**SECURITIES AND 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 September 30, 2002**                                                       |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                        |
| **o**      | **Transition report under Section 13 or 15(d) of the Exchange Act for  the transition period from         to       ** |
|       |                                                                                                                                                                                        |
|       | **Commission  file 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.) |
|                                                                  |   |                                  |
| **1800  Century Boulevard  Suite 1200  Atlanta, Georgia  30345** |
| (Address of principal  executive offices)                             |
|                                                                  |
| **(404)  327-4520**                                                   |
| (Issuer’s telephone  number, including area code)                |

 

Check whether the issuer (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 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 November 10, 2002** |
|----------------------------|--------|--------------------------------------|
|                       |   |                                 |
| Common Stock, no par value |   | 10,134,283                           |

 

Transitional Small Business Disclosure Format:             Yes  o     No  ý

 

 

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TABLE OF CONTENTS

 
| PART I — |   | 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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**Part I****-****Financial Information  Item 1. Financial Statements**

 

**SMALL TOWN RADIO, INC.**

**ConsolidatedBalance Sheets**

** **
|                                                 |   | **September  30, 2002** |       | **June 30,  2002** |   |
|------------------------------------------------------|--------|-------------------------|------------|--------------------|--------|
|                                                 |   | **(Unaudited)**         |       | **(Audited)**      |   |
| **ASSETS**                                           |   |                    |       |               |   |
| **Current  Assets**                                  |   |                    |       |               |   |
| Cash                                                 |   | $                       | 1,404      |               | $      | 48 |   |
| Accounts receivable                                  |   | 13,941                  |       | 8,335              |   |
| Deposits                                             |   | —                  |       | —             |   |
| Total current assets                                 |   | 15,345                  |       | 8,383              |   |
|                                                 |   |                    |       |               |   |
| **Fixed  Assets**                                    |   |                    |       |               |   |
| Equipment                                            |   | 109,282                 |       | 109,282            |   |
| Accumulated depreciation                             |   | (767                    | )          | (632               | )      |
| Fixed Assets, net                                    |   | 108,515                 |       | 108,650            |   |
|                                                 |   |                    |       |               |   |
| **Acquired Broadcast License**                       |   | 106,375                 |       | 106,375            |   |
|                                                 |   |                    |       |               |   |
| **Other  Assets**                                    |   | —                  |       | —             |   |
|                                                 |   |                    |       |               |   |
| **TOTAL ASSETS**                                     |   | $                       | 230,235    |               | $      | 223,408 |   |
|                                                 |   |                    |       |               |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**      |   |                    |       |               |   |
| **Current  Liabilities**                             |   |                    |       |               |   |
| Notes payable - stockholders                         |   | 589,500                 |       | 532,500            |   |
| Accounts payable                                     |   | 600,024                 |       | 484,766            |   |
| Accrued payroll taxes payable                        |   | —                  |       | 3,106              |   |
| Accrued interest                                     |   | 34,063                  |       | 18,088             |   |
| Accounts payable - stockholders                      |   | —                  |       | —             |   |
| Accrued settlement cost                              |   | 260,000                 |       | 260,000            |   |
| Accrued expenses                                     |   | —                  |       | —             |   |
| Total current liabilities                            |   | 1,483,587               |       | 1,298,460          |   |
|                                                 |   |                    |       |               |   |
| **Commitments  and Contingencies**                   |   |                    |       |               |   |
|                                                 |   |                    |       |               |   |
| **Stockholders’  Deficit**                      |   |                    |       |               |   |
| Stockholder note receivable                          |   | (152,250                | )          | (152,250           | )      |
| Preferred stock, no stated value                     |   | —                  |       | —             |   |
| Authorized- 100,000,000 shares                       |   |                    |       |               |   |
| Issued and outstanding- none                         |   |                    |       |               |   |
| Common stock, $.001 par value                        |   | 9,912                   |       | 9,912              |   |
| Authorized- 44,444,444 shares                        |   |                    |       |               |   |
| Issued and outstanding- 10,134,283 shares            |   |                    |       |               |   |
| Additional paid-in capital                           |   | 1,252,944               |       | 1,252,944          |   |
| Accumulated deficit                                  |   | (2,363,958              | )          | (2,185,658         | )      |
| Total Stockholders’ Deficit                     |   | $                       | (1,253,352 | )                  | $      | (1,075,052 | ) |
|                                                 |   |                    |       |               |   |
| **TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT** |   | $                       | 230,235    |               | $      | 223,408 |   |

 

See notes to consolidated financial statements.

 

1

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**SMALL TOWN RADIO, INC.**

**Consolidated Statements of Operation**

 
|                                              |   | **Three  Months Ended  September 30, 2002** |     | **Three  Months Ended  September 30, 2001** |     | **Year Ended  June 30, 2002** |   |
|---------------------------------------------------|--------|---------------------------------------------|----------|---------------------------------------------|----------|-------------------------------|--------|
|                                              |   | **(Unaudited)**                             |     | **(Unaudited)**                             |     | **(Audited)**                 |   |
| Net Sales                                         |   | $                                           | 31,008   |                                        | $        | —                        |   | $ | 54,158 |   |
|                                              |   |                                        |     |                                        |     |                          |   |
| Operating Expenses                                |   | 193,333                                     |     | 437,791                                     |     | 1,185,136                     |   |
|                                              |   |                                        |     |                                        |     |                          |   |
| Operating loss                                    |   | (162,325                                    | )        | (437,791                                    | )        | (1,130,978                    | )      |
|                                              |   |                                        |     |                                        |     |                          |   |
| Other expenses – interest and debt financing |   | (15,975                                     | )        | (24,724                                     | )        | (81,885                       | )      |
|                                              |   |                                        |     |                                        |     |                          |   |
| Loss Before Income Taxes                          |   | (178,300                                    | )        | (462,515                                    | )        | (1,212,863                    | )      |
|                                              |   |                                        |     |                                        |     |                          |   |
| Income Tax Benefit                                |   | —                                      |     | —                                      |     | —                        |   |
|                                              |   |                                        |     |                                        |     |                          |   |
| Net Loss                                          |   | $                                           | (178,300 | )                                           | (462,515 | )                             | $      | (1,212,863 | ) |
|                                              |   |                                        |     |                                        |     |                          |   |
| Basic Earnings (Loss) Per Share                   |   | $                                           | (0.02    | )                                           | $        | (0.05                         | )      | $ | (0.14 | ) |
|                                              |   |                                        |     |                                        |     |                          |   |
| Weighted Average Shares Outstanding               |   | 10,023,172                                  |     | 8,891,716                                   |     | 8,932,094                     |   |

** **

See notes to consolidated financial statements.

 

2

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**SMALL TOWN RADIO, INC.**

**Consolidated Statements of Cash Flows**

** **
|                                                                                     |   | **Three  Months  Ended  September 30, 2002** |     | **Three  Months  Ended  September 30, 2001** |   | **Year  Ended  June 30,2002** |   |
|------------------------------------------------------------------------------------------|--------|----------------------------------------------|----------|----------------------------------------------|--------|-------------------------------|--------|
|                                                                                     |   | **(Unaudited)**                              |     | **(Unaudited)**                              |   | **(Audited)**                 |   |
| **Operating  Activities**                                                                |   |                                         |     |                                         |   |                          |   |
| Net loss                                                                                 |   | $                                            | (178,300 | )                                            | $      | (462,515                      | )      | $ | (1,212,863 | ) |
| Adjustments to reconcile net loss to net cash provided (used) from  operating activities |   |                                         |     |                                         |   |                          |   |
| Depreciation                                                                             |   | 135                                          |     | —                                       |   | 527                           |   |
| Stock issued in lieu of compensation and for director and  professional fees             |   | —                                       |     | 414,130                                      |   | 1,185,570                     |   |
| Note received in exchange for executive stock issued                                     |   | —                                       |     |                                         |   | (152,250                      | )      |
| Warrant costs associated with note payable                                               |   | —                                       |     |                                         |   | 28,800                        |   |
| Changes in assets and liabilities                                                        |   |                                         |     |                                         |   |                          |   |
| Accounts receivable                                                                      |   | (5,606                                       | )        |                                         |   | (8,335                        | )      |
| Deposit                                                                                  |   | —                                       |     |                                         |   | 2,076                         |   |
| Other asset                                                                              |   | —                                       |     | (81,574                                      | )      | 10,000                        |   |
| Accounts payable                                                                         |   | 112,152                                      |     | 264,218                                      |   | (91,036                       | )      |
| Accrued payroll taxes payable                                                            |   |                                         |     |                                         |   | 3,106                         |   |
| Accrued interest                                                                         |   | 15,975                                       |     |                                         |   | 18,087                        |   |
| Accounts payable - stockholder                                                           |   | —                                       |     | (168,196                                     | )      | (330,000                      | )      |
| Accrued litigation settlement                                                            |   | —                                       |     |                                         |   | 260,000                       |   |
| Other                                                                                    |   | —                                       |     | 45,740                                       |   | —                        |   |
| Net cash provided (used) by operating activities                                         |   | (55,644                                      | )        | 11,803                                       |   | (254,587                      | )      |
|                                                                                     |   |                                         |     |                                         |   |                          |   |
| **Investing  Activity –**  purchase of property and equipment                       |   |                                         |     |                                         |   |                          |   |
| Business acquisition                                                                     |   | —                                       |     | —                                       |   | (203,000                      | )      |
| Purchases of fixed assets                                                                |   | —                                       |     | —                                       |   | (10,761                       | )      |
| Net cash provided (used) by investing activities                                         |   | —                                       |     | —                                       |   | (213,761                      | )      |
|                                                                                     |   |                                         |     |                                         |   |                          |   |
| **Financing  Activities**                                                                |   |                                         |     |                                         |   |                          |   |
| Net increase in notes payable - stockholders                                             |   | 57,000                                       |     | 55,000                                       |   | 465,000                       |   |
| Financing fees                                                                           |   | —                                       |     | (70,123                                      | )      | —                        |   |
| Stockholder contribution                                                                 |   | —                                       |     | —                                       |   | —                        |   |
| Net cash provided (used) by financing activities                                         |   | 57,000                                       |     | (15,123                                      | )      | 465,000                       |   |
|                                                                                     |   |                                         |     |                                         |   |                          |   |
| Net change in cash                                                                       |   | 1,356                                        |     | (3,320                                       | )      | (3,348                        | )      |
|                                                                                     |   |                                         |     |                                         |   |                          |   |
| Cash, Beginning of Period                                                                |   | 48                                           |     | 3,396                                        |   | 3,396                         |   |
|                                                                                     |   |                                         |     |                                         |   |                          |   |
| Cash, End of Period                                                                      |   | $                                            | 1,404    |                                         | $      | 76                            |   | $ | 48 |   |

 

See notes to consolidated financial statements.

 

3

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**SMALL TOWN RADIO, INC.**

# **Notes to Consolidated Financial Statements**

**(Unaudited)**

 

**Note 1. Basis of Presentation**

 

The financialstatements presented herein have been prepared by Small Town Radio, Inc. (the“Company”) in accordance with the rules and regulations of the Securities andExchange Commission (“SEC”) and are presented unaudited. It is the opinion ofmanagement that these financial statements include all adjustments necessary topresent fairly and accurately the results of the interim period shown.

 

Certain financialdetails and footnotes normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed orotherwise omitted for the purpose of this presentation. These condensedfinancial statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Form 10-KSB annualreport for 2002, as filed with the SEC. It is the opinion of management thatthe disclosures presented herein are in accordance with SEC rules andregulations and are sufficient to accurately portray our financial performanceover the interim period shown.

 

The resultspresented for the interim period may not be indicative of results for the fullaccounting year.

 

## **Note 2. Prior Financial Statements**

 

Small Town Radio,Inc., formerly known as Worldwide PetroMoly, Inc. and Ogden, McDonald &Company, was incorporated under Colorado law on October 13, 1989. Ogden,McDonald & Company was originally formed for the purpose of seeking outacquisitions of properties, businesses, or merger candidates, withoutlimitation as to the nature of the business operations or geographic locationof the acquisition candidate. On July 22, 1996, Ogden, McDonald & Companycompleted 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 we engaged in thebusiness 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 WorldwidePetroMoly incurred significant and on-going losses.

 

On June 1, 2001,we consummated a transaction in which Small Town Radio, Inc., a Georgiacorporation (“*Small Town Georgia*”),was merged into a subsidiary of our company

 

4

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created for the purpose of this merger. Pursuant to this transaction,all of the outstanding shares of Small Town Georgia were exchanged for sharesof our common stock. In connection with our acquisition of Small Town Georgia,on June 7, 2001 we sold all of the share capital of Worldwide PetroMoly to Mr.Gilbert Gertner, our former Chairman of the Board.

 

On May 23, 2002,Small Town Georgia was renamed “Small Town Radio of Georgia” in preparation forour reincorporation as a Nevada corporation. On May 28, 2002, WorldwidePetroMoly, Inc. was merged with and into Small Town Radio, Inc., a newlycreated Nevada corporation, in a reincorporation merger. Under our new name,“Small Town Radio, Inc.,” the focus of our business is now the acquisition andoperation of radio stations, generally located in small, non-rated markets.

 

Consolidatedaudited financial statements were prepared for Small Town Radio, Inc. for thefiscal year ending June 30, 2002.

 

## **Note 3. Payroll Tax Liabilities**

 

As of the filingof this Quarterly Report, the Company has satisfied accrued payroll taxliabilities reported in the Form 10-KSB for the period ended June 30, 2002.

 

## **Note 4. Common Stock Payments to Officers**

 

During the interimperiod ended September 30, 2002, we did not issue any shares of our commonstock to any of our officers in lieu of cash compensation.

 

## **Note 5. RecentOrganizational Developments**

 

During the interimperiod ended September 30, 2002, there were no material organizationaldevelopments.

 

## **Note 6. Schedule 8-KInformation Filing**

 

As reported in ourForm 10-KSB filed October 15, 2002, we filed an 8-K and an 8-K/A on September9, and 12, 2002, to report a change in accounting firms from BKD, LLP toBridges & Dunn-Rankin, LLP.

 

We also filed an8-K/A on September 9, 2002 related to our acquisition of WDGR-AM licensed toDahlonega, GA.

 

## **Note 7. Recent FASB Pronouncements and Effect onOperations (SFAS 141 and SFAS 142)**

 

Two recentlyimplemented FASB standards may have a material effect on our financialaccounting practices, particularly in the context of our accounting for radiostation acquisitions and other potential business combinations.

* *

*Accounting for a BusinessCombination.*Statementof Financial Accounting Standards (“SFAS”) No. 141 requires that all businesscombinations should be accounted for using the purchase method of accounting;use of the pooling method is prohibited. A business combination occurs when anenterprise acquires all or a portion of the net assets that constitutes abusiness or equity interests of one or more other enterprises and obtainscontrol over the enterprise or enterprises. All two-party and multi-partybusiness combinations, including “roll-up” and “put-together” transactions areincluded in the scope of this Statement.

 

5

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This Statementrequires that goodwill initially be recognized as an asset in the financialstatement and measured as the excess of the cost of an acquired entity over thenet of the amounts assigned to identifiable assets acquired and liabilitiesassumed. In addition, SFAS No. 141 requires all other intangibles, such asbroadcast license intangibles for a radio station, to be identified.

 

The provisions ofStatement No. 141 are effective for any business combination that is initiatedafter June 30, 2001.

* *

*Accounting for Goodwill.*Under the provisions of SFAS No. 142,goodwill should not be amortized but should be tested for impairment at thereporting unit level. Impairment testing of goodwill should be done on anannual basis unless events or circumstances indicate impairment has occurred inthe interim period. The annual impairment test can be performed at any timeduring the year as long as the measurement date is used consistently from yearto year.

 

Impairment testingis a two-step process. The first step is a comparison of the fair value of areporting unit to its carrying amount including goodwill. If the fair value ofthe reporting unit is greater than its carrying value, goodwill is not impairedand no further work is required. Companies should perform the first step of theimpairment test on all goodwill within six months of initially applying theStatement. If the fair value is less, the second step should be performed. Thesecond step is to compare the fair value of goodwill to its carrying amount. Ifthe fair value of goodwill is less than its carrying value, then the goodwillis deemed impaired and a loss recognized. Any impairment loss recognized as aresult of completing the transitional impairment test should be treated as achange in accounting principle and recognized in the first interim period financialstatements thereafter.

 

The provisions ofStatement No. 142 would be effective for fiscal years beginning after December15, 2001. Early adoption would be permitted for companies with a fiscal yearbeginning after March 15, 2001 provided that the first quarter financialstatements have not been previously issued. In all cases, the Statement must beadopted as of the beginning of a fiscal year. Goodwill and intangible assetsacquired in a transaction completed after June 30, 2001 but before this Statementis initially applied would be accounted for in accordance with the amortizationand nonamortization provisions of the Statement. The useful economic life ofpreviously recognized intangible assets should be reassessed upon adoption ofthe Statement, and remaining amortization periods should be adjustedaccordingly. Intangible assets deemed to have an indefinite life would nolonger be amortized.

 

It is believedthat substantially all of the purchase price of acquired radio stations will beallocated first to tangible property, with the balance allocated almostentirely to broadcast licenses.  UnderSFAS No. 142, broadcast licenses will not be amortized, but rather tested forimpairment at least annually or as events and circumstances change.  Little, if any, goodwill is anticipated tobe recognized in future acquisitions.

 

6

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**Item 2.    Management’sDiscussion and Analysis of Results of Operations and Financial Condition**

 

**ForwardLooking****Statements**

 

This report maycontain certain “forward-looking statements” including statements concerningplans, objectives, future events or performance and assumptions and otherstatements that are not statements of historical fact.  The Company cautions readers that the followingimportant factors, among others, could cause the Company’s actual results todiffer materially from the forward-looking statements contained in thisreport:  (i) the ability of the Companyto successfully purchase radio stations in accordance with its business plan,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 theCompany’s organization, compensation and benefit plans; and (vi) shifts inpopulation and demographics, competition, cost fluctuations, technologyadvances and challenges. The Company cautions that the foregoing list ofimportant factors is not exclusive.

 

**Overview****and Results of Operations**

 

Our businessstrategy is to secure through acquisition a significant number of radiostations in our target markets, generally smaller, less populated areas near,but not in, mid-sized and larger markets. We intend initially to acquire radiostations in rural sections of Georgia, and then expand into additionalgeographically contiguous markets in the Southeast. We believe that a networkof stations in contiguous broadcast areas with two or three common programmingformats will provide an advertising and listener base of significant size.

 

During the periodended September 30, 2002, the Company continued to secure sales contracts andgenerate revenue as an early-stage operating company.  From June 1, 2001 to date, the bulk of our activities have beenfocused on raising capital in order to fund our acquisition plan, which iscritical to our continuing existence and success; executing Local MarketingAgreements (“LMA”s) with stations that the Company intends to acquire; andinitiating revenue-generating operations with those stations. The Company hasallocated a substantial portion of management’s time to executing its acquisitionplan, in the absence of adequate funds to purchase radio stations, by utilizingseller-financing and other means to pursue acquisitions.

 

During the interimperiod ended September 30, 2002, the Company generated revenues of $31,008 andincurred operating expenses of $243,949 and interest expenses of $2,806.

 

The Companycontinues to engage in discussions with owners of radio stations inanticipation of purchases during subsequent periods. We are in discussions withcompanies and/or individuals that operate radio stations in southern Georgia,northern Georgia, Tennessee, and south Alabama regarding potentialacquisitions.

 

7

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The Companycurrently owns and operates one station, WDGR-AM, licensed to Dahlonega,Georgia, and anticipates the acquisition of a second station in centralTennessee, WSBI-AM, licensed to Static, Kentucky, to be purchased from DonnieCox.

 

The purchase pricefor radio stations varies significantly, depending upon the market served. In thevery small, non-rated markets, the prices average about $350,000 per station,(AM’s typically 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.

 

## **Twelve Month** Business Outlook

 

We do notcurrently have funds sufficient to carry out any of our operations, or toexecute our acquisition plan.  In orderto act upon our operating plan discussed herein, we must be able to raisesufficient funds from (i) debt financing; or, (ii) new investments from privateinvestors.

 

**Operating Expenses****and Capital Expenditures**

 

*AcquisitionPlan*

 

Assuming we areable to raise sufficient funds, we anticipate purchasing between fifteen andtwenty-five radio stations during the next twelve months, at an averageper-station price of approximately $350,000, including the cost of transferringFederal Communications Commission licenses. 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’sability to purchase these stations, and the per-station purchase price, will bedirectly dependent upon prevailing broadcasting and real estate marketconditions. Furthermore, the Company’s ability to maintain sufficient liquidityto achieve its objective of purchasing fifteen stations during the next twelvemonths is contingent on several factors, including (i) the ability tosuccessfully negotiate partial long-term owner financing with station sellers;(ii) the ability of the Company to derive sufficient proceeds from the privateplacement described above; and (iii) the Company’s ability to negotiate thepurchase of stations in part with Company stock.

 

*CapitalImprovements Plan*

 

The Companyanticipates investing approximately $300,000 in transmitter upgrades during thenext twelve months.

 

8

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With the exceptionof the aforementioned radio station and transmitter purchases, the Companyanticipates no significant additional purchases of plant or equipment duringthe next twelve months.

* *

*OperatingExpenses*

 

We anticipateincurring operating expenses of approximately $ 1,507,600 during the nexttwelve months.

 

The primaryoperating expenses incurred in the ownership and operation of radio stationsinclude employee salaries and commissions, programming expenses and marketingand promotional expenses. Management will strive to control these expenses withcentralized studios and administrative functions and the use of regionalmarketing teams.

 

We anticipatehiring approximately twenty-three additional employees during the next twelvemonths. These employees will be engaged in traffic management (4), sales andsales management (11), community coordination (7) and administration (1).

 

As a result ofthese staffing additions, total quarterly gross compensation is expected togrow from a current level of approximately $45,000 to approximately $336,000 bythe end of the next twelve-month period.

 

We do notanticipate engaging in any significant product research and developmentactivities during the next twelve months.

** **

**Source of Revenue**

 

Assuming that theCompany is successful in executing its acquisition plan, we anticipategenerating total revenues of approximately $1,646,600 during the next twelvemonths.

 

Our principalsource of revenue will be the sale of broadcasting time for advertising.  As a result, our revenue will be determinedprimarily by the advertising rates charged by the radio stations we intend toacquire.  Correspondingly, the rateswill be based upon the individual station’s ability to attract audiences in thedemographic groups targeted by its advertisers.    Management will have to rely on the ability of our sales staffto convince potential customers of the effectiveness of radio as an advertisingmedium and to creatively demonstrate the share of the market that advertisingon our stations will reach.

 

The numbers ofadvertisements that can be broadcast without jeopardizing listening levels(market share) are limited in part by the format of a particular station.  Each of our stations will have a generalpre-determined level of on-air inventory that it makes available foradvertising.  Available inventory mayvary at different times of the day but tends to remain stable over time.  Much of our selling activity will be basedon demand for the stations’ on-air inventory and, in general, we will respondto this demand by varying prices rather than by changing the availableinventory.

 

**Disposition of Assets**

 

In conjunctionwith the purchase of fifteen radio stations, we hope to generate proceedsgreater than $250,000 from the resale of excess equipment and otherassets.  However, there can be noassurance that we will be able to resell any acquired assets.

 

9

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The Company’sability to 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**

 

We expect torealize operating income of approximately $139,000 and net pre tax income ofapproximately $ 95,000 during the next twelve months.  As we continue to transition from the development stage toinitial revenue-generating operations, and as radio stations are acquired inaccordance with the established business plan, we expect to leverage economiesof scale through the aggregation of operations and media sales in contiguousmarkets, and through the establishment of standardized programming.

 

## **Liquidity andCapital Resources**

 

Our major sourcesof capital during the interim period ended September 30, 2002 have beenoperating revenues, short-term loans from our shareholders and extended paymentterms from certain trade creditors, as presented in the Statement of Cash Flowherein.

 

We anticipatethat, with the combination of station seller-financing, third party creditfacilities and new investments from private investors, we may not need to raiseadditional funds over the next twelve months and that these facilities wouldprovide adequate capital to ensure sufficient liquidity and capitalization overthe next twelve months. However, in addition to these potential sources offunds, we are also pursuing alternative sources of liquidity and capitalresources to fund the ongoing operation and growth of the Company.

 

In conjunctionwith their audit report on our consolidated financial statements as of June 30,2002, our independent certified public accountants expressed doubt about ourability to continue as a going concern because such continuance is dependentupon our ability to raise capital.

 

We have explored,and will continue to explore, all possible avenues for raising the capitalrequired to maintain operations on a going forward basis until we have acquireda sufficient number of stations and are generating sufficient revenue andprofitability to be sustainable.

 

As we transitionfrom a development stage enterprise to an operating entity, our ability toachieve the growth objectives described above, particularly with respect tostation acquisition, staffing and revenue generation, will depend directly onthe availability of anticipated funds, as well as seller financingarrangements.

 

Ultimately, wemust achieve profitable operations if we are to be a viable entity.  We intend to purchase existing radiostations that are currently operating at breakeven or are individually profitable.  Although we believe there is a reasonablebasis for anticipating that we will successfully raise the necessary funds, wecannot guarantee that sufficient capital will be raised to sustain operationsto profitability in accordance with the objectives described above.

 

10

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**PART II – OTHER INFORMATION**

** **

# **Item 1.        Legal Proceedings**

 

There are nomaterial, pending legal proceedings to which the Company or any of itssubsidiaries is a party or of which any of their property is the subject.

 

# **Item 2.        Changes in Securities and Use of Proceeds**

 

Not applicable.

 

# **Item 3.        Defaults Upon Senior Securities**

 

Not applicable.

 

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

 

Not applicable.

 

# **Item 5.        Other Information**

 

None.

 

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

 

###### **(a)**                                  *Exhibits*.  Exhibits required by Item 601of Regulation S-B are incorporated herein by reference and are listed on theattached Exhibit Index, which begins on page X–1 of this Annual Report onForm 10–KSB.

###### **(b)**                                 *Reports on Form8–K*.  During the fiscal quarter ended September 30, 2002, the Companyfiled the following Current Reports on Form 8–K:

1.**                                      **On July 2, 2002, we filed a CurrentReport on Form 8-K to report our acquisition of WDGR-AM in Dahlonega, Georgia,which was completed on June 28, 2002.

2.**                                      **On September 9, 2002, we filed a CurrentReport on Form 8-K to report the dismissal of BKD, LLP as our independentpublic accountant, effective as of September 3, 2002; and the engagement ofBridges & Dunn-Rankin, LLP as our independent public accountants, effectiveas of September 3, 2002.

 

11

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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/ Michael G. Cobb |
|                                 |                       | Michael G. Cobb, Chief Financial Officer |
|  

Date: November 14, 2002 |                       |   |

 

 

**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 ofregistrant’s board of directors (or persons performing the equivalentfunction):

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                      |
| Date   | November 14, 2002 | Daniel W. Hollis, Chief Executive Officer |

 

 

12

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I, Michael G. Cobb, 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 ofregistrant’s board of directors (or persons performing the equivalentfunction):

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/ Michael G. Cobb                      |
| Date   | November 14, 2002 | Michael G. Cobb, Chief Executive Officer |

 

 

13

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**EXHIBITINDEX**
| **Exhibit No.** |   | **Description** |   |
|-----------------|--------|-----------------|--------|

2.1**                                                        **Agreement and Plan of Merger dated April30, 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 2.2to the Company’s Current Report on Form 8-K dated May 7, 2001.

2.2**                                                        **Agreement and Plan of Merger dated as ofMay 3, 2002 among Worldwide PetroMoly, Inc., a Colorado corporation, and SmallTown Radio, Inc., a Nevada corporation.

2.3**                                                        **Warranty Bill of Sale and Assignmentdated June 25, 2002 among Greenwood Communications Corp., Ann B. Greenwood andthe Company, incorporated herein by reference to Exhibit 2.1 to the Company’sCurrent Report on Form 8–K dated June 17, 2002.

3i.1**                                                     **Articles of Incorporation of Small TownRadio, Inc., incorporated by reference to Exhibit 3i.1 to the Company’s AnnualReport 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 onForm 10–KSB for the fiscal year ended June 30, 2002.

4.1**                                                        **$5,000 Demand Note of the Company datedFebruary 3, 2001, issued to Bolling Investments, LLC, incorporated herein byreference 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 datedMarch 26, 2001, issued to Wayne Shortridge, incorporated herein by reference toExhibit 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 10.14to 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 Exhibit10.15 to the Company’s Registration Statement on Form SB-2 (File No.333-70176).

4.5**                                                        **$50,000 Demand Note of the Company datedAugust 3, 2001, issued to John F. McMullan, incorporated herein by reference toExhibit 10.16 to the Company’s Registration Statement on Form SB-2 (File No.333-70176).

4.6**                                                        **$216,000 Secured Note of the Companydated June 17, 2002, issued to Wayne Shortridge, incorporated herein byreference to Exhibit 4.1 to the Company’s Current Report on Form 8–Kdated June 17, 2002.

4.7**                                                        **Note Purchase Agreement dated as of June17, 2002 between the Company and Wayne Shortridge, incorporated herein byreference to Exhibit 4.2 to the Company’s Current Report on Form 8–Kdated June 17, 2002.

4.8**                                                        **Security Agreement dated as of June 17,2002 between the Company and Wayne Shortridge, incorporated herein by referenceto 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 theCompany, dated June 17, 2002, issued to Wayne Shortridge, incorporated hereinby reference to Exhibit 4.4 to the Company’s Current Report on Form 8–Kdated June 17, 2002.

10.1†**                                            **Worldwide PetroMoly, Inc. Stock IncentivePlan, incorporated herein by reference to Exhibit 4.1 to the Company’sRegistration 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 referenceto 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, incorporatedherein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8–Kdated 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 ofcertifying accountant, incorporated herein by reference to Exhibit 16.1 to theCompany’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, PublicLaw 107-204), dated November 14, 2002, executed by Daniel W. Hollis, Chairmanof 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, PublicLaw 107-204), dated November 14, 2002, executed by Michael G. Cobb, ChiefFinancial Officer of the Company.

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*              Filed herewith.

†              Management contract orcompensatory plan

 

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