of
this change in accountants has been previously reported in the Company's Form
8-K dated August 14, 1998 and filed with the Commission on August 20, 1998.
11
<PAGE>
The decision to change principal accountants was submitted for approval to
the entire Board of Directors and made at their request.
Also, during the Company's most recent fiscal year, and since then, BDO
Seidman, LLP has not advised the Company that any of the following exist or are
applicable:
12
<PAGE>
(1) That the internal controls necessary for the Company to develop
reliable financial statements do not exist, that information has come to their
attention that has lead them to no longer be able to rely on management's
representations, or that has made them unwilling to be associated with the
financial statements prepared by management;
(2) That the Company needs to expand significantly the scope of its audit,
or that information has come to their attention that if further investigated may
materially impact the fairness or reliability of a previously issued audit
report or the underlying financial statements or any other financial
presentation, or cause them to be unwilling to rely on management's
representations or be associated with the Company's financial statements for the
foregoing reasons or any other reason; or
(3) That they have advised the Company that information has come to their
attention that they have concluded materially impacts the fairness or
reliability of either a previously issued audit report or the underlying
financial statements for the foregoing reasons or any other reason.
Prior to the engagement of Jackson & Rhodes as independent auditors, the
Company had not consulted Jackson & Rhodes regarding the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements or any other financial presentation whatsoever.
BDO Seidman, LLP provided the Company with a letter addressed to the
Securities and Exchange Commission in which BDO Seidman, LLP agreed with the
disclosure contained herein.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Name Age Positions Held
Gilbert Gertner* 73 Chairman of the Board, Director
and Chief Executive Officer of the Company
Lance Rosmarin* 36 Director, President, Secretary and Chief Financial
and Accounting Officer
Norton Cooper 66 Director
________________________
* Gilbert Gertner is the stepfather of Lance Rosmarin. There is no family
relationship between any other officer and director of the Company.
BUSINESS EXPERIENCE
GILBERT GERTNER has served as the Chairman of the Board of the Company since
July 22, 1996, and Chairman of the Board and CEO of Worldwide PetroMoly
Corporation since April 15, 1993. Gilbert Gertner was born and raised in New
York City and entered the real estate business in New York in 1946 as a real
estate salesman. He became a partner in the firm, with holdings in several
13
<PAGE>
states consisting of hospitals, motels and office buildings and other
businesses. In 1964, Mr. Gertner came to Houston where he had major holdings.
In 1965 he entered the apartment business with a purchase of 1,900 apartment
units. He became involved in general real estate and specifically in the area
of apartments, motels, mobile home parks, restaurant franchising, nursing homes,
hospitals, land developments and businesses. From 1977 to 1992, he was the
senior partner of Gertner, Aron, Ledet and Lewis Investments, an investment
company which was involved in apartment construction, shopping center
development, mini-warehouse development, business purchases, financing and
medical investments. In 1992, Mr. Gertner formed his own company, Gertner
Investments. He serves on the Board of Directors of one of his companies, CXR
Telecom Communications, located in San Jose, California. He has served, or
still serves as Chairman of the Board of several public and privately held
corporations which include: DATA Systems Software, Inc. (NASDAQ -- DSSI), which
provides sophisticated software services and products to commercial and military
customers (1990 - 1991); Citadel Computer Systems, Inc. (NASDAQ -- NOFF), which
produces a line of network security computer software (1992 to present); GGR
Oil, Inc., which manages a chain of Texaco Express Lube centers, and Pennzoil
related lube centers, located in Texas and Florida, which employs over 100
people (1993 to present); and National Recycling Group, an oil and oil filter
recycling company (1994 to present). He has owned and operated many hospitals
and hotels, including Pasadena General, Medical Arts Hospital Building,
Southmore Hospital and Peachtree Hospital (Atlanta), Villa Capri (Austin,
Texas), and the Villa Inn (Dallas, Texas). He has also owned and operated over
6,000 apartment units in Houston and Pasadena, Texas. In 1990, Mr. Gertner was
honored with the Zionist Organization of America ("ZOA") "Man of the Year"
award, commending him has a civic leader and humanitarian. Mr. Gertner is a
member of Congregation Beth Yeshuran. He has served in numerous communal
activities in the UJA Prime Minister's Mission. Mr. Gertner spends
approximately 80% of his time on the Company's business.
LANCE ROSMARIN has served as President since January, 1998, and as
Director, Chief Financial and Accounting Officer and Secretary the Company since
July 22, 1996, and as Secretary, Treasurer and a Director of Worldwide PetroMoly
Corporation since April 15, 1993. Since 1993, he has been a partner in Gertner
Investments, an investment company with investments in real estate and other
businesses. From 1990 until 1993, Mr. Rosmarin was employed by Gertner, Aron,
Ledet and Lewis Investments. He has served as Secretary, Vice President and a
director of GGR Oil, Inc. since 1993, and as Vice President and a director of
National Recycling Group since 1994. He also served as Secretary, Vice
President and a director of Citadel Computer Systems, Inc., a public company,
from 1993 until March 1996. Mr. Rosmarin received a Bachelor of Science Degree
in Finance and Marketing from the University of Texas in 1985, and an MBA Degree
in Finance from the University of Texas in 1988. Mr. Rosmarin spends
approximately 95% of his time on the Company's business.
NORTON COOPER became a Director of the Company in January 1998. Since
1992, Mr. Cooper has been the chief executive officer of Financial Entrepreneurs
Incorporated of Las Vegas (FEI), a company engaged in strategic financial
planning.
14
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
All persons known to the Company to be a director, officer or beneficial
owner of more than 10% of the Company's Common Stock made timely reports
required by Section 16(a) of the Exchange Act during the most recent fiscal
year.
Item 10. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to the
Company for the fiscal years ended June 30, 1998, 1997 and 1996 of the Chief
Executive Officers of the Company. No executive officer of the Company, other
than Gilbert Gertner, received compensation that exceeded $100,000 during the
fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION ALL OTHER
--------------------------------------------------- ----------
OTHER AWARDS PAYOUTS
------------ -------
NAME AND ANNUAL RESTRICTED SECURITIES
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP
POSITION YEAR SALARY BONUS SATION (1) AWARDS OPTIONS/SARS PAYOUTS
- - --------------- ---- -------- -------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gilbert Gertner 1998 $110,000 - $ 11,400 -0- 95,000 (2) -0-
CEO 1997 $110,000 $ 6,000 $ 9,900 -0- 540,000 (3) -0-
1996 0- -0- -0- -0- -0- -0-
<FN>
(1) Automobile allowance.
(2) Options vested in December 1997, and expire in December 2002.
(3) Options vested in August 1996, and expire in July 2001.
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------
Number of Total Percent of
Securities Options/SARs
Underlying Granted To Exercise
Options/SARs Employees Or Base
Granted In Fiscal Price Expiration
Name (#) Year ($/Sh) Date
- - --------------- ------------- ------------ -------- -----------------
Gilbert Gertner 95,000 50% $ 0.61 December 31, 2002
15
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number Of
Securities Value Of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs At Options/SARs At
Fiscal Year-End Fiscal Year-End
Shares Value (#) ($)
Acquired On Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- - -------------- ------------ -------- ---------------- ----------------
Gilbert Gertner -0- -0- 635,000 / 0 0 / 0
DIRECTOR COMPENSATION
The Company does not currently pay any cash directors' fees, but it pays
the expenses of its directors in attending board meetings. In January, 1998 the
Company compensated Mr. Cooper with 500,000 shares of restricted common stock of
the Company and with an option to purchase 500,000 shares of common stock of the
Company at an exercise price of $2.00 which expires on January 7, 2003. In
January, 1998 the Company compensated Mr. Gertner with an option to purchase
95,000 shares of common stock of the Company at an exercise price of $1.00 which
expires on January 7, 2003.
EMPLOYMENT AGREEMENTS
Effective August 1, 1996, Worldwide PetroMoly Corporation entered into a
five year employment with Mr. Gertner, which provides that Mr. Gertner receive
$144,000 in compensation during the second year of the agreement, and $180,000
per year during the final three years of the agreement. The agreement also
provides that Mr. Gertner receive $950 per month as an automobile allowance.
The agreement also contains a non-compete provision during the term of the
agreement and for a period of five years following the termination of the
agreement.
STOCK OPTION PLAN
During July 1996, the Board of Directors adopted a Stock Option Plan (the
"Plan"), and in July 1996, the Company's shareholders approved the Plan. The
Plan as amended authorized the issuance of options to purchase up to 3,500,000
shares of the Company's Common Stock. The Plan allows the Board to grant stock
options from time to time to employees, officers, directors and consultants of
the Company. The Board has the power to determine at the time that the option
is granted whether the option will be an Incentive Stock Option (an option which
qualifies under Section 422 of the Internal Revenue Code of 1986) or an option
which is not an Incentive Stock Option. Vesting provisions are determined by
the Board at the time options are granted.
16
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of October 6, 1998, the stock ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each officer and director individually,
and all officers and directors as a group. Each person has sole voting and
investment power over the shares except as noted.
<TABLE>
<CAPTION>
Amount and Nature Common Stock
Name and Address of Beneficial Ownership Percent of Class
- - --------------------------- ------------------------ -----------------
<S> <C> <C>
Gilbert Gertner 11,885,000 (1) 66.3%
1300 Post Oak Boulevard, Direct
Suite 1985
Houston, Texas 77056
Lance Rosmarin 145,000 (2) 0.8%
1300 Post Oak Boulevard, Direct
Suite 1985
Houston, Texas 77056
Norton Cooper 1,000,000 (3) 5.7%
1300 Post Oak Boulevard, Direct
Suite 1985
Houston, Texas 77056
All Directors and Officers
as a Group (3 Persons) 13,030,000 70.1%
<FN>
______________________
(1) Includes 635,000 shares underlying currently exercisable options held by
Mr. Gertner.
(2) Includes 145,000 shares underlying currently exercisable options held by
Mr. Rosmarin.
(3) Includes 500,000 shares underlying currently exercisable options held by
Mr. Cooper.
</TABLE>
The Company knows of no arrangement or understanding, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF WORLDWIDE PETROMOLY CORPORATION
On July 22, 1996, the Company completed the acquisition of 100% of the
outstanding common stock of Worldwide PetroMoly Corporation in exchange for
14,507,500 shares of the Company's Common Stock (approximately 90.6% of the
shares now outstanding). The stock issuances were made pursuant to the
Agreement ("Agreement") between the Company and Worldwide PetroMoly Corporation.
The terms of the Agreement were the result of negotiations between the
management of the Company and Worldwide PetroMoly Corporation. However, the
Board of Directors did not obtain any independent "fairness" opinion or other
evaluation regarding the terms of the Agreement, due to the cost of obtaining
such opinions or evaluations. A total of 12,500,000 of the shares issued in
connection with the acquisition of Worldwide PetroMoly Corporation were issued
to PetroMoly Capital Partners, which is a Texas general partnership. Gilbert
Gertner and Robert Goldberg are the two general partners and Mr. Gertner owns
90% of the partnership and Mr. Goldberg owns 10% of the partnership. Mr.
Goldberg was a former Director of the Company. PetroMoly Capital Partners
subsequently distributed its shares of the Company to its general partners.
17
<PAGE>
OTHER TRANSACTIONS
In December, 1996 the Company loaned Citadel Computer Systems
Incorporated ("Citadel"), a company of which Mr. Gertner is a director, $500,000
pursuant to a short term promissory note which bore interest at the rate of 10%
per annum and was due in January, 1997 (the "Citadel Note"). The Citadel Note
was secured by 733,000 shares of common stock of Citadel. As part of the loan
transaction, the Company received warrants to purchase 150,000 shares of common
stock of Citadel at an exercise price of $.59 per share. In February 1997,
Citadel paid the Company $250,000 as a principal reduction payment. As of June
30, 1997, the outstanding balance on the Citadel Note, which was in default, was
$267,289.
In partial consideration for not foreclosing on the Citadel Note, on June 30,
1997, Commercial Capital Trading Corporation ("Commercial Capital"), a company
in which Mr. Gertner is a stockholder, agreed to enter into a new promissory
note with the Company in the amount of the then outstanding obligation of
Citadel (the "Commercial Capital Note"). The agreement by Commercial Capital to
execute this new note and to assume the obligations of Citadel to the Company
was part of a transaction between Citadel and Commercial Capital, in which the
Company was not a party. The Commercial Capital Note provided for the payment
to the Company of $5,000 per month and bore interest at the rate of 10% per
annum. The Commercial Capital Note was secured by the accounts receivable of
Commercial Capital. In October, 1997, the Company and Commercial Capital agreed
to restructure and modify the Commercial Capital Note, which had a then
outstanding balance of $204,000 to provide for an increase in the monthly
installment payments to the Company of the greater of (i) $10,000 per month or
(ii) 15% of the proceeds received from the collection of accounts receivable up
to $100,000 and 50% of the collection of any accounts receivable thereafter, for
12 months, with a final payment to the Company of the remaining outstanding
principal and interest, if any, due in the 13th month. The Commercial Capital
Note was secured by the accounts receivable of Commercial Capital and the
personnel guarantee of Mr. Gertner and another stockholder of Commercial
Capital. As of June, 1998, the Commercial Capital Note was paid off in full.
From time to time, the Company's principal stockholder, Gilbert Gertner,
has made unsecured, non-interest-bearing advances of working capital funds to
the Company. The outstanding balance of the advances as of June 30, 1998 and
June 30, 1997 were $116,263and $312,573 respectively. Mr. Gertner has agreed to
defer repayment of the advances through June 30, 1999, unless excess cash flow
of the Company allows the repayment of the advances prior to that date.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
16.1 * Letter on change in certifying accountant
21.1 ** Subsidiaries
27.1 ** Financial Data Schedule
_________________
18
<PAGE>
* Incorporated by reference to the Company's report on Form 8-K dated August
14, 1998 and filed with the Commission on August 20, 1998.
** Filed herewith
(b) Reports on Form 8-K.
None
19
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 of 15(d) of the Exchange
Act, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 13 day of October, 1998.
Worldwide PetroMoly, Inc.
By: /s/ Gilbert Gertner
-------------------------------------------
Gilbert Gertner, Chairman of the Board
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons in the capacities and on the dates
indicated:
Name Title Date
/s/ Gilbert Gertner Director October 13, 1998
--------------
Gilbert Gertner and Chairman of the Board
/s/ Lance Rosmarin Director, President, Secretary and October 13, 1998
--------------
Lance Rosmarin Chief Financial and Accounting Officer
/s/ Norton Cooper Director October 13, 1998
--------------
Norton Cooper
20
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
- - -------------------------------------------- Page
Independent Auditors' Reports F-2-3
Balance Sheets as of June 30, 1998 and 1997 F-4
Statements of Operations
For the Years Ended June 30, 1998 and 1997 F-5
Statements of Changes in Stockholders' Equity
For the Years Ended June 30, 1998 and 1997 F-6
Statements of Cash Flows
For the Years Ended June 30, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- - -------------------------------------------------------
To the Board of Directors of
Worldwide Petromoly, Inc.
We have audited the accompanying consolidated balance sheet of Worldwide
Petromoly, Inc. as of June 30, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended June 30,
1998. 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 generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 consolidated financial statements referred to above present
Fairly, in all material respects, the consolidated financial position of
Worldwide PetroMoly, Inc. At June 30, 1998, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Jackson & Rhodes P.C.
August 28, 1998
Dallas, Texas
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Worldwide Petromoly, Inc.
We have audited the accompanying consolidated balance sheet of Worldwide
Petromoly, Inc. (formerly Ogden, McDonald & Company - the "Company") as of June
30, 1997, and the related consolidated statements of loss, stockholders' equity
and cash flows for the year ended June 30, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 provided a reasonable basis for our opinion.
.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Worldwide Petromoly, Inc. at June 30, 1997, and the results of their operations
and their cash flows for the year ended June 30, 1997 in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred losses from
operations since inception and at June 30, 1997 had an accumulated deficit of
$5,003,244. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management plans in regard to these matters are
also described in Note 1. The accompanying consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
BDO SEIDMAN, LLP
October 1, 1997
Houston, Texas
F-3
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
ASSETS
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 34,375 $ 864,555
INVESTMENTS IN CERTIFICATES OF DEPOSIT - 527,971
RESTRICTED INVESTMENTS IN CERTIFICATES OF DEPOSIT (NOTE 6) 276,579 418,857
RECEIVABLES:
TRADE 107,720 61,761
AFFILIATE COMPANIES (NOTE 7) 38,807 29,536
NOTES RECEIVABLE - RELATED PARTIES, CURRENT PORTION (NOTE 7) 111,151 277,347
INVENTORIES (NOTE 4) 45,394 128,651
PREPAID EXPENSES 10,840 18,139
------------ ------------
TOTAL CURRENT ASSETS 624,866 2,326,817
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET (NOTE 5) 121,419 108,547
------------ ------------
OTHER ASSETS - 203,847
------------ ------------
$ 746,285 $ 2,639,211
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 173,592 $ 150,109
NOTES PAYABLE (NOTE 6) 160,000 265,000
------------ ------------
TOTAL CURRENT LIABILITIES 333,592 415,109
ADVANCES FROM STOCKHOLDER (NOTE 7) 116,263 312,573
------------ ------------
TOTAL LIABILITIES 449,855 727,682
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 9,10 AND 12) - -
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, NO PAR VALUE, 10,000,000 SHARES - -
AUTHORIZED, NONE ISSUED
COMMON STOCK, NO PAR VALUE, 800,000,000 SHARES AUTHORIZED,
17,247,500 AND 16,747,500 SHARES ISSUED AND OUTSTANDING 7,493,228 6,914,773
ACCUMULATED DEFICIT (7,196,798) (5,003,244)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 296,430 1,911,529
------------ ------------
$ 746,285 $ 2,639,211
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
------------ ------------
<S> <C> <C>
NET SALES (NOTE 2) $ 301,150 $ 216,887
COST OF GOODS SOLD 214,017 191,500
------------ ------------
GROSS PROFIT 87,133 25,387
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,372,476 4,475,836
------------ ------------
LOSS FROM OPERATIONS (2,285,343) (4,450,449)
OTHER INCOME (EXPENSE): (NOTE 7)
INTEREST INCOME 104,822 151,539
INTEREST EXPENSE (15,709) (9,211)
MISCELLANEOUS INCOME (EXPENSE), NET 2,676 20,998
------------ ------------
91,789 163,326
------------ ------------
NET LOSS $(2,193,554) $(4,287,123)
============ ============
LOSS PER COMMON SHARE
BASIC $ (0.13) $ (0.27)
============ ============
DILUTED $ (0.13) $ (0.27)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 17,039,167 16,089,167
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
PREFERRED COMMON STOCK ACCUMULATED
----------------------
STOCK SHARES AMOUNT DEFICIT TOTAL
---------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1996 $ - 1,500,000 $ 500 $ (716,121) $ (715,621)
ISSUANCE OF COMMON STOCK IN CONNECTION
WITH PRIVATE OFFERING, NET OF OFFERING COSTS - 2,007,500 3,900,115 - 3,900,115
ISSUANCE OF COMMON STOCK IN CONNECTION
WITH REVERSE MERGER - 12,500,000 - - -
ISSUANCE OF COMMON STOCK TO NON-
EMPLOYEES IN EXCHANGE FOR SERVICES RENDERED - 700,000 1,344,700 - 1,344,700
STOCK OPTIONS GRANTED TO NON-EMPLOYEES
IN EXCHANGE FOR SERVICES RENDERED - - 1,589,458 - 1,589,458
EXERCISE OF STOCK OPTIONS - 40,000 80,000 - 80,000
-
NET LOSS - - - (4,287,123) (4,287,123)
---------- ---------- ---------- ------------- ------------
BALANCE, JUNE 30, 1997 - 16,747,500 6,914,773 (5,003,244) 1,911,529
ISSUANCE OF COMMON STOCKIN EXCHANGE
FOR SERVICES RENDERED - 500,000 500,000 - 500,000
STOCK OPTIONS GRANTED-
IN EXCHANGE FOR SERVICES RENDERED - - 78,455 78,455
NET LOSS - - - (2,193,554) (2,193,554)
---------- ---------- ---------- ------------- ------------
BALANCE, JUNE 30, 1998 $ - 17,247,500 $7,493,228 $ (7,196,798) $ 296,430
========== ========== ========== ============= ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1998 AND 1997
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(2,193,554) $(4,287,123)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
DEPRECIATION 24,565 14,350
COMMON STOCK ISSUED TO NON-EMPLOYEES FOR SERVICES RENDERED 500,000 1,344,700
STOCK OPTIONS GRANTED TO NON-EMPLOYEES FOR SERVICES 78,455 1,589,458
CHANGES IN OPERATING ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE (55,230) (67,196)
INVENTORIES 83,257 (106,887)
PREPAID EXPENSES AND OTHER ASSETS 7,299 43,641
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 23,483 (125,768)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,531,725) (1,594,825)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
CERTIFICATES OF DEPOSIT 527,971 (527,971)
RESTRICTED INVESTMENTS IN CERTIFICATES OF DEPOSIT 142,278 (418,857)
CAPITAL EXPENDITURES (37,437) (115,397)
LOANS TO RELATED PARTIES - (741,194)
REPAYMENTS ON LOANS TO RELATED PARTIES 228,733 260,000
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 861,545 (1,543,419)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM PRIVATE OFFERING, NET OF OFFERING COSTS - 3,900,115
PROCEEDS FROM OPTIONS EXERCISED - 80,000
PROCEEDS FROM NOTES PAYABLE - 345,000
REPAYMENTS OF NOTES PAYABLE (105,000) (203,236)
ADVANCES FROM AND REPAYMENTS TO STOCKHOLDERS (55,000) (120,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (160,000) 4,001,879
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (830,180) 863,635
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 864,555 920
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 34,375 $ 864,555
============ ============
SUPPLEMENTAL DISCLOSURE:
TOTAL INTEREST PAID $ 15,708 $ 9,211
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
NOTE 1 - FINANCIAL CONDITION AND GOING CONCERN
FOR EACH OF THE YEARS ENDED JUNE 30, 1998 AND 1997, THE COMPANY INCURRED NET
LOSSES TOTALING $2,193,554 AND $4,287,123, RESPECTIVELY, AND AT JUNE 30, 1998
HAD AN ACCUMULATED DEFICIT OF $7,196,798. THESE LOSSES CONTRIBUTED TO NET CASH
USED IN OPERATING ACTIVITIES OF $1,531,725 AND $1,594,825 FOR EACH OF THE YEARS
ENDED JUNE 30, 1998 AND 1997, RESPECTIVELY. AS A RESULT OF THESE RECURRING
LOSSES AND OPERATING CASH FLOW DEFICITS, THE COMPANY WILL REQUIRE ADDITIONAL
WORKING CAPITAL TO DEVELOP AND SUPPORT ITS CUSTOMER BASE, TECHNOLOGIES AND
BUSINESS UNTIL THE COMPANY EITHER: (1) ACHIEVES A LEVEL OF REVENUES ADEQUATE TO
GENERATE SUFFICIENT CASH FLOWS FROM OPERATIONS; OR (2) RECEIVES ADDITIONAL
FINANCING NECESSARY TO SUPPORT THE COMPANY'S WORKING CAPITAL REQUIREMENTS.
THESE CONDITIONS RAISE SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE
AS A GOING CONCERN.
CURRENTLY, THE COMPANY'S FOCUS HAS BEEN ON DEVELOPING ITS CUSTOMER BASE BY
CREATING BRAND AWARENESS OF ITS LUBRICATION TECHNOLOGY THROUGH INCREASING ITS
MARKETING EFFORTS AND QUALITY CONTROL. THE COMPANY'S MARKETING EFFORTS HAVE
INCLUDED THE RECRUITING AND TRAINING OF A SALES FORCE AND ADVERTISING AND
PROMOTION. QUALITY CONTROL DEVELOPMENTS HAVE INCLUDED PRODUCT TESTING AND
CERTIFICATION AND RESEARCH AND DEVELOPMENT WITH A FOCUS TOWARD IMPROVING AND
EXPANDING ITS PRODUCT LINES. MANAGEMENT'S PLANS INCLUDE RAISING THE NECESSARY
CAPITAL TO SUSTAIN ITS OPERATIONS AND CONTINUE ITS REVENUE GROWTH STRATEGY.
THERE ARE NO ASSURANCES, HOWEVER, THAT THE COMPANY CAN: (1) RAISE THE NECESSARY
CAPITAL TO ENABLE IT TO CONTINUE THE EXECUTION OF ITS REVENUE GROWTH STRATEGY;
OR (2) GENERATE SUFFICIENT REVENUE GROWTH AND IMPROVEMENTS IN OPERATING MARGINS
TO MEET ITS WORKING CAPITAL REQUIREMENTS IF SUCH CAPITAL IS OBTAINED. TO THE
EXTENT THAT FUNDS GENERATED FROM OPERATIONS ARE INSUFFICIENT, THE COMPANY WILL
HAVE TO RAISE ADDITIONAL WORKING CAPITAL. NO ASSURANCE CAN BE GIVEN THAT
ADDITIONAL FINANCING WILL BE AVAILABLE, OR IF AVAILABLE, WILL BE ONTERMS
ACCEPTABLE TO THE COMPANY. IF ADEQUATE WORKING CAPITAL IS NOT AVAILABLE THE
COMPANY MAY BE REQUIRED TO SIGNIFICANTLY CURTAIL ITS OPERATIONS.
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS DO NOT INCLUDE ANY
ADJUSTMENTS RELATING TO THE RECOVERABILITY AND CLASSIFICATION OF ASSET CARRYING
AMOUNTS OR THE AMOUNT AND CLASSIFICATION OF LIABILITIES THAT MIGHT BE NECESSARY
SHOULD THE COMPANY BE UNABLE TO CONTINUE AS A GOING CONCERN.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
WORLDWIDE PETROMOLY, INC.(THE "COMPANY"), A PUBLICLY-HELD COLORADO CORPORATION,
IS ENGAGED IN THE MARKETING AND DISTRIBUTION OF A LINE OF ENGINE LUBRICATION
PRODUCTS UNDER THE TRADENAME "PETROMOLY". THE COMPANY WAS FORMED AS A RESULT OF
A REVERSE MERGER (SEE NOTE 3) ON JULY 22, 1996, BETWEEN OGDEN, MCDONALD &
COMPANY ("OGDEN MCDONALD" - THE FORMER NAME OF THE REGISTRANT WITH THE
SECURITIES AND EXCHANGE COMMISSION) AND WORLDWIDE PETROMOLY CORPORATION ("WPC").
OGDEN MCDONALD WAS INCORPORATED IN THE STATE OF DELAWARE ON OCTOBER 13, 1989,
AND BECAME A PUBLIC "SHELL" COMPANY FOR THE PURPOSE OF ENGAGING IN SELECTED
MERGERS AND ACQUISITIONS. WPC WAS INCORPORATED IN THE STATE OF TEXAS ON APRIL
1, 1993, AND PRIOR TO THE REVERSE MERGER, WAS ENGAGED IN THE SAME LINE
F-8
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OF BUSINESS AS THE COMPANY. IN CONNECTION WITH THE REVERSE MERGER, OGDEN
MCDONALD ACQUIRED ALL OF THE OUTSTANDING COMMON STOCK OF WPC AND SUBSEQUENTLY
CHANGED ITS NAME TO WORLDWIDE PETROMOLY, INC. WPC IS NOW A WHOLLY-OWNED
SUBSIDIARY OF THE COMPANY.
THE COMPANY CONTRACTS WITH INDEPENDENT PARTIES FOR THE BLENDING OF ITS LUBRICANT
PRODUCTS.
BASIS OF PRESENTATION
THE COMPANY HAS RETAINED THE JUNE 30 FISCAL YEAR END OF THE FORMER OGDEN
MCDONALD. ACCORDINGLY, THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS
REFLECT THE CONSOLIDATED RESULTS OF OPERATIONS AND CASH FLOWS OF OGDEN MCDONALD
AND ITS WHOLLY-OWNED SUBSIDIARY, WPC, AS IF THE REVERSE MERGER OCCURRED ON JULY
1, 1996. ALL SIGNIFICANT INTERCOMPANY ACCOUNTS AND TRANSACTIONS HAVE BEEN
ELIMINATED. PRIOR TO THE REVERSE MERGER, WPC REPORTED ON A DECEMBER 31 FISCAL
YEAR END AS A PRIVATE COMPANY.
REVENUE RECOGNITION
REVENUE IS RECOGNIZED WHEN THE PRODUCT IS SHIPPED TO THE CUSTOMER.
INVENTORIES
INVENTORIES ARE VALUED AT THE LOWER OF COST (WEIGHTED AVERAGE COST) OR
MARKET.
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT ARE STATED AT COST. DEPRECIATION IS COMPUTED ON THE
STRAIGHT LINE METHOD FOR FINANCIAL REPORTING PURPOSES OVER THE ESTIMATED USEFUL
LIVES OF THE ASSETS RANGING FROM 5 TO 7 YEARS.
THE COMPANY REVIEWS ITS PROPERTY AND EQUIPMENT WHENEVER EVENTS OR CHANGES IN
CIRCUMSTANCES INDICATE THE CARRYING VALUE OF AN ASSET MAY NOT BE FULLY
RECOVERABLE.
RESEARCH AND DEVELOPMENT
RESEARCH AND DEVELOPMENT EXPENSES ARE CHARGED TO OPERATIONS AS INCURRED. DURING
THE YEAR ENDED JUNE 30, 1998 AND 1997, RESEARCH AND DEVELOPMENT COSTS WERE
$59,000 AND $23,000, RESPECTIVELY.
ADVERTISING
ADVERTISING COSTS ARE EXPENSED AS INCURRED. THE AMOUNT CHARGED TO ADVERTISING
EXPENSES WAS $28,000 AND $108,000 FOR THE YEARS ENDED JUNE 30, 1998 AND 1997,
RESPECTIVELY.
INCOME TAXES
DEFERRED INCOME TAXES RESULT FROM THE TEMPORARY DIFFERENCES BETWEEN THE
FINANCIAL STATEMENT AND INCOME TAX BASIS OF ASSETS AND LIABILITIES AND ARE
MEASURED USING THE ENACTED TAX RATES AND LAWS THAT WILL BE IN EFFECT WHEN
DIFFERENCES ARE EXPECTED TO REVERSE. THE COMPANY ADJUSTS THE DEFERRED TAX
ASSET VALUATION ALLOWANCE BASED ON JUDGEMENT AS TO FUTURE REALIZATION OF THE
DEFFERED TAX BENEFIT SUPPORTED BY DEMONSTATED TRENDS IN THE COMPANY'S OPERATING
RESULTS.
LOSS PER COMMON SHARE
IN FEBRUARY 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD ISSUED STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 128, EARNINGS PER SHARE ("SFAS 128"). SFAS
128 PROVIDES A DIFFERENT METHOD OF CALCULATING EARNINGS PER SHARE THAN WAS
FORMERLY USED IN APB OPINION 15. SFAS 128 PROVIDES FOR THE CALCULATION OF BASIC
AND DILUTED EARNINGS PER SHARE. BASIC EARNINGS PER SHARE INCLUDES NO DILUTION
AND IS COMPUTED BY DIVIDING INCOME AVAILABLE TO COMMON STOCKHOLDERS BY THE
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING FOR THE PERIOD. DILUTIVE
EARNINGS PER SHARE REFLECTS THE POTENTIAL DILUTION OF SECURITIES THAT COULD
F-9
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHARE IN THE EARNINGS OF THE COMPANY. THE COMPANY WAS REQUIRED TO ADOPT THIS
STANDARD IN THE SECOND FISCAL QUARTER OF 1998. USING THE PRINCIPLES SET FORTH
IN SFAS 128, BASIC AND DILUTED EARNINGS PER SHARE ARE IDENTICAL AND ARE NOT
MATERIALLY DIFFERENT FROM THAT WHICH WOULD HAVE BEEN PRESENTED UNDER APB
15, SINCE OUTSTANDING STOCK OPTIONS WOULD BE ANTIDILUTIVE. THE OUTSTANDING
STOCK OPTIONS (NOTE 10) COULD BECOME DILUTIVE IN THE FUTURE.
CONCENTRATIONS OF CREDIT RISK
THE COMPANY IS REQUIRED BY FASB STATEMENT 105, "DISCLOSURE OF INFORMATION ABOUT
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK" TO DISCLOSE
CONCENTRATIONS OF CREDIT RISK. THE COMPANY'S FINANCIAL INSTRUMENTS THAT ARE
EXPOSED TO CONCENTRATIONS OF CREDIT RISK CONSIST PRIMARILY OF CASH AND CASH
EQUIVALENTS, RESTRICTED CASH AND CERTIFICATES OF DEPOSIT, TRADE ACCOUNTS
RECEIVABLE AND NOTES RECEIVABLE WITH RELATED PARTIES. THE COMPANY PLACES CASH
AND TEMPORARY CASH INVESTMENTS, WHICH, AT TIMES, EXCEED FDIC INSURANCE LIMITS,
IN FINANCIAL INSTITUTIONS WITH STRONG CREDIT RATINGS. THE COMPANY EXTENDS
CREDIT IN THE NORMAL COURSE OF BUSINESS TO A NUMBER OF CUSTOMERS IN THE
TRANSPORTATION INDUSTRY. AS OF JUNE 30,1998, THE COMPANY HAD UNCOLLATERALIZED
RECEIVABLES WITH THREE CUSTOMERS APPROXIMATING $87,000, WHICH REPRESENTS 66% OF
THE COMPANY'S TRADE ACCOUNT BALANCE, INCLUDING THE RELATED PARTY. DURING FISCAL
1998, SALES TO ONE CUSTOMER AMOUNTED TO APPROXIMATELY 17% OF THE COMPANY'S
REVENUES. DURING FISCAL 1997, SALES TO THREE CUSTOMERS AMOUNTED TO
APPROXIMATELY $166,000, WHICH REPRESENTS 35%, 21% AND 20%, RESPECTIVELY OF
THE COMPANY'S REVENUES. WITH RESPECT TO NOTES RECEIVABLE WITH RELATED PARTIES,
MANAGEMENT BELIEVES THAT THERE IS SUFFICIENT COLLATERAL UNDERLYING THE NOTE
AGREEMENTS TO PROTECT THE COMPANY'S CREDIT RISK IN THE EVENT OF DEFAULT (SEE
NOTE 7).
OTHER RISKS AND UNCERTAINTIES
THE COMPANY IS SUBJECT TO THE BUSINESS RISKS INHERENT IN THE PETROLEUM INDUSTRY.
THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, A HIGH DEGREE OF COMPETITION WITHIN
THE PETROLEUM INDUSTRY AND CONTINUOUS TECHNOLOGICAL ADVANCES. FUTURE
TECHNOLOGICAL ADVANCES IN THE PETROLEUM INDUSTRY MAY RESULT IN THE AVAILABILITY
OF NEW SERVICES OR PRODUCTS THAT COULD COMPETE WITH THE PRODUCTS CURRENTLY
PROVIDED BY THE COMPANY.
FAIR VALUE OF FINANCIAL INSTRUMENTS
THE CARRYING AMOUNTS OF CASH AND CASH EQUIVALENTS, RESTRICTED CASH INVESTMENTS
IN CERTIFICATES OF DEPOSIT, ACCOUNTS AND NOTES RECEIVABLE AND LONG-TERM DEBT
REPORTED ON THE BALANCE SHEET APPROXIMATE THEIR FAIR VALUE. THE COMPANY
ESTIMATED THE FAIR VALUE OF LONG-TERM DEBT BY COMPARING THE CARRYING AMOUNT TO
THE FUTURE CASH FLOWS OF THE INSTRUMENTS, DISCOUNTED USING THE COMPANY'S
INCREMENTAL RATE OF BORROWING FOR SIMILAR INSTRUMENTS.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS
THE ACCOMPANYING FINANCIAL STATEMENTS ARE PREPARED IN CONFORMITY WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES WHICH REQUIRES MANAGEMENT TO MAKE ESTIMATES AND
ASSUMPTIONS THAT EFFECT THE REPORTED AMOUNTS OF ASSETS AND LIABILITIES AND
DISCLOSURE OF CONTINGENT ASSETS AND LIABILITIES AT THE DATE OF THE FINANCIAL
STATEMENTS AND THE REPORTED AMOUNTS OF REVENUES AND EXPENSES DURING THE
REPORTING PERIOD. THE ACTUAL RESULTS COULD DIFFER FROM THOSE ESTIMATES.
PRODUCT WARRANTY
THE COMPANY MAINTAINS PRODUCT LIABILITY INSURANCE FOR CLAIMS, IF ANY, RESULTING
FROM THE USE OF THE "PETROMOLY" PRODUCT.
STATEMENT OF CASH FLOWS
FOR THE PURPOSE OF THE STATEMENT OF CASH FLOWS, THE COMPANY CONSIDERS DEMAND
DEPOSITS AND HIGHLY LIQUID DEBT INSTRUMENTS WITH AN INITIAL MATURITY OF THREE
MONTHS OR LESS TO BE CASH EQUIVALENTS.
F-10
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK BASED COMPENSATION
IN OCTOBER 1995, STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION" WAS ISSUED WHICH ESTABLISHES FINANCIAL
ACCOUNTING AND REPORTING STANDARDS FOR STOCK-BASED EMPLOYEE COMPENSATION PLANS,
EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER DECEMBER 15, 1995. THOSE PLANS
INCLUDE ALL ARRANGEMENTS BY WHICH EMPLOYEES RECEIVE SHARES OF THE EMPLOYER OR
THE EMPLOYER INCURS LIABILITIES TO EMPLOYEES IN AMOUNTS BASED ON THE PRICE OF
THE EMPLOYER'S STOCK. THE STATEMENT ALSO APPLIES TO TRANSACTIONS IN WHICH AN
ENTITY ISSUES ITS EQUITY SECURITIES OR OTHER EQUITY INVESTMENTS TO ACQUIRE GOODS
OR SERVICES FROM NON-EMPLOYEES. AS OF JUNE 30, 1998, THE COMPANY HAS STOCK
OPTIONS OUTSTANDING UNDER ITS 1996 STOCK OPTION PLAN (SEE NOTE 10).
SFAS NO.123 ALSO REQUIRES THAT EQUITY INSTRUMENTS ISSUED TO NON-EMPLOYEES BE
ACCOUNTED FOR BASED ON FAIR VALUE. THE STATEMENT ENCOURAGES ALL ENTITIES TO
ADOPT THE FAIR VALUE BASED METHOD FOR EMPLOYEE STOCK COMPENSATION PLANS.
HOWEVER, IT ALLOWS AN ENTITY TO CONTINUE TO MEASURE COMPENSATION COST FOR THOSE
PLANS USING THE INTRINSIC VALUE BASED METHOD OF ACCOUNTING PRESCRIBED BY APB
OPINION NO. 25, ("APB NO. 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES".
ENTITIES ELECTING TO REMAIN WITH THE ACCOUNTING IN APB NO.25 MUST MAKE PRO FORMA
DISCLOSURES OF NET INCOME AND EARNINGS PER SHARE, AS IF THE FAIR VALUE BASED
METHOD OF ACCOUNTING HAD BEEN APPLIED. THE COMPANY HAS ELECTED TO REMAIN WITH
THE ACCOUNTING UNDER APB NO. 25 AND HAS MADE THE REQUIRED PRO FORMA DISCLOSURES
IN NOTE 10.
NEW ACCOUNTING PRONOUNCEMENTS
SEE LOSS PER COMMON SHARE ABOVE REGARDING STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, EARNINGS PER SHARE.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 129, DISCLOSURE OF INFORMATION
ABOUT CAPITAL STRUCTURE ("SFAS 129"), EFFECTIVE FOR PERIODS ENDING AFTER
DECEMBER 15, 1997, ESTABLISHES STANDARDS FOR DISCLOSING INFORMATION ABOUT AN
ENTITY'S CAPITAL STRUCTURE. SFAS 129 REQUIRES DISCLOSURE OF THE PERTINENT
RIGHTS AND PRIVILEGES OF VARIOUS SECURITIES OUTSTANDING (STOCK, OPTIONS,
WARRANTS, PREFERRED STOCK, DEBT AND PARTICIPATING RIGHTS) INCLUDING DIVIDEND AND
LIQUIDATIONS PREFERENCES, PARTICIPANT RIGHTS, CALL PRICES AND DATES, CONVERSION
OR EXERCISE PRICES AND REDEMPTION REQUIREMENTS. ADOPTION OF SFAS 129 HAS HAD NO
EFFECT ON THE COMPANY AS IT CURRENTLY DISCLOSES THE INFORMATION SPECIFIED.
IN JUNE 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD ISSUED TWO NEW DISCLOSURE
STANDARDS. RESULTS OF OPERATIONS AND FINANCIAL POSITION ARE UNAFFECTED BY
IMPLEMENTATION OF THESE NEW STANDARDS.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) 130, "REPORTING
COMPREHENSIVE INCOME", ESTABLISHES STANDARDS FOR REPORTING AND DISPLAY OF
COMPREHENSIVE INCOME, ITS COMPONENTS AND ACCUMULATED BALANCES. COMPREHENSIVE
INCOME IS DEFINED TO INCLUDE ALL CHANGES IN EQUITY EXCEPT THOSE RESULTING FROM
INVESTMENTS BY OWNERS AND DISTRIBUTIONS TO OWNERS. AMONG OTHER DISCLOSURES,
SFAS 130 REQUIRES THAT ALL ITEMS THAT ARE REQUIRED TO BE RECOGNIZED UNDER
CURRENT ACCOUNTING STANDARDS AS COMPONENTS OF COMPREHENSIVE INCOME BE REPORTED
IN A FINANCIAL STATEMENT THAT IS DISPLAYED WITH THE SAME PROMINENCE AS OTHER
FINANCIAL STATEMENTS.
SFAS 131, "DISCLOSURE ABOUT SEGMENTS OF A BUSINESS ENTERPRISE", ESTABLISHES
STANDARDS FOR THE WAY THAT PUBLIC ENTERPRISES REPORT INFORMATION ABOUT OPERATING
SEGMENTS IN ANNUAL FINANCIAL STATEMENTS AND REQUIRES REPORTING OF SELECTED
INFORMATION ABOUT OPERATING SEGMENTS IN INTERIM FINANCIAL STATEMENTS ISSUED TO
THE PUBLIC. IT ALSO ESTABLISHES STANDARDS FOR DISCLOSURES REGARDING PRODUCTS
AND SERVICES, GEOGRAPHIC AREAS AND MAJOR CUSTOMERS. SFAS 131 DEFINES OPERATING
SEGMENTS AS COMPONENTS OF AN ENTERPRISE ABOUT WHICH SEPARATE FINANCIAL
INFORMATION IS AVAILABLE THAT IS EVALUATED REGULARLY BY THE CHIEF OPERATING
DECISION MAKER IN DECIDING HOW TO ALLOCATE RESOURCES AND IN ASSESSING
PERFORMANCE. THE COMPANY ONLY OPERATES IN ONE SEGMENT OF BUSINESS, THE
MARKETING AND DISTRIBUTION OF ENGINE LUBRICATION PRODUCTS. MAJOR CUSTOMERS ARE
DISCLOSED IN NOTE 1.
THE COMPANY DOES NOT EXPECT ANY IMPACT FROM ANY OF THE NEW STATEMENTS DISCLOSED
ABOVE.
F-11
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - REVERSE MERGER
ON JULY 22, 1996, A REVERSE MERGER WAS CONSUMMATED, WHEREBY OGDEN MCDONALD
OFFERED ONE SHARE OF ITS COMMON STOCK FOR EACH SHARE OF WPC'S ISSUED AND
OUTSTANDING COMMON STOCK, OR A TOTAL OF 14,507,500 RESTRICTED SHARES. WPC
BECAME A WHOLLY-OWNED SUBSIDIARY OF, AND WPC STOCKHOLDERS ASSUMED 90.6%
OWNERSHIP IN OGDEN MCDONALD AS OF THAT DATE. IN ANTICIPATION OF THE REVERSE
MERGER, THE FOLLOWING EQUITY TRANSACTIONS OCCURRED:
ON JULY 15, 1996, WPC AMENDED ITS ARTICLES OF INCORPORATION TO: (1) INCREASE ITS
AUTHORIZED COMMON STOCK FROM 1,000,000 TO 20,000,000 SHARES; (2) CHANGE THE PAR
VALUE FROM $.10 TO $.001 PER SHARE; (3) RECLASSIFY AND AUTOMATICALLY EXCHANGE
EACH SHARE OF ISSUED STOCK FROM ONE SHARE, $.10 PAR VALUE, FOR 1,250 SHARES,
$.001 PAR VALUE.
BETWEEN JULY 15-22, 1996, WPC SOLD 2,007,500 SHARES OF ITS COMMON STOCK AT $2.00
PER SHARE IN A PRIVATE OFFERING TO NON-U.S. INVESTORS FOR TOTAL NET PROCEEDS OF
$3,900,115. THESE SHARES WERE EXCHANGED FOR 2,007,500 OF OGDEN MCDONALD'S
SHARES AS PART OF THE EXCHANGE.
ON JULY 22, 1996, OGDEN MCDONALD EFFECTED A 3 FOR 1 STOCK SPLIT WHICH INCREASED
ITS ISSUED AND OUTSTANDING COMMON STOCK TO 1,500,000 SHARES.
IN ACCORDANCE WITH THE EXCHANGE AGREEMENT, ON JULY 22, 1996, OGDEN MCDONALD
OFFERED ONE SHARE OF ITS COMMON STOCK FOR EACH SHARE OF WPC'S COMMON STOCK
ISSUED AND OUTSTANDING, OR A TOTAL OF 14,507,000 RESTRICTED SHARES AFTER THE
3-FOR-1 STOCK SPLIT).
IN CONNECTION WITH THE REVERSE MERGER, 1,500,000 SHARES OF OGDEN MCDONALD'S
COMMON STOCK WERE RESERVED FOR ISSUANCE PURSUANT TO THE 1996 STOCK OPTION PLAN
(SUBSEQUENTLY AMENDED TO 3,000,000 SHARES) WHICH INCLUDES OFFICERS OF THE
COMPANY.
NOTE 4 - INVENTORIES
THE MAJOR COMPONENTS OF INVENTORIES AS OF JUNE 30, 1998 AND 1997 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
FINISHED GOODS $ 19,824 $ 111,962
RAW MATERIALS AND PACKAGING 25,570 13,625
WORK IN PROGRESS - 3,064
-------- --------
$ 45,394 $ 128,651
======= ========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT CONSISTS OF THE FOLLOWING AS OF JUNE 30, 1998 AND 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
OFFICE FURNISHINGS AND EQUIPMENT $ 134,536 $ 103,858
MACHINERY AND EQUIPMENT 13,735 6,977
VEHICLES 12,062 12,062
-------- --------
160,333 122,897
LESS ACCUMULATED DEPRECIATION (38,914) (14,350)
---------- ----------
$ 121,419 $ 108,547
========== ==========
</TABLE>
F-12
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE
AT JUNE 30, 1998, THE COMPANY HAS A $250,000 REVOLVING LINE OF CREDIT FACILITY
WITH A BANK WHICH EXPIRED IN JULY 1998. AT JUNE 30, 1998, THE COMPANY HAD DRAWN
$160,000 UNDER THIS AGREEMENT. INTEREST IS PAYABLE MONTHLY (7.4% AND 8.1% AT
JUNE 30, 1998 AND 1997, RESPECTIVELY) AND PRINCIPAL IS DUE ON DEMAND, OR IF NO
DEMAND, AT ITS SCHEDULED MATURITY. THIS NOTE WAS PAID ON JULY 2, 1998. THE
BORROWINGS UNDER THE LINE OF CREDIT WERE COLLATERALIZED BY A CERTIFICATE OF
DEPOSIT IN THE AMOUNT OF $270,000.
AT JUNE 30, 1997, THE COMPANY HAD DRAWN $95,000 UNDER A $100,000 REVOLVING LINE
OF CREDIT FACILITY WITH ANOTHER BANK. PRINCIPAL AND INTEREST (7.09%) WERE DUE
ON DEMAND, OR IF NO DEMAND, IN AUGUST 1998 AT AN INTEREST RATE OF 7.77%, PAYABLE
QUARTERLY). THIS BORROWING WAS SECURED BY A CERTIFICATE OF DEPOSIT IN THE
AMOUNT OF $155,861. THE NOTE WAS PAID IN JANUARY 1998.
NOTE 7 - RELATED PARTY TRANSACTIONS
ACCOUNTS RECEIVABLE - RELATED PARTY
THE COMPANY SELLS PRODUCTS TO AN ENTITY THAT IS CONTROLLED BY THE COMPANY'S
MAJORITY STOCKHOLDER. SALES AND THE AMOUNT DUE FROM THE ENTITY AT JUNE 30, 1998
AND 1997 WERE APPROXIMATELY $20,000 AND $39,000, RESPECTIVELY. SALES AND
THE AMOUNT DUE FROM THE ENTITY AT JUNE 30, 1997 WERE APPROXIMATELY $45,000 AND
$29,000 RESPECTIVELY.
NOTES RECEIVABLE - RELATED PARTIES
ON DECEMBER 12, 1996, THE COMPANY EXECUTED A NOTE AGREEMENT WITH A
PUBLICLY-HELD CORPORATION IN THE AMOUNT OF $500,000, IN WHICH A COMPANY OFFICER
SERVES IN A SIMILAR CAPACITY FOR BOTH COMPANIES. PRINCIPAL AND INTEREST (10%
ANNUAL RATE) WAS DUE ON JANUARY 17, 1997, AND WAS SECURED BY 1,000,000 SHARES OF
THE BORROWER'S COMMON STOCK. ON FEBRUARY 19, 1997, A PORTION OF THE NOTE
RECEIVABLE BALANCE IN THE AMOUNT OF $250,000 WAS PAID. ON JUNE 30, 1997, THE
NOTE AGREEMENT WAS ASSIGNED TO A PRIVATELY-HELD CORPORATION CONTROLLED BY THIS
COMPANY OFFICER AND AN INDIVIDUAL COMPANY STOCKHOLDER. THE NOTE, WHICH HAD A
PRINCIPAL BALANCE OF $267,289 AT JUNE 30, 1997, WAS REFINANCED ON OCTOBER 1,
1997 IN THE AMOUNT OF $204,950 (REFLECTING PAYMENTS AND ACCRUED INTEREST
THEREON). THE NOTE WAS PAID IN FULL IN JUNE 1998.
ON JUNE 30, 1997,THE COMPANY REFINANCED A NOTE AGREEMENT WITH A STOCKHOLDER IN
THE AMOUNT OF $210,945. THE NOTE AGREEMENT WAS AGAIN REFINANCED ON OCTOBER 1,
1997, IN THE AMOUNT OF $202,182 (REFLECTING PAYMENTS AND ACCRUED INTEREST
THEREON). PRINCIPAL AND INTEREST ARE PAYABLE MONTHLY IN THIRTEEN CONSECUTIVE
INSTALLMENTS RANGING BETWEEN $5,000 AND $60,000 COMMENCING OCTOBER 20, 1997, AT
10% PER ANNUM. THE PRINCIPAL BALANCE OF THE NOTE IS $111,151 AT JUNE 30, 1998.
THE NOTE IS SECURED BY 40,000 SHARES OF COMPANY COMMON STOCK AND 200,000
SHARES OF COMMON STOCK OF THE PUBLICLY TRADED CORPORATION REFERRED TO ABOVE.
AS OF JUNE 30, 1997, THE COMPANY HAD A DEMAND NOTE RECEIVABLE IN THE AMOUNT OF
$12,960, DUE FROM THE ENTITY REFERRED TO IN "ACCOUNTS RECEIVABLE-RELATED PARTY"
ABOVE WHICH WAS SUBSEQUENTLY PAID IN JULY 1997.
INTEREST INCOME FROM RELATED PARTIES AMOUNTED TO $68,199 AND $16,568 FOR THE
FISCAL YEARS ENDED 1998 AND 1997 RESPECTIVELY.
ADVANCES FROM STOCKHOLDER
PRIOR TO THE REVERSE MERGER, THE PRINCIPAL STOCKHOLDER OF WPC WHO IS NOW AN
OFFICER AND MAJORITY STOCKHOLDER OF THE COMPANY, ADVANCED $422,000, NON-INTEREST
BEARING FUNDS TO WPI. THE ADVANCES STILL DUE TO THIS STOCKHOLDER AMOUNTED TO
$116,263 AND $312,573 AS OF JUNE 30 1998 AND 1997, RESPECTIVELY.
F-13
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
DEFERRED TAXES ARE DETERMINED BASED ON TEMPORARY DIFFERENCES BETWEEN THE
FINANCIAL STATEMENT AND INCOME TAX BASIS OF ASSETS AND LIABILITIES AS MEASURED
BY THE ENACTED TAX RATES WHICH WILL BE IN EFFECT WHEN THESE DIFFERENCES REVERSE.
DEFERRED TAX ASSETS ARE COMPRISED OF THE FOLLOWING AT JUNE 30, 1998 AND 1997:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
NET OPERATING LOSS CARRYFORWARDS $ 1,833,000 $1,112,500
STOCK OPTIONS GRANTED TO NON-EMPLOYEES 567,000 540,500
AMORTIZATION EXPENSE 25,500 25,500
BAD DEBT EXPENSE 7,000 7,000
------------ -----------
GROSS DEFERRED TAX ASSET 2,432,500 1,685,500
VALUATION ALLOWANCE (2,432,500) 1,685,500)
------------ -----------
NET DEFERRED TAX ASSET $ - $ -
============ ===========
</TABLE>
THE COMPANY HAS RECORDED A FULL VALUATION ALLOWANCE AGAINST ALL DEFERRED TAX
ASSETS BECAUSE IT COULD NOT DETERMINE WHETHER IT WAS MORE LIKELY THAN NOT THAT
THE DEFERRED TAX ASSET WOULD BE REALIZED.
AT JUNE 30, 1998, THE COMPANY HAD NET OPERATING LOSS CARRYFORWARDS
TOTALLING APPROXIMATELY $5,400,000 AVAILABLE TO REDUCE FUTURE TAXABLE INCOME
THROUGH THE YEAR 2013. THE NET OPERATING LOSS CARRYFORWARDS EXPIRE AS FOLLOWS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- - ----------------------------------- ----------
<S> <C>
2008 $ 70,000
2009 263,000
2010 112,000
EIGHTEEN MONTHS ENDED JUNE 30, 2012 2,753,000
YEAR ENDED JUNE 30, 2013 2,202,000
----------
$5,400,000
==========
</TABLE>
NOTE 9 - COMMITMENTS
THE COMPANY LEASES ITS OFFICE SPACE AND A VEHICLE UNDER LONG-TERM OPERATING
LEASE AGREEMENTS. AT JUNE 30, 1998, FUTURE MINIMUM LEASE PAYMENTS UNDER THESE
OPERATING LEASES WERE AS FOLLOWS:
<TABLE>
<CAPTION>
<S> <C>
1999 $62,462
2000 31,014
2001 7,296
</TABLE>
RENT EXPENSE FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 WAS $84,000 AND $54,000,
RESPECTIVELY.
F-14
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IN AUGUST 1996, THE COMPANY ENTERED INTO FIVE YEAR EMPLOYMENT AGREEMENTS WITH
FOUR OFFICERS AT A COMBINED ANNUAL SALARY OF $361,000 (SUBJECT TO ESCALATION
RANGING FROM $385,000 IN FISCAL 1998 TO $432,000 IN FISCAL 2001) PLUS A COMBINED
ANNUAL AUTOMOBILE ALLOWANCE OF $33,600.
NOTE 10 - STOCK OPTIONS
ON JULY 22, 1996 THE COMPANY APPROVED THE 1996 STOCK OPTION PLAN WHICH
AUTHORIZES THE COMPANY'S BOARD OF DIRECTORS TO GRANT OPTIONS TO PURCHASE UP TO
3,500,000 SHARES OF COMMON STOCK (AS AMENDED), TO ELIGIBLE EMPLOYEES, OFFICERS
AND DIRECTORS OF THE COMPANY, AND CONSULTANTS TO THE COMPANY. THE TERMS OF THE
OPTIONS ARE GENERALLY OVER FIVE YEARS WITH IMMEDIATE VESTING. THE PLAN IS NOT
QUALIFIED UNDER SECTION 401(A) OF THE INTERNAL REVENUE CODE OF 1986, NOR IS IT
SUBJECT TO ANY PROVISION OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.
DURING THE YEAR ENDED JUNE 30 1998, THE COMPANY ISSUED OPTIONS TO PURCHASE
500,000 SHARES OF COMMON STOCK TO A DIRECTOR AT $2.00 PER SHARE. THE DIRECTOR
ALSO RECEIVED 500,000 SHARES OF COMMON STOCK FOR SERVICES RENDERED (NOTE 11).
THE COMPANY HAS ELECTED TO CONTINUE TO ACCOUNT FOR STOCK OPTIONS ISSUED TO
EMPLOYEES IN ACCORDANCE WITH APB NO. 25. DURING THE YEAR ENDED JUNE 30, 1997,
ALL OPTIONS ISSUED TO OFFICERS AND EMPLOYEES WERE GRANTED AT AN EXERCISE PRICE
WHICH EQUALED OR EXCEEDED THE MARKET PRICE PER SHARE AT THE DATE OF GRANT AND,
ACCORDINGLY, NO COMPENSATION WAS RECORDED. FOR THE YEAR ENDED JUNE 30, 1998,
OPTIONS FOR 317,000 SHARES WERE GRANTED TO OFFICERS AND EMPLOYEES AT AN EXERCISE
PRICE WHICH WAS LESS THAN THE MARKET PRICE PER SHARE AT THE DATE OF GRANT,
RESULTING IN A CHARGE TO OPERATIONS OF $55,475.
EFFECTIVE FOR THE YEAR ENDED JUNE 30, 1997, THE COMPANY WAS REQUIRED TO ADOPT
THE DISCLOSURE PORTION OF SFAS NO. 123. THIS STATEMENT REQUIRES THE COMPANY TO
PROVIDE PROFORMA INFORMATION REGARDING NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS AND LOSS PER SHARE AS IF COMPENSATION COST FOR THE COMPANY'S STOCK
OPTIONS GRANTED HAD BEEN DETERMINED IN ACCORDANCE WITH THE FAIR VALUE BASED
METHOD PRESCRIBED IN SFAS NO. 123. THE COMPANY ESTIMATES THE FAIR VALUE OF EACH
STOCK OPTION AT THE GRANT DATE BY USING THE BLACK-SCHOLES OPTION PRICING MODEL
WITH THE FOLLOWING WEIGHTED AVERAGE ASSUMPTIONS USED FOR GRANTS IN 1998 AND 1997
AS FOLLOWS:
1. DIVIDEND YIELD OF 0%
2. EXPECTED VOLATILITY OF 0% FOR OPTIONS GRANTED IN AUGUST 1996 DUE TO NO
TRADING ACTIVITY; EXPECTED VOLATILITY OF 119% AND 52% FOR OPTIONS GRANTED IN
JUNE 1998 AND 1997, RESPECTIVELY.
3. RISK-FREE INTEREST RATES RANGING FROM 5.65% TO 5.77% FOR 1998 AND 6.49% TO
6.60% FOR 1997.
4. EXPECTED TERM OF 2 YEARS FOR 1998 AND 5 YEARS FOR 1997.
UNDER THE ACCOUNTING PROVISIONS OF SFAS NO. 123, THE COMPANY'S NET LOSS
APPLICABLE TO COMMON STOCKHOLDERS AND LOSS PER SHARE FOR THE YEARS ENDED JUNE
30, 1998 AND 1997 WOULD HAVE BEEN INCREASED TO THE PROFORMA AMOUNTS INDICATED
BELOW:
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
AS REPORTED $(2,193,554) $(4,287,123)
============ ============
PROFORMA $(2,755,013) $(4,884,123)
============ ============
LOSS PER SHARE:
AS REPORTED $ (.13) $ (.27)
============ ============
PROFORMA $ (.16) $ (.30)
============ ============
</TABLE>
F-15
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997, IN ACCORDANCE WITH SFAS NO. 123, THE
COMPANY ACCOUNTED FOR OPTIONS ISSUED TO NON-EMPLOYEES FOR SERVICES RENDERED
USING THE FAIR VALUE METHOD. THE COMPANY GRANTED 30,000 OPTIONS TO PURCHASE AN
EQUAL NUMBER OF SHARES OF COMMON STOCK AT AN EXERCISE PRICE OF $1.00 PER SHARE
TO A CONSULTANT DURING THE YEAR ENDED JUNE 30, 1998. THE COMPANY GRANTED
1,780,000 OPTIONS TO PURCHASE AN EQUAL NUMBER OF SHARES OF COMMON STOCK AT AN
EXERCISE PRICE OF $2.00 PER SHARE TO CONSULTANTS DURING THE YEAR ENDED JUNE 30,
1997. THE OPTIONS VEST WITHIN 0-1 YEAR AND EXPIRE 5 YEARS FROM THE DATE OF
GRANT. THE OPTIONS WERE GRANTED FOR SERVICES RENDERED DURING THE RESPECTIVE
YEARS. THE COMPANY RECORDED COMPENSATION EXPENSE IN THE AMOUNT OF $22,980 AND
$1,589,458 IN THE ACCOMPANYING CONSOLIDATED STATEMENTS OF LOSS FOR THE YEARS
ENDED JUNE 30, 1998 AND 1997, RESPECTIVELY, BASED ON THE FAIR VALUE OF THE
OPTIONS ON THE GRANT DATE USING THE BLACK-SCHOLES OPTION PRICING MODEL.
A SUMMARY OF THE STATUS OF THE COMPANY'S STOCK OPTIONS AS OF JUNE 30, 1998 AND
1997, AND CHANGES DURING THE YEARS THEN ENDED IS PRESENTED BELOW.
<TABLE>
<CAPTION>
1998 1997
---------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
OUTSTANDING AT BEGINNING OF YEAR 2,835,000 $ 2.00 - $ -
GRANTED 627,000 1.59 2,875,000 1.11
EXERCISED - - (40,000) 2.00
FORFEITED - - - -
---------- ---------- ----------- -----
OUTSTANDING AT END OF YEAR 3,462,000 $ 1.23 2,835,000 $1.12
========== ========== =========== =====
OPTIONS EXERCISABLE AT END OF YEAR 3,385,333 $ 1.23 2,015,000 $1.12
========== ========== =========== =====
WEIGHTED AVERAGE FAIR VALUE OF
OPTIONS GRANTED DURING THE YEAR $ 1.34 $ .52
=========== =====
</TABLE>
THE WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE OF THE ABOVE OPTIONS WAS 3.0
AND 4.3 YEARS AT JUNE 30, 1998 AND 1997, RESPECTIVELY.
THE FOLLOWING TABLE SUMMARIZES INFORMATION ABOUT FIXED STOCK OPTIONS OUTSTANDING
AT JUNE 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER REMAINING NUMBER
EXERCISE OUTSTANDING CONTRACTUAL EXERCISABLE
PRICE AT 6/30/98 LIFE (YEARS) AT 6/30/98
- - --------- ----------- ------------ -----------
<S> <C> <C> <C>
1.00 2,327,000 1.6 2,250,333
2.00 1,135,000 3.2 1,135,000
- - --------- ----------- ------------ -----------
1.23 3,462,000 3.0 3,385,333
========= =========== ============ ===========
</TABLE>
NOTE 11 - OTHER EQUITY TRANSACTIONS
IN JUNE 1997, THE COMPANY ISSUED COMMON STOCK TO FOUR INDIVIDUALS TOTALING
700,000 SHARES FOR SALES AND MARKETING CONSULTING SERVICES. COMPENSATION
EXPENSE IN THE AMOUNT OF $1,344,700 HAS BEEN RECORDED AS SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES IN THE ACCOMPANYING CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997, AS A RESULT OF THESE STOCK
ISSUANCES.
IN JANUARY 1998, THE COMPANY ISSUED COMMON STOCK TO A SHAREHOLDER
TOTALING 500,000 SHARES FOR SALES AND MARKETING CONSULTING SERVICES.
COMPENSATION EXPENSE IN THE AMOUNT OF $500,000 HAS BEEN RECORDED AS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES IN THE ACCOMPANYING
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30,
1998, AS A RESULT OF THESE STOCK ISSUANCES.
NOTE 12 - LAWSUIT SETTLEMENT
ON FORMATION OF THE COMPANY, THE COMPANY AGREED TO INDEMNIFY THE PRINCIPAL
STOCKHOLDER FOR ANY PAYMENTS MADE BY SUCH STOCKHOLDER RESULTING FROM OR ARISING
OUT OF A LAWSUIT SETTLEMENT TOTALING $90,000, WHICH LAWSUIT WAS FILED BY A THIRD
PARTY AGAINST THE FORMER DISTRIBUTOR OF THE "PETROMOLY" PRODUCT, AND THE
PRINCIPAL STOCKHOLDER. ACCORDINGLY, THIS AMOUNT WAS INCLUDED IN ACCRUED
EXPENSES AT JUNE 30, 1996. THE NEGOTIATED SETTLEMENT IN THE AMOUNT OF $53,000
WAS PAID IN FULL DURING AUGUST 1996. THE DIFFERENCE OF $37,000 BETWEEN THE
AMOUNT ACCRUED AND PAID WAS INCLUDED IN OTHER INCOME FOR THE YEAR ENDED JUNE 30,
1997.
F-16
<PAGE>
22
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION
- - ------- --------------------------------------------------------------------
16.1 * Letter on change in certifying accountant
21.1 ** Subsidiaries
27.1 ** Financial Data Schedule
_________________
* Incorporated by reference to the Company's report on Form 8-K dated August
14, 1998 and filed with the Commission on August 20, 1998.
** Filed herewith
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
- - ------------
THE COMPANY HAS ONE SUBSIDIARY:
WORLDWIDE PETROMOLY CORPORATION
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL IMFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLDWIDE PETROMOLY, INC. FOR THE FISCAL YEAR ENDED JUNE
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 34375
<SECURITIES> 276579
<RECEIVABLES> 146527
<ALLOWANCES> 0
<INVENTORY> 45394
<CURRENT-ASSETS> 624866
<PP&E> 160333
<DEPRECIATION> 38914
<TOTAL-ASSETS> 746285
<CURRENT-LIABILITIES> 333592
<BONDS> 0
<COMMON> 7493228
0
0
<OTHER-SE> (7196798)
<TOTAL-LIABILITY-AND-EQUITY> 746285
<SALES> 301150
<TOTAL-REVENUES> 301150
<CGS> 214017
<TOTAL-COSTS> 214017
<OTHER-EXPENSES> 3268692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15709
<INCOME-PRETAX> (2193554)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2193554)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2193554)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
