** **

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

 

**FORM 10-QSB**

 

 
| **ý** |   | **Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities  Exchange Act of 1934 for the period ended December 31, 2002** |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|

** **
| **o** |   | **Transition report under Section 13 or 15(d) of the Exchange Act for  the transition period from           to        ** |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

**Commissionfile number:   000-30805**

 

 

**SMALL TOWNRADIO, INC.**

(Exact name ofsmall business issuer as specified in its charter)

 

 

| **Nevada**                                             |   | **84-1125214**                        |
|--------------------------------------------------------|--------|---------------------------------------|
| (State of  Incorporation)                              |   | (I.R.S. Employer  Identification No.) |
|                                                   |   |                                  |
| **3500  Lenox Road, NE**                               |
| Suite 1500                                             |
| Atlanta, Georgia  30326                           |
| (Address of principal  executive offices)              |
|                                                   |   |                                  |
| **(404)  419-2440**                                    |
| (Issuer’s telephone  number, including area code) |

 

 

Check whether the issuer(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.                                      Yes ý                  No o

 

State the number ofshares outstanding of each of the issuer’s classes of common equity, as of thelatest practicable date:

 

| Class                      |   | Outstanding at February 14,  2003 |
|----------------------------|--------|-----------------------------------|
|                       |   |                              |
| Common Stock, no par value |   | 11,059,283                        |

 

 

 

 

Transitional SmallBusiness Disclosure Format:                             Yeso                   No ý

 

 

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TABLE OF CONTENTS

 
| PART — | FINANCIAL INFORMATION                                    |   |
|-------------|----------------------------------------------------------|--------|
| ITEM 1.     | FINANCIAL STATEMENTS                                     |   |
|        | CONSOLIDATED BALANCE SHEET                               |   |
|        | CONSOLIDATED  STATEMENTS OF OPERATION                    |   |
|        | CONSOLIDATED  STATEMENTS OF CASH FLOWS                   |   |
|        | NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS              |   |
| ITEM  2.    | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF RESULTS OF |   |
|        | OPERATIONS  AND FINANCIAL CONDITION                      |   |
|        | FORWARD LOOKING STATEMENTS                               |   |
|        | OVERVIEW AND RESULTS  OF OPERATIONS                      |   |
|        | TWELVE MONTH BUSINESS  OUTLOOK                           |   |
|        | OPERATING  EXPENSES AND CAPITAL EXPENDITURES             |   |
|        | SOURCE  OF REVENUE                                       |   |
|        | DISPOSITION OF ASSETS                                    |   |
|        | OPERATING  LOSSES                                        |   |
|        | LIQUIDITY AND CAPITAL  RESOURCES                         |   |
| PART II     | — OTHER INFORMATION                                 |   |
| ITEM 1.     | LEGAL PROCEEDINGS                                        |   |
| ITEM  2.    | CHANGES  IN SECURITIES AND USE OF PROCEEDS               |   |
| ITEM 3.     | DEFAULTS UPON  SENIOR SECURITIES                         |   |
| ITEM  4.    | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS     |   |
| ITEM 5.     | OTHER INFORMATION                                        |   |
| ITEM 6.     | EXHIBITS AND  REPORTS ON FORM 8-K                        |   |
|        | SIGNATURES                                               |   |

 

i

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**Consolidated Balance Sheets**

** **
|                                                                                                                 |   | **December  31, 2002** |    | **December  31, 2001** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|------------------------|--------|
| **ASSETS**                                                                                                           |   | (Unaudited)            |    | (Unaudited)            |   |
| **Current Assets**                                                                                                   |   |                   |    |                   |   |
| Cash                                                                                                                 |   | $                      | 4       |                   | $      | 139 |   |
| Accounts  receivable                                                                                                 |   | 6,529                  |    | —                 |   |
| Prepaid expenses                                                                                                     |   | —                 |    | 40,909                 |   |
| Employee  advances                                                                                                   |   | —                 |    | 1,489                  |   |
| Deposit                                                                                                              |   | —                 |    | 10,000                 |   |
| Total current  assets                                                                                                |   | 6,533                  |    | 52,537                 |   |
|                                                                                                                 |   |                   |    |                   |   |
| **Fixed Assets**                                                                                                     |   |                   |    |                   |   |
| Equipment                                                                                                            |   | 109,282                |    | 10,553                 |   |
| Accumulated  depreciation                                                                                            |   | (11,695                | )       | (421                   | )      |
| Fixed Assets,  net                                                                                                   |   | 97,587                 |    | 10,132                 |   |
|                                                                                                                 |   |                   |    |                   |   |
| **Acquired  Broadcast License**                                                                                      |   | 106,375                |    | —                 |   |
| **Other Assets**                                                                                                     |   | —                 |    | 80,123                 |   |
| **TOTAL  ASSETS**                                                                                                    |   | $                      | 210,495 |                   | $      | 142,792 |   |
|                                                                                                                 |   |                   |    |                   |   |
| **LIABILITIES AND STOCKHOLDERS’  DEFICIT**                                                                      |   |                   |    |                   |   |
| **Current Liabilities**                                                                                              |   |                   |    |                   |   |
| Notes payable —  stockholders                                                                                   |   | $                      | 589,500 |                   | $      | 169,500 |   |
| Accounts payable                                                                                                     |   | 685,136                |    | 965,205                |   |
| Accrued payroll  taxes payable                                                                                       |   | —                 |    |                   |   |
| Accrued interest                                                                                                     |   | 51,746                 |    |                   |   |
| Accounts payable  — stockholders                                                                                |   | —                 |    | 155,985                |   |
| Accrued  settlement cost                                                                                             |   | 260,000                |    |                   |   |
| Accrued expenses                                                                                                     |   | 9,969                  |    | 71,350                 |   |
| Total current  liabilities                                                                                           |   | 1,596,351              |    | 1,362,040              |   |
|                                                                                                                 |   |                   |    |                   |   |
| **Commitments and Contingencies**                                                                                    |   |                   |    |                   |   |
|                                                                                                                 |   |                   |    |                   |   |
| **Stockholders’ Deficit**                                                                                       |   |                   |    |                   |   |
| Stockholder note  receivable                                                                                         |   | —                 |    | —                 |   |
| Preferred stock,  no stated value                                                                                    |   | —                 |    | —                 |   |
| Authorized—  100,000,000 shares                                                                                 |   |                   |    |                   |   |
| Issued and  outstanding— none                                                                                   |   |                   |    |                   |   |
| Common stock,  $.001 par value                                                                                       |   | 11,059                 |    | 8,971                  |   |
| Authorized—  44,444,444 shares                                                                                  |   |                   |    |                   |   |
| Issued and  outstanding— 11,059,283 and 10,134,283 shares at December 31, 2002 and June  30, 2002, respectively |   |                   |    |                   |   |
| Additional  paid-in capital                                                                                          |   | 1,476,048              |    | 454,732                |   |
| Accumulated  deficit                                                                                                 |   | (2,872,963             | )       | (1,682,951             | )      |
| Total  Stockholders’ Deficit                                                                                    |   | (1,385,856             | )       | (1,219,248             | )      |
|                                                                                                                 |   |                   |    |                   |   |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ DEFICIT**                                                                |   | $                      | 210,495 |                   | $      | 142,792 |   |

** **

See notes to financialstatements.

 

2

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**Consolidated Statements of Operations**

**For theThree Months Ended December 31, 2002 and 2001**

** **
|                                              |   | **Three  Months Ended December 31, 2002** |     | **Three  Months Ended  December 31, 2001** |     |
|---------------------------------------------------|--------|-------------------------------------------|----------|-------------------------------------------------|----------|
|                                              |   | (Unaudited)                               |     | (Unaudited)                                     |     |
| Net Sales                                         |   | $                                         | 13,530   |                                            | $        | — |   |
|                                              |   |                                      |     |                                            |     |
| Operating  Expenses                               |   | 497,987                                   |     | 236,641                                         |     |
|                                              |   |                                      |     |                                            |     |
| Operating loss                                    |   | (484,457                                  | )        | (236,641                                        | )        |
|                                              |   |                                      |     |                                            |     |
| Other expenses — interest and debt financing |   | (24,548                                   | )        | (11,000                                         | )        |
|                                              |   |                                      |     |                                            |     |
| Loss Before  Income Taxes                         |   | (509,005                                  | )        | (247,641                                        | )        |
|                                              |   |                                      |     |                                            |     |
| Income Tax  Benefit                               |   | —                                    |     | —                                          |     |
|                                              |   |                                      |     |                                            |     |
| Net Loss                                          |   | $                                         | (509,005 | )                                               | (247,641 | ) |
|                                              |   |                                      |     |                                            |     |
| Basic Earnings  (Loss) Per Share                  |   | $                                         | (0.05    | )                                               | $        | (0.03 | ) |
|                                              |   |                                      |     |                                            |     |
| Weighted Average  Shares Outstanding              |   | 10,519,065                                |     | 8,891,716                                       |     |

 

See notes to consolidated financial statements.

** **

3

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**Consolidated Statements of Operation**

**For theSix Months Ended December 31, 2002 and 2001**

** **
|                                               |   | **Six Months  Ended December 31, 2002** |     | **Six Months  Ended  December 31, 2001** |   |
|----------------------------------------------------|--------|-----------------------------------------|----------|-----------------------------------------------|--------|
|                                               |   | (Unaudited)                             |     | (Unaudited)                                   |   |
| Net Sales                                          |   | $                                       | 44,538   |                                          | $      | — |   |
|                                               |   |                                    |     |                                          |   |
| Operating  Expenses                                |   | 691,320                                 |     | 674,432                                       |   |
|                                               |   |                                    |     |                                          |   |
| Operating loss                                     |   | (646,782                                | )        | (674,432                                      | )      |
|                                               |   |                                    |     |                                          |   |
| Other expenses —  interest and debt financing |   | (40,523                                 | )        | (35,724                                       | )      |
|                                               |   |                                    |     |                                          |   |
| Loss Before  Income Taxes                          |   | (687,305                                | )        | (710,156                                      | )      |
|                                               |   |                                    |     |                                          |   |
| Income Tax  Benefit                                |   | —                                  |     | —                                        |   |
|                                               |   |                                    |     |                                          |   |
| Net Loss                                           |   | $                                       | (687,305 | )                                             | $      | (710,156 | ) |
|                                               |   |                                    |     |                                          |   |
| Basic Earnings  (Loss) Per Share                   |   | $                                       | (.07     | )                                             | $      | (.08 | ) |
|                                               |   |                                    |     |                                          |   |
| Weighted Average  Shares Outstanding               |   | 10,271,119                              |     | 8,891,716                                     |   |

 

See notes to consolidated financial statements.

 

4

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**.**

**Consolidated Statements of Cash Flows**

 

** **
|                                                                                     |   | **Six Months  Ended December 31, 2002** |     | **Six Months  Ended December 31, 2001** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|-----------------------------------------|--------|
|                                                                                     |   | (Unaudited)                             |     | (Unaudited)                             |   |
| **Operating Activities**                                                                 |   |                                    |     |                                    |   |
| Net loss                                                                                 |   | $                                       | (687,305 | )                                       | $      | (710,156 | ) |
| Adjustments to  reconcile net loss to net cash provided (used) from operating activities |   |                                    |     |                                    |   |
| Depreciation                                                                             |   | 11,064                                  |     | 316                                     |   |
| Stock issued in  lieu of compensation and for director and professional fees             |   | 224,250                                 |     | 448,216                                 |   |
| Warrant costs  associated with note payable                                              |   |                                    |     |                                    |   |
| Changes in  assets and liabilities                                                       |   |                                    |     |                                    |   |
| Accounts  receivable                                                                     |   | 1,806                                   |     |                                    |   |
| Prepaid expenses                                                                         |   |                                    |     | (40,909                                 | )      |
| Deposit                                                                                  |   |                                    |     | (7,924                                  | )      |
| Other assets                                                                             |   |                                    |     | (71,612                                 | )      |
| Accounts payable                                                                         |   | 200,370                                 |     | 389,403                                 |   |
| Accounts payable  — stockholders                                                    |   |                                    |     | (174,014                                | )      |
| Accrued payroll  taxes payable                                                           |   | (3,106                                  | )        |                                    |   |
| Accrued interest                                                                         |   | 33,658                                  |     |                                    |   |
| Accrued expenses                                                                         |   | 9,969                                   |     | 70,080                                  |   |
| Net cash  provided (used) by operatingactivities                                         |   | (209,294                                | )        | (96,600                                 | )      |
|                                                                                     |   |                                    |     |                                    |   |
| **Investing Activity —** purchase of property and equipment                         |   |                                    |     |                                    |   |
| Purchases of  fixed assets                                                               |   | —                                  |     | (8,657                                  | )      |
| Net cash  provided (used) by investing activities                                        |   | —                                  |     | (8,657                                  | )      |
|                                                                                     |   |                                    |     |                                    |   |
| **Financing Activities**                                                                 |   |                                    |     |                                    |   |
| Issuance of  notes payable stockholders                                                  |   | 57,000                                  |     | 102,000                                 |   |
| Retirement of  stockholder note in exchange for services                                 |   | 152,250                                 |     |                                    |   |
| Net cash  provided (used) by financing activities                                        |   | 209,250                                 |     | 102,000                                 |   |
|                                                                                     |   |                                    |     |                                    |   |
| Net change in  cash                                                                      |   | (44                                     | )        | (3,257                                  | )      |
| Cash, Beginning  of Period                                                               |   | 48                                      |     | 3,396                                   |   |
|                                                                                     |   |                                    |     |                                    |   |
| Cash, End of  Period                                                                     |   | $                                       | 4        |                                    | $      | 139 |   |

 

See notes to consolidated financial statements.

 

5

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# **Notes toConsolidated Financial Statements**

**(Unaudited)**

 

**Note 1. Basis of Presentation**

 

The financial statements presented herein have been prepared by SmallTown Radio, Inc. (the “Company”) in accordance with the rules and regulationsof the Securities and Exchange Commission (“SEC”) and are presented unaudited.It is the opinion of management that these financial statements include alladjustments necessary to present fairly and accurately the results of theinterim period shown.

Certain financial details and footnotes normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or otherwise omitted for the purpose of this presentation. Thesecondensed financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Form 10-KSBannual report for 2002, as filed with the SEC. It is the opinion of managementthat the disclosures presented herein are in accordance with SEC rules andregulations and are sufficient to accurately portray our financial performanceover the interim period shown.

The results presented for the interim period may not be indicative ofresults for the full accounting year.

## **Note 2. Prior FinancialStatements**

 

Small Town Radio, Inc., formerly known as Worldwide PetroMoly, Inc. andOgden, McDonald & Company, was incorporated under Colorado law on October13, 1989. Ogden, McDonald & Company was originally formed for the purposeof seeking out acquisitions of properties, businesses, or merger candidates,without limitation as to the nature of the business operations or geographiclocation of the acquisition candidate. On July 22, 1996, Ogden, McDonald &Company completed a transaction pursuant to which the shareholders of WorldwidePetroMoly Corporation, a Texas corporation (“*WorldwidePetroMoly*”), acquired approximately 90.6% of the shares outstandingin Ogden, McDonald & Company, and Worldwide PetroMoly became a wholly ownedsubsidiary of Ogden, McDonald & Company. On October 11, 1996, Ogden,McDonald & Company changed its name to “Worldwide PetroMoly, Inc.”

From July 22, 1996, until June 1, 2001, through Worldwide PetroMoly weengaged in the business of manufacturing, marketing and distributing a line ofmolybdenum-fortified lubricant products called PetroMolyTM, an engine oiladditive designed to enhance and maintain engines. Our lubricant business wasoperated entirely out of Worldwide PetroMoly. However, we were unable to createa sustained commercial market for our lubricant products, and Worldwide PetroMolyincurred significant and on-going losses.

On June 1, 2001, we consummated a transaction in which Small TownRadio, Inc., a Georgia corporation (“*SmallTown Georgia*”), was merged into a subsidiary of our company createdfor the purpose of this merger. Pursuant to this transaction, all of theoutstanding shares of Small Town Georgia were exchanged for shares of ourcommon stock. In connection with our acquisition of Small Town Georgia, on June7, 2001 we sold all of the share capital of Worldwide PetroMoly to Mr. GilbertGertner, our former Chairman of the Board.

On May 23, 2002, Small Town Georgia was renamed “Small Town Radio ofGeorgia” in preparation for our reincorporation as a Nevada corporation. On May28, 2002, Worldwide PetroMoly, Inc. was merged with and into Small Town Radio,Inc., a newly created Nevada corporation, in a reincorporation merger. 

6

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Under our new name, “Small Town Radio, Inc.,” thefocus of our business is now the acquisition and operation of radio stations,generally located in small, non-rated markets.

Consolidated audited financial statements were prepared for Small TownRadio, Inc. for the fiscal year ending June 30, 2002.

## **Note 3. Payroll TaxLiabilities**

 

As of the filing of this Quarterly Report, the Company has satisfied accruedpayroll tax liabilities reported in the Form 10-KSB as of June 30, 2002.

## **Note 4. Common StockPayments to Officers**

 

During the six month interim period ended December 31, 2002, we issued925,000 shares of our common stock to officers and consultants in lieu of cashcompensation. We recorded compensation expense of $224,250 in connection withthe issuance of the common shares. The amount of compensation recorded wasequal to the closing market value of the shares issued on the date of issuance.

## **Note5. Recent Organizational Developments**

 

During the interim period ended December 31, 2002, there were nomaterial organizational developments.

## **Note6. Schedule 8-K Information Filing**

 

As reported in our Form 10-KSB filed October 15, 2002, we filed an 8-Kand an 8-K/A on September 9, and 12, 2002, to report a change in accountingfirms from BKD, LLP to Bridges & Dunn-Rankin, LLP.

We also filed an 8-K/A on September 9, 2002 related to our acquisitionof WDGR-AM licensed to Dahlonega, GA.

## **Note 7. Recent FASB Pronouncementsand Effect on Operations (SFAS 141 and SFAS 142)**

 

Two recently implemented FASB standards may have a material effect onour financial accounting practices, particularly in the context of ouraccounting for radio station acquisitions and other potential businesscombinations.

*Accountingfor a Business Combination.*Statement of FinancialAccounting Standards (“SFAS”) No. 141 requires that all business combinationsshould be accounted for using the purchase method of accounting; use of thepooling method is prohibited. A business combination occurs when an enterpriseacquires all or a portion of the net assets that constitutes a business orequity interests of one or more other enterprises and obtains control over theenterprise or enterprises. All two-party and multi-party business combinations,including “roll-up” and “put-together” transactions are included in the scopeof this Statement.

This Statement requires that goodwill initially be recognized as anasset in the financial statement and measured as the excess of the cost of anacquired entity over the net of the amounts assigned to identifiable assetsacquired and liabilities assumed. In addition, SFAS No. 141 requires all otherintangibles, such as broadcast license intangibles for a radio station, to beidentified.

The provisions of Statement No. 141 are effective for any businesscombination that is initiated after June 30, 2001.

*Accountingfor Goodwill.*Under the provisions of SFAS No. 142, goodwillshould not be amortized but should be tested for impairment at the reportingunit level. Impairment testing of goodwill should be done on an annual basisunless events or circumstances indicate impairment has occurred in the interimperiod. The 

7

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annual impairment test can be performed at any timeduring the year as long as the measurement date is used consistently from yearto year.

Impairment testing is a two-step process. The first step is acomparison of the fair value of a reporting unit to its carrying amountincluding goodwill. If the fair value of the reporting unit is greater than itscarrying value, goodwill is not impaired and no further work is required.Companies should perform the first step of the impairment test on all goodwillwithin six months of initially applying the Statement. If the fair value isless, the second step should be performed. The second step is to compare thefair value of goodwill to its carrying amount. If the fair value of goodwill isless than its carrying value, then the goodwill is deemed impaired and a lossrecognized. Any impairment loss recognized as a result of completing thetransitional impairment test should be treated as a change in accountingprinciple and recognized in the first interim period financial statementsthereafter.

The provisions of Statement No. 142 would be effective for fiscal yearsbeginning after December 15, 2001. Early adoption would be permitted forcompanies with a fiscal year beginning after March 15, 2001 provided that thefirst quarter financial statements have not been previously issued. In allcases, the Statement must be adopted as of the beginning of a fiscal year.Goodwill and intangible assets acquired in a transaction completed after June30, 2001 but before this Statement is initially applied would be accounted for inaccordance with the amortization and nonamortization provisions of theStatement. The useful economic life of previously recognized intangible assetsshould be reassessed upon adoption of the Statement, and remaining amortizationperiods should be adjusted accordingly. Intangible assets deemed to have anindefinite life would no longer be amortized.

It is believed that substantially all of the purchase price of acquiredradio stations will be allocated first to tangible property, with the balanceallocated almost entirely to broadcast licenses.  Under SFAS No. 142, broadcast licenses will not be amortized, butrather tested for impairment at least annually or as events and circumstanceschange.  Little, if any, goodwill isanticipated to be recognized in future acquisitions.

8

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**Item 2.     Management’s Discussion and Analysis of Results of Operationsand Financial Condition**

 

**ForwardLooking Statements**

 

This report may contain certain “forward-looking statements” includingstatements concerning plans, objectives, future events or performance andassumptions and other statements that are not statements of historicalfact.  The Company cautions readers thatthe following important factors, among others, could cause the Company’s actualresults to differ materially from the forward-looking statements contained inthis report:  (i) the ability of theCompany to successfully purchase radio stations in accordance with its businessplan, and to successfully leverage these aggregated radio station operations toprofitability; (ii) the ability of the Company to obtain adequate financing tooperate and execute its business plan; (iii) the effect on the Company’scompetitive position within its market area of the increasing consolidationwithin the radio broadcast industry; (iv) the effect of changes in laws andregulations, including federal laws and regulations governing the ownership andoperation of radio stations, with which the Company and its subsidiary mustcomply, and the associated costs of compliance with such laws and regulationseither currently or in the future as applicable; (v) the effect of changes inaccounting policies and practices, as may be adopted by the regulatory agenciesas well as by the Financial Accounting Standards Board, or of changes in the Company’sorganization, compensation and benefit plans; and (vi) shifts in population anddemographics, competition, cost fluctuations, technology advances andchallenges. The Company cautions that the foregoing list of important factorsis not exclusive.

 

**Overviewand Results of Operations**

 

Our business strategy is to secure through acquisition a significantnumber of radio stations in our target markets, generally smaller, lesspopulated areas near, but not in, mid-sized and larger markets. We intendinitially to acquire radio stations in rural sections of Georgia, and thenexpand into additional geographically contiguous markets in the Southeast. Webelieve that a network of stations in contiguous broadcast areas with two orthree common programming formats will provide an advertising and listener baseof significant size.

During the period ended December 31, 2002, the Company secured salescontracts and generated revenue as an early-stage operating company.  From June 1, 2001 to date, the bulk of ouractivities have been focused on raising capital in order to fund ouracquisition plan, which is critical to our continuing existence andsuccess.  We have executed several LocalMarketing Agreements (“LMA”s) with stations that the Company intended toacquire, but subsequently terminated those LMA’s when those stations failed tomeet the Company’s expectations for revenue generation.  The Company has allocated a substantialportion of management’s time in an attempt to execute its acquisition plan, inthe absence of adequate funds to purchase radio stations, by seeking to utilizeseller-financing and other means to pursue acquisitions.  The Company has not been successful in thiseffort.

The Company currently owns and operates one station, WDGR-AM, licensedto Dahlonega, Georgia.  During theinterim period ended December 31, 2002, the Company terminated an LMA andagreement to purchase WSBI-AM, licensed to Static, Kentucky after that stationfailed to achieve break even operations. Currently has no stations under LMA or under contract or letter ofintent to purchase.

During the six month interim period ended December 31, 2002, theCompany generated revenues of $44,538 and incurred operating expenses of$691,320 and interest expenses of $40,523. The Company's net loss during thesix month period ended December 31, 2002 was $687,305.

 

9

## ** **

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## **Twelve MonthBusiness Outlook**

 

 

 

We do not currently have funds sufficient to carry out any of ouroperations, or to execute our acquisition plan.  In order to act upon our operating plan discussed herein, we mustbe able to raise sufficient funds from (i) debt financing; or, (ii) newinvestments from private investors. There can be no assurance that we will beable to obtain debt or equity financing or generate sufficient revenue toproduce positive cash flow from operations.

**OperatingExpenses and Capital Expenditures**

 

*AcquisitionPlan*

 

Assuming we are able to raise sufficient funds, we anticipatepurchasing between fifteen and twenty-five radio stations during the nexttwelve months, at an average per-station price of approximately $350,000,including the cost of transferring Federal Communications Commissionlicenses.  The purchase price for radiostations varies significantly, depending upon the market served. In the verysmall, non-rated markets, the prices average about $350,000 per station, (AM’stypically less, FM’s typically higher). In a few instances, we have haddiscussions with stations in larger markets, some of which are larger, ratedmarkets. The stations in the larger markets that we have looked at typicallyhave significantly higher purchase prices, but usually report much higherrevenue and cash flow.

The Company expects to fund these purchases through a combination ofcash payments, the funds for which would be provided via an anticipated privateplacement, long-term owner and other financing, and the issuance of shares ofstock in the Company in lieu of cash. Thus, of the approximately $5,350,000 in funds we will need to purchasethese stations, we estimate approximately $2,700,000 will come from anticipatedprivate placements, approximately $900,000 will come from owner and otherfinancing, and approximately $1,750,000 will come from the issuance of stock inthe Company in lieu of cash.

The Company’s ability to purchase these stations, and the per-stationpurchase price, will be directly dependent upon prevailing broadcasting andreal estate market conditions. Furthermore, the Company’s ability to maintainsufficient liquidity to achieve its objective of purchasing fifteen stationsduring the next twelve months is contingent on several factors, including (i)the ability to successfully negotiate partial long-term owner financing withstation sellers; (ii) the ability of the Company to derive sufficient proceedsfrom the private placement described above; and (iii) the Company’s ability tonegotiate the purchase of stations in part with Company stock.

 

*CapitalImprovements Plan*

 

Assuming that the Company is successful in executing its acquisitionplan, the Company anticipates investing approximately $300,000 in transmitterupgrades during the next twelve months. With the exception of the aforementioned radio station and transmitterpurchases, the Company anticipates no significant additional purchases of plantor equipment during the next twelve months.

*OperatingExpenses*

 

Assuming that the Company is successful in executing its acquisitionplan, we anticipate incurring operating expenses of approximately $1,577,600during the next twelve months.

The primary operating expenses incurred in the ownership and operationof radio stations include employee salaries and commissions, programmingexpenses and marketing and promotional expenses. Management will strive tocontrol these expenses with centralized studios and administrative functionsand the use of regional marketing teams.

Assuming that the Company is successful in executing its acquisitionplan, we anticipate hiring approximately twenty-three additional employeesduring the next twelve months. These employees will be

10

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engaged in traffic management (4), sales and salesmanagement (11), community coordination (7) and administration (1).  As a result of these staffing additions,total quarterly gross compensation is expected to grow from a current level ofapproximately $22,000 to approximately $336,000 by the end of the nexttwelve-month period.

We do not anticipate engaging in any significant product research anddevelopment activities during the next twelve months.

**Source of Revenue**

Assuming that the Company is successful in executing its acquisitionplan, we anticipate generating total revenues of approximately $1,646,600during the next twelve months.

Assuming that the Company is successful in executing its acquisitionplan, our principal source of revenue will be the sale of broadcasting time foradvertising.  As a result, our revenuewill be determined primarily by the advertising rates charged by the radiostations we intend to acquire. Correspondingly, the rates will be based upon the individual station’s abilityto attract audiences in the demographic groups targeted by itsadvertisers.  Management will have torely on the ability of our sales staff to convince potential customers of theeffectiveness of radio as an advertising medium and to creatively demonstratethe share of the market that advertising on our stations will reach.

The numbers of advertisements that can be broadcast withoutjeopardizing listening levels (market share) are limited in part by the formatof a particular station.  Each of our stationswill have a general pre-determined level of on-air inventory that it makesavailable for advertising.  Availableinventory may vary at different times of the day but tends to remain stableover time.  Much of our selling activitywill be based on demand for the stations’ on-air inventory and, in general, wewill respond to this demand by varying prices rather than by changing theavailable inventory.

**Disposition of Assets**

 

Assuming that the Company is successful in executing its acquisitionplan, we hope to generate proceeds greater than $250,000 from the resale ofexcess equipment and other assets. However, there can be no assurance that we will be able to resell anyacquired assets.  The Company’s abilityto resell these assets, and the revenues derived from these asset dispositions,will be directly dependent upon prevailing external markets for radio equipmentand related assets.

**Operating Losses**

 

Assuming that the Company is successful in executing its acquisitionplan and acquires fifteen radio stations, we expect to realize operating incomeof approximately $139,000 and net pre tax income of approximately $95,000during the next twelve months.  As wecontinue to transition from the development stage to initial revenue-generatingoperations, and as radio stations are acquired in accordance with theestablished business plan, we expect to leverage economies of scale through theaggregation of operations and media sales in contiguous markets, and throughthe establishment of standardized programming.

## **Liquidity andCapital Resources**

 

We do not currently have funds sufficient to carry out any of ouroperating or to execute our acquisition plan. In order to act upon ouroperating plan discussed herein, we must be able to raise sufficient funds from(i) debt financing; or, (ii) new investments from private Investors. There canbe no assurance that we will be able to obtain debt or equity financing orgenerate sufficient revenue to produce positive cash fow from operations.

Our major sources of capital during the interim period ended December31, 2002 have been operating revenues, short-term loans from our shareholdersand extended payment terms from certain trade creditors, as presented in theStatement of Cash Flow herein.

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We anticipate that, with the combination of station seller-financing,third party credit facilities and new investments from private investors, wemay not need to raise additional funds over the next twelve months and thatthese facilities would provide adequate capital to ensure sufficient liquidityand capitalization over the next twelve months. However, in addition to thesepotential sources of funds, we are also pursuing alternative sources ofliquidity and capital resources to fund the ongoing operation and growth of theCompany.

In conjunction with their audit report on our consolidated financialstatements as of June 30, 2002, our independent certified public accountantsexpressed doubt about our ability to continue as a going concern because suchcontinuance is dependent upon our ability to raise capital.

We have explored, and will continue to explore, all possible avenuesfor raising the capital required to maintain operations on a going forwardbasis until we have acquired a sufficient number of stations and are generatingsufficient revenue and profitability to be sustainable.

As we transition from a development stage enterprise to an operatingentity, our ability to achieve the growth objectives described above,particularly with respect to station acquisition, staffing and revenuegeneration, will depend directly on the availability of anticipated funds, aswell as seller financing arrangements.

Ultimately, we must achieve profitable operations if we are to be aviable entity.  We intend to purchaseexisting radio stations that are currently operating at breakeven or areindividually profitable.  Although webelieve there is a reasonable basis for anticipating that we will successfullyraise the necessary funds, we cannot guarantee that sufficient capital will beraised to sustain operations to profitability in accordance with the objectivesdescribed above.

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**PART II — OTHER INFORMATION**

# **Item 1.        LegalProceedings**

 

There are no material, pending legal proceedings to which the Companyor any of its subsidiaries is a party or of which any of their property is thesubject.

 

# **Item 2.        Changes in Securities and Use ofProceeds**

 

Not applicable.

 

# **Item 3.        DefaultsUpon Senior Securities**

 

Not applicable.

 

# **Item 4.        Submission of Matters to a Vote ofSecurity Holders**

 

Not applicable.

 

# **Item 5.        OtherInformation**

 

                Don Boyd resignedfrom the Company on December 1, 2002. Subsequently, the Company hired Michael Greene.  Mr. Greene is an accomplished broadcasterwith over twenty five years experience. In his most recent assignment, he was responsible for turning around amulti-unit cluster of stations similar to those that the Company plans toacquire and operate.  Mr. Greenematerially increased both revenues and broadcast cash flow, before beingrecruited to Small Town Radio, Inc.  Mr.Greene assumed responsibility for the Company’s operations as of the January 1,2003.

 

                The Companyaccepted the resignation of Dr. Michael Cobb as Chief Financial Officer.  Dr. Cobb had been served as an interim,part-time consultant to the Company. His other client commitments did not allow him sufficent time to devoteto the Company.  The Company appreciatesDr. Cobb’s work, he will be missed.  TheCompany has not yet hired a replacement.

 

# **Item 6.        Exhibits and Reports on Form 8-K**

 

*Exhibits*.  Exhibits required by Item 601 of RegulationS-B are incorporated herein by reference and are listed on the attached ExhibitIndex, which begins on page X-1 of this Annual Report on Form 10-KSB.

*Reports onForm 8-K*.  During thefiscal quarter ended December 31, 2002, the Company filed the following CurrentReports on Form 8-K:

None.

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Exchange Act, theRegistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.
| SMALL TOWN RADIO, INC. |
|------------------------|
|                   |   |
| By:                    | /s/Daniel W. Hollis |
|                   | Daniel W. Hollis, Chief Executive Officer |
|                   |   |
| By:                    | /s/Daniel W. Hollis |
|                   | Daniel W. Hollis, Chief Financial Officer |

Date: March4, 2003

 

**CERTIFICATIONS**

I, Daniel W. Hollis, certifythat:

1.                                       I have reviewedthis quarterly report on Form 10–QSB of Small Town Radio, Inc.;

2.                                       Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

3.                                       Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a)                                      designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b)                                     evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c)                                      presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors  and the audit committee of registrant’s board of directors (orpersons performing the equivalent function):

a)                                      all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data 

13

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                                                and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| /s/Daniel W. Hollis                       |   |
|-------------------------------------------|--------|
| Daniel W. Hollis, Chief Executive Officer |   |

Date                       March 4, 2003

 

 

I, Daniel W. Hollis, certifythat:

1.                                       I have reviewedthis quarterly report on Form 10–QSB of Small Town Radio, Inc.;

2.                                       Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

3.                                       Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a)                                      designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b)                                     evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c)                                      presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors  and the audit committee of registrant’s board of directors (orpersons performing the equivalent function):

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a)                                      all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b)                                     any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| /s/Daniel W. Hollis                       |   |
|-------------------------------------------|--------|
| Daniel W. Hollis, Chief Financial Officer |   |

Date                       March 4, 2003

15

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**EXHIBITINDEX**
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                                                 |
|-----------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1             |   | Agreement and  Plan of Merger dated April 30, 2001 among Small Town Radio, Inc., Worldwide  PetroMoly, Inc., Petro Merger, Inc., Gilbert Gertner and certain individual  shareholders of Small Town Radio, Inc., as amended and restated, incorporated  herein by reference to Exhibit 2.2 to the Company’s Current Report on Form  8-K dated May 7, 2001. |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 2.2             |   | Agreement and  Plan of Merger dated as of May 3, 2002 among Worldwide PetroMoly, Inc., a  Colorado corporation, and Small Town Radio, Inc., a Nevada corporation.                                                                                                                                                                                               |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 2.3             |   | Warranty Bill of  Sale and Assignment dated June 25, 2002 among Greenwood Communications Corp.,  Ann B. Greenwood and the Company, incorporated herein by reference to Exhibit  2.1 to the Company’s Current Report on Form 8–K dated June 17, 2002.                                                                                                  |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 3i.1            |   | Articles of  Incorporation of Small Town Radio, Inc., incorporated by reference to Exhibit  3i.1 to the Company’s Annual Report on Form 10–KSB for the fiscal year  ended June 30, 2002.                                                                                                                                                              |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 3ii.1           |   | Bylaws of Small  Town Radio, Inc., incorporated by reference to Exhibit 3i.1 to the Company’s  Annual Report on Form 10–KSB for the fiscal year ended June 30, 2002.                                                                                                                                                                                  |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.1             |   | $5,000 Demand  Note of the Company dated February 3, 2001, issued to Bolling Investments,  LLC, incorporated herein by reference to Exhibit 10.12 to the Company’s  Registration Statement on Form SB-2 (File No. 333-70176).                                                                                                                              |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.2             |   | $25,000 Demand  Note of the Company dated March 26, 2001, issued to Wayne Shortridge,  incorporated herein by reference to Exhibit 10.13 to the Company’s  Registration Statement on Form SB-2 (File No. 333-70176).                                                                                                                                       |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.3             |   | $25,000 Demand  Note dated June 4, 2001, issued to Wayne Shortridge, incorporated herein by  reference to Exhibit 10.14 to the Company’s Registration Statement on Form  SB-2 (File No. 333-70176).                                                                                                                                                        |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.4             |   | $12,500 Demand  Note dated June 29, 2001, issued to Bolling Investments, LLC, incorporated  herein by reference to Exhibit 10.15 to the Company’s Registration Statement  on Form SB-2 (File No. 333-70176).                                                                                                                                               |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.5             |   | $50,000 Demand  Note of the Company dated August 3, 2001, issued to John F. McMullan,  incorporated herein by reference to Exhibit 10.16 to the Company’s  Registration Statement on Form SB-2 (File No. 333-70176).                                                                                                                                       |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.6             |   | $216,000 Secured  Note of the Company dated June 17, 2002, issued to Wayne Shortridge,  incorporated herein by reference to Exhibit 4.1 to the Company’s Current  Report on Form 8–K dated June 17, 2002.                                                                                                                                             |
|            |   |                                                                                                                                                                                                                                                                                                                                                            |
| 4.7             |   | Note Purchase Agreement  dated as of June 17, 2002 between the Company and Wayne Shortridge,  incorporated herein by reference to Exhibit 4.2 to the Company’s Current  Report on Form 8–K dated June 17, 2002.                                                                                                                                       |

 

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| 4.8        |   | Security  Agreement dated as of June 17, 2002 between the Company and Wayne Shortridge,  incorporated herein by reference to Exhibit 4.3 to the Company’s Current  Report on Form 8–K dated June 17, 2002.                                                           |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                           |
| 4.9        |   | Warrant to  Purchase Common Stock of the Company, dated June 17, 2002, issued to Wayne  Shortridge, incorporated herein by reference to Exhibit 4.4 to the Company’s  Current Report on Form 8–K dated June 17, 2002.                                                |
|       |   |                                                                                                                                                                                                                                                                           |
| 10.1† |   | Worldwide  PetroMoly, Inc. Stock Incentive Plan, incorporated herein by reference to  Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (File No.  333-67404).                                                                                              |
|       |   |                                                                                                                                                                                                                                                                           |
| 10.2† |   | Employment  Agreement dated as of July 30, 2001 between the Company and Donald L. Boyd,  incorporated herein by reference to Exhibit 10.20 to the Company’s  Registration Statement on Form SB-2 (File No. 333-70176).                                                    |
|       |   |                                                                                                                                                                                                                                                                           |
| 10.3       |   | Commercial Lease  Agreement dated June 25, 2002 between Greenwood Communications Corp. and the  Company, incorporated herein by reference to Exhibit 10.1 to the Company’s  Current Report on Form 8–K dated June 17, 2002.                                          |
|       |   |                                                                                                                                                                                                                                                                           |
| 16.1       |   | Letter of BKD,  LLP dated September 10, 2002, pursuant to Item 304(a)(3) of Regulation S–B,  regarding change of certifying accountant, incorporated herein by reference  to Exhibit 16.1 to the Company’s Current Report on Form 8–K dated  September 3, 2002. |
|       |   |                                                                                                                                                                                                                                                                           |
| 21.1       |   | List of  Subsidiaries.                                                                                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                           |
| 99.1*      |   | Certification  Pursuant to 18 U.S.C. § 1350 (enacted by Section 906 of the  Sarbanes-Oxley Act of 2002, Public Law 107-204), dated November 14, 2002,  executed by Daniel W. Hollis, Chairman of the Board and Chief Executive Officer  of the Company.              |
|       |   |                                                                                                                                                                                                                                                                           |
| 99.2*      |   | Certification Pursuant to 18 U.S.C.  § 1350 (enacted by Section 906 of the Sarbanes-Oxley Act of 2002, Public  Law 107-204), dated November 14, 2002, executed by Daniel W. Hollis, Chief  Financial Officer of the Company.                                         |

 

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*                                         Filed herewith.

†                                          Management contract or compensatory plan

 

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