SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 1, 2001
WORLDWIDE PETROMOLY,INC.
(Exact Name of Registrant as Specified in Its Charter)
COLORADO 000-24682 84-1125214
- --------------------------------------------------------------------------------
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
12600 Deerfield Parkway, Suite 100
Alpharetta, Georgia 30004
(Address of Principal Executive Offices, Including Zip Code)
-----------------------------------------------------------------------
(678) 762-3295
Registrant's Telephone Number, Including Area Code
-----------------------------------------------------------------------
1300 Post Oak Boulevard, Suite 1985
Houston, Texas 77056
(Former Address, If Changed Since Last Report)
=======================================================================
This is Amendment No. 1 to the Registrant's current report on Form 8-K that was
originally filed on June 15, 2001. This Amendment No. 1 is being filed to
include financial statements of Small Town Radio, Inc. and required Pro Forma
financial information.
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
A change in control of the Registrant occurred on June 1, 2001 (the
"Effective Time") pursuant to the terms and conditions of an Agreement and Plan
of Merger, dated as of March 26, 2001 and amended on April 30, 2001 (the "Merger
Agreement"), by and among the Registrant, Small Town Radio, Inc., a Georgia
corporation ("STRI"), Petro Merger, Inc., a Georgia corporation and wholly-owned
subsidiary of the Registrant ("Petro Merger"), Gilbert Gertner, a resident of
the State of Texas and former Chairman of the Board of the Registrant
("Gertner") and certain shareholders of STRI. All references to the terms of the
Merger Agreement are qualified in their entirety by reference to the Merger
Agreement, which is attached as Exhibit 2.1 hereto and incorporated herein by
this reference.
The Merger Agreement provided for the merger (the "Merger") of Petro
Merger with and into STRI, with STRI as the surviving corporation. As a result
of the Merger, STRI became a wholly owned subsidiary of the Registrant and the
former shareholders of STRI received an aggregate of 118,467,860 shares or
approximately 75% of the outstanding shares of the common stock, no par value,
of the Registrant (the "Common Stock"). Because the shares of Common Stock
received by the former shareholders of STRI were not registered under the
Securities Act of 1933, as amended (the "Act"), such shares are "restricted
securities" (as defined in Rule 144 promulgated under the Act) and accordingly,
may not be sold or transferred by the holders thereof unless such shares are
registered under the Act or are sold or transferred pursuant to an exemption
there from.
The Merger Agreement contemplated that, as a condition to closing, not
less than $4 million in equity financing be obtained. At the time the Merger
Agreement was executed, it was anticipated that such financing would be obtained
through the sale of preferred stock by STRI, which would be converted as a
result of the Merger into shares of the Registrant's convertible preferred
stock. Such convertible preferred stock would have represented approximately
18.1% of the Registrant's common stock on a fully-diluted basis. The parties
waived the financing condition to the Merger Agreement, and no such convertible
preferred stock was issued or is issuable in connection with or as a result of
the Merger.
Effective as of the Effective Time, the Board of Directors of the
Registrant (the "Board"), which, prior to the Effective Time, was composed of
Gertner, and Messrs. Lance Rosmarin and Norton Cooper, was increased in size
from three to four members. Effective as of the Effective Time, Gertner resigned
from the Board and the following persons were elected to fill the vacancies on
the Board: Robert (Robin) S. Vail and William Ross (the "STRI Designees").
Information with respect to the STRI Designees, including beneficial ownership
of the Common Stock held by such STRI Designees, is included in the Registrant's
Information Statement pursuant to Section 14(f) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and Rule 14f-1 thereunder, filed by the
Registrant on April 2, 2001 (the "Information Statement"), which is incorporated
herein by this reference.
2
Subsequent to the filing of the Information Statement and prior to the
Effective Time, Mr. John McManus, who was identified as an STRI Designee in the
Information Statement, resigned from the Board of Directors of STRI, and STRI
therefore chose not to name him as a STRI Designee to the Registrant's Board.
After the Effective Time, in an action by unanimous written consent, the Board
voted to increase the size of the Board to seven persons and elected William
Fleming, Lauren B. Kahn and John F. McMullan to fill the vacancies created by
such increase. Information concerning Messrs. Fleming and McMullan and Ms. Kahn
is included in Item 5 of this Report. The Board also elected Robert (Robin) S.
Vail as Chairman of the Board and appointed him as Chief Financial Officer; and,
by operation of the Merger Agreement, Messrs. Gertner and Rosmarin are no longer
officers of the Company. In addition, the Board approved the sale of the capital
stock of Worldwide PetroMoly Corporation ("WPC"), a Texas corporation and
wholly-owned subsidiary of the Registrant to Gertner. The sale of the stock to
WPC is described in Item 2 of this Report.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF STRI
On June 1, 2001, the Merger was consummated in accordance with the
terms and conditions of the Merger Agreement, including the waiver of certain
closing conditions. Pursuant thereto, Petro Merger, a wholly-owned subsidiary of
Registrant, was merged with and into STRI, with STRI as the surviving
corporation. Following the Merger, STRI became a wholly-owned subsidiary of the
Registrant. In consideration for the Merger, the former shareholders of STRI
received one share of the Registrant's Common Stock for each share of STRI
Common Stock then issued and outstanding (the "Merger Consideration"). As a
result thereof, the former shareholders of STRI now beneficially own an
aggregate of 118,467,860 shares (approximately 75%) of the outstanding Common
Stock. The Merger Consideration was determined in arms' length negotiations
between the parties to the Merger Agreement. The negotiations were based on the
principle that the exchange ratio of Registrant's shares for STRI's shares
should reflect the relative values of the Registrant's existing business, which
had negative net worth, and the proposed business of STRI, including a
commitment that STRI had secured for financing. Prior to the consummation of the
Merger, there were no material relationships between STRI and its former
officers, directors, affiliates, associates or shareholders and the officers,
directors, affiliates, associates or shareholders of the Registrant. The Company
is actively pursuing several financing alternatives in order to fund its
business plan.
As described in Item 1 of this Report, upon consummation of the Merger,
the STRI Designees were elected to the Board. The Registrant's response to Item
1 of this Report is incorporated herein by this reference. The foregoing
description of the Merger and the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, which is being filed as an exhibit to this
report. In addition, the Registrant's Information Statement and Report on Form
8-K dated March 27, 2001, which reported the announcement of the execution of
the Merger Agreement, is incorporated herein and made a part hereof by this
reference.
3
The following is a description of STRI and its proposed plan of
operations. This description includes forward-looking statements. The Registrant
has based these forward-looking statements largely on its current expectations
and projections about future events and financial trends affecting the financial
condition of STRI's business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, including, among other things:
o General economic and business conditions, both nationally and in STRI's
markets:
The U.S. economy has recently experienced a significant slow
down in its rate of growth, and media providers such as STRI have been
affected. A further slow down in the economy may have a significant
impact on a company such as STRI that plans to operate in small,
non-rated markets, which typically have agricultural or light industry as
their employment base, and are especially susceptible to fluctuations in
the economy. As most of STRI's revenues will be derived from advertising,
as described later in this section, if the economies of the markets in
which STRI operates continue to be adversely affected, there will be a
concomitant impact on STRI's ability to generate revenues.
o STRI's expectations and estimates concerning future financial performance,
financing plans and the impact of competition:
In addition to the concerns noted above regarding slow down of
the economy, it is also possible that competition pursuing a business
plan similar to STRI's could construct a network similar to STRI's in the
same, or a geographically contiguous, area such as to compete with STRI's
network. It is also possible that a competitor to STRI could complete
acquisitions in the same, or a geographically contiguous, area prior to
STRI, and thus would have the competitive advantage of being the first
into the market, which would adversely impact STRI's business plan and
ability to compete.
Also, although STRI has obtained a commitment for financing,
it requires interim financing until such financing can be finalized. STRI
can make no assurances that it will successfully complete such financing
or that it will be able to obtain interim financing prior to such
completion. STRI can also give no assurance that the financing it may
obtain, if any, will be sufficient to implement or expand on its business
plan.
o Anticipated trends in the radio business:
The technology available to the radio industry allowing it to
deliver programming is changing dramatically due to the rapid evolution
in the means of content delivery over the last five years. While STRI
plans to utilize some of the most recently developed technology, it can
give no assurance that its technology will be an effective or
cost-efficient means for the delivery of radio programming, or that newer
technology will not be introduced to the marketplace that will render
STRI's technology obsolete.
4
o Existing and future regulations affecting the radio business:
Due to recent amendments to the Communications Act of 1934, as
amended, the marketplace is currently characterized by favorable
regulations with respect to companies attempting to acquire radio
broadcast stations in a contiguous geographical area. There is, however,
no guarantee that these regulations will not again be amended to prevent
the aggregation of radio broadcast stations as planned by STRI. Such a
change in regulations could force STRI to divest itself of stations that
it plans to buy in the near term, as well as prevent STRI from executing
on its long term plans of aggregating more stations into its operations
and network.
o Acquisition opportunities:
STRI may not be able to acquire radio stations on the Schedule
that it presently anticipates, and there is a risk that STRI will not be
able to successfully integrate new stations into its network as it
purchases them.
In addition, in this description, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to the Registrant and STRI, their business or their
management, are intended to identify forward-looking statements.
The Registrant undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this description may not
occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.
Small Town Radio, Inc. ("STRI") was incorporated in the State of
Georgia in March, 2000. From the date of its incorporation, STRI's founding
shareholders have investigated and developed a plan of operation pursuant to
which STRI will acquire and operate radio stations generally located in
geographically contiguous small, non-rated markets, initially located in rural
areas of South Georgia. On March 26, 2001, STRI and the Registrant entered into
the Merger Agreement, and on April 30, 2001 the Merger Agreement was amended,
and it became effective on June 1, 2001. On June 7, 2001 the Registrant
completed the sale of WPC to Gertner as contemplated by the Merger Agreement
pursuant to an arms length negotiation of a stock purchase agreement between the
Registrant and Gertner. WPC conducts the Registrant's former lubricants products
business. A description of the disposition of WPC is contained under the heading
"Disposition of WPC" in this section of this Report.
STRI's business strategy is to secure through acquisition a significant
number of radio stations in its target markets, generally smaller, less
populated areas near, but not in, mid-sized and larger markets. STRI intends
initially to acquire radio stations in rural sections of South Georgia, and then
expand into additional, generally geographically contiguous markets in the
Southeast. STRI
5
believes that a network of stations in generally contiguous broadcast areas with
two or three common programming formats will provide an advertising and listener
base of significant size.
STRI believes that acquiring radio stations in small, less populated
markets represent attractive opportunities, because they are generally
characterized by:
o A small number of stations, few of which have professional sales staff
which solicit advertising from the business community;
o A greater need for radio advertising compared to the national average,
especially by those businesses that need to recruit consumer
transactions from nearby cities and towns;
o A population increasing, in many cases, at a percentage rate greater
than the national average, as people relocate to smaller towns to
improve their quality of life;
o Opportunities for substantial growth in advertising revenues as
national and regional retailers expand into smaller, less populated
areas;
o A weaker competitive environment, as compared to major metropolitan
areas, comprised of small independent operators, many of whom lack the
capital to produce locally-originated programming and/or to employ
more sophisticated research, marketing, management and sales
techniques; and
o Less direct format competition due to a smaller number of stations in
any given market, and relative consistent listener interests such that
two or three programming formats may reach a dominant share of the
market.
These market characteristics, coupled with the opportunity to establish
contiguous coverage across multiple radio station markets, create the potential
for revenue growth and cost efficiencies.
STRI is currently pursuing negotiations for the purchase of several
radio stations in South Georgia. Assuming successful completion of its planned
initial acquisitions, STRI will own approximately seven radio stations utilizing
"frequency modulation" ("FM") and approximately four radio stations utilizing
"amplitude modulation" ("AM"), as well as a television station, in South
Georgia. However no assurance can be given that STRI will be successful in
completing any or all of these proposed acquisitions. Assuming successful
completion of its initial acquisition plan, STRI plans to acquire additional
stations in generally geographically contiguous areas in small non-rated markets
in order to build a group of stations that can be operated as a network, and
thus, STRI believes, achieve operating efficiencies and marketing leverage
derived from a larger advertising customer and listener base.
6
Operating Strategy. STRI's operating strategy is to maximize the
geographical coverage of its network of radio stations, thereby increasing the
number of available listeners and advertisers and, STRI believes consequently,
increasing broadcast revenue and cash flow. To achieve these goals, STRI intends
to:
o Secure and maintain a leadership position by owning a network of
stations with contiguous broadcast coverage to increase the
overall size of the markets served;
o Coordinate programming, promotional and sales strategies among
each group of local stations to enhance revenue opportunities
and maximize cost efficiencies within each market;
o Implement a regional sales staff and marketing initiatives to maximize
its share of local advertising revenue in each market, as well as
across the broadcast network;
o Combine market research with an assessment of its competitors'
vulnerabilities in order to identify significant and sustainable
target audiences;
o Acquire up to two FM and one AM station in each market, so that
the broadcast signal reaches the nearest adjacent market;
o Achieve a significant penetration of the listener market with
the use of two or three programming formats within the network;
and
o Centralize operating activities across the region, with programming
that appeals to the collective market, while customizing local
programming.
Ownership of Generally Geographically Contiguous Stations. STRI will
attempt to secure and maintain a leadership position in the markets it serves by
creating geographical signal coverage, not only in those markets in which STRI
will own stations, but also in adjacent markets by owning two or three stations,
each with programming appealing to a different segment of the population. By
coordinating programming, promotional and sales strategies within each local
station at the regional level, STRI will attempt to capture a wide demographic
range of listeners, thus providing a broader appeal to advertisers.
STRI will provide a mix of local inventory of available advertising
time and spots on its network of stations. By offering both local advertising
and access to adjacent markets through its network of stations, STRI believes
that it will strengthen relationships with advertisers, and maximize the value
of its advertising inventory.
STRI also intends to develop regional programming and sales resources
of its radio station network to enhance the growth potential of under performing
stations. Through consolidation into a common studio broadcasting facility, STRI
believes that it can reduce the risks associated with the implementation of
station performance improvements, such as new format launches and technical
upgrades. This strategy will permit combined programming with regional appeal,
while maintaining a level of localized input. STRI intends to achieve cost
7
savings within a market by consolidating facilities, sales and administrative
personnel, management and operating resources, such as on-air talent,
programming and music research, and reducing other redundant expenses.
Sales and Marketing Initiatives. STRI intends to maximize its share of
local advertising revenue in each of its markets through sales and marketing
initiatives. Because many of the radio stations that STRI may acquire have no
dedicated, or trained, sales staff, STRI believes that it can derive significant
benefits from creating or expanding the sales forces of acquired stations. STRI
intends to maximize revenue by utilizing sophisticated inventory management
techniques to provide sales personnel with frequent price adjustments based on
regional and local market conditions. STRI expects to strengthen relationships
with some advertisers by offering on-site events staged at, and broadcast from,
the advertiser's business location.
Targeted Programming and Promotion. To maintain or improve STRI's
position in each market, it will combine market research with an assessment of
competitors' vulnerabilities in order to identify significant and sustainable
target audiences. STRI will then tailor the programming, marketing and promotion
of each radio station to maximize its appeal to the targeted audience. STRI will
attempt to build strong markets by:
o Creating distinct, highly visible profiles with regional appeal for
its on-air personalities, particularly those broadcasting during
morning drive time, which traditionally airs between 6:00 a.m. and
10:00 a.m.;
o Utilizing multiple formats, which can reach a dominant portion
of the population in these smaller markets;
o Formulating recognition for the STRI network, in addition to the
individual stations, to promote listenership and advertising
leverage across the entire geographical area; and
o Actively participating in community events and charities.
Combination of Centralized Operations and Local Presence. STRI believes
that radio requires a local presence, both in its programming and by being
active in the community. Accordingly, although much of its operations will be
centralized it will maintain a "Community Coordinator" within each market.
Further, the sales staff will actively participate in the community and maintain
valuable relationships within the area. From a broadcast standpoint, STRI will
incorporate local news and information into its regional programming format, so
that programming content will both appeal to the population within the entire
region as well as provide localized content that is supportive of the station
community.
Source of Revenues
- ------------------
It is anticipated that virtually all of STRI's revenue will be
generated from the sale of local, regional and national advertising for
broadcast on its radio stations. Based on industry trends, approximately 83.0%
8
of net broadcast revenue will be generated from the sale of local and regional
advertising. Additional broadcast revenue is expected as a result of the sale of
national advertising, network compensation payments and other miscellaneous
transactions. The major categories of advertisers include telephone companies,
restaurants, fast food chains, automotive companies and grocery stores.
Each station's local sales staff will solicit advertising either
directly from the local advertiser or indirectly through an advertising agency.
Through direct advertiser relationships, STRI believes it can better understand
the advertiser's business needs and more effectively design advertising
campaigns to sell the advertiser's products. STRI will employ personnel in each
market to produce commercials for the advertiser. In-house production, combined
with effectively designed advertising, STRI believes will establish a stronger
relationship between the advertiser and the station cluster. National sales will
be made by a firm specializing in radio advertising sales on the national level
in exchange for a commission based on gross revenue. Regional sales, which STRI
defines as sales in regions surrounding its markets to companies that advertise
in its markets, will be made by STRI's local sales staff.
Depending on the programming format of a particular station, STRI will
estimate the optimum number of advertising spots available. The number of
advertisements that can be broadcast without jeopardizing listening levels is
limited in part by the format of a particular station. STRI will strive to
maximize station revenue by managing advertising inventory. Stations will adjust
pricing based on local market conditions and the ability to provide advertisers
with an effective means of reaching a targeted demographic group. Each station
has a general target level of on-air inventory. This target level of inventory
may be different at different times of the day, but tends to remain stable over
time. Selling activity is based on demand for the radio stations' on-air
inventory and, in general, STRI will respond to this demand by varying prices
rather than its target inventory level for a particular station.
A station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to the station and the time they spend listening.
Each station's ratings are used by its advertisers and advertising
representatives to consider advertising with the station and are used by us to
chart audience levels, set advertising rates and adjust programming. The radio
broadcast industry's principal ratings service is The Arbitron Company, which
publishes periodic ratings surveys for significant domestic radio markets. While
these provide comparative data for larger markets, it generally does not cover
the smaller, "unrated" markets in which STRI will have a presence. As such, STRI
will rely more heavily on information provided by local and state officials in
estimating available population and market size. These surveys will be its
primary source of audience ratings data.
9
Competition
- -----------
The radio broadcasting industry is highly competitive. The success of
each station depends largely upon audience ratings and its share of the overall
advertising revenue within its market. Stations compete for listeners and
advertising revenue directly with other radio stations within their respective
markets. Radio stations compete for listeners primarily on the basis of program
content that appeals to a particular demographic group. Building a strong
listener base consisting of a specific demographic group in a market enables an
operator to attract advertisers seeking to reach those listeners. Companies that
operate radio stations must be alert to the possibility of another station
changing format to compete directly for listeners and advertisers. A station's
decision to convert to a format similar to that of another radio station in the
same geographic area may result in lower ratings and advertising revenue,
increased promotion and other expenses and, consequently, lower broadcast cash
flow.
Factors that are material to a radio station's competitive position
include management experience, the station's local audience rank in its market,
transmitter power, assigned frequency, audience characteristics, local program
acceptance and the number and characteristics of other radio stations in the
market area. Recent changes in FCC policies and rules permit increased ownership
and operation of multiple local radio stations. Management believes that radio
stations that elect to take advantage of joint arrangements such as local
marketing agreements or joint sales agreements may in certain circumstances have
lower operating costs and may be able to offer advertisers more attractive rates
and services.
Although the radio broadcasting industry is highly competitive, some
barriers to entry exist. The operation of a radio broadcast station requires a
license from the FCC, and the number of radio stations that can operate in a
given market is limited by the availability of FM and AM radio frequencies
allotted by the FCC to communities in that market, as well as by the FCC's
multiple ownership rules regulating the number of stations that may be owned and
controlled by a single entity. The FCC's multiple ownership rules have changed
significantly as a result of the Telecommunications Act of 1996 (the
"Telecommunications Act").
Stations compete for advertising revenue with other media, including
newspapers, broadcast television, cable television, magazines, direct mail,
coupons and outdoor advertising. In addition, the radio broadcasting industry is
subject to competition from new media technologies that are being developed or
introduced, such as the delivery of audio programming by cable television
systems, by satellite and by digital audio broadcasting. Digital audio
broadcasting may deliver by satellite to nationwide and regional audiences,
multi-channel, multi-format, digital radio services with sound quality
equivalent to compact discs. The delivery of information through the Internet
also could create a new form of competition.
10
Properties and Facilities
- -------------------------
The types of properties required to support radio stations include
offices, studios, transmitter sites and antenna sites. The transmitter and
antenna sites are generally located to provide maximum market coverage. Most
acquisitions will include substantial land at the transmitter site, as well as
facilities that have historically been used for local studio space and offices.
While STRI expects to maintain a small office in each market for Community
Coordinators and sales staff, these are expected to be modest facilities that
can be maintained at nominal expense. STRI will likely sell, or utilize in
another manner, the studio space that it acquires. With regard to the
transmitter facilities, which are generally located at the tower location for
each station, STRI intends to install the minimum studio equipment necessary to
perform broadcasting, locally, on an emergency basis. This will allow STRI
significant flexibility while gaining the operational cost advantages of
consolidating studios at a centralized location in the Atlanta metropolitan
area. STRI will own or lease substantially all of its operating equipment,
consisting principally of transmitting antennae, transmitters, studio equipment
and general office equipment.
STRI has office space located at 12600 Deerfield Parkway, Suite 100,
Alpharetta, Georgia 30004, which has become the principal executive offices of
the Registrant. Additionally, STRI plans to obtain studio space in the Atlanta,
Georgia metropolitan area.
Legal Proceedings
- -----------------
STRI is not currently involved in any legal proceeding associated with
the conduct of its business.
Federal Regulation of Radio Broadcasting
- ----------------------------------------
Introduction. The ownership, operation and sale of broadcast stations
are subject to the jurisdiction of the FCC, which acts under authority derived
from the Communications Act of 1934, as amended (the "Communications Act"). The
Telecommunications Act made changes in several broadcast laws. Among other
things, the FCC:
o assigns frequency bands for broadcasting;
o determines whether to approve changes in ownership or control of
station licenses;
o regulates equipment used by stations;
o adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation and employment
practices of stations; and
o has the power to impose penalties for violations of its rules
under the Communications Act.
11
Communications Act.
- -------------------
The following is a brief summary of certain provisions of the
Communications Act and of specific FCC regulations and policies. Failure to
observe these or other rules and policies can result in the imposition of
various sanctions, including fines, the grant of abbreviated license renewal
terms or, for particularly egregious violations, the denial of a license renewal
application, the revocation of a license or the denial of FCC consent to acquire
additional broadcast properties.
License Grant and Renewal. Radio stations operate under renewable
broadcasting licenses that are ordinarily granted by the FCC for maximum terms
of eight years. Licenses are renewed through an application to the FCC.
Petitions to deny license renewals can be filed by interested parties, including
members of the public. These petitions may raise various issues before the FCC.
The FCC is required to hold hearings on renewal applications if the FCC is
unable to determine that renewal of a license would serve the public interest,
convenience and necessity, or if a petition to deny raises a substantial and
material question of fact as to whether the grant of the renewal application
would be inconsistent with the public interest, convenience and necessity. If,
as a result of an evidentiary hearing, the FCC determines that the licensee has
failed to meet certain requirements and that no mitigating factors justify the
imposition of a lesser sanction, then the FCC may deny a license renewal
application.
STRI is not currently aware of any facts that would prevent the timely
renewal of the licenses to operate the broadcast stations that it intends to
acquire, although there can be no assurance that all of its licenses will be
renewed.
Transfers or Assignment of Licenses. The Communications Act prohibits
the assignment or transfer of a broadcast license without the prior approval of
the FCC. In determining whether to grant approval, the FCC considers a number of
factors pertaining to the licensee (and proposed licensee), including:
o Compliance with the various rules limiting common ownership of
media properties in a given market;
o The "character" of the licensee and those persons holding
"attributable" interests in the licensee; and
o Compliance with the Communications Act's limitations on alien
ownership as well as compliance with other FCC regulations and
policies.
To obtain FCC consent to assign or transfer control of a broadcast
license, appropriate applications must be filed with the FCC. If the application
involves a "substantial change" in ownership or control, the application must be
placed on public notice for not less than 30 days during which time period
petitions to deny or other objections against the application may be filed by
interested parties, including members of the public. If the application does not
involve a "substantial change" in ownership or control, it is a "pro forma"
12
application. The "pro forma" application is nevertheless subject to having
informal objections filed against it. When passing on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer of the broadcast license to any
party other than the assignee or transferee specified in the application.
STRI is not currently aware of any facts that would prevent the timely
transfer to us of the licenses held by the current owners of the radio stations
it will purchase.
Multiple Ownership Rules. The Communications Act and FCC rules impose
specific limits on the number of commercial radio stations an entity can own, or
in which it can hold an attributable interest, in a single local market. These
rules preclude STRI from acquiring certain stations it might otherwise seek to
acquire. The rules also effectively prevent STRI from selling stations in a
market to a buyer that has reached its ownership limit in the market. The local
radio ownership rules are as follows:
o In markets with 45 or more commercial radio stations, ownership is
limited to eight commercial stations, no more than five of which can
be either AM or FM;
o In markets with 30 to 44 commercial radio stations, ownership is
limited to seven commercial stations, no more than four of which
can be either AM or FM;
o In markets with 15 to 29 commercial radio stations, ownership is
limited to six commercial stations, no more than four of which
can be either AM or FM; and
o In markets with 14 or fewer commercial radio stations, ownership is
limited to five commercial stations or no more than 50.0% of the
market's total, whichever is lower, and no more than three of which
can be either AM or FM.
In addition, FCC rules restrict an entity's ability to own, or hold an
attributable interest in, radio stations and television stations or newspapers
in a single local market. An officer or director of, or the holder of 5% or more
of the voting stock in, a broadcast license, generally are included among those
deemed to hold an attributable interest in that license.
Programming and Operation. The Communications Act requires broadcasters
to serve the public interest. Since 1981, the FCC gradually has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and to
maintain records demonstrating such responsiveness. Complaints from listeners
concerning a station's programming will be considered by the FCC when it
evaluates the licensee's renewal application, but such complaints may be filed
and considered at any time.
13
Stations also must pay regulatory and application fees and follow
various FCC rules that regulate, among other things, political advertising, and
the broadcast of obscene or indecent programming, sponsorship identification and
technical operations, including limits on radio frequency radiation. In
addition, the FCC formerly required that licensees develop and implement
programs designed to promote equal employment opportunities.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary fines, the grant of short
(less than the maximum) renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
In 1985, the FCC adopted rules regarding human exposures to levels of
radio frequency radiation. These rules require applicants for new broadcast
stations, renewals of broadcast licenses or modifications of existing licenses
to inform the FCC at the time of filing such applications whether a new or
existing broadcast facility would expose people to radio frequency radiation in
excess of FCC guidelines. In August 1996, the FCC adopted more restrictive
radiation limits. These limits became effective on September 1, 1997 and govern
applications filed after that date.
DISPOSITION OF WPC
Since 1996, the Registrant has been engaged in the business of
manufacturing, marketing and distributing a line of molybdenum fortified
lubricant products called PetroMoly(TM) , which used the Registrant's
proprietary technology called Molytech(TM) to blend an extended drain, high
performance engine oil designed to enhance and maintain all types of engines at
their peak levels. The Registrant's lubricant business was operated out of its
wholly owned subsidiary, WPC. To date, the Registrant has been unsuccessful in
creating a sustained commercial market for its lubricant products, and WPC has a
negative net worth in excess of approximately $1,200,000 and is incurring
on-going operating losses in excess of approximately $100,000 per month.
As previously disclosed in the Registrant's Report on Form 8-K dated
March 27, 2001, in the Information Statement, and in the Registrant's Report on
Form 8-K dated May 7, 2001, all of which are incorporated herein and made a part
hereof by this reference, the Registrant negotiated an agreement with Gertner,
the former Chairman of the Board of the Registrant, for the assumption by him of
the assets and liabilities of WPC and the purchase of all of WPC's issued and
outstanding shares held by the Registrant (the "Stock Purchase Agreement"). The
Registrant has determined that WPC's negative net worth, limited assets, ongoing
losses and lack of reasonable prospects to improve its business, the assumption
by Gertner of WPC's assets and liabilities, and the potential to receive profit
(as discussed below), should there be any, from Gertner's continuing operations
of WPC as a separate business entity, render the consideration for the Stock
Purchase Agreement appropriate for this arms-length negotiated transaction. In
addition, and in consideration of the cancellation of approximately $1.5 million
14
in indebtedness owed by the Registrant to Gertner, the Registrant issued 13
million shares of its common stock to Gertner. The shares issued to Gertner are
"restricted securities" (as defined in Rule 144 promulgated under the Act) and
accordingly may not be sold or transferred by the holder thereof unless
registered under the Act or transferred pursuant to an exemption therefrom.
On June 7, 2001, as contemplated by the terms and conditions of the
Stock Purchase Agreement, the Registrant completed the sale of its automotive
lubricant business conducted by WPC to Gertner. All references to the terms of
the Stock Purchase Agreement are qualified in their entirety by reference to the
Stock Purchase Agreement, which is attached as Exhibit 2.2. hereto, and
incorporated herein by this reference.
Pursuant to the terms of the Stock Purchase Agreement Gertner has
agreed to pay the Registrant a percentage of any profits generated by the sale
of WPC's assets, in the event of a sale, or a percentage of the net profits from
its continuing business operations, should there be any, for a period of
eighteen months following the closing of the Stock Purchase Agreement.
Specifically, pursuant to the terms of the Stock Purchase Agreement, if, within
540 days after the closing of the Stock Purchase Agreement (the "Sales Period"),
Gertner sells, in the aggregate, more than 50% of the capital stock of WPC, or
if WPC sells, in the aggregate, more than 50% of the then existing assets of WPC
(collectively, the "Sales Transaction"), then Gertner shall deliver, or cause to
be delivered, a portion of the Net Proceeds (as hereinafter defined) of the
Sales Transaction to the Registrant. As used in the Stock Purchase Agreement,
"Net Proceeds" means proceeds of the Sales Transaction after the payment of all
expenses, costs and taxes (the "Net Proceeds"). The Stock Purchase Agreement
provides that the amount of the Net Proceeds to be paid to Registrant shall be
as follows:
a) If a Sales Transaction is consummated during the period beginning on
day one and ending on day 180 of the Sales Period, then the amount to be paid to
the Registrant shall be ten percent (10%) of the Net Proceeds;
b) If a Sales Transaction is consummated during the period beginning on
day 181 and ending on day 360 of the Sales Period, then the amount to be paid to
the Registrant shall be seven percent (7%) of the Net Proceeds; and
c) If a Sales Transaction is consummated during the period beginning on
day 361 and ending on day 540 of the Sales Period, then the amount to be paid to
the Registrant shall be five percent (5%) of the Net Proceeds.
The Stock Purchase Agreement also provides that, if, within the Sales
Period, WPC achieves a net operating profit, as that term is defined by
generally accepted accounting principals applicable to WPC, (the "Net Operating
Profit") then Gertner shall cause to be delivered to the Registrant a percentage
(the "Percentage") of the Net Operating Profit of WPC. The Percentage of the Net
Operating Profit, if any is achieved, to be paid to Registrant shall be as
follows:
a) If there is a Net Operating Profit during the period beginning on
day one and ending on day 180 of the Sales Period, then the Percentage to be
paid to Registrant shall be ten percent (10%) of the Net Operating Profit;
15
b) If there is a Net Operating Profit during the period beginning on
day 181 and ending on day 360 of the Sales Period, then the Percentage to be
paid to Registrant shall be seven percent (7%) of the Net Operating Profit; and
c) If there is a Net Operating Profit during the period beginning on
day 361 and ending on day 540 of the Sales Period, then the Percentage to be
paid to Registrant shall be five percent (5%) of the Net Operating Profit.
ITEM 5. OTHER INFORMATION
On June 8, 2001 the Registrant issued a press release announcing the
election of William Fleming, Lauren B. Kahn and John F. McMullan to the
Registrant's Board of Directors. The Registrant also announced the completion of
the sale of its automotive lubricant business, as discussed in Item 2. A copy of
the press release announcing these matters in filed herewith as Exhibit 99.2 to
this Report.
16
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements
Independent Accountants' Report
The Board of Directors
Small Town Radio, Inc.
Alpharetta, Georgia
We have audited the accompanying balance sheet of Small Town Radio, Inc. as of
March 31, 2001, and the related statements of operations, stockholders' deficit,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Small Town Radio, Inc. as of
March 31, 2001, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in the notes to the
financial statements, the Company's continuance is dependent on its ability to
raise capital. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ BKD, LLP
Indianapolis, Indiana
July 6, 2001
(except for Note 6, as to
which the date is July 16, 2001)
17
SMALL TOWN RADIO, INC.
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31 2001
- --------------------------------------------------------------------------------
Net Sales $ 0
Operating Expenses
Organizational and start-up expenses $434,569
Professional fees 5,000
Other 250
439,819
Loss Before Income Taxes (439,819)
Income Tax Benefit 0
NET LOSS $(439,819)
See notes to financial statements.
18
SMALL TOWN RADIO, INC.
BALANCE SHEET
MARCH 31 2001
- --------------------------------------------------------------------------------
ASSET
CURRENT ASSET
Cash $ 79
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes payable--stockholders $ 30,000
Accounts payable 172,569
Accounts payable--stockholders 237,000
Accrued expenses 129
------------
Total current liabilities $ 439,698
STOCKHOLDERS' DEFICIT
Preferred stock, no stated value
Authorized--50,000,000 shares
Issued and outstanding--none
Common stock, no par value
Authorized--100,000,000 shares
Issued and outstanding--51,733,930 shares
Additional paid-in capital 200
Deficit accumulated during the
development stage (439,819)
-------------
(439,619)
-------------
$ 79
=============
See notes to financial statements.
19
SMALL TOWN RADIO, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
DEFICIT
ACCUMULATED
NUMBER ADDITIONAL DURING THE
OF COMMON PAID-IN DEVELOPMENT
SHARES STOCK CAPITAL STAGE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
BALANCES, APRIL 1, 2000 $0 $ 0 $ 0 $ 0
Net loss (439,819) (439,819)
Issuance of common stock 51,733,930 200 200
-------------------------------------------------------------------------------------
BALANCES, MARCH 31, 2001 51,733,930 $0 $ 200 $ (439,819) $ (439,619)
=====================================================================================
See notes to financial statements.
20
SMALL TOWN RADIO, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31 2001
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $(439,819)
Adjustments to reconcile net loss to net
cash used by operating activities
Changes in assets and liabilities
Accounts payable 172,569
Accounts payable--stockholders 237,000
Accrued expenses 129
------------
Net cash used by operating activities $(30,121)
FINANCING ACTIVITIES
Net increase in notes payable--stockholders 30,000
Stock issuance 200
------------
Net cash provided by financing activities 30,200
--------------
NET INCREASE IN CASH 79
CASH, BEGINNING OF YEAR 0
--------------
CASH, END OF YEAR $ 79
==============
See notes to financial statements.
21
SMALL TOWN RADIO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Small Town Radio, Inc. (Company) is a development stage enterprise. The Company
is currently focused on securing financing to allow it to enter the broadcasting
industry through a series of radio station acquisitions.
The Company's target markets are generally smaller, less populated areas near,
but not in, mid-sized and larger markets. The Company intends to initially
acquire stations in rural sections of South Georgia, and then expand into
additional, geographically contiguous markets in the Southeast. Acquisition of
the target stations will be dependent upon approval of the Federal
Communications Commission (FCC).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - INCOME TAX
Income tax expense consists of the following:
YEAR ENDED MARCH 31 2001
- --------------------------------------------------------------------------------
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $(149,539)
Change in valuation allowance 149,539
-----------
Actual tax expense $ 0
===========
The component of the deferred tax asset is follows:
MARCH 31 2001
- --------------------------------------------------------------------------------
ASSET
Net operating loss carryforward $149,539
Valuation allowance (149,539)
------------
$ 0
============
The valuation allowance at March 31, 2001 is $149,539 all of which arose during
the current year.
22
NOTE 3 - RELATED PARTY TRANSACTIONS
At March 31, 2001, the Company had outstanding notes payable to certain
stockholders of $30,000. These notes are unsecured, payable upon demand, and
bear interest at 12%. At March 31, 2001, interest was current on these
obligations.
At March 31, 2001, the Company had outstanding accounts payable to stockholders
of $237,000 for consulting services provided. This entire amount is included in
organizational and start-up expenses for the year ended March 31, 2001.
The Company has entered into a consulting agreement with a stockholder. The
agreement calls for monthly payments of $16,000 until March 2005. (See Note 6).
NOTE 4 - FINANCIAL CONDITION AND GOING CONCERN
The Company's continuance is dependent on raising capital. The Company is
confident that the necessary capital will be raised and has entered into
discussions to do so with certain individuals. However, as of the date of these
financial statements, no formal agreements exist.
The accompanying financial statements do not include any adjustments that might
be necessary should the Company be unable to secure the necessary capital and
continue as a going concern.
NOTE 5 - SUBSEQUENT EVENT
On June 1, 2001, the Company executed a merger agreement with Worldwide
Petromoly, Inc. whereby the Company's stockholders received one share of
Worldwide Petromoly, Inc. common stock for each share of Small Town Radio common
stock held at the merger date. The merger resulted in the former stockholders of
Small Town Radio owning approximately 75% of the combined entity.
NOTE 6 - SUBSEQUENT EVENT
On July 16, 2001, the parties to the consulting agreement referenced in Note 3
modified the agreement, reducing its term from five years to one year beginning
June 1, 2001.
23
(b) Pro Forma Financial Information.
WORLDWIDE PETROMOLY, INC.
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On June 1, 2001, Worldwide PetroMoly, Inc. ("PetroMoly") acquired Small Town
Radio, Inc., a development stage enterprise, through the issuance of 118,467,860
unregistered shares of PetroMoly common stock to Small Town Radio's
stockholders. For financial reporting purposes the transaction constitutes a
reverse acquisition due to the former Small Town Radio stockholders owning
approximately 75% of the outstanding stock of the combined entity immediately
following the transaction. The purchase method of accounting was utilized to
record the transaction resulting in marking the assets and liabilities of
PetroMoly, the acquired entity for reporting purposes, to their fair market
values through an allocation of the purchase price. Any excess of purchase price
remaining after the allocation of the purchase price to the assets and
liabilities is recorded as goodwill and amortized over a period of time.
On June 7, 2001, PetroMoly sold its interest in Worldwide PetroMoly, Corp., a
wholly owned subsidiary to Gilbert Gertner, a stockholder and previous chairman
of the board of PetroMoly. Prior to its disposition, Worldwide PetroMoly, Corp.
was PetroMoly's only operating subsidiary and represented 100% of the assets,
liabilities and operations of the consolidated entity. No gain or loss resulted
from the sale of the subsidiary, as the sale price at June 7, 2001 was utilized
in marking its assets and liabilities to fair value at June 1, 2001 under the
purchase method of accounting.
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 2001 presents the historical balance sheet of Worldwide PetroMoly,
Inc. and Small Town Radio, Inc. as if the transactions described above had been
effective on March 31, 2001. The Unaudited Pro Forma Condensed Consolidated
Income Statements present 1) the operations of Worldwide PetroMoly for the
twelve months ended June 30, 2000 and the operations of Small Town Radio for the
twelve months ended March 31, 2001 (operations commenced April 1, 2001) and 2)
the operations of Worldwide PetroMoly and Small Town Radio for the interim
nine-month period ended March 31, 2001 as if these transactions had been
effective at the beginning of the periods indicated.
The pro forma figures illustrate the possible scope of the change in Worldwide
PetroMoly's historical figures caused by the merger. You should not assume that
PetroMoly and Small Town Radio would have achieved the pro forma results if the
merger had actually occurred during the periods presented.
The combined company expects to achieve merger benefits by combining PetroMoly's
ability to raise capital in the public markets and Small Town Radio's business
strategy to secure through acquisition a significant number of radio stations in
smaller to mid-sized markets throughout the southeastern United States. No
assurance can be given with regard to the ability of the combined entity to
raise sufficient capital to execute its business plan.
For purposes of preparing these financial statements, we used the audited
consolidated financial statements of Worldwide PetroMoly, Inc. contained in the
Form 10-KSB filed with the Securities and Exchange Commission for the year-ended
June 30, 2000. We also utilized the unaudited financial information contained in
the Form 10-QSB for the nine-month period ended March 31, 2001.
In addition, we used the audited financial statements of Small Town Radio, Inc.
for the year ended March 31, 2001, which have been filed in conjunction with
these pro forma financial statements with the Securities and Exchange Commission
as referenced in the Form 8K dated June 1, 2001. In addition, we used unaudited
Small Town Radio financial information in preparing the Income Statement for the
nine-months ended March 31, 2000. Small Town Radio's financial statements are
prepared in accordance with generally accepted accounting principles.
24
WORLDWIDE PETROMOLY, INC., D/B/A SMALL TOWN RADIO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2001
HISTORICAL
-------------------------------------
WORLDWIDE SMALL TOWN PRO FORMA PRO FORMA
PETROMOLY, INC. RADIO, INC. ADJUSTMENTS COMBINED
------------------ ---------------- ------------------- -------------------
Assets
Cash $ 5,166 $ 79 $ (5,166)(B) $ 79
Accounts receivable 2,229 (2,229)(B) -
Inventory 104,350 (104,350)(B) -
Excess of purchase price over
net liabilities assumed 1,317,319 (A) -
(1,317,319)(B)
Furniture, fixtures and equipment 91,642 (91,642)(B) -
Other 88,343 (88,343)(B) -
------------------ ---------------- ------------------- -------------------
Total assets $ 291,730 $ 79 $ (291,730) $ 79
================== ================ =================== ===================
Liabilities
Accounts payable $ 166,948 $ 172,569 $ (166,948)(B) $ 172,569
Accounts payable - stockholders 1,438,476 237,000 (1,438,476)(B) 237,000
Notes payable 3,625 (3,625)(B) -
Notes payable - stockholders 30,000 30,000
Accrued expenses 129 129
------------------ ---------------- ------------------- -------------------
Total liabilities 1,609,049 439,698 (1,609,049) 439,698
------------------ ---------------- ------------------- -------------------
Equity
Preferred stock, no stated value
Authorized - 10,000,000
Issued and outstanding - none - - -
Common Stock, no par value
Authorized - 800,000,000
Issued and outstanding - 144,086,342 12,752,554 - - 12,752,554
Additional paid in capital 200 200
Retained defecit (14,069,873) 1,317,319 (A) (12,752,554)
Defecit accumulated during
developmental stage - (439,819) - (439,819)
------------------ ---------------- ------------------- -------------------
$ 291,730 $ 79 $ (291,730) $ 79
================== ================ =================== ===================
(A) To reflect excess of acquisition cost over the estimated fair values of the
net liabilities assumed (goodwill). Fair values of assets and liabilities
acquired determined to be materially the same as book values. Therefore, the
entire excess has been allocated to goodwill.
(B) To reflect the sale of 100% of the assets, liabilities and operations of
Worlwide PetroMoly, Corp., the sole operating subsidiary of Worldwide
PetroMoly, Inc.for $10. No gain or loss resulted from its disposal.
25
WORLDWIDE PETROMOLY, INC., D/B/A SMALL TOWN RADIO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED MARCH 31, 2001
HISTORICAL
------------------------------------
WORLDWIDE SMALL TOWN PRO FORMA PRO FORMA
PETROMOLY, INC. RADIO, INC. ADJUSTMENTS COMBINED
------------------ ----------------- ---------------------- ------------------
Revenue $ 205,351 $ - $ (205,351)(C) $ -
Cost of goods sold 125,265 - (125,265)(C) -
------------------ ----------------- ---------------------- ------------------
Gross profit 80,086 - (80,086) -
------------------ ----------------- ---------------------- ------------------
Expenses
Selling, general and administrative costs (980,125) 980,125 (C) -
Organizational and start-up expenses (384,598) 100,415 (D) (281,183)
Professional fees (5,000) (5,000)
Other income (expense) 2 (250) (2) (C) (250)
------------------ ----------------- ----------------------- ------------------
Loss before income taxes (900,037) (389,848) 1,003,452 (286,433)
Income tax expense - -
------------------ ----------------- ----------------------- ------------------
Net loss $ (900,037) $ (389,848) $ 1,003,452 $ (286,433)
================== ================= ======================= ==================
Basic loss per common share $ (0.04) $ (0.00)
Diluted loss per common share $ (0.04) $ (0.00)
Weighed average common shares outstanding
Basic 23,240,391 142,408,750
Diluted 23,240,391 142,408,750
(C) To reflect the revenues and expenses of Worldwide PetroMoly Corp., wholly
owned subsidiary of Worldwide PetroMoly Inc., as a discontinued operation.
(D) To eliminate the start-up expenses considered to be non-recurring charges.
26
WORLDWIDE PETROMOLY, INC., D/B/A SMALL TOWN RADIO, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
HISTORICAL
HISTORICAL
-------------------------------------
WORLDWIDE SMALL TOWN PRO FORMA PRO FORMA
PETROMOLY, INC. RADIO, INC. ADJUSTMENTS COMBINED
------------------- ---------------- --------------------- ----------------
Revenue $ 825,721 $ - $ (825,721)(E) $ -
Cost of goods sold 534,572 - (534,572)(E) -
------------------- ---------------- --------------------- ----------------
Gross profit 291,149 - (291,149) -
------------------- ---------------- --------------------- ----------------
Expenses
Selling, general and administrative costs (3,334,021) 3,334,021 (E) -
Organizational and start-up expenses (434,569) 115,415 (F) (319,154)
Professional fees (5,000) (5,000)
Other income (expense) 12,275 (250) (12,275)(E) (250)
------------------- ---------------- --------------------- ----------------
Loss before income taxes (3,030,597) (439,819) 3,146,012 (324,404)
Income tax expense - -
------------------- ---------------- --------------------- ----------------
Net loss $ (3,030,597) $ (439,819) $ 3,146,012 $ (324,404)
=================== ================ ===================== ================
Basic loss per common share $ (0.14) $ (0.00)
Diluted loss per common share $ (0.14) $ (0.00)
Weighed average common shares outstanding
Basic 21,566,802 140,935,975
Diluted 21,566,802 140,935,975
(E) To reflect the revenues and expenses of Worldwide PetroMoly Corp., wholly
owned subsidiary of Worldwide PetroMoly Inc., as a discontinued operation.
(F) To eliminate the start-up expenses considered to be non-recurring charges.
27
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
Worldwide PetroMoly, Inc. has agreed to acquire Small Town Radio, Inc. for a
fixed exchange ratio of 1.00 Worldwide PetroMoly share of common stock for each
Small Town Radio share of common stock. Since these are pro forma financial
statements, we cannot assure that the amounts reflected in these financial
statements would have been representative of the actual amounts earned had the
companies been combined at that time.
PRO FORMA ADJUSTMENTS
Goodwill - We have adjusted goodwill to reflect the excess of acquisition cost
over the net liabilities assumed. Fair values of the assets and liabilities
acquired were deemed to be equivalent to book values at the merger date and
therefore, the entire excess was allocated to goodwill. Amortization has been
determined to be immaterial and has not been provided for within these pro forma
statements.
Discontinued Operations - The historical operations of Worldwide PetroMoly Inc.
are considered to have been discontinued as of the beginning of the periods
presented and the assets and liabilities disposed of at the balance sheet date.
No gain or loss resulted from the sale.
Organizational and start-up expenses - These expenses are considered to be
non-recurring and relate solely to the development stage nature of Small Town
Radio.
PERIODS PRESENTED
Historical income statement information for the nine-month period ending March
31, 2001 is presented for both Worldwide PetroMoly and Small Town Radio.
However, because Small Town Radio did not begin operations until April 2000, we
were unable to present historical operating information for a twelve-month
period consistent with the most recent fiscal year-end of the registrant, June
30, 2000. We have therefore presented operating information for Small Town Radio
for the twelve-month period ending March 31, 2001, the period ending closest to
the June 30, 2000 fiscal year-end of the registrant.
DEVELOPMENT STAGE ENTERPRISE
Worldwide PetroMoly, Inc. d/b/a Small Town Radio, Inc. is a development stage
enterprise and as such currently has no revenue producing activities.
28
(c) Exhibits.
--------
2.1 Agreement and Plan of Merger dated March 26, 2001 (filed with the
Commission on March 27, 2001 as Exhibit 2.1 to the Registrant's Report
on Form 8-K dated March 27, 2001 and incorporated herein by
reference), as amended as of April 30, 2001 (filed with the Commission
on May 7, 2001 as Exhibit 2.2 to the Registrant's Report on Form 8-K
dated April 30, 2001 and incorporated herein by reference).
2.2 Stock Purchase Agreement.+
20.1 Registrant's Information Statement pursuant to Section 14(f) of the
Exchange Act and Rule 14f-1 there under, filed by the Registrant on
April 2, 2001 (filed with the Commission on April 2, 2001 and
incorporated herein by reference).
23.1 Consent of BKD, LLP.
99.1 Press Release issued June 4, 2001 relating to the completion of the
Merger.+
99.2 Press Release issued June 8, 2001 relating to the election of certain
officers and directors and announcing the completion of the sale of
the capital stock of WPC.+
- ---------------
+ Previously filed.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLDWIDE PETROMOLY, INC.
By: /s/ Robert S. Vail
--------------------------
Robert S. Vail
Chairman of the Board & Chief
Financial Officer
Dated as of August 2, 2001
30
INDEX OF ATTACHED EXHIBITS
Exhibit Number Description
- -------------- -----------
23.1 Consent of BKD, LLP.