UNITED STATES 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, 2000.
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 of incorporation or organization)
(IRS Employer 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:
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, 2000 were $826,000. The aggregate
market value of Common Stock held by non-affiliates of the registrant as of
October 10, 2000, based upon the last reported sales prices on the OTCBB, was
$2,699,703. As of October 10, 2000, there were 23,938,080 shares of Common
Stock outstanding.
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Table of Contents
PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 7. Financial Statements 15
Item 8. Changes in and Disagreements with Accountant
on Accounting and Financial Disclosure 15
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 15
Item 10. Executive Compensation 17
Item 11. Security Ownership of Certain Beneficial Owners and Management 19
Item 12. Certain Relationships and Related Transactions 19
Item 13. Exhibits, and Reports on Form 8-K 20
SIGNATURES 21
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PART I
Item 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used
herein refers to the Company and its wholly-owned subsidiary, Worldwide
PetroMoly Corporation.
BUSINESS--GENERAL
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. The Company has formulated
products for use in Indy style racing cars, commercial fleets and retail
consumer use. One of the Company's principal promotional efforts is its INDY
style racing car sponsorship of racecar drivers Robby Unser and Jacques Lazier
who drive the PetroMoly race car, which uses the racing formulation of PetroMoly
with molytech.
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MARKETING--GENERAL
The Company's immediate focus is on planning for a regional retail
campaign, while adding new racing, industrial and commercial customers to its
customer base. An infomercial is planned to air nationwide, which will exhibit
the Company's technology by featuring an oil additive that utilizes molytech,
the same proprietary formulation used in all of the Company's lubrication
products.
The industrial and commercial sales process takes a minimum of 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 Fluor Daniels,
American Energy, Mooney Oil, the City of Coral Springs, Bennett Auto Supply, The
Oil Connection Lube Centers and Wichita Tillman and Jackson Railroad.
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, improved engine performance, and an
ability to substantially reduce harmful exhaust emissions, engine wear and
friction.
Currently nearly all of the Company's personnel are involved in marketing
the Company's products. The target markets are racing cars, 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 looking for premium shelf
space in automobile parts retail chains and lube center chains. To help promote
brand awareness, the Company is actively seeking to selling PetroMoly (tm) Oil
Treatment using various mediums including television, radio and print
advertisements, and is presently seeking marketing alliances for this purpose.
Marketing--Internet and E-Commerce
The Company's web site is www.petromoly.com. The U.S. Bureau of Statistics
has forecasted that the average U.S. consumer who owns a computer will make 20%
of their purchases on-line by the year 2002, and that usage is expected to grow
with each successive year.
The Company has plans to continuously stay current in the field of e-commerce.
The Company's Internet activities include the revamping of the Company's
Internet web site, and making it easier and more attractive for on-line
customers to purchase products. Existing industrial customers will be able to
re-order products on line, and can issue purchase orders as well as check on
their individual account status. The site is scheduled to be a secured site,
and will be state of the art on technology.
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ENGINE OIL AND OIL ADDITIVE PRODUCTS
The Company currently offers the following products for the markets
indicated:
1. Racing Car Motor Oil - For the professional competitive racing market
which includes Indy style racing as well as NASCAR and straight-track
competition.
2. Passenger and Other Automotive Oil Additive - PetroMoly Oil Treatment -
This product is sold in sixteen ounce containers to be added at every oil
change
3. Passenger and Other Automotive Gasoline Additive - PetroMoly Fuel
Treatment - This product is sold in sixteen ounce containers to be added
at every 5000 miles.
4. Passenger and Other Automotive Coolant Additive - PetroMoly Radiator
Treatment -
This product is sold in sixteen ounce containers to be added only once
every five years
5. Passenger Cars, Light Duty Trucks, Vans and Utility Vehicles - SAE HP
10W-30, HP 5W-30, HP 20W-50, and LDF SAE 15W-40.
6. Industrial Engine 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.
7. 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.
8. Natural Gas Compressor Applications - NGC SAE 30 or SAE 40, Premium AA
and LA. The Company has received favorable responses to this specialized
product, from
the CBS co-generation plant at their Los Angeles studio, demonstrating an
ability to triple drain intervals for servicing the equipment. This product is
available in fifty-five gallon drums up to rail car quantities.
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 another three years to protect the
disclosure in the patent application from the public. The Company presently has
plans to re-file an application if Management determines that disclosing the
Company's intellectual property in the form of a patent is in the best interest
of the Shareholders. The Company also holds the rights to the registered
trademark "PetroMoly (tm)" and "Molytech (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, the Company believes their additional expense for synthetics is often
not justified by actual benefits with out Molytech in their formulations. 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 13 years. It introduced its first synthetic motor oil, Performax
5W-50, in late 1992. Pennzoil has a nationwide distribution system and they
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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 a significant retail
exposure.
MANUFACTURING
Fully formulated PetroMoly is not a synthetic (except for its racing
formulations), 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., located 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 capable of producing
railroad products, as well 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 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 $109,000 in 2000 and $39,000 in 1999 on
research and development , 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.
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MAJOR CUSTOMERS
During the year ended June 30, 2000, approximately 60% of the Company's
revenues were received from 3 customers , as compared to June 30, 1999 where 50%
of the Company's revenues were received from 2 customers.
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 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 and pays approximately $1,500 per month for
subleasing this space pursuant to a sublease, which expires on December 31,
2000. The Company also rents approximately 5,184 square feet at 757 Kenrick,
Houston, Texas 77060, pursuant to a lease which requires monthly payments of
approximately $2,330 and which expires October , 2002. 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
None
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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 currently traded on the over-the-counter
bulletin board ("OTC BB") under the symbol "MOLY". The following table sets
forth, for the quarters indicated, the reported high and low closing bid
quotations for the common stock of the Company as reported on the OTC BB . The
bid prices reflect inter-dealer quotations, do not include retail markups,
markdowns or commissions and do not necessarily reflect actual transactions.
High Bid Low Bid
1999
First Quarter $ 1-5/16 $ 7/16
Second Quarter $ 13/16 $ 3/8
Third Quarter $ 2-5/8 $ 1/2
Fourth Quarter $ 1-1/2 $ 7/8
2000
First Quarter $ 1.26 $ .71
Second Quarter $ .93 $ .46
Third Quarter $ 1.00 $ .47
Fourth Quarter $ .68 $ .25
On October 10, 2000, the closing bid for the Common Stock as reported by
the OTCBB was $.25. On October 10, 1999, there were approximately 2,100
stockholders of record of the Common Stock.
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.
During the year ended June 30, 2000, the following transactions were
effected by the Company in reliance upon exemptions from registration under the
Securities Act of 1933 as amended (the "Act") as provided in Section 4(2)
thereof. Each certificate issued for unregistered securities contained a legend
stating that the securities have not been registered under the Act and setting
forth the restrictions on the transferability and the sale of the securities.
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No underwriter participated in, nor did the Company pay any commissions or fees
to any underwriter in connection with any of these transactions. None of the
transactions involved a public offering. The Company believes that each of the
persons had knowledge and experience in financial and business matters which
allowed them to evaluate the merits and risk of the purchase or receipt of these
securities of the Company. The Company believes that each of the persons were
knowledgeable about the Company's operations and financial condition.
In July, 1999, the Company sold 100,000 shares of common stock to a
consultant for cash consideration of $.50 per share. At the same time, the
Company granted to this consultant an option to purchase up to 50,000 shares of
common stock at an exercise price of $.50 per share as consideration for
consulting services rendered. This transaction was made pursuant to section
4(2) of the Securities Act of 1933 as amended
In February, 2000, the Company issued 75,000 shares of common stock to
another consultant as a retainer for consulting services to be performed.
This transaction was made pursuant to section 4(2) of the Securities Act of 1933
as amended
In December, 1999 and in February and March 2000, the Company issued a
total of 272,700 shares of common stock to non-management employees as incentive
compensation. This transaction was made pursuant to section 4(2) of the
Securities Act of 1933 as amended
On May 24, 2000 and on June 15, 2000 the company sold and issued 235,000 shares
of common stock at an average of 47 cents per share. This transaction was made
pursuant to section 4(2) of the Securities Act of 1933 as amended
On May 24, 2000 the company issued 75,000 shares of common stock at 39 cents a
share as payment for a sponsorship in the Indy Racing League racecar. This
transaction was made pursuant to section 4(2) of the Securities Act of 1933 as
amended
On June 15, 2000, the company issued 100,000 shares of common at 35 cents per
share as Pre-paid payment for a sponsorship in the Indy Racing League. This
transaction was made pursuant to section 4(2) of the Securities Act of 1933 as
amended
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information Regarding and Factors Affecting Forward-looking Statements
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The Company is including the following cautionary statement in this 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 which are
other than statements of historical facts. Certain statements in this Form
10-KSB are forward-looking statements. Words such as "expects", "anticipates",
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties are set forth below. 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 limitation, 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, be achieved, or be
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause material adverse affects on the Company's financial condition and
results of operations: market acceptance and demand for the Company's products,
competitive factors, the ability of the Company to to obtain acceptable forms
and amounts of financing. The Company has no obligation to update or revise
these forward-looking statements to reflect the occurrence of future events or
circumstances.
Going Concern Qualification by the Company's Independent Auditor
The Company's independent auditor has included a going concern
qualification in the auditor's report. See, Financial Statements. The Company
incurred net operating losses for the two years ending June 30, 2000 and 1999.
Operating expenses and other financial obligations have been met, primarily, by
the sale of Company stock. There is no assurance that the Company will be able
to continue to sell stock to fund operations. These factors create substantial
doubt about the Company's ability to continue as a going concern.
RESULTS OF OPERATIONS -GENERAL
---------------------------------
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. Since 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 to reflect the activities of its subsidiary. In its
fourth year of operation, the Company has streamlined various aspects of the
sales force and the Company's infrastructure. These activities included scaling
down the salaried sales personnel. The focus has been on expanding and
improving the product lines and developing lines of distribution to enhance
sales volume, spending the appropriate and necessary amount of capital for
product
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certification and quality control, and initiating new concepts that further
display the Company's technology and product lines in new markets as well as
strengthen existing markets. The two areas of primary focus has remained
shifted from the commercial and industrial market, to the retail/passenger car
market. Management's strategy to gain retail acceptance and credibility began
by designing a specially formulated moly racing-oil designed for INDY style
motors, which was tested last year, saw a successful debut in the 1999 Indy
Racing League (IRL) including an eight place finish at the Indianapolis 500
driven by veteran driver Robby Unser, and a second place finish at the league's
Atlanta race. The Company has since sponsored other teams and drivers to futher
demonstrate the effectiveness of its technology-- Also product development
successfully focused on applying the proprietary technology to produce new
products such as high performance gear oil treatment and straight- track oil for
competition drag racing engines. The company also continued its development of
cutting oils for threading, armament oil to private label, 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.
Other activities include: the redesigning and upgrading of the corporate
web site, product brochures, product labels and packaging; bottle mold
development for the Company's new products, the purchasing of additional
operational equipment, printing investor brochures along with related marketing
materials. The Company also invested in lab equipment for the purpose of
further 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 a highly creative
product awareness campaign in an "long form" and "short form" television
advertisement, that is designed to support the retail distribution of the
Company's products and/or organically grow the sales and distribution of its
products through e-commerce or fulfillment through direct response.
The Company has continued field testing and objective lab testing of its
fully formulated engine oil, while several major multinational customers
continue evaluation tests of the PetroMoly products on their complex high-end
machinery and fleet vehicles. These tests have been complex and time consuming,
and the results have established the effectiveness of the PetroMoly products.
Commercial 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.
The Company has continued to receive inquiries from motor vehicle fleet
operators as a result of the publicity associated with 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. Although these tests
are costly as well as time consuming, management believes they add to the
Company and further its ability to market the Company's technology. The
Environmental Protection Agency listed PetroMoly in the Federal register
February 1999 for achieving improvements in both fuel economy and emissions
reduction.
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Also the Company's web site, www.petromoly.com, has become a more popular
place for purchasing the Company's automotive products over this past year.
YEAR ENDED JUNE 30, 2000, COMPARED TO YEAR ENDED JUNE 30, 1999
Total net sales for the year ended June 30, 1999 were $519,682 as compared
to $825,000 for the year ended June 30, 2000, a 58% increase. The reason for the
increase is Management's decision to expand to retail markets versus an earlier
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 Company continued to benefit from publicity from its association
with Continental Airlines, and this has led to discussions and testing with
other industry related companies. The Company also continued to received a
considerable amount of attention from the IRL racing sponsorship, and racing
results of race cars using PetroMoly products. Management believes that the next
fiscal year will prove that the racing affiliation and marketing strategy will
reward the Company with increased revenues, PetroMoly product awareness and
fiscal commitments.
Cost of sales as a percentage of net sales remained fairly constant, with a
slight increase from 63% for the year ended June 30, 1999, to 64.7% for the year
ended June 30, 2000. The Company is continuing to interview 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 material drop in
costs is anticipated 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, as well as
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the projected increase in retail demand from the anticipated brand awareness
infomercial campaign could qualify the Company for a decrease in the cost of
production runs with increased purchasing commitments.
Selling, general and administrative expenses were also similar to the
previous year as it was $3,334,021 for the year ended June 30, 2000, from
$3,300,609 for the year ended June 30, 1999. The amounts in expenses were in
large part comprised of non-cash transactional payments in the form of shares
and options granted as compensation to non-employees totaling approximately
$1,020,508 as compared to $2,780,000 for fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES.
At June 30, 2000, the Company had positive working capital in the amount of
$399,921 compared to June 30, 1999, working capital was in the amount of
$1,446,745 including $936,340 in prepaid expense which included the Indy race
car sponsorship.
Operating activities for the year ended June 30, 2000 used cash of
$1,284,515 compared to $950,395 for the year ended June 30, 1999. This use of
cash was principally the result of the Company's expenses for operations and new
marketing costs associated with the retail and awareness campaign
Net cash provided from financing activities in 2000 was $860,742, of which
$700,742 came from advances by stockholder, Mr. Gertner. Net cash provided
from financing activities in 1999 was $1,142,562.
As of June 30, 2000, the Company had no material commitments for capital
expenditures.
At June 30, 2000, the Company has recorded a full valuation allowance
against all deferred tax assets because it could not determine whether it was
more likely or not that the deferred tax asset would be utilized.
For the years ended June 30, 2000 and 1999, the Company incurred net losses
totaling $3,030,597 and $2,942,441 respectively. In the event that the Company
is unable to generate sufficient revenues from operations, or is unable to
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obtain additional financing, it may be unable to continue to develop and support
its present cost levels and continue as a going concern. The Company is
presently seeking to raise additional equity through the sale of its common
stock for financing to develop a professionally administered brand awareness
advertising campaign and 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
financing at terms that are acceptable to the Company.
OUTLOOK
The year ended June 30, 2000 was a year of more development for the Company
as its strategic focus has expanded to the development of a retail approach that
encompasses a brand and product awareness campaign in strategic markets. This
approach is expected to increase sales volume and promote relationships with
automotive after-market chains while enhancing our presence with the leaders in
the industrial markets, which are end users, or already have established lines
of distribution and marketing capital. The brand awareness began with the INDY
race car/Robby Unser sponsorship and it has been very well received by the
various automotive retail chains that the Company wants to carry its PetroMoly
Products. The media campaign, which began in this second calendar quarter of
2001, will roll out in strategic regions where the markets have been proven to
respond to this product category using direct marketing, 30 minute (long form)
and 2 minute (short form) advertisements.
Lastly, the Company's trademarked name "molytech", that embodies the
Company's proprietary technology of which the US patent office had issued a
"letter of acceptability" is being marketed and promoted as the common element
used in all of the Company's lubrication products. Management is continuing to
actively pursue 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.
With the progressing sales relationships maturing and the new product lines
being marketed, the Company expects operating margins and revenues to improve
during fiscal 2001.
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achieving improvements in both fuel economy and emissions reduction.
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
None.
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PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
Name Age Positions Held
---- --- ------------------------------------------
Gilbert Gertner* 75 Chairman of the Board, Director
and Chief Executive Officer of the Company
Lance Rosmarin* 38 Director, President, Secretary and Chief
Financial and Accounting Officer
Norton Cooper 68 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
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 on the Board of Directors of several public and private
corporations which include: (i) DATA Systems Software, Inc. (Stock Symbol:
DSSI), which provides sophisticated software services and products to commercial
and military customers (1990 - 1991), (ii) Citadel Computer Systems, Inc.
(Stock Symbol: CITN), which produces a line of network security computer
software (1992 to 1999), (iii) GGR Oil, Inc., which manages a chain of Texaco
Express Lube centers and Pennzoil related lube centers, located in Texas and
Florida (which employ over 100 people (1993 to present), (iv) 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
15
<PAGE>
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. In addition, Mr. Gertner has served on the Board of
Directors of several privately owned companies.
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.
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.
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, 1999, 1998 and 1997 of the Chief
Executive Officer of the Company
16
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------- ------------------------
AWARDS PAYOUTS
OTHER ------ -------
NAME AND ANNUAL RESTRICTED SECURITIES
PRINCIPAL COMPEN- STOCK UNDERLYING LTIP ALL
POSITION YEAR SALARY BONUS SATION AWARDS OPTIONS/SARS PAYOUTS Other
--------- -------- ----------- ---------- ----------- ------ ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $ -0- -0- -0- -0- -0- -0- -0-
Gilber 1999 (1) $ -0- -0- -0- -0- -0- -0- -0-
Gertner 1998 $ 110,000 -0- $11,400 (2) -0- 95,000 (3) -0- -0-
CEO
<FN>
--------------------
(1) Mr. Gertner waived his compensation and automobile allowance for fiscal year 1999.
(2) Automobile allowance.
(3) Options vested in December 1997, and expire in December 2002.
(4) Options vested in August 1996, and expire in July 2001.
</TABLE>
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
17
<PAGE>
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 first and 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. Mr. Gertner waived his compensation and automobile allowance for
fiscal year 2000.
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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of September 10, 1999, 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.
Amount and Nature Common Stock
Name and Address of Beneficial Ownership Percent of Class
--------------------------- ------------------------ -----------------
Gilbert Gertner 11,253,000 (1) 50.1%
1300 Post Oak Boulevard, Direct
Houston, Texas 77056
18
<PAGE>
Lance Rosmarin 845,000 (2) 3.5%
1300 Post Oak Boulevard, Direct
Houston, Texas 77056
Norton Cooper 813,000 (3) 3.4%
1300 Post Oak Boulevard, Direct
Houston, Texas 77056
All Directors and Officers
as a Group (3 Persons) 12,211,000 56.9%
------------------------------
(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.
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 is a general partner and owns 90% of the partnership. PetroMoly
Capital Partners subsequently distributed its shares of the Company to its
general partners.
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,
19
<PAGE>
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, 2000 and
June 30, 1999 were $934,378 and $233,635 respectively. Mr. Gertner has agreed
to defer repayment of these advances until excess cash flow of the Company
allows the repayment.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 *** Financial Data Schedule
-----------------
(b) Reports on Form 8-K.
None
20
<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 October 13, 2000.
Worldwide PetroMoly, Inc.
By: /s/ Gilbert Gertner
----------------------------------
Gilbert Gertner
Director and 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:
October 13, 2000 By: /s/ Gilbert Gertner
----------------------------------
Gilbert Gertner
Director and
Chairman of the Board
October 13, 2000 By: /s/ Lance Rosmarin
----------------------------------
Lance Rosmarin
Director, President,
Secretary and
Chief Financial
and Accounting Officer
October 13, 2000 By:
----------------------------------
Norton Cooper
Director
21
<PAGE>
WORLDWIDE PETROMOLY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------- Page
Independent Auditors' Reports F-2
Balance Sheets as of June 30, 2000 and 1999 F-3
Statements of Operations
For the Years Ended June 30, 2000 and 1999 F-4
Statements of Changes in Stockholders' Equity
For the Years Ended June 30, 2000 and 1999 F-5
Statements of Cash Flows
For the Years Ended June 30, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7
F-1
<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, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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, 2000 and 1999, and the results of its
operations and its cash flows for the years 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.
October 6, 2000
Dallas, Texas
F-2
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
Assets
2000 1999
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 170,858 $ 603,336
Receivables:
Trade (less allowance for doubtful accounts of 411,905 270,794
$61,804 and $27,927 in 2000 and 1999, respectively)
Affiliate companies (Note 6) 5,684 20,383
Inventories (Note 4) 198,976 115,690
Prepaid expenses 79,884 936,340
------------- -------------
Total current assets 867,307 1,946,543
------------- -------------
Property, plant and equipment, net (Note 5) 92,297 102,523
------------- -------------
$ 959,604 $ 2,049,066
============= =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $ 556,058 $ 496,173
Notes payable 3,625 3,625
------------- -------------
Total current liabilities 559,683 499,798
Advances from stockholder (Note 7) 934,378 233,636
------------- -------------
Total liabilities 1,494,061 733,434
------------- -------------
Commitments and contingencies (Note 8) - -
Stockholders' equity (deficit):
Preferred stock, no par value, 10,000,000 shares - -
authorized, none issued
Common stock, no par value, 800,000,000 shares authorized,
22,698,482 and 20,780,915 shares issued and outstanding 12,635,379 11,454,871
Accumulated deficit (13,169,836) (10,139,239)
------------- -------------
Total stockholders' equity (deficit) (534,457) 1,315,632
------------- -------------
$ 959,604 $ 2,049,066
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 2000 and 1999
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 825,721 $ 519,682
Cost of goods sold 534,572 329,392
------------ ------------
Gross profit 291,149 190,290
Selling, general and administrative expenses 3,334,021 3,300,609
------------ ------------
Loss from operations (3,042,872) (3,110,319)
Other income (expense):
Interest income 12,739 4,518
Interest expense (18,269) (15,051)
Gain on sale of marketable securities 13,574 212,607
Miscellaneous income (expense), net 4,231 (34,196)
------------ ------------
12,275 167,878
------------ ------------
Net Loss $(3,030,597) $(2,942,441)
============ ============
Loss per common share:
Basic $ (0.14) $ (0.16)
============ ============
Diluted $ (0.15) $ (0.16)
============ ============
Weighted average common shares outstanding:
Basic 21,566,802 18,373,469
============ ============
Fully diluted 20,396,039 17,962,417
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended June 30, 2000 and 1999
Common Stock
------------ Accumulated
Shares Amount Deficit Total
---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1998 17,247,500 7,493,228 (7,196,798) 296,430
Sale of common stock for cash 135,000 84,664 - 84,664
Proceeds from options exercised 1,863,750 1,096,900 - 1,096,900
Issuance of common stock to non-
employees in exchange for services rendered
(includes $925,000 reflected as prepaid expense
at June 30, 1999) 1,534,665 1,999,679 - 1,999,679
Stock options granted-
in exchange for services rendered - 780,400 - 780,400
Net loss - - (2,942,441) (2,942,441)
---------- ----------- ------------- ------------
Balance, June 30, 1999 20,780,915 11,454,871 (10,139,239) 1,315,632
Sale of common stock for cash 335,000 160,000 - 160,000
Issuance of common stock to non-
employees in exchange for services rendered
(includes $64,250 reflected as prepaid expense
at June 30, 2000) 1,582,567 986,027 - 986,027
Stock options granted-
in exchange for services rendered - 34,481 - 34,481
Net loss - - (3,030,597) (3,030,597)
Balance, June 30, 2000 22,698,482 $12,635,379 $(13,169,836) $ (534,457)
========== =========== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
WORLDWIDE PETROMOLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 2000 and 1999
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,030,597) $(2,942,441)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 33,630 29,832
Common stock issued to non-employees for services rendered 986,027 1,999,679
Stock options granted to non-employees for services 34,481 780,400
Changes in operating assets and liabilities:
Accounts receivable (141,111) (144,650)
Inventories (83,286) (70,296)
Prepaid expenses and other assets 856,456 (925,500)
Accounts payable and accrued expenses 59,885 322,581
------------ ------------
Net cash used in operating activities (1,284,515) (950,395)
------------ ------------
Cash flows from investing activities:
Restricted investments in certificates of deposit - 276,579
Capital expenditures (23,404) (10,936)
Repayments on loans to related parties 14,699 111,151
------------ ------------
Net cash provided by investing activities (8,705) 376,794
------------ ------------
Cash flows from financing activities:
Proceeds from private offering, net of offering costs 160,000 84,664
Proceeds from options exercised - 1,096,900
Repayments of notes payable - (156,375)
Advances from and repayments to stockholders 700,742 117,373
------------ ------------
Net cash provided by (used in) financing activities 860,742 1,142,562
------------ ------------
Net decrease in cash and cash equivalents (432,478) 568,961
Cash and cash equivalents at beginning of year 603,336 34,375
------------ ------------
Cash and cash equivalents at end of year $ 170,858 $ 603,336
============ ============
Supplemental disclosure:
$ 18,269 $ 15,051
============ ============
Non-cash transactions:
During 2000 and 1999, the Company issued common stock for services rendered and
stock options were granted for services rendered (Note 9).
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. FINANCIAL CONDITION AND GOING CONCERN
For each of the years ended June 30, 2000 and 1999, the Company incurred
net losses totaling $3,030,597 and $2,942,441, respectively, and at June
30, 2000 had a stockholders' deficit of $534,457. These losses contributed
to net cash used in operating activities of $1,284,515 and $950,395 for
each of the years ended June 30, 2000 and 1999, 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 continue this 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 on terms acceptable to the Company. If adequate working
capital is not available the Company may be required to 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.
F-7
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Worldwide Petromoly, Inc.(the "Company"), a publicly-held Delaware
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 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.
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.
F-8
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
Research and development expenses are charged to operations as incurred.
During the year ended June 30, 2000 and 1999, research and development
costs were $109,095 and $39,000, respectively.
Advertising
Advertising costs are expensed as incurred. The amount charged to
advertising expenses was $117,744 and $35,865 for the years ended June 30,
2000 and 1999, 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.
Loss Per Common Share
In March 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.
F-9
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2000, the Company had
uncollateralized receivables with three customers approximating $391,000,
which represents 82% of the Company's trade account balance, including the
related party. As of June 30, 1999, the
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk (Continued)
Company had uncollateralized receivables with three customers approximating
$274,634, which represents 86% of the Company's trade account balance,
including the related party. During fiscal 2000, sales to three customers
amounted to approximately 33%, 30% and 13% of the Company's revenues.
During fiscal 1999, sales to two customers amounted to approximately 33%
and 17% of the Company's revenues.
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.
F-10
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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, 2000, 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.
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
F-11
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. REVERSE MERGER (CONTINUED)
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.
4. INVENTORIES
The major components of inventories as of June 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Finished goods $170,711 $ 93,479
Raw materials and packaging 28,265 22,211
-------- --------
$198,976 $115,690
======== ========
</TABLE>
F-12
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30, 2000 and
1999:
2000 1999
---------- ---------
Office furnishings and equipment $ 164,995 $141,591
Machinery and equipment 17,616 17,616
Vehicles 12,062 12,062
---------- ---------
194,673 171,269
Less accumulated depreciation (102,376) (68,746)
$ 92,297 $102,523
========== =========
6. RELATED PARTY TRANSACTIONS
Accounts Receivable - Related Party
The Company has sold products to an entity that is controlled by the
Company's majority stockholder. Sales and the amount due from the entity at
June 30, 2000 were zero and $6,000, respectively. Sales and the amount due
from the entity at June 30, 1999 were approximately $29,000 and $20,000,
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 funds to the
Company. During the years ended June 30, 2000 and 1999, the stockholder has
advanced additional funds to the Company. The advances are interest-free.
7. 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.
F-13
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
Deferred tax assets are comprised of the following at June 30, 2000 and
1999:
2000 1999
------------ ------------
Net operating loss carryforwards $ 3,613,000 $ 2,593,000
Amortization expense 25,500 25,500
Bad debt expense 7,000 7,000
------------ ------------
Gross deferred tax asset 3,645,500 2,625,500
Valuation allowance (3,645,500) (2,625,500)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
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, 2000, the Company had net operating loss carryforwards totaling
approximately $ available to reduce future taxable income through the year
2013. The net operating loss carryforwards expire as follows:
Year ended December 31, Amount
----------
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
Year ended June 30, 2014 2,180,000
Year ended June 30, 2015 3,000,000
----------
$10,580,000
==========
F-14
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS
The Company leases its office space and a vehicle under long-term operating
lease agreements. At June 30, 2000, future minimum lease payments under
these operating leases were as follows:
2001 5,560
2002 7,780
Rent expense for the years ended June 30, 2000 and 1999 was $72,000 and
$66,000, respectively.
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. During fiscal years
2000 and 1999, two officers elected to forego their salaries, aggregating
$300,000 each year.
9. 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.
The Company has elected to continue to account for stock options issued to
employees in accordance with APB No. 25.
The Company has adopted 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 2000 and 1999 as
follows:
1. Dividend yield of 0%
2. Expected volatility of 199% and 150% for options granted in the
years ended June 30, 2000 and 1999, respectively.
F-15
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS (CONTINUED)
3. Risk-free interest rates of 5.5% and 4.5% for 2000 and 1999,
respectively.
4. Expected term of 1 year.
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, 1999 would have been increased to the proforma amounts indicated
below (there was no expense under SFAS No. 123 for the year ended June 30,
2000):
Net loss applicable to common stockholders:
1999
------------
As reported $(2,942,441)
============
Proforma $(2,975,816)
============
Loss per share:
As reported $ (0.16)
============
Proforma $ (0.16)
============
For the years ended June 30, 2000 and 1999, 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 granted110,000 options to
purchase an equal number of shares of common stock at exercise prices
ranging from $.31 to $.50 per share to consultants during the year ended
June 30, 2000. The Company granted 2,395,750 options to purchase an equal
number of shares of common stock at exercise prices ranging from $.31 to
$1.50 per share to consultants during the year ended June 30, 1999. The
options vest immediately 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 $34,481 and
$7480,400 in the accompanying consolidated statements of loss for the years
ended June 30, 2000 and 1999, respectively, based on the fair value of the
options on the grant date using the Black-Scholes option pricing model.
F-16
<PAGE>
WORLDWIDE PETROMOLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS (CONTINUED)
A summary of the status of the Company's stock options as of June 30, 2000
and 1999, and changes during the years then ended is presented below.
<TABLE>
<CAPTION>
2000 1999
---------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- --------- ----------- ------
<S> <C> <C> <C> <C>
Outstanding at beginning 3,982,000 $ 0.59 3,462,000 $ 1.23
Granted 110,000 0.48 2,493,750 0.57
Exercised - - (1,863,750) 0.59
Forfeited (525,000) 0.98 (110,000) 1.00
----------- --------- ----------- ------
Outstanding at end of year 3,567,000 $ 0.53 3,982,000 $ 0.59
=========== ========= =========== ======
Options exercisable at end of year 3,567,000 $ 0.53 3,882,000 $ 0.59
=========== ========= =========== ======
Weighted average fair value of options
granted during the year $ 0.33 $ 0.57
========= ======
</TABLE>
The weighted average remaining contractual life of the above options was
1.8 and 2.8 years at June 30, 2000 and 1999, respectively.
F-17
<PAGE>
