U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from to
Commission file number 33-90672
THE ADSONLY GROUP, INC.
(Name of small business issuer in its charter)
California 93-1026060
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
One Sansone St., Suite 2000
San Francisco, California 94104
(Address of principal executive offices)
Issuer's telephone number (415) 721-0299
Securities registered under 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None N/A
Securities registered under 12(g) of the Exchange Act:
Common stock, no par value
(Title of each class)
Check whether the issuer (1) has filed reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year. $0
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act). As of
March 31, 1997 - $307,200
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 1997 - 1,482,255
shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Description of Business.
The AdsOnly Group, Inc., ("AOG" or "Company"), was incorporated in the
State of California on April 6, 1990 by a group of advertising agency
executives, including executives experienced with large worldwide advertising
agencies such as Ogilvy & Mather and BBDO. The Company seeks to develop, market,
and sell its advertising franchise system throughout the United States. Based on
its experience in the advertising industry, management believes that there is a
significant opportunity to develop market share by offering advertising services
for companies with advertising budgets in the $250,000 annual range, while also
targeting divisions of larger companies and advertisers requesting "perjob", or
project based services.
Historically, larger advertising agencies such as Ogilvy & Mather, J.
Walter Thompson, and BBDO, concentrated marketing efforts toward larger
advertising clients, often those clients with advertising budgets exceeding
$1,000,000. As a result, management believes that a broad-based advertising
system which specializes in meeting the needs of mid-size companies with smaller
advertising budgets provides the company with a significant opportunity to
develop and expand market share within this target market.
AOG was founded by experienced advertising executives, whose cumulative
experience led them to conclude that large and mid-size agencies cannot serve
the smaller advertiser profitably and effectively. Large, international groups
of advertising agencies are organized to service clients on an international
basis and often focus on such clients as Procter & Gamble, Coca-Cola, Ford Motor
Company, Exxon, etc. These larger advertising agencies are unable to devote
attention to the considerable number of smaller advertising clients.
Based on their experience, management believes that "full service"
advertising agencies have not traditionally attempted to capture the business of
these advertisers, and management believes that even if existing full service
advertising agencies attempt to capture market share from these advertisers,
they will not be able to serve this type of advertiser using their top
advertising personnel, primarily due to cost and price constraints. This
situation could result in these agencies delegating creative and other decisions
to unseasoned junior staff who are not equipped to provide these advertisers
with the level of service and creative quality required to produce top quality
advertising campaigns.
Smaller, regional advertising agencies, which management defines as
advertising agencies which realize between $100,000 and $1,000,000 in gross
profit from operations, often serve smaller local and regional clients. However,
due to the constraints imposed by maintaining day-to-day operating and
client-based tasks, these smaller advertising agencies often lack the ability to
engage in any appreciable new business planning and self promotion.
As a result, when confronted with a prospective client with a sizeable
advertising budget, smaller agencies frequently experience difficulty in
securing these larger clients. Even if these smaller advertising agencies manage
to capture larger clients, their limited resources often make it difficult for
these smaller agencies to retain these clients on a long-term basis. In
addition, if the founders or principals of these smaller agencies leave, or sell
the firms, a number of advertising clients may follow the founders to their new
advertising agencies.
Based on budgetary constraints, advertisers with marketing budgets
under $250,000 must spend their advertising resources wisely and effectively.
Most smaller advertisers cannot afford the fees which larger advertising
agencies would typically charge them, thus, effective and affordable advertising
and marketing are critical to smaller advertisers. Large and mid-size
advertising firms are not able to focus on smaller advertising clients and so
often provide inferior service to smaller clients while having to charge "top
dollar" for these services.
An additional burden placed on both the small advertising agency and
the small advertiser is that many smaller advertising agencies lack any
appreciable level of name recognition. As a result, advertisers may be skeptical
regarding placing their advertising dollars in the hands of an unknown agency.
As smaller advertising agencies often operate within their own budget
constraints, these agencies frequently employ freelance personnel who typically
cannot offer
2
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the resources or experience provided by full-time advertising agency employees.
The AdsOnly Group was founded to be the first franchisor of advertising
agencies. Other than the public in general, one specific target market the
Company intends to market its franchises to is small "mom and pop" advertising
agencies run by fewer than ten people with backgrounds in the advertising
business including copywriting, art direction, direct mail, and account
management. This potential market is made up of individuals who are already in
the advertising business but do not have the knowledge, experience and support
of a "full-service" national firm behind them. The Company has patterned this
strategy after large real estate franchisers such as Prudential, ReMax, and
others who market their membership to existing "mom and pop" real estate
brokers.
These franchises are designed to target the rapidly growing advertising
niche which includes expanding local and regional businesses with advertising
budgets under $250,000, while also targeting larger advertisers and divisions of
larger companies requesting "per job" or project based advertising services.
Based on management's experience, due to the recent downsizing that many large
advertisers have experienced over the past several years, these major
advertisers are out-sourcing marketing services at a greater level than ever
before and, in many instances, are unwilling to pay the costs of a national
full-service advertising agency.
Item 2. Description of Property.
None
Item 3. Legal Proceedings.
The Company is not a party to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company did not submit any matters to a vote of security holders
during the fiscal year.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
There is currently no public trading market for the Company's common
stock.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The AdsOnly Group is a start-up company offering advertising franchise
opportunities for sale on a national basis. The Company has been in an
organizational and development stage since 1990, during which time management
incorporated the Company, filed for and completed franchise registration and
concentrated its efforts on the legal and logistical issues involved in selling
franchise offerings of a service-based enterprise.
AOG sold the minimum number of shares and the proceeds thereof became
available to the Company on December 24, 1996. The Company is now operating on a
full-time basis. The Company currently has three full-time employees and expects
to hire an additional three to twelve employees for its administrative staff
over the first year.
The Company has set aside $75,740 under the minimum Use of Proceeds of
the Offering for the payment of salaries to employees. Although this is a
significant amount of the minimum proceeds, the Company feels that this amount
will be sufficient to cover the salary expense of its employees for the first
year of operation while not negatively impacting the liquidity of the Company.
AOG currently has sufficient employees to operate the company for the first 12
months. As amounts in excess pf the minimum proceeds are raised, the Company
will proportionally set aside funds for salaries up to the expected maximum of
$941,740. The Company will hire additional employees to expand its
3
<PAGE>
operations, however, not to the degree that the amount of employees are more
than can be supported for one year under the amount of proceeds raised and set
aside for salaries from the Offering. Any addition of employees and increased
operations would also be expected to allow the AOG to increase its revenues and
thus gain an even greater liquidity.
Should only the minimum sale of shares offered be sold, management
believes that it would meet the Company's minimum cash requirements until such
time as AOG's operations begin generating revenues. Management believes it may
not be necessary to seek additional funding during the twelve-month period after
receipt of the minimum amount of proceeds as the Company expects to be
generating revenues prior to the end of the 12th month of operation after
funding.
AOG has secured operating facilities in the San Francisco area.
Management anticipates that this base of operations will demonstrate a real
world example of "the virtual office" rather than a large physical plant
associated with past agencies. Should adequate funding be available, AOG plans
to employ additional key personnel to proceed with the Company's franchise sales
effort and commence with the design and development of the communication
network/computer system necessary to organize the sales and marketing effort, as
well as future franchise communications.
AOG intends to contract with a leading public relations firm to begin
the process of promoting its franchise business and operations. Initially,
management intends to orchestrate an extensive awareness campaign to generate
interest and leads, on a market-by-market basis, just prior to conducting a
sales blitz in that area. As part of its marketing and public relations
strategy, management plans to solicit press coverage, personal interviews, trade
articles and industry related forums that will further promote the Company and
its operations. Management intends to target publications, trade journals, and
other communication vehicles geared to the advertising industry in conjunction
with its planned self-promotional advertising campaign.
In keeping with a technologically-based, information-sharing concept,
management feels that the implementation of computer systems and the training of
new franchisees in the use of such systems will be an important part of a
successful approach to the establishment of any communication based service
industry. Therefore, as soon as capitalization allows, one of the Company's
first organizational plans will be to implement the use of a LAN/WAN computer
system to connect AOG's home office with its franchisees. The system AOG intends
to install will be a custom designed database/network utilizing the Apple
Computer platform. Management believes this system will allow for the
collection, archiving, and exchange of advertising ideas and products produced
and digitally stored within AOG's system database. This system, which AOG plans
to make available for its franchisees, is intended to offer the communication,
knowledge, and support which often are only available from a large national
advertising agency. The network, referred to by AOG as the "CET" (Creative
Exchange Technology) system, will also allow the Company to monitor individual
franchise sales and operational activities as well as react to needs and demands
in real-time. In addition, management believes this ability to share ideas and
information will be a distinct competitive advantage and marketing tool to be
used for AOG's franchisees seeking market-by-market data, creative and other
operational support.
The interactive capabilities of the CET system will also allow for
digital creative exchanges, while allowing The AdsOnly Group and franchisees to:
communicate at will with text and graphics, retrieve text and graphics from an
advertisement database, allow remote brain-storming sessions and conduct on-line
research, as well as access existing mainstream on-line services.
Management intends, due to practical reasons and the size of its
potential national market, to concentrate its initial franchising efforts in the
California area markets. These first few franchises will then be able to serve
both as examples to new franchisees, as well as franchisee training centers and
beta test sites for franchised system development.
Management intends to complete production of AdsOnly marketing and
sales tools, which will include a franchise sales brochure with an interactive
computer disk and the AdsOnly Video(TM), targeted trade, direct mail and
specialized business-to-business advertising campaigns. The AdsOnly Video will
be produced by AOG on a quarterly basis for use as a communication and sales
tool. Parts of the video will be used to update franchisees of current events,
trends campaigns, and issues concerning the AdsOnly franchise and the
advertising industry. The AdsOnly Video will
4
<PAGE>
be regularly updated for show as demo reels, highlighting the best work for that
quarter with case study examples. An initial "working model" of this video will
be produced for the purpose of introducing prospective franchisees to the AOG
concept and to be supplied as a leave behind sales tool.
Simultaneously, AOG intends to complete the production of the AdsOnly
Franchise Business and Marketing Manual, which is currently in draft form. Items
outlined will include detailed education of the franchisee and their employees,
pre-opening activities, agency advertising and promotion, professional systems,
administrative systems and professional support. Additionally, management
intends to re-create all existing franchise advertising and direct mail programs
in customizable electronics format for use within the CET system.
Management is currently developing specific training tools designed to
teach new franchisees the operational systems of the AdsOnly franchise package,
including the nut-and-bolts of opening, promoting and maintaining their AdsOnly
office, and running it profitably. This training will be conducted in both
classroom sessions prior to opening a franchise as well as through self-paced
computer based training that will also instruct the operators on how to use the
CET system. This coursework and corresponding instruction tools will be
copyright protected to protect investor interests in AOG. Management intends to
hold bi-annual training seminars held in conjunction with national sales
conferences that AdsOnly franchises will be obligated to attend or be
represented at. Future continuing education for franchisees is expected to be
implemented utilizing on line programs developed by the Company.
AOG intends to form relationships between its management and their past
associations in the advertising industry by establishing strategic alliances
that can be used to benefit the organization as a whole. These strategic
alliance candidates include: The American Association of Advertising Agencies
("AAAA"), The National Ad Council, Direct Marketing Association ("DMA"), Media
Buying Services, and the National Association of Franchises.
As a result of these alliances, AOG hopes to be able to negotiate
blanket discounts, wholesale buying arrangements and group rates that can be
passed on throughout the AdsOnly network. Management believes that this ability
to leverage the Company's mass marketing approach will enable AOG to create a
stronger competitive advantage for the entire AOG organization allowing each
franchisee to offer prices and service that individual agencies would not be
able. While larger agencies are able to offer services in similar ways to larger
budget clients, AOG's ability to offer boutique style creative support with
competitive prices could position AdsOnly franchisees to compete for clients
against agencies of all sizes.
Management anticipates that by the end of the first year of operation,
AOG will have completed all franchise development, systems and operational
issues both at the corporate level and at the franchise level. AOG projects this
length of time to completely "field test" the AOG franchise concept, allow for
the sale and training of the first franchises, and modifications to the
operating systems for the organization.
While systems and communication tools are the tangible aspects of what
the AdsOnly franchise consists of, the Company feels that there is a significant
"intangible" benefit to the business AOG offers. For small local agencies, and
for that matter, people that would like to leave a large shop to "go it alone",
there is the isolation factor present in any single start-up business that can
impede an individual's ability to compete. Management believes that AdsOnly's
ability to create and support a growing network of franchise agencies around the
country which will create an organizational network to supply support which can
be extremely beneficial in the early stages of franchisee development. The
ability of franchisees to network, share ideas, research industries and draw on
inside knowledge from within the AdsOnly organization and its database will
allow the individual franchisees to have a much greater advantage as far as
competitiveness and support.
Franchising
In July of 1993, AOG began the preparation of its franchise
registration documents including a Uniform Franchise Offering Circular (UFOC)
for submission to the Federal Trade Commission which has now been completed. The
Company has also began preparing and submitting the required registration
materials will enable AOG to sell franchises in approximately thirty states
which the Company has targeted to begin its marketing. The Company expects
5
<PAGE>
to be registered with all the states that it has initially targeted within
several months after the completion of the offering.
AOG intends to sell franchises for an initial non-refundable franchise
fee of $19,500, for which AOG intends to provide a franchisee with assistance in
establishing the franchise location, assistance pursuant to operating the
franchise, legal and accounting work, and training expenses. AOG intends to
train each franchise owner in AOG's advertising business operating systems.
Franchisees will be required to pay AOG a monthly royalty fee equal to
five percent (5) of the monthly sales. Franchisees will also pay AOG a national
advertising fee equal to one and a half percent (1 1/2) of monthly gross sales.
These fees will be used to purchase regional advertising to benefit franchisees
as well as benefit AOG.
Franchisees will be responsible for obtaining all zoning permits,
licensing and variances which may be required to open and operate a franchise
location. AOG will require all of its franchisees to sign strict confidentiality
and non- disclosure agreements pursuant to the trade secrets disclosed to
franchisees in order for them to operate franchise locations.
On February 25, 1997, certain officers and founders of AOG returned
575,809 of their shares, or approximately 30%, to the Company. This was
accomplished as a direct result of a request by the purchasers of the minimum
shares in the Company's public offering.
Item 7. Financial Statements.
Attached as Exhibit 1.
Item 8. Changes in and Disagreements With Acountants on Accounting and Financial
Disclosure.
None.
PART III
Item 9. Directors and Executive Officers of the Registrant.
Michael Hinshaw - Chairman and Chief Executive Officer
Tracey F. Miner - President and Director
Henry Corona - Chief Financial Officer
Paul Holzapfel - Vice President - Sales and Marketing
Richard Beerman - Chief Information Officer and Secretary
Kimberly M. Young - Director
Michael Yale Reif - Director
Per Barnes - Director
Item 10. Management Remuneration and Transactions.
Michael Hinshaw - Earned $8,000 in compensation in 1996.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Michael Hinshaw - owns 175,000 shares
Tracey F. Miner - owns 43,750 shares
Kimberly M. Young - owns 131,250 shares
Michael Yale Reif - owns 262,500 shares
Per Barnes - owns 350,000 shares
6
<PAGE>
Item 12. Certain Relationships and Related Transactions.
On February 25, 1997, certain officers and founders of AOG returned
575,809 of their shares, or approximately 30%, to the Company. This was
accomplished as a direct result of a request by the purchasers of the minimum
shares in the Company's public offering.
Michael Hinshaw - contributed 75,000 shares
Tracey F. Miner - contributed 18,750 shares
Kimberly M. Young - contributed 56,250 shares
Michael Yale Reif - contributed 112,500 shares
Per Barnes - contributed 150,000 shares
Item 13. Exhibits and Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the last fiscal
year.
SIGNATURES
In accordance with Section 13 or 15(d) 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.
(Registrant) THE ADSONLY GROUP, INC.
By: (Signature and Title) /s/ Michael Hinshaw, Chairman and CEO
Michael Hinshaw, Chairman and CEO
Date: April 15, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: April 15, 1997 By: /s/ Michael Hinshaw
Michael Hinshaw, CEO and Chairman of the Board
Date: April 15, 1997 By: /s/ Tracey F. Miner
Tracey F. Miner, President and Director
Date: April 15, 1997 By: /s/ Henry L. Corona
Henry L. Corona, Chief Financial Officer
Date: April 15, 1997 By: /s/ Kimberly M. Young
Kimberly M. Young, Director
Date: April 15, 1997 By: /s/ Michael Y. Reif
Michael Y. Reif, Director
Date: April 15, 1997 By: /s/ Per Barnes
Per Barnes, Director
7
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EXHIBIT 1
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountant............................F-2
Balance Sheets...............................................................F-3
Statements of Operations.....................................................F-4
Statements of Stockholders' Equity...........................................F-5
Statements of Cash Flows.....................................................F-6
Notes to Financial Statements................................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO: The Board of Directors and Stockholders
The AdsOnly Group, Inc.
(A Development Stage Enterprise)
San Francisco, California
We have audited the accompanying balance sheets of The AdsOnly Group, Inc., a
development stage enterprise, (the "Company") as of December 31, 1995 and 1996
and the related statements of operations, stockholders' equity and cash flows
for the two years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide 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 the Company as of December 31,
1996 and the results of its operations and its cash flows for the two years then
ended in conformity with generally accepted accounting principles.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
April 14, 1997
F-2
<PAGE>
THE ADSONLY GROUP, INC.
(A Development Stage Enterprise)
Balance Sheets
December 31,
1995 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 47,698 304,328
Federal income tax receivable 22 0
------------ ------------
Total current assets 47,720 304,328
------------ ------------
FIXED ASSETS
Computer equipment 1,983 1,983
Less: accumulated depreciation (430) (826)
------------- ------------
Total fixed assets 1,553 1,157
------------- ------------
OTHER ASSETS
Prepaid insurance 0 4,500
Internet site development, net
of amortization (note 8) 0 3,599
Deferred offering costs (note 7) 0 35,036
------------- ------------
Total other assets 0 43,135
------------- ------------
Total Assets $ 49,273 348,620
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 1,816 42,692
Payroll taxes payable 0 2,976
Accrued salaries 0 5,692
State franchise tax payable 800 0
State sales tax payable 511 0
------------- -------------
Total current liabilities 3,127 51,360
------------- -------------
LONG-TERM LIABILITIES
Notes payable (note 1b) 8,842 8,842
------------- -------------
Total long-term liabilities 8,842 8,842
------------- -------------
Total Liabilities 11,969 60,202
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, no par value,
authorized 5,000,000 shares;
2,006,864 and 2,058,064 at
December 31, 1995 and December
31, 1996 issued and outstanding.
(note 5) 279,005 583,959
Preferred stock, no par value,
authorized 1,000,000 shares; 0
shares issued and outstanding.
(note 5) 0 0
Deficit accumulated during the
development stage (241,701) (295,541)
------------ --------------
Total Stockholders' Equity 37,304 288,418
------------ --------------
Total Liabilities and Stockholders'
Equity $ 49,273 348,620
============ ==============
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
THE ADSONLY GROUP, INC.
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<S> <C> <C> <C>
Period from
April 6, 1990
Years ended December 31, (Inception) to
1995 1996 Dec. 31, 1996
REVENUE
Sales $ 0 0 6,813
Interest 0 0 413
-------------- ------------- -----------------
Total revenue 0 0 7,226
-------------- ------------- -----------------
COST OF SALES
Cost of sales 0 0 6,823
-------------- ------------- -----------------
Gross profit/(loss) 0 0 403
EXPENSES
Advertising 0 208 208
Bank charges 22 0 493
Concept development cost 0 0 120,000
Contract labor 14,243 21,447 65,690
Depreciation 397 396 826
Dues and subscriptions 400 0 507
Executive salaries 0 8,000 8,000
Franchise offering document preparation 0 0 5,955
State franchise filing fee 1,087 1,260 3,697
Internet site fee 0 1,455 1,455
Licenses and taxes 1,000 668 6,902
Office expenses 4,071 1,819 10,982
Postage 565 951 3,126
Printing 2 0 2,188
Professional Services 14,366 15,577 60,983
Travel and entertainment 250 1,792 4,289
Miscellaneous 0 267 643
-------------- ------------- -----------------
Total expenses 36,403 53,840 295,944
-------------- ------------- -----------------
Net loss before tax benefit (36,403) (53,840) (295,541)
-------------- ------------- -----------------
Income tax benefit (note 4) 0 0 0
-------------- ------------- -----------------
Net loss $ (36,403) (53,840) (295,541)
============== ============= =================
Weighted average number of shares outstanding 2,006,684 2,009,032 2,009,032
============== ============= =================
Net loss per share $ (0.02) (0.03) (0.15)
============== ============= =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
THE ADSONLY GROUP, INC.
(A Development Stage Enterprise)
Statements of Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C>
Shares of Total
Common Common Preferred Accumulated Stockholders'
Stock Stock Stock Deficit Equity
BALANCE, December 2,006,864 $ 204,020 0 (205,298) (1,278)
31, 1994
Capital investment:
A) 0 50,000 0 0 50,000
B) 0 24,985 0 0 24,985
Net loss 0 0 0 (36,403) (36,403)
------------- ------------- ------------- ------------------ ----------------
BALANCE, December 2,006,864 279,005 0 (241,701) 37,304
31, 1995
Capital investment:
C) 51,200 304,954 0 0 304,954
Net loss 0 0 0 (53,840) (53,840)
------------- ------------- ------------- ------------------ ----------------
BALANCE, December
31, 1996 2,058,064 $ 583,959 0 (295,541) 288,418
============= ============= ============= ================== ================
</TABLE>
A) May 26, 1995; 0 shares of common; $50,000 in cash contributed by existing
stockholders.
B) June 1, 1995; 0 shares of common; $24,985 in cash contributed by existing
stockholders.
C) December 20 1996; 51,200 shares of common; $304,954 in cash, net of deferred
offering costs.
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
THE ADSONLY GROUP, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
Period from
April 6, 1990
Year ended December 31, (Inception) to
1995 1996 Dec. 31, 1996
---------------- ----------- -------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (36,403) (53,840) (295,541)
Adjustments to reconcile net loss to net cash used for development activities:
Stock issued for concept development costs 0 0 120,000
Depreciation 397 396 826
Changes in operating assets and liabilities:
(Increase) decrease in receivables 0 22 0
(Increase) decrease in prepaids 0 (4,500) (4,500)
(Increase) decrease in internet site development 0 (3,599) (3,599)
(Increase) decrease in deferred offering costs 0 (35,036) (35,036)
Increase (decrease) in accounts payable 102 40,876 42,692
Increase (decrease) in state taxes payable 0 (1,311) 0
Increase (decrease) in payroll taxes payable 0 2,976 2,976
Increase (decrease) in accrued salaries 0 5,692 5,692
-------------- ------------ ---------------
Net cash used for development activities (35,904) (48,324) (166,490)
-------------- ------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets 0 0 (1,983)
-------------- ------------ ---------------
Net cash provided by investing activities 0 0 (1,983)
-------------- ------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash 0 304,954 388,974
Cash contributed by existing stockholders 74,985 0 74,985
Cash received for notes payable 0 0 8,842
-------------- ------------ ---------------
Net cash provided by financing activities 74,985 304,954 472,801
-------------- ------------ ---------------
Increase (decrease) increase in cash 39,081 (256,630) 304,328
-------------- ------------ ---------------
CASH, beginning of period 8,617 47,698 0
-------------- ------------ ---------------
CASH, end of period $ 47,698 304,328 304,328
============== ============ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $ 0 0 0
============== ============ ===============
Stock issued for intangible asset $ 0 0 120,000
============== ============ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
THE ADSONLY GROUP, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(1) Summary of significant accounting policies
The Company The AdsOnly Group, Inc. is a California chartered development
stage corporation which conducts business from its headquarters in San
Francisco. It was incorporated on April 6, 1990.
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
dates of the statements of financial condition and revenues and
expenses for the years then ended. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near-term relate
to the book-tax difference of accounting for the development expenses
(see note 4). The following summarize the more significant accounting
and reporting policies and practices of the Company:
a) Fixed assets Fixed asset are recorded at cost. Depreciation is computed
by the straight-line method over the estimated useful lives of the
assets, generally five or seven years. Expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation was $397
and $396 for the fiscal years ended December 31, 1995 and 1996.
b) Notes payable The Company issued notes payable to two principal
stockholders in exchange for cash. These notes carry no stated interest
rate or maturity date.
c) Net loss per share Net loss per share is computed by dividing the net
loss by the number of shares outstanding during the period.
d) Concept development At inception the Company exchanged common stock for
$120,000 of concept development costs previously expended by two
individuals previously unrelated to the founders of the Company. The
Company chose to immediately expense these costs.
(2) Franchise offering document expenses The franchise offering document
expenses pertain exclusively to the development of the Uniform
Franchise Offering Circular, (UFOC), which represents the bulk of the
Company's near-term future marketing efforts and revenues. SFAS 2
requires that all generated development costs be charged to expense
when incurred. Accordingly, the Company has expenses the costs to
develop its UFOC.
(3) Franchise revenues The Company has not as yet received any franchise
fee revenues, but it expects to record such revenue in accordance with
SFAS 45.
(4) Income taxes The Company recorded the franchise offering document costs
as expenses in the period when incurred for financial statement
purposes, per note 2 above. The Company recorded the concept
development costs as expense immediately, per note 1b above. However,
for income tax purposes, these costs were recorded as an intangible
asset to be amortized over future years. The primary purpose for this
treatment for tax purposes is to retain the tax benefit of the
development costs. California tax law did not recognize operating loss
carryforwards as the Federal tax code does, at that time. Therefore, by
capitalizing and amortizing these costs, the tax benefit of these
expenses is retained for state tax purposes rather than being lost
forever as immediate expensing would have caused. This treatment will
require a longer time before the tax benefit of the costs is realized,
but will increase the tax benefit realized over time. California tax
law was changed for tax years beginning after January 1, 1994.
California tax law now recognizes net operating loss carryforwards on
the same basis as the federal tax code.
The amounts recorded as deferred income tax assets at December 31, 1995
and 1996, $96,700 and $118,200
F-7
<PAGE>
THE ADSONLY GROUP, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
(4) Income taxes, continued respectively, represent the amount of tax
benefit of loss carryforwards. The Company has established a $118,200
valuation allowance against this asset, as the Company has no history
of profitable operations. At December 31, 1996, the Company has a net
operating loss carry-forward for income tax purposes of approximately
$295,541, expiring as follows: $126,490 in 2005, $6,891 in 2006, $2,921
in 2007, $45,483 in 2008, $23,513 in 2009, $36,403 in 2010 and $53,840
in 2011.
(5) Stockholders' equity The Company has authorized 5,000,000 shares of no
par value common stock and 1,000,000 shares of no par preferred stock.
In April 1990, the Company issued 1,550,000 shares of common stock in
exchange for $3,900 in cash and $120,000 of previously expended concept
development costs. In May 1993, the Company issued 273,530 shares of
common stock in exchange for $29,970 in cash. In November 1993, the
Company issued 150,000 shares of common stock in exchange for $150 in
cash. In February 1994, the Company issued 33,334 shares of common
stock in exchange for $50,000 in cash. In May 1995, and June 1995,
existing stockholders contributed $50,000 and $24,985 in cash to the
Company. In December 1996, the Company sold 51,200 shares of common
stock in exchange for $307,200 in cash, which was the minimum required
to break escrow under the Company's public offering.
(6) Common stock public offering The board of directors authorized the
Company to sell up to 850,000 shares of the Company's common stock in a
"self-underwritten" public offering pursuant to a Registration
Statement on Form SB-2 under the Securities Act of 1933. This offering
is being made with a 50,000 share minimum, and is effective for one
year from the effective date of the registration, June 26, 1996.
In December 1996, the Company completed the sale of the minimum shares
under its registration, and therefore broke its escrow. The Company is
proceeding with the continued sale of its shares.
(7) Deferred offering costs The Company's public offering is a continous
offering. The Company has incurred costs directly related to the
offering, but which are not directly related to specific portions of
security sales. The Company has chosen to capitalize such costs and
amortize them directly to paid-in capital in direct proportion of such
securities sales to the total offering. At such time as the Company has
completed its offering, all such costs will have been amortized against
paid-in capital. Should the Company terminate its offering without
fully subscribing the offering the Company then intends to amortize any
balance remaining of such costs to paid-in capital.
(8) Website development costs The Company has begun the development of its
Internet, (or World Wide Web), website. The Company expects to employ
its website as its primary introductory selling tool in the sale of its
franchises. The Company expects to employ a variety of outside
third-party companies and contractors to develop the website. Upon
completion of the website development, the Company expects to amortize
this cost over its expected useful life, currently projected as three
years.
(9) Subsequent events
a) Stockholders' equity On February 25, 1997, certain officers and
founders of AOG returned 575,809 of their shares, or approximately 30%,
to the Company. This transaction was accomplished as a direct result of
a request by the purchasers of the minimum shares in the Company's
public offering.
F-8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements of The AdsOnly Group, Inc. for December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000943142
<NAME> The AdsOnly Group, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 304,328
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 304,328
<PP&E> 1,983
<DEPRECIATION> 826
<TOTAL-ASSETS> 348,620
<CURRENT-LIABILITIES> 51,360
<BONDS> 0
0
0
<COMMON> 583,959
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<TOTAL-LIABILITY-AND-EQUITY> 348,620
<SALES> 0
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<CGS> 0
<TOTAL-COSTS> 53,840
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<INCOME-PRETAX> (53,840)
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<INCOME-CONTINUING> (53,840)
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<NET-INCOME> (53,840)
<EPS-PRIMARY> (0.03)
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