-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L7tX22QlOMZlzye41h+CsT1/2kGVYUO0P2xjD8TWPoEgaKlefN9FCKR0YXUFgXZz /6/NKaD5br7P3C9/zoGmQA== 0001014060-96-000005.txt : 19960604 0001014060-96-000005.hdr.sgml : 19960604 ACCESSION NUMBER: 0001014060-96-000005 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960603 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADSONLY GROUP INC CENTRAL INDEX KEY: 0000943142 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING AGENCIES [7311] IRS NUMBER: 931026060 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-90672 FILM NUMBER: 96575882 BUSINESS ADDRESS: STREET 1: 2269 CHESTNUT ST STREET 2: STE 637 CITY: SAN FRANCISCO STATE: CA ZIP: 94123 SB-2/A 1 SB-2 AMENDMENT As filed with the Securities and Exchange Commission on ______________________ Registration No. __________________ - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. -------------------------- PRE-EFFECTIVE AMENDMENT NO. 4 to FORM SB-2 Registration Statement Under The Securities Act of 1933 THE ADSONLY GROUP, INC. (Name of small business issuer as specified in its charter) California 7311-01 93-1026060 (State of Incorporation) (Primary Standard Industry (I.R.S. Employer Classification Code Number) Identification No.) 2269 Chestnut Street Suite 637 San Francisco, California 94123 (Address and telephone number of principal executive offices) Donald F. Mintmire, Esquire 2710 Alt. 19 North, Suite 406 Palm Harbor, Florida 34683 (813) 771-1084 (Name, address and telephone number of Agent for Service) ----------------------- Approximate date of commencement of proposed distribution of the securities to the public: As soon as practicable after the effective date of this Registration Statement. ----------------------- The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- Page 1 of --- Pages Exhibit Index located on Page -- Cross Reference Sheet for Registration Statement on Form SB-2 Form SB-2 Item Numbers and Headings Location - -------------------------------------------------------------------------------- Item 1 Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....... Outside Front Cover Page Item 2 Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front and Outside Back Cover Pages Item 3 Summary Information and Risk Factors................... Prospectus Summary; Risk Factors Item 4 Use of Proceeds................ Use of Proceeds Item 5 Determination of Offering Price................. Risk Factors; Description of Securities Item 6 Dilution....................... Dilution Item 7 Selling Security Holders....... Not Applicable Item 8 Plan of Distribution........... Plan of Distribution Item 9 Legal Proceedings.............. Business Item 10 Directors and Executive Officers....................... Management Item 11 Security Ownership of Certain Beneficial Owners and Management.......... Principal Shareholders; Certain Transactions Item 12 Description of the Securities to be Registered............... Outside Front Cover Item 13 Interest of Named Experts and Counsel.................... Not Applicable Item 14 Statement as to Indemnification................ Indemnification Item 15 Organization Within 5 Years.... Business; Risk Factors Item 16 Description of Business........ Business Item 17 Management's Plan of Operation. Business Item 18 Description of Property........ Business Item 19 Certain Relationships and Related Transactions........... Certain Transactions Item 20 Market for Common Equity and Related Stockholder Matters Description of Securities; Risk Factors Item 21 Executive Compensation......... Management Item 22 Financial Statements........... Financial Statements Item 23 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure..................... Not Applicable PROSPECTUS 50,000 Shares of Common Stock Minimum THE ADSONLY GROUP, INC. The AdsOnly Group, Inc. (hereinafter also referred to as "AOG" and the "Company") is offering 850,000 shares of its Common Stock subject to 50,000 share minimum, based on a "minimum/maximum best efforts", with no par value, at $6.00 per share. Prior to this Offering there has been no market for the Common Stock of the Company. For a description of the rights and privileges of the Common Stock see "Description of Securities." Prior to this Offering, there has been no public market for the Common Stock of the Company, and there can be no assurance that any such market will develop. The Company intends to have its Common Stock listed for quotation on the OTC Bulletin Board once the Offering has been completed. The initial offering price of the Common Stock has been arbitrarily determined by the Company and does not necessarily bear any relationship to the Company's asset value, net worth, or other criteria of established value ----------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY INVOLVE A VERY HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT (SEE "RISK FACTORS" ON PAGE 6 FOR SPECIAL RISKS CONCERNING THE COMPANY). Price to Public Underwriting Fees and Proceeds to Commissions(1) Company(2) Per Share $ 6.00 $ .78 $ 5.22 Total Minimum(2) $ 300,000.00 $ 39,000.00 $ 220,240.00 (3) Total Maximum(2) $ 5,100,000.00 $ 663,000.00 $4,396,240.00 (3) (1) AOG hereby offers to sell up to 850,000 shares of its Common Stock at $6.00 per share (hereinafter also referred to as the "shares" or the "securities"). This Offering is made on a "50,000 share minimum" basis for a period of up to, and not to exceed, one year from the date of this Prospectus. Pending the sale of the minimum of 50,000 shares of Common Stock offered hereby, all proceeds from this Offering will be deposited in an escrow account with The Pacific Bank, 101 California Street, San Francisco, California 94111, in accordance with Rule 15c2-4 of the Exchange Act. If the minimum number of shares are not sold by the completion of this Offering, the purchase price will be returned promptly to investors without interest or deduction. Subject to the sale of the minimum shares, AOG may use invested funds immediately. (see "Description of Securities"). (2) The minimum proceeds from the sale of each share will be $5.22. Under the terms of this Offering, $300,000 worth of the shares, (50,000 shares) must be sold prior to AOG receiving or using any proceeds from this Offering. Should only the minimum number of shares be sold, AOG will realize $261,000, less expenses of issuance and distribution of $40,758.62, in proceeds based upon the payment of a sales commission and non-accountable expense allowances to any broker/dealer for selling the minimum number of shares offered hereby. Should all of the shares offered hereby be sold, AOG will realize at least $4,437,000, less expenses of issuance and distribution of $40,758.62, in proceeds from this Offering based upon the payment of a sales commission and non-accountable expense allowances to any broker/dealer (see "Plan of Distribution"). AOG, through its Officers and Directors, will act as selling as selling agent for this Offering, which is being made on a "self-underwritten" basis pursuant to, and in compliance with, Rule 3a-4-1 of the Securities Exchange Act of 1934, as amended (hereinafter referred to as the ("Exchange Act") (see "Description of Securities"). The shares offered hereby may also be sold by selected broker/dealers. Should these shares be sold by a broker/dealer, AOG will pay a sales commission of up to 10 percent, and an additional non-accountable expense allowance equal to up to 3 percent of the gross proceeds from the sale of shares. Commission and non-accountable expenses allowance shall be paid after the sale of the minimum number of shares offered hereby. In no event will AOG pay a commission, sales fee, or expense to its Officers or Directors related to this Offering. Should AOG sell any of the shares itself, it will pay no commission and non-accountable expense allowance on such sales, and the net proceeds available to AOG will increase accordingly (see "Use of Proceeds"). (3) This amount of net proceeds includes the payment of other expenses of issuance and distribution. THE ADSONLY GROUP INC. IS NOT A REPORTING COMPANY UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. The date of Prospectus is , 1996 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and audited financial statements, including the notes thereto, which appear elsewhere in this Prospectus and in the Registration Statement. The Company The AdsOnly Group, Inc. (hereinafter also referred to as "AOG" and the "Company") was incorporated in the State of California on April 6, 1990 to develop, market and sell its planned advertising franchises throughout the United States. The Company is seeking the proceeds from at least the minimum sale of shares offered hereby to establish its business operations. AOG is a start-up company, has not yet commenced business operations and has realized minimal revenue to date. The AdsOnly Group was founded by a group of advertising agency executives, including executives experienced with worldwide advertising agencies such as Ogilvy & Mather and BBDO. 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, as well as larger businesses and divisions of these businesses requesting "per-job", or project based advertising services. In part due to the recent "down-sizing" that many have experienced, these major advertisers are out-sourcing marketing services more than ever, and in many instances will be unwilling to pay the costs of a full-service agency. Historically, larger advertising agencies such as Ogilvy & Mather, J. Walter Thompson, and BBDO concentrate their marketing efforts toward larger advertising clients, often those clients with advertising budgets far 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, as well as divisions of large companies, provides the Company with a significant opportunity to develop and expand market share within this target market. International groups of advertising agencies are organized to service clients on an international basis and often focus on such clients as Proctor & Gamble, Coca-Cola, Ford Motor Company, Exxon, etc. These "full-service" advertising agencies have not traditionally attempted to capture the business of mid-level advertisers using their top personnel, primarily due to cost and price constraints. AOG has completed and filed the documentation necessary for compliance with the Federal Trade Commission in Washington. The Company has also prepared documentation for the registration for sale of franchises in a number of states. To the Company's knowledge there are no other companies offering advertising franchises in the United States at this time. The Company plans to market its advertising franchises to fill the niche of market share that exists between the large full service national and small lower budget advertising agencies. AOG's principal executive office is located at 2269 Chestnut Street, Suite 637, San Francisco, California 94123, and its telephone number is (415) 457-7586. The Securities Offered The Company is offering to sell 850,000 shares of Common Stock for $6.00 per share (see "Description of Securities"). Pending the sale of the minimum of 50,000 shares of Common Stock offered hereby, all proceeds from this Offering will be deposited in an escrow account with The Pacific Bank, 101 California Street, San Francisco, California 94111, in accordance with Rule 15c2-4 of the Exchange Act. If the minimum number of shares are not sold by the completion of this Offering, the purchase price will be returned promptly to investors without interest or deduction. Subject to the sale of the minimum shares, AOG may use invested funds immediately. (see "Description of Securities"). Use of Proceeds So long as at least the minimum sale of shares offered hereby is achieved, AOG intends to use the net proceeds from this Offering to develop its advertising franchise business. Should AOG realize proceeds from this offering in an amount exceeding $300,000, the Company will use such proceeds for the further development and expansion of its business and for operating capital (see "Use of Proceeds" and "Business"). 5 RISK FACTORS An investment in the securities offered hereby involves a high and substantial degree of risk. Prior to making an investment decision, a prospective investor should carefully consider the risk factors listed below, together with the other factors and financial data included herein, in relation to his or her financial circumstances and the possible loss of his or her entire investment. This section of this Prospectus addresses the risks factors which management believes present the most substantial risk to investors in this Offering, and which constitute the greatest threat that an investment in the shares may be lost in whole or in part, or not provide an adequate return on investment. Risks Related to the Company Development Stage Company - Minimal Revenue From Operations AOG is a development stage enterprise organized to sell advertising franchises. AOG has not commenced business operations and has realized minimal revenue as of the date of this Prospectus. The Company seeks to develop its business through the sale of advertising franchises. There is no absolute assurance that the Company will be able to develop its business by establishing franchising operations on a continuous and profitable basis, if at all. Prospective investors should be aware of the difficulties which could be experienced by AOG in developing its business, especially in view of competition from existing and more established advertising agencies which will compete with AOG's prospective franchisees for advertising clients and revenues. If AOG's plans prove unsuccessful, shareholders could lose all or a substantial part of their respective investments. Management estimates that AOG must realize at least $300,000 in gross proceeds from this Offering to commence planned franchise sales operations. Uncertainty of Significant Assumptions AOG's plans for financing and implementing its planned business operations and the projection of AOG's potential for profitability from its intended operations are based solely on the experience, judgment, and assumptions of management. The significant assumptions made by management with respect to the potential for market acceptance and profitability for AOG and its intended future franchisees are that an increasing number of small to mid-size businesses, larger businesses, and divisions of these businesses will continue to out-source marketing services, and will be unwilling to pay the high costs of a full-service agency. Management also assumes that large nationally established advertising agencies will not begin to seek the advertising accounts of businesses which expend less than several million dollars annually for advertising. Additionally, management assumes that existing advertising agencies which are smaller in terms of size and revenues will respond positively to the opportunity to join a franchise network of advertising agencies, especially in light of AOG's intention to promote its franchise network on a national basis. Management believes that the type of national exposure which AOG intends to afford to its franchisees would otherwise be unavailable to them, considering their traditionally smaller scope with their respective client bases and revenues. There can be no assurance with respect to the accuracy, certainty, or validity of any of these significant assumptions, and should management be incorrect in making any of these assumptions, the financial results experienced by AOG could be severely adversely affected; and shareholders, including investors in this Offering, could lose all or part of their respective investments in AOG. 6 No Historical Basis for Management's Opinion All of AOG's Officers and Directors have advertising agency experience but, none of these persons has been previously involved in the franchising business. Additionally, the Company has no operating history. Accordingly, there is no basis, other than the judgment of, and assumptions made by, AOG's management, on which to estimate the volume of franchise sales and the amount of revenues which AOG's planned operations may generate, or regarding other aspects of the planned operations of AOG (see "Business - Background" and "Management"). Uncertainty of Adequacy of Financing Although management believes that the net proceeds from the sale of at least the minimum number of shares offered hereby will be sufficient to allow AOG to develop its operations as more fully described in this Prospectus, additional financing may be required to implement AOG's operating plans should management's estimates prove incorrect. There is no assurance that any additional financing will be available to AOG if and when required, and that even if such financing is available, it will not materially dilute the ownership of the then existing shareholders, including investors in the shares offered hereby (see "Description of Securities", "Dilution" and "Use of Proceeds"). Uncertainty of Market Acceptance and Financial Results Until AOG has established market acceptance for its advertising franchise business and built up revenues, its financial results will be unpredictable, making financial management more difficult. There is no assurance that AOG will achieve the market share anticipated by management for its franchising business (see "Business"). Dependence Upon Management - Reliance Upon the Efforts of a Few Individuals AOG's success largely depends on the continued services of the Company's Officers and Directors, and upon their ability to manage and conduct AOG's operations. The loss of any of their services could adversely affect AOG's prospects for success (see "Management" and "Business"). Anti-Takeover Provisions Certain provisions of AOG's Bylaws may make it more difficult and time consuming to acquire AOG, thereby reducing AOG's vulnerability to an unsolicited proposal for takeover. Under the provisions of the Bylaws, the current Board of Directors is authorized to take any action required to increase the authorized issue of shares or the classes and types of capital stock and other securities of the corporation including, common stock and preferred stock, without seeking approval of the holders of shares of voting common stock or the holders of any other securities of the Company. Additionally, the Board of Directors is specifically empowered to authorize and issue corporate stock of various amounts, classes and types, and also to authorize the sale or issuance of warrants, options or other rights pursuant to such corporate stock for valid purposes of the Company or its business or its expansion without first obtaining approval of the shareholders. These provisions could have the effect of depriving shareholders of the opportunity to sell shares at a premium over prevailing market prices, which sometimes arises pursuant to takeover bids. AOG's Bylaws also authorize the Board of Directors to oppose certain tender offers on the basis of factors other than economic benefit to shareholders. Competition While management is unaware of any other company currently franchising or seeking to franchise advertising agencies, there are numerous well-established advertising agencies that will be competing directly with AOG's intended franchises for advertising market share. To the extent that competitive advertising agencies successfully capture advertising market share, it could impede the establishment and development of AOG's franchise network and of individual franchise locations. 7 Franchising Operations While the documents necessary to commence franchise registration in thirty-two states (including California) have been completed, there is no assurance that AOG will be able to obtain or maintain effective registration for its intended franchise program in those states or in any other states. AOG's Franchise Agreement includes non-competition language intended to prevent franchisees from terminating their franchises and going into competition with AOG without paying the franchise royalties and other fees required pursuant to operating a AOG franchise location. While management believes that these provisions will be enforceable, there is no absolute assurance should AOG attempt to enforce the non-competition provisions of the Franchise Agreement that AOG will prevail in any enforcement action. Franchisees will also be required to maintain liability insurance to insure against liabilities incurred pursuant to the operation of their independently owned and operated franchise locations. AOG will sell franchise locations to franchisees based upon the contractual obligation of franchisees to maintain liability insurance coverage and in reliance upon franchisees' compliance with this and other provisions of the Franchise Agreement. While AOG intends to offer franchisees the exclusive right to specific geographic areas pursuant to soliciting and selling advertising business under the tradename, AdsOnly, there is no absolute assurance that AOG will not offer certain franchise locations on a non-exclusive basis. AOG currently intends to allow franchisees to operate under AOG's tradename, and while management believes that this will promote name recognition and familiarity with AOG's business for both AOG and for independently owned franchise locations, this also increases the possibility that, should one of AOG's franchisees engage in activity which resulted in negative publicity concerning its operations, this negative publicity could also effect AOG and AOG's independently owned franchise locations. Risks Related to this Offering Dilution and Possible Future Dilution This Offering involves immediate substantial dilution from the public Offering price. The book value of the Company's Common Stock offered hereby is substantially less than the price at which the Company is offering the shares to the public, and accordingly, investors in the shares offered hereby will sustain an immediate substantial dilution of their investment (see "Dilution"). In the future, AOG's Board of Directors may authorize and issue additional capital stock without obtaining shareholder approval. In as much as AOG may issue additional shares of capital stock in order to provide for the further capitalization of the Company or for other corporate purposes, there may be further dilution of the shareholders' interests (see "Description of Securities"). No Public Market and Illiquid Investment Prior to this Offering, there has been no public market for the Company's securities. There can be no assurance that a public market will develop or be sustained (see "Description of Securities"). An investor in the shares offered hereby may not be able to liquidate his or her investment should he or she desire to do so. It is unlikely that a lending institution would accept the shares as pledged collateral for loans unless a regular trading market develops. No Dividends and None Anticipated AOG anticipates using the proceeds of this Offering, and earnings received, to develop and market its advertising franchise business, for operating capital and for corporate development and expansion activities. AOG has not paid or declared any dividends nor, by reason of its present financial status and its contemplated financial requirements, does it anticipate paying any dividends upon the shares offered hereby for the foreseeable future. 8 The future payment of dividends by AOG on its Common Stock, if any, rests within the sole discretion of AOG's Board of Directors and will depend, among other things, upon AOG's earnings, its capital requirements, and its financial condition, as well as other relevant factors. While AOG may declare dividends at some time in the future, no assurance can be given as to the timing of such declaration of dividends, if any (see "Description of Securities" and "Dividend Policy"). Possible Restrictions on the Resale of the Company's Common Stock Any resale of the Company's Common Stock may be covered by a Securities and Exchange Commission rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5 million or individuals with net worth in excess of $1 million or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of purchasers in this Offering to resell their shares in any secondary market that may develop. Maximum and Minimum Shares Offered Hereby AOG needs at least the minimum proceeds from this Offering to further develop and expand its operations. Failure to sell at least the minimum number of shares offered hereby may result in AOG's inability to further develop and expand planned operations. Should only the minimum number of shares offered hereby be sold, the purchase price for the shares will not be returned to investors even in the event that the amount of proceeds proves insufficient to allow the Company to further develop and expand its operations. Shares Available for Resale All of AOG's Common Shares presently outstanding are "restricted securities." In the future these restricted securities may be sold in compliance with Rule 144 adopted under the Securities Act of 1933, as amended. Rule 144 provides, in essence, that a person holding "restricted securities" for a period of two years may sell an amount equal to 1 percent of the Company's outstanding shares every three months. Non-affiliates may sell shares held for three years without limitation. Investors should be aware that the possibility of sales under Rule 144 may, in the future, have a depressive effect on the price of the Company's stock in any market which may develop. The Bylaws permit the Directors to authorize the issuance of additional classes and amounts of shares without shareholder approval in order to provide the Board of Directors with the ability to issue stock for proper purposes, including deterring takeover bids. AOG's Bylaws provide that these provisions cannot be amended, altered, repealed, or replaced without the assenting vote of a majority of the shareholders. As the current shareholders of AOG will retain control of the Company subsequent to this Offering, any such amendment, alteration, or repeal of the Bylaws will remain at the discretion of the current shareholders for the foreseeable future. Determination of the Offering Price The Offering price per share of the shares offered hereby was determined arbitrarily by AOG, and bears no relationship to the asset or book value of the Company. The Offering price is not based on net worth, earnings, or other established investment criteria of value. Accordingly, there can be no assurance that the shares offered hereby can be resold at the Offering price, if at all. 9 Because the Offering price was arbitrarily set by the Company at $6.00 per share, broker-dealers effecting sales of the Company's securities in this Offering will not be constrained by the provisions of Rule 15c2-6 under the Exchange Act and investors in this Offering will not be afforded the protection of Rule 15c2-6 as determined appropriate by the Securities and Exchange Commission to protect investors in "penny stocks" (see "Description of Securities" and "Risk Factors - Possible Restrictions of the Resale of the Company's Common Stock"). No Underwriter As this is a self underwritten Offering made under the provisions of, and in compliance with, Rule 3a4-1 of the Securities Exchange Act of 1934, there is no underwriter for this Offering. Therefore, offerees will not have the benefit of an underwriter's due diligence efforts, which would typically include the underwriter being involved in the preparation of disclosure and the pricing of the shares offered hereby, among others. As AOG has never engaged in the public sale of its shares, it has no experience in the underwriting of any such offering. Accordingly, there is no prior experience from which investors may judge AOG's ability to consummate this Offering. Need for Current Registration The Company must have a current Registration Statement on file with the Commission and with the securities commissions in certain states in which investors reside. Accordingly, the Company will be required to file post-effective amendments to its Registration Statement when subsequent events require such amendments in order to continue the registration of the shares of Common Stock. Although the Company intends to comply with this requirement, there can be no assurance that the Company will be able to keep its Registration Statement current should it file such post-effective amendments. Control of the Company to Remain with Present Stockholders Following the completion of this Offering, if the maximum number of shares are sold, the present shareholders of AOG will own approximately 70.2 percent of the outstanding Common Stock of AOG. Should only the minimum number of shares be sold, present shareholders of AOG will own approximately 97.6 percent of the outstanding Common Stock. Consequently, because of their percentage of ownership, existing shareholders will be able to control AOG's Board of Directors at least for the foreseeable future. Authorization of Preferred Stock AOG's Articles of Incorporation and Bylaws authorize the issuance of up to 1,000,000 shares of undesignated Preferred Stock with such rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors may issue Preferred stock with dividend, liquidation, conversion, and voting or other rights which could adversely affect the voting power, dividend and liquidation preference, or other rights of the holders of AOG's Common Stock, without first obtaining shareholder approval. Although the Company does not currently intend to issue any shares of Preferred Stock, there can be no assurance that AOG will not do so in the future. 10 USE OF PROCEEDS The net proceeds from this Offering will be at least $4,396,240 if all of the shares are sold, or at least $220,240 only the minimum number of shares are sold, after deducting sales commissions and non-accountable expense allowances payable to any broker/dealers and other expenses of issuance and distribution. Management estimates that the Offering proceeds will be applied substantially as follows: APPLICATION OF PROCEEDS IF MINIMUM IS SOLD IF MAXIMUM IS SOLD Advertising & Public Relations 30,000 1,150,000 Equipment (2) 50,000 200,000 Travel and Entertainment 17,000 322,000 Salaries and Wages 75,740 966,740 Sales Commissions 27,000 663,000 Legal, Accounting & Trademark 4,000 195,000 UFOC Filing Fees(1) 2,000 45,000 Marketing and Promotional Materials 14,500 854,500 TOTAL $ 220,240 $4,396,240 (1) UFOC filing fees are paid to the Federal Trade Commission for initial submission and the requirements to keep the registration current and updated. This expense also covers legal and administrative costs along with the fee to the FTC. (2) Under the maximum proceeds to be used for equipment the first $50,000 will be applied towards general office equipment and furniture and the remaining $150,000 will be applied towards the purchase or leasing of the Company's planned LAN/WAN computer system. The foregoing represents AOG's best estimate of the allocation of the net proceeds from this Offering based upon current plans and is subject to reapportionment of the proceeds among the uses described above. AOG intends to allocate net proceeds received by the Company in an amount between the minimum and maximum amounts among the uses described above. AOG believes that the net proceeds will be adequate to fund immediate plans, including revenue producing operations, so long as at least the minimum sale of shares is achieved (see "Business - Plan of Operation"). No portion of the proceeds will be paid to Officers or Directors or their affiliates for expenses of this Offering. After attaining the minimum sale of shares, pending application of the net proceeds, AOG may invest in interest-bearing securities such as U.S. government securities, money market funds or other cash investments, certificates of deposit, savings deposits or short-term obligations of the United States, or the proceeds may be left in checking accounts bearing no interest. AOG does not intend to become an investment company under the Investment Company Act of 1940 and, therefore, may be limited in the temporary investments that it can make with the proceeds from this Offering. 11 DILUTION The price at which investors will purchase the shares of Common Stock offered hereby is substantially higher than the price at which AOG's existing shareholders acquired their shares. Prior to this Offering, the current shareholders of the Company purchased 2,006,864 shares of Common Stock for $279,005 or approximately $0.14 per share. Net tangible book value per share is determined by dividing the tangible net worth of the Company (total assets less total liabilities and intangible assets) by the number of outstanding shares of Common Stock. The following table sets forth the dilution which will be realized by the investors in the shares offered hereby in the case that the sale of the minimum number of shares offered hereby is attained, and in the case that the sale of the maximum number of shares offered hereby is attained: Minimum Maximum Offering Price Per Share $6.00 $6.00 Net Tangible Book Value Per Share Before Offering 0.01* 0.01* Net Tangible Book Value Per Share After Offering 0.12* 1.55* Increase Per Share Attributable to Investors 0.11* 1.54* Per Share Decrease to Investors After Offering 5.88* 4.45* (* rounded to the nearest cent) Dilution If All Shares Offered Hereby Are Sold If all of the shares offered hereby are sold, AOG will have issued 2,856,864 shares of Common Stock. The total paid-in capital will be $4,675,246 allowing for the payment of sales commissions and non-accountable expense allowances for the sale of all of the shares. The total net tangible book value after the completion of this Offering will be $4,421,041 and the net tangible book value per share will be approximately $1.55 per share. In this case, the current shareholders of AOG will own 2,006,864 shares or approximately 70.2 percent of the Company and investors purchasing shares in this Offering will own 850,000 shares or approximately 29.8 percent of the Company, for which they will have paid $5,100,000 or $6.00 per share. The current shareholders of AOG will hold stock with an approximate book value of $3,105,653 for an approximate increase of $3,083,853 in value, and the investors will hold stock with an approximate value of $1,315,388 approximate decrease of $3,784,612. Dilution If Only the Minimum Shares Offered Hereby Are Sold If only the minimum number of shares offered hereby are sold, AOG will have issued 2,056,864 shares of Common Stock. The total paid-in capital will be $499,246 allowing for the payment of sales commissions and non-accountable expense allowances for the sale of all of the shares. The total net tangible book value will be $245,041 after the completion of this Offering, and the net tangible book value per share will be approximately $0.12 per share. In this case, the current shareholders of the Company will own 2,006,864 shares or approximately 97.6 percent of the Company, and investors purchasing shares in this Offering will own approximately 2.4 percent of the Company or 50,000 shares, for which they will have paid $300,000 or $6.00 per share. The current shareholders of the Company will hold stock with an approximate book value of $239,084 for an approximate increase of $214,284 in value, and the investors will hold stock with an approximate value of $5,957 for an approximate decrease of $294,043. 12 CAPITALIZATION The following table sets forth, as of March 31, 1996, the capitalization of the Company and the pro forma capitalization after giving effect to the completion of this Offering
As Adjusted As Adjusted Actual Minimum Maximum Long Term Notes Payable to Founders .......... $ 8,842 8,842 8,842 Shareholders' Equity: Common Stock; No Par value; Authorized 5,000,000 Shares; Issued and Outstanding - (Actual) 2,006,864; (As Adjusted - Minimum) 2,056,864; (As Adjusted - Maximum ) 2,856,864 279,005 499,246 4,675,246 Preferred Stock; No Par Value; Authorized 1,000,000 Shares; None Issued and O tstanding 0 0 0 Deficit Accumulated During the Development Stage ....................................... (254,205) (254,205) (254,205) Total Stockholders' Equity ................ 24,800 245,041 4,421,041 Total Capitalization ...................... $ 24,800 245,041 4,421,041
SELECTED FINANCIAL INFORMATION The following is selected financial data for the period ending March 31, 1996. The audited financial statements as of December 31, 1994 and 1995 and the report of the independent Certified Public Accountant thereof are included elsewhere in this Prospectus. The information set forth below is qualified by, and should be read in conjunction with, the financial statements and related notes thereto in their entirety appearing elsewhere in this Prospectus. Historical loss per share amounts have been presented in the audited and interim financial statements, but historical amounts for dividends per share have not been presented as AOG has paid no dividends. The AdsOnly Group, Inc. (a development stage enterprise) Summary Balance Sheet March 31, 1996 ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Current Assets $35,315 Current Liabilities $3,127 Notes Payable 8,842 Fixed Assets 1,454 Other Assets 0 TOTAL LIABILITES 11,969 STOCKHOLDERS' EQUITY 24,800 TOTAL ASSETS $36,769 TOTAL LIABILITIES $36,769 13 INDEMNIFICATION AOG's Bylaws provide indemnification for Officers, Directors, employees, or other agents of AOG to the fullest extent permitted under California law if they act in good faith and in a manner believed to be in AOG's interests or, as regards criminal proceedings, if they have no reasonable cause to believe their conduct is unlawful. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to such Directors, Officers, or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Commission, such indemnification is contrary to public policy as expressed in the Act and, therefore, is unenforceable. DIVIDEND POLICY AOG has paid no dividends to shareholders as of the date of this Prospectus and does not anticipate paying any dividends on its Common Stock in the foreseeable future. The shareholders of AOG's Common Stock are entitled to receive any dividends which the Board of Directors may declare from time to time out of funds legally available for that purpose, if any. Any such dividends shall be distributed on a pro-rata basis. The future payment of dividends by AOG, if any, rests within the discretion of the Board of Directors and will depend, among other things, upon the Company's earnings, its capital requirements, and its financial condition, as well as other relevant factors. Management intends to reinvest earnings, if any, in the development and expansion of the Company's business. BUSINESS Background The AdsOnly Group, Inc. was incorporated in the State of California in 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 "per-job", or project based services. Historically, larger advertising agencies such as Ogilvy & Mather, J. Walter Thompson, and BBDO, concentrate 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 14 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. Effective and affordable advertising and marketing are critical to smaller advertisers, but most smaller advertisers cannot afford the fees which larger advertising agencies would typically charge them. Large and mid-size advertising firms are not able to focus on smaller advertising clients and so often provide inferior service to clients while having to charge "top dollar" for these their 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 the resources or experience which full-time advertising agency employees typically can. 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 then 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. 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 has incorporated the Company, filed for and completed franchise registration and concentrated its efforts with the legal and logistical issues involved in preparing to sell franchise offerings of a service-based enterprise. 15 AOG is currently operating on a part-time basis until such time that funding can be raised to allow the officers to devote full-time efforts in advancing this enterprise. At this time, management is working without compensation. AOG will not commence full-time operations until such time as at least the minimum number of shares are sold and the proceeds of this offering become available. The Company currently has eight part-time employees and no full-time employees, however, once the Offering is completed all of the part-time employees will become full-time employees. The Company also expects to hire an additional three to twelve employees for its administrative staff in 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 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, however, if amounts greater than the minimum proceeds are raised proportionally up to the maximum amount to be set aside for salaries of $941,740, the Company will hire additional employees to expand its operations and expansion, 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 accordingly 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 at least the minimum amount of proceeds which will be made become available to AOG as the Company expects to be generating revenues prior to the end of the 12th month of operation after funding. AOG intends to secure additional operating and training facilities to its main office in San Francisco. AOG intents to secure 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 employee 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 in 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 their use will be an important part of a successful approach to the establishment of any communication based service industry such as advertising. 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. It is this system which plans to make available for its franchisees that is intended to offer the communication, knowledge, and support that are often only available from a large national advertising agency. This 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 reaction to needs and demands in real-time, as needed. 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. 16 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, 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 campaign, and issues concerning the AdsOnly franchise and the advertising industry. The AdsOnly Video will 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 planned to be implemented using 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 17 AdsOnly's ability to create and support a growing network of franchise agencies around the country that will create an organizational network to supply the type of support that can be extremely beneficial in the early stages of a business. The ability of franchisees to network, share ideas, research industries and draw on inside knowledge from within the AdsOnly organization and its database will be able to 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 to be allowed to sell franchises in approximately thirty states which the Company has targeted to begin its marketing. The Company expects 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 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. Competition While management is unaware of any other company currently franchising or seeking to franchise advertising agencies, there are numerous well established and reputable advertising agencies who will be competing directly with AOG's intended franchises for advertising revenues. To the extent that competitive advertising agencies successfully capture advertising revenues, it could impede the establishment and development of AOG's franchise network of individual franchise locations. Additionally, there is no assurance that in the future other companies may not seek the same type of business opportunity which AOG intends to pursue through the development and sale of competitive advertising franchises and a competitive advertising franchise network which may then compete directly with the company for market share and revenues. Regulation of AOG's Business The Federal Trade Commission regulates the offering and sale of franchises under federal law. Additionally, individual states also regulate the offering and sale of franchises to varying degrees. AOG will be required to maintain current registration of its franchise offering within the states in which the company offer franchises. Additionally, AOG may be required to maintain current registration with the Federal Trade Commission pursuant to the company's intended sale of franchises. 18 Insurance AOG will carry general liability business insurance. The Company will also carry Workers' Compensation insurance. The Company intends to purchase key-person insurance to protect the operation of the business and the interests of investors should certain of the Company's key Officers die or be incapacitated. The Company does not currently provide health, life, or any other insurance to its Officers, Directors, or employees but anticipates that it may provide such benefits at a later date. AOG's Franchise Agreement prepared for the Company pursuant to its intention to sell franchise locations to franchisees provides indemnification for AOG relative to workers' compensation and all other business liability from the operation of independently owned franchise locations. Management believes that the applicable provisions of the Franchise Agreement will successfully protect the Company from any liability pursuant to the operation of franchise locations. AOG's Franchise Agreement also requires franchisees to maintain $1 million in liability insurance pursuant to the operation of their independently owned franchise locations. Litigation To the knowledge of the Board of Directors and Officers of AOG, there is no past, pending, contemplated, or threatened litigation or administrative action, nor are there any unsatisfied judgments, nor have there been or are there any proceedings in which AOG was or is a party which have had or may have a material effect upon AOG's businesses, financial condition, or operations, including any litigation or action involving AOG's Officers, Directors, or other key personnel in their capacity as such. MANAGEMENT The Officers and Directors of the Company, with a brief description, are as follows: Name Age Position Michael Hinshaw 33 Chairman, and Chief Executive Officer Tracey F. Miner 37 President and Director Henry L. Corona 49 Chief Financial Officer Paul Holzapfel 61 Vice President, Sales and Marketing Richard R. Beerman 47 Chief Information Officer and Secretary Kimberly M. Young 35 Director Michael Yale Reif 44 Director Per Barnes 50 Director 19 The following sets forth certain biographical information relating to the Officers and Directors of AOG. Michael Hinshaw, has served as the Vice President and Senior Art Director of Triad, Inc. since April 1992, located in Larkspur, California, which is a mid-size advertising and marketing communications firm. At Triad, Inc., Mr. Hinshaw's responsibilities include all financial planning, new business development, and direction of in-house staff, as well as outside vendors. He is also involved in the development and implementation of strategic and market planning, creative direction, and account management. The firm's clientele include Wells Fargo Bank, Apple Computer, Harper Collins Interactive, Levolor, and Novelle, Inc. From April 1989 to 1992, Michael served as the Chairman, Vice President and Senior Art Director of Hinshaw, Young, & Partners, Inc. At this mid-size advertising agency, he was responsible for overseeing all financial planning, client relationships, and in-house staff management. He also developed and implemented strategic and market planning for such clients as Wells Fargo Bank, Hitachi Data Systems, and Sumitomo Bank. In 1988, Michael Hinshaw, Kimberly M. Young, and Per Barnes founded AdsOnly, San Francisco, Inc., a creative advertising agency in San Francisco. Mr. Hinshaw now serves as the Chairman and CEO of AOG and in this capacity, he is responsible for overseeing the development of AOG into a full franchise. This includes business planning and forecasting, developing literature, computer accounting programs, advertising and a business manual for franchisees. He is also in charge of overseeing daily business activities and the registration of the franchise in states where required. Mr. Hinshaw received both his Master and Bachelors degrees from the Academy of Art College in San Francisco, California in June 1987. Tracey F. Miner has been the Director of Business Meeting Services of Incentive Dimensions, a communications and incentive firm located in San Francisco, California from 1992 to the present. As Director, Business Meeting Services, his responsibilities include establishing the bay area sales/marketing satellite office, new sales, marketing services to corporate clients, management of local free-lance/contract resources, maintaining and developing creative and strategic plans, and operating towards fiscal profitability. From November 1990 to April of 1992, Tracey worked as Regional Account Manager of Maritz Communications, another communications and incentive firm. As Regional Account Manager, he was responsible for establishing the production division of the company, creative development of incentive related services, sales of production and creative services, producing and directing large meetings and events, developing internal marketing resources, and developing and maintaining strategic and creative support to sales force. From 1989 to 1990, Mr. Miner was the National Advertising Director of M & T Publishing. While there, he was responsible for developing Technical Magazine Advertising Network, overseeing new business strategies development, acting as department manager, developing structured cooperative of multiple sales force, and overseeing fiscal management. Mr. Miner attended the Rochester Institute of Technology where he majored in Advertising and Design. Henry L. Corona has served as President of Financesur, Inc. in Miami, Florida since 1994 to present,. His services include advertising agency valuation and compensation analysis, mergers and acquisitions consultation, and corporate management analysis. He also offers media and advertising clients the benefits of New Business Development training and Reengineering consultation. From 1989 to 1993, Henry was the Financial Director/Senior Consultant for Sanders Consulting Group in Richmond, Virginia. While at Sanders Consulting Group he provided services in mergers and acquisitions, valuation, financial and business planning for companies whose primary assets are creative talent. Since joining The Sanders Consulting Group in 1989, he has worked with a number of major international advertising agency groups as well as numerous clients in the $30 to $300 million range throughout the United States, the UK, Europe, and South America. In the past, Mr. Corona has worked directly for firms such as, Lucasfilm Ltd., BBDO, Bo Gehring Associates and others. Mr. Corona received his Bachelors degree in Economics from Grinnell College in Grinnell, Iowa. He also received his Masters degree in Economics from the University of California in Los Angeles. Mr. Corona also received an MBA degree in Finance from the University of Southern California. Paul Holzapfel serves as Vice President and Account Director for The Harwood Company, a communications firm located in Oakland, California. Mr. Holzapfel is responsible for supervising account teams, strategic planning, training, and developing new account programs. From April 1982 through December 1992, Mr. Holzapfel served as National Accounts Manager with Maritz, Inc., a Communications & Performance Improvement company located in San Francisco. Mr. Holzapfel developed and managed accounts for the western region of the United States which 20 included extensive traveling throughout the western region development and implementation of communications and performance improvement plan for client accounts. Additionally, Mr. Holzapfel served as Vice President, and Senior Account Manager with Maritz. Mr. Holzapfel studied at Stockton College and College of Pacific. Richard R. Beerman currently serves as the Secretary and Chief Information Officer for The AdsOnly Group, Inc. and is responsible for information technology, architecture, and management. Since January of 1994, Mr. Beerman has served as Manager of Special Projects for Miller Freeman Publishing, Inc. a Publishing company located in San Francisco, California. His responsibilities include management of network re-engineering for a six site United States WAN using TI links and internet connectivity establishment. Mr. Beerman also develops training literature for employee manuals. Additionally, Richard tests and evaluates new servers, the research and development of graphical image BBS from image capture to actual downloads using SUN and DES OS. From March 1990 through January of 1994, Mr. Beerman served as Director of Information Systems for M&T Publishing, a publishing company located in San Mateo, California. His responsibilities included managing all operations of M&T's Services Group, and the design and outfit of the company's computer centers, as well as, develop electronic mail system, corporate information system. Mr. Beerman served in the United States Air Force as a Special Electronics Technician. He received his Bachelors degree from California State University at Berkeley. Per Barnes is co-founder of the concept and Director of The AdsOnly Group, Inc. Since May 1990, Mr. Barnes has been the President of Ogilvy & Mather in Oslo, Norway since 1990. As head of this agency, he is responsible for client relations, new business, finances, reporting to the head office in the United States, and overseeing departments for creative capabilities, service to clients, production, and media. The agency's billing in 1993 was $12 million with a gross profit of $2 million, an increase of 16 percent from 1992. Their clientele includes such corporations as Ford and American Express. Per founded and established the name and concept of AdsOnly name to become a creative only agency. Along with Michael Hinshaw and Kimberly M. Young, he built up a "Beta" office with a systematic approach to new business, promotions, internal routines, creative, and client maintenance programs. From 1978 to 1982, he worked as Creative Director of O & M New York and San Francisco. While there, he worked closely with the Chairman and advertising genius, Hal Riney, on all aspects of creating concepts, creative ideas, print ads, and television commercials. From 1978 to 1981, he also worked as the President and Managing Director of O & M Oslo, Norway. He was responsible for all aspects of the everyday operations including overseeing creative production, client relations, finances, new business development, and reporting back to the head office in the United States. Kimberly M. Young is co-founder of the concept of the Company and Director. Ms. Young is also Owner and Creative Director of Young & Partners. As Owner of this marketing communications firm, Ms. Young assists clients with market strategy development as well as concept through production copy and design services. Young & Partners' clientele includes such accounts as Apple Computer, Hambracht & Quist, Oracle Corp., and Trident Capital, LP. This firm specializes in the financial and high technology industries. From September 1987 to April of 1993, Kimberly served as the President and Copy Chief of Hinshaw, Young, & Partners, Inc. She acted as Creative Director and Copy Chief specializing in print advertising, direct mail, point of purchase (POP), and collateral materials. In addition to creative work, she was involved in account management, strategy development, and media planning. The clientele included such companies as Apple Computer, Datalogic, Hitachi Data Systems, Wells Fargo Bank, The Wine Group, and The Tom Peters Group. Ms. Young received her Bachelors degree from Dartmouth College and her Masters degree from Stanford University. Michael Yale Reif has been a Director of the Company since 1990. From August 1993 to the present Mr. Reif is a South American Distributor for Gise Creme Glace, and owner of a flagship store in San Jose, Costa Rica. His responsibilities include overseeing all aspects of obtaining and maintaining distribution rights in Costa Rica, designing and developing plans for the "flagship" store, overseeing all financial aspects, hiring and training employees, obtaining advertising, and developing retail sales systems. Mr. Reif founded an art dealership, Fine Art Hunters. He worked there from 1988 through 1992. He was responsible for acquisition and sales of fine art objects; research to find re-sellable pieces; development of advertising for art magazines, newspapers, and direct mail; overseeing all financial aspects of the company; and developing new client relationships. Mr. Reif has also been director of AdsOnly since its inception in 1988. 21 Executive Compensation To date the Company has paid no cash compensation to its management which includes all officers as well as the CEO and President. Future compensation of Officers will be determined by the Board of Directors based upon the financial condition and performance of AOG, the financial requirements of the Company, and upon the individual performance of each Officer. The Board of Directors intends to ensure that the salaries paid to AOG's Officers and employees are reasonable and prudent and are based upon both the financial condition and performance of the Company. As several of AOG's Officers are also Directors of the Company, Officers' future compensation will not be determined through "arm's length" negotiations, but by the Board of Directors on a case-by-case basis. The Directors of AOG will serve in their capacities with the Company without remuneration. The Company has no retirement, pension, profit sharing, or insurance program for the benefit of its Officers, Directors, or employees, but the Board of Directors may recommend one or more such programs for adoption at such time as the Company is sufficiently developed to warrant such a program. In the future, the Company may adopt an Incentive Stock Option Plan under which tax qualified options may be granted or an Employee Stock Option Plan (ESOP). These plans would be intended to help AOG attract and retain the best available persons, to enhance the Company's growth, and to provide employees with an additional incentive to contribute to the growth and success of AOG. If implemented, any of these plans would be administered by a committee appointed by the Board of Directors, which would determine which eligible employees would receive options, the time at which any such options would be granted, the option price, the time at which each option would be exercisable, the exercise period, and interpretation and amendment of the rules relating to any such plans. THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK 22 PRINCIPAL SHAREHOLDERS The following table sets forth the ownership of AOG's Common Stock by the beneficial owners of more than 5 percent or more of the Common Stock, and by the Officers, Directors, and key personnel of AOG. Currently, there are a total of twelve Common Stockholders. The following shares have been transferred to the named individual as of the date of this Prospectus.
Common Stock Percentage prior to owned after the offering the offering Name Number Percentage Minimum Maximum Per Barnes ................... 500,000 24.92% 24.31% 17.50% c/o Ogilvy & Mather Sorkedalsveien 10 A 0369 Oslo Norway Michael Yale Reif ............ 375,000 18.69% 18.23% 13.13% Dept. 40 1601 NW 97th Avenue Unit C101 Miami, FL33172 Michael Hinshaw .............. 250,000 12.46% 12.15% 8.75% 315 Stuyvesant Drive San Anselmo, CA 94960 Kimberly M. Young ............ 187,500 9.34% 9.12% 6.56% 1130 Hobart Street Menlo Park, CA 94025 Per Dahl ..................... 150,000 7.47% 7.29% 5.25% Dahl & Kompani Reklamebyra Gange-Rolvsgate 1 Postboks 7653 Jukkebekk 0205 Oslo, Norway Hansi Borkenhagen ............ 136,765 6.82% 6.65% 4.79% c/o Jenssen & Borkenhagen/BBDO Postboks 9538 Egertorvet 0128 Oslo 1, Norway Fred Jenssen ................. 136,765 6.82% 6.65% 4.79% c/o Jenssen & Borkenhagen/BBDO Postboks 9538 Egertorvet 0128 Oslo 1, Norway Tracey Miner ................. 62,500 3.11% 3.04% 2.19% 1969 Fair Ridge Court Walnut Creek, CA 94596 Totals* ...................... 1,798,530 89.62% 87.44% 62.95%
* figures do not add to totals due to rounding 23 DESCRIPTION OF SECURITIES Shares Offered AOG hereby offers to sell and issue up to 850,000 shares of Common Stock at $6.00 per share to investors in this self-underwritten Offering. The shares will be sold and issued for cash. The shares offered hereby are not callable. The Company has never paid any dividends to shareholders of its Common Stock. It is the intention of the Board of Directors of AOG not to declare any dividends until such time as AOG is fully established and profitable and has an excess of retained earnings sufficient for anticipated corporate expansion and development activities (see "Dividend Policy"). Minimum Sale of Securities The minimum proceeds which AOG must realize from this Offering prior to being able to use any of such proceeds is $300,000, prior to the payment of any sales commissions or non-accountable expense allowances. AOG has opened a designated escrow account with The Pacific Bank, 101 California Street, San Francisco, California 94111, which all funds raised pursuant to this Offering will be deposited and held until this minimum amount of proceeds has been raised, in accordance with Rule 15c2-4 of the Exchange Act. In the event AOG does not raise the minimum proceeds set forth herein within one year from the effective date of this Offering, all funds received pursuant to this Offering shall be returned to the investors. AOG does not intend to pay any interest to investors on any funds received pursuant to this Offering which are escrowed. Once the minimum amount of proceeds has been raised, AOG will be free to use any funds received pursuant to this Offering, subject to each investor's right of recision (see "Voidability of Sales"). Common Stock AOG is authorized to issue 5,000,000 shares of Common Stock with no par value. Shareholders of Common Stock are entitled to one vote per share on each matter to be decided by the shareholders. The Common Stock has no redemption provisions. No holder of Common Stock has any preemptive right to subscribe for any securities of the Company. The shareholders of AOG's Common Stock are entitled to receive any dividends which the Board of Directors may declare from time to time out of funds legally available for that purpose, if any. Any such dividends shall be distributed on a pro-rata basis. The outstanding shares of Common Stock are fully paid and nonassessable. There are no shares of Common Stock subject to issuance under stock purchase or option plans, and there are no outstanding stock purchase agreements, options, warrants, or rights. In the future, the Board of Directors of AOG may propose employee stock options or warrants. AOG has not publically sold securities of any kind since the Company's inception. Shares of Common Stock have been issued to the Company's founding shareholders (see "Certain Transactions"). Plan of Distribution AOG, through its Officers and Directors, is offering to the public 850,000 shares of the Company's Common Stock, on a "best efforts", "self-underwritten", "50,000 share minimum" basis, pursuant to, and in compliance with, Rule 3a4-1 of the Exchange Act, at a purchase price of $6.00 per share. The Company will use its best efforts to find purchasers for the shares offered hereby within a period of one year from the date of this Prospectus. Subsequent to the granting of an effective registration date by the Commission, AOG may retain the services of an underwriter by filing a post effective amendment using the "sticker" amendment format, and the shares offered hereby may also be sold by selected broker/dealers. Should these shares be sold by an underwriter or broker/dealer, AOG will pay commissions of up to 10 percent, and additional non-accountable expense allowances of up to 3 percent, on the gross proceeds from the sale of shares after the sale of the minimum number of shares offered and after each investor's three day rescission ends. 24 The Company will only pay such commissions and non-accountable expense allowances to broker/dealers who are members of the National Association of Securities Dealers, Inc. (NASD). In no event will the Company pay any commissions, sales fees. or expenses to its Officers or Directors. Should AOG attempt to retain any such commissioned selling agents, there is no assurance that AOG will be able to retain an underwriter or broker/dealers to participate in the sale of the shares or that any such underwriter or broker/dealers will be able to sell the shares even if retained by AOG. Investment Procedures No sale of the shares will be made by AOG to any prospective investor who has not received a copy of this Prospectus at least 48 hours prior to the confirmation of a sale of shares hereunder. Upon reaching a decision to invest in the sharers offered hereby, prospective investors who intend to purchase shares directly from the Company must deliver to AOG: (1) a completed Subscription Agreement and (ii) a check in the appropriate amount. Prospective investors who intend to purchase shares from a broker/dealer should make payment directly to that broker/dealer. Regardless of whether prospective investors offer to purchase shares from AOG or from a broker/dealer, all checks for the purchase of shares should be made payable to "The AdsOnly Group, Inc. - Escrow Account." Acceptance of a prospective investor as an investor in the shares will occur when AOG executes the Subscription Agreement or at the time such shares are purchased from a broker/dealer. AOG will send an executed copy of the Subscription Agreement to each investor who purchases shares from the Company after acceptance by AOG, or will direct the Escrow Agreement to each investor who purchases shares from the Company after acceptance by AOG, or will direct the Escrow Agent to return the prospective investor's check promptly, should the offer to invest not be accepted. If the prospective investor purchases shares from a broker/dealer, a receipt for the purchase of shares will be delivered to the investor by the broker/dealer. Expenses and Commissions All expenses associated with this Offering, except sales commissions and non-accountable expense allowances, are payable by AOG regardless of whether the Offering is consummated or not. Should commissioned selling agents be retained, AOG anticipates paying a sales commission of up to 10 percent, and additional non-accountable expense allowances equal to up to 3 percent of gross proceeds from any shares sold by an underwriter or selected broker/dealers. Transfer Agent The transfer agent for the Common Stock of the Company is American Securities Transfer, Denver, Colorado. 25 LEGAL MATTERS The validity of the Common Stock to which this Prospectus pertains has been passed upon for the Company by William W. Washauer, Esquire, Citicorp Center, Suite 2100, One Sansome Street, San Francisco, CA 94147. All other matters pertaining to the Offering have been passed upon by Donald F. Mintmire, Esquire, 2710 Alt. 19 North, Suite 406, Palm Harbor, Florida 34683. Mr. Mintmire is also a stockholder of the Company, beneficially owning 39,999 shares of common stock. EXPERTS The financial statements included in this Prospectus have been audited by Durland & Company, CPAs, an independent certified public accountant company, as indicated in their report with respect hereto, and are included herein in reliance upon his authority as an expert in accounting and auditing. AVAILABLE INFORMATION AOG intends to send shareholders annual reports for each fiscal year ending December 31, containing financial statements audited by AOG's independent Certified Public Accountant, and to provide reports containing unaudited financial information for the first three quarters of each fiscal year. After this Offering, AOG will be subject to the reporting requirements of the Securities Exchange Act of 1934 and will file reports, proxy statements, and other information with the Commission. REGISTRATION STATEMENT AOG has filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission, Washington, D.C. 20549 with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes an integral part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain portions of which have been omitted in accordance with the rules and regulations promulgated by the Commission. For further information with respect to AOG and the shares of Common Stock, reference is hereby made to the Registration Statement. The Registration Statement, including all exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission at its principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549 at the prescribed rates. 26 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 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 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, 1995 and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles. /S/Durland & Company, CPAs, P.A. Durland & Company, CPAs, P.A. Palm Beach, Florida March 25, 1996 F-2
The AdsOnly Group, Inc. (A Development Stage Enterprise) Balance Sheets December 31, 1995 and March 31, 1996 1995 1996 ASSETS (Unaudited) CURRENT ASSETS Cash ...................................................... $ 47,698 35,293 Federal income tax receivable ............................. 22 22 Total Current Assets ................................... 47,720 35,315 FIXED ASSETS Computer equipment ........................................ 1,983 1,983 Less: accumulated depreciation ............................ (430) (529) Total Fixed Assets ..................................... 1,553 1,454 OTHER ASSETS Deferred income tax asset (note 4) ........................ 0 0 Total Other Assets ..................................... 0 0 Total Assets ............................................... $ 49,273 36,769 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable .......................................... $ 1,816 1,816 State sales tax payable ................................... 511 511 State franchise tax payable ............................... 800 800 Total Current Liabilities .............................. 3,127 3,127 LONG-TERM LIABILITIES Notes payable (note 1a) ................................... 8,842 8,842 Total Long-Term Liabilities ............................ 8,842 8,842 Total Liabilities .......................................... 11,969 11,969 STOCKHOLDERS' EQUITY Common stock, no par value, Authorized 5,000,000 shares; issued and outstanding 2,006,864 shares (note 5) ......... 279,005 279,005 Preferred stock, no par value, Authorized 1,000,000 shares; issued and outstanding 0 (none) shares (note 5) .......... 0 0 Deficit accumulated during the development stage .......... (241,701) (254,205) Total Stockholders' Equity ................................. 37,304 24,800 Total Liabilities and Stockholders' Equity ................. $ 49,273 36,769
The accompanying notes are an integral part of the financial statements. F-3
The AdsOnly Group, Inc. (A Development Stage Enterprise) Statements of Operations 3 Months 3 Months Period from Year Ended Year Ended Ended Ended April 6, 1990 December 31, December 31, March 31, March 31, (Inception) to 1994 1995 1995 1996 March 31, 1996 (Unaudited) (Unaudited) REVENUE Sales ..................... $ 6,813 0 0 0 6,813 Interest .................. 0 0 0 0 413 Total revenue ......... 6,813 0 0 0 7,226 COST OF SALES Cost of sales ............. 6,823 0 0 0 6,823 Gross profit/(loss) ....... (10) 0 0 0 403 EXPENSES Bank charges .............. 15 22 0 0 493 Concept development cost .. 0 0 0 0 120,000 Contract labor ............ 18,150 14,243 4,500 6,000 50,243 Depreciation .............. 33 397 99 99 529 Dues and subscriptions .... 36 400 0 0 507 Franchise offering document preparation .... 0 0 0 0 5,955 California franchise filing fee .............. 0 1,087 369 1,260 3,697 Internet site fee ......... 0 0 0 2,450 2,450 Licenses and taxes ........ 1,000 1,000 0 0 6,234 Office expenses ........... 1,891 4,071 775 863 10,026 Postage ................... 1,156 565 166 40 2,215 Printing .................. 325 2 0 0 2,188 Professional services ..... 251 14,366 1,764 0 45,406 Travel and entertainment .. 270 250 0 1,792 4,289 Miscellaneous ............. 376 0 0 0 376 Total expenses .......... 23,503 36,403 7,673 12,504 254,608 Net loss before tax benefit (23,513) (36,403) (7,673) (12,504) (254,205) Income tax benefit (note 4) 0 0 0 0 0 Net loss .................. $ 23,513) (36,403) (7,673) (12,504) (254,205) Net loss per share ........ $ (0.02) (0.02) (0.01) (0.01) (0.13) Weighted average number of shares outstanding ... 2,006,864 2,006,864 2,006,864 2,006,864 2,006,864
The accompanying notes are an integral part of the financial statements. F-4
The AdsOnly Group, Inc. (A Development Stage Enterprise) Statement of Stockholders' Equity Total Common Preferred Accumulated Stockholders' Stock Stock Deficit Equity INCEPTION, April 6, 1990 ................... $ 0 0 0 0 Capital investment: A) ................................ 123,900 0 0 123,900 Net loss ................................... 0 0 (126,490) (126,490) BALANCE, November 30, 1990 ................. 123,900 0 (126,490) (2,590) Net loss ................................... 0 0 (6,891) (6,891) BALANCE, November 30, 1991 ................. 123,900 0 (133,381) (9,481) Net loss ................................... 0 0 (2,921) (2,921) BALANCE, November 30, 1992 ................. 123,900 0 (136,302) (12,402) Capital investment: B) ................................ 29,970 0 0 29,970 C) ................................ 150 0 0 150 Net loss ................................... 0 0 (45,483) (45,483) BALANCE, December 31, 1993 ................. 154,020 0 (181,785) (27,765) Capital investment: D) ................................ 50,000 0 0 50,000 Net loss ................................... 0 0 (23,513) (23,513) BALANCE, December 31, 1994 ................. 204,020 0 (205,298) (1,278) Capital investment: E) ................................ 50,000 0 0 50,000 F) ................................ 24,985 0 0 24,985 Net loss ................................... 0 0 (36,403) (36,403) BALANCE, December 31, 1995 ................. 279,005 0 (241,701) 37,304 Net loss ................................... 0 0 (12,504) (12,504) BALANCE, March 31, 1995 (unaudited)......... $ 279,005 0 (254,205) 24,800 A) April 11, 1990; 1,550,000 shares of common *, $3,900 in cash and $120,000 in concept development expenditures. B) May 27, 1993; 273,530 shares of common *; $29,970 in cash. C) November 1, 1993; 150,000 shares of common; $150 in cash. D) February 2, 1994: 33,334 shares of common; $50,000 in cash. E) May 26, 1995; 0 shares of common; $50,000 in cash contributed by existing stockholders. F) June 1, 1995; 0 shares of common; $24,985 in cash contributed by existing stockholders. * Restated to reflect increase in authorized and stock split effective September 24, 1993.
The accompanying notes are an integral part of the financial statements. F-5
The AdsOnly Group, Inc. (A Development Stage Enterprise) Statements of Cash Flows 3 Months 3 Months Period from Year Ended Year Ended Ended Ended April 6, 1990 December 31, December 31, March 31, March 31, (Inception) to 1994 1995 1995 1996 March 31, 1996 (Unaudited)(Unaudited) CASH FLOWS FROM DEVELOPMENT ACTIVITIES: Net loss ........................................ $(23,513) (36,403) (7,673) (12,504) (254,205) Adjustments to reconcile net loss to net cash used by development activities: Stock issued for concept development costs 0 0 0 0 120,000 Depreciation .............................. 33 397 99 99 529 Changes in operating assets and liabilities: Increase (decrease) in accounts payable ...... (17,100) 102 1,750 0 1,816 Increase (decrease) in taxes payable ......... 511 0 (800) 0 1,311 (Increase) in receivables .................... 0 0 0 0 (22) Net cash used by development activities ......... (40,069) (35,904) (6,624) (12,405) (130,571) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets ........................ (1,983) 0 0 0 (1,983) Net cash used by investing activities ........... (1,983) 0 0 0 (1,983) CASH FLOWS FROM FINANCING ACTIVITIES: Cash contributed by existing stockholders ....... 0 74,985 0 0 74,985 Common stock issued for cash .................... 50,000 0 0 0 84,020 Notes payable issued for cash ................... 0 0 0 0 8,842 Net cash provided by financing activities ....... 50,000 74,985 0 0 167,847 Net increase (decrease) in cash ................. 7,948 39,081 (6,624) (12,405) 35,293 CASH, beginning of period ....................... 669 8,617 8,617 47,698 0 CASH, end of period ............................. $ 8,617 47,698 1,993 35,293 35,293 Supplemental disclosure of cash flow information: Interest paid in cash ........................... $ 0 0 0 0 0 Non-cash transactions: Stock issued for intangible asset ......... $ 0 0 0 0 120,000
The accompanying notes are an integral part of the financial statements. F-6 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 development stage enterprise which conducts business from its headquarters in San Francisco, California. The Company was incorporated on April 6, 1990 by the State of California. 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. The financial statements for the three months ended March 31, 1995 and 1996 include all adjustments which in the opinion of management are necessary for fair presentation. The following summarize the more significant accounting and reporting policies and practices of the Company: a) Notes payable The Company issued notes payable to two principal stockholders in exchange for cash. These notes carry no stated interest rate nor any stated maturity date. b) 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 or the Company. The Company chose to immediately expense these costs. c) Net loss per share Net loss per share is computed by dividing the net loss by the weighted average number of shares outstanding during the period. d) Fixed assets Fixed assets 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. (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 internally generated development costs be charged to expense when incurred. Accordingly, the Company has charged to expense the costs to develop the UFOC as incurred. On July 13, 1993 the Company entered into an agreement with Franchises That Sell of Cherry Hill, NJ to complete the Uniform Franchise Offering Circular (UFOC) which will allow the Company to sell franchises in 32 states. On November 23, 1993 the Company terminated the agreement with Franchises That Sell. (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 expenses as expenses in the period when incurred for financial statement purposes, per note 2 above. The Company recorded the concept development costs immediately as well, as discussed in note 1b above. However, for income tax purposes, these expenses were recorded as an intangible asset to be amortized over future years. The primary purpose of this treatment for tax purposes is to retain the tax benefit of the development costs. California tax law does not recognize operating loss carry-forwards as the Federal tax code does. Therefore, by capitializing 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 cause. 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. F-7 The AdsOnly Group, Inc. (A Development Stage Enterprise) Notes to Financial Statements, Continued (4) Income Taxes, continued SFAS 109 requires companies to take into account changes in tax rates when valuing the deferred income tax amounts carried on their Balance Sheets (the "Liability Method"). SFAS 109 also requires that deferred income taxes be provided for all temporary differences between financial statement income and taxable income. Deferred income tax liabilities are provided on elements of income which are recognized for financial accounting purposes in periods different than such items are recognized for income tax purposes. Deferred income tax benefits are provided on elements of expense which are recognized for financial accounting purposes in periods different than such items are recognized for income tax purposes. SFAS 109 is not expected to have any material effect on the financial statements. At March 31, 1996 the Company has a net operating loss carry-forward for income tax purposes of approximately $254,205, 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 $12,504 in 2011. The amount recorded as deferred income tax asset as of March 31, 1996, $101,700, represents the amount of tax benefits of loss carry-forwards. The Company has established a $101,700 valuation allowance, as the Company has no history of profitable operations. (5) Stockholders' Equity The Company had authorized 500,000 shares of no par value common stock. On September 24, 1993 the board of directors approved increasing the authorized shares of common stock from 500,000 to 3,000,000. The board of directors also approved a stock split of 5 shares for 1 for stockholders of record at midnight September 24, 1993. This stock split has been given retroactive treatment in the financial statement footnotes as presented. On April 11, 1990 the Company issued 687,500 shares to the founders in exchange for $3,900 in cash and 862,500 shares to two previously unrelated individuals in exchange for $120,000 of concept development costs, which the Company immediately expensed. On May 27, 1993 the Company issued 273,530 shares of common stock for $30,000 in cash. The Company completed this transaction to provide sufficient funds for the Company to begin advertising for franchisees. However, it was necessary to expend a significant portion of these funds to complete the Uniform Franchise Offering Circular (UFOC). On September 24, 1993 the board of directors approved the authorization for the Company to be able to issue up to 1,000,000 shares of no par preferred stock. On November 1, 1993 the Company issued 150,000 shares of common stock for $150 cash. On February 2, 1994 the Company issued 33,334 shares of common stock in exchange for $50,000 cash, or $1.50 per share. On June 23, 1994 the board of directors approved increasing the authorized shares of common stock from 3,000,000 to 5,000,000. On May 26,1995 and June 1, 1995, the Company received $50,000 and $24,985 in cash, respectively, as additional contributed capital from existing stockholders. (6) Common Stock Public Offering On September 24, 1993 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 date which the Securities and Exchange Commission (SEC) grants the registration an effective date, if the SEC grants such effectiveness. The stock included in this offering is priced at $6.00 per share. This offering price was determined in a completely arbitrary manner and bears no relation to any recognized standard of value. The minimum required to be sold by the Company before it has access to the funds is $300,000 at the offering price, with a net proceeds to the Company of $261,000 after sales commissions and non-accountables, assuming all 50,000 shares are sold through an NASD broker/dealer. (No sales commissions and non-accountables will be paid to any officer or director under any circumstances). The maximum proceeds of this offering are $5,100,000, or $4,447,000 net of sales commissions and non-accountables, assuming all 850,000 shares are sold through NASD broker/dealers. F-8 No person has been authorized to give any information or to make any representations not made in this Prospectus in connection with the Offering made hereby. If given and made, such information or representations must not be relied upon as being authorized by the Company. This Prospectus does not constitute an offer to sell, or solicitation of an offer to buy, any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation is such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereunder shall create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date as of which such information is furnished. -------------------------- TABLE OF CONTENTS PAGE Prospectus Summary................................5 Risk Factors......................................6 Use of Proceeds..................................11 Dilution.........................................12 Capitalization...................................13 Selected Financial Information...................13 Indemnification..................................14 Dividend Policy..................................14 Business.........................................14 Management.......................................19 Principal Shareholders...........................23 Description of Securities........................24 Legal Matters....................................26 Experts..........................................26 Available Information............................26 Registration Statement...........................26 Financial Statements............................F-1 Until _________________________ (90 days after the effective date of the Registration Statement) all dealer effecting transactions in the securities offered hereby whether or not participating in the distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 50,000 Shares Minimum The AdsOnly Group, Inc. COMMON STOCK -------------------- PROSPECTUS -------------------- The AdsOnly Group, Inc. 2269 Chestnut Street Suite 637 San Francisco, CA 94123 (415) 457-7586 May 28, 1996 27 Part II - INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers The Bylaws of the Company provide for the indemnification of Directors and Officers against certain liabilities to the maximum extent permissible under the California law. Officers and Directors of the Company are indemnified generally against expenses actually and reasonably incurred in connection with proceedings, whether civil or criminal, provided that it is determined that they acted in good faith and in a manner reasonably believed to be in the best interests of the Company, and in any criminal matter had reasonable cause to believe that their conduct was not unlawful. Item 25. Other Expenses of Issuance and Distribution The expenses of this offering are estimated to be a set forth below, and all such expenses will be paid by the Company: Legal Fees..................................................$12,000.00 Blue Sky Expenses and other Filing Fees......................10,000.00* Accounting Fees..............................................10,000.00 Printing and Engraving........................................5,000.00* Miscellaneous.................................................2,000.00* Registration Fee..............................................1,758.62 TOTAL $40,758.62 * Estimated Item 26. Recent Sales of Unregistered Securities On May 27, 1993 the Company sold 273,530 shares of common stock for $29,970 to Per Barnes a stockholder and Director of the Company. On November 1, 1993 the Company sold 150,000 shares of common stock for $150.00 to the Company's former and current counsel and legal support staff as a group. Then on February 2, 1994 the Company sold 33,334 shares of common stock for $50,000 to Hansi Borkenhagen and Fred Jenssen, both of whom had preexisting personal and business relationships with certain principals of the Company. There were no underwriters' discounts or commissions involved in the above transactions. These securities were not registered under the Securities Act of 1933, as amended. The transactions described above were made based on exemptions from registration under Section 4(2) of the Act as transactions by an issuer not involving a public offering since these sales were made as unsolicited sales, to stockholders and the Company's counsel. All of the certificates representing the foregoing securities contain restrictive legends thereon. 28 Item 27. Exhibits Exhibit No. Page No. - ------------------------------------------------------------------------------- (3.1) Articles of Incorporation of Registrant as Filed With the Secretary of49he State of California (1) (3.2) Amendment of the Arti52es of Incorporation of Registrant as filed with the State of California (1) (3.3) Amendment of the Articles of I55orporation of Registrant as filed with the State of California (1) (3.4) Bylaws of Registrant (1)......................... ...............61 (4.1) Specimen of Common Stock Certificate of the Registrant (1) (5.1) Opinion of Counsel as to Legality of Securities Being Registered (10.1) Escrow Agreement (1).............................................101 (10.2) Franchise 108 ents of the Registrant (1) (10.5) Form of Subscriptions Documents for the Offering (1)157 of the Registrant (24.1) Consents of experts and Counsel (1) Included in the initial filing of this Offering 29 Item 28. Undertakings The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration Statement or any material change to such information in the Registration Statement; and (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment, other then "sticker" amendments to add an underwriter or broker-dealer for the distribution of this offering, shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed the initial bona fide offering thereof. (3) Insofar as indemnification for liabilities arising under the Securities At of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 30 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Newport Beach, State of California. The AdsOnly Group, Inc. By: /S/Michael C. Hinshaw Michael C. Hinshaw, Chief Executive Officer and Chairman of the Board of Directors In accordance with the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signatures Capacities Date /S/Michael C. Hinshaw Michael C. Hinshaw Chairman of the Board and Chief Executive Officer /S/Tracey F. Miner Tracey F. Miner President, Treasurer and Director /S/Henry L. Corona Henry L. Corona Chief Financial Officer /S/Richard R. Beerman Richard R. Beerman Secretary and Chief Information Officer /S/Kimberly Young Kimberly Young Director 31 THE ADSONLY GROUP, INC. SUBSCRIPTION DOCUMENTS **************************** 1. Instructions to Investors 2. Subscription Agreement 32 THE ADSONLY GROUP, INC. INSTRUCTION TO INVESTORS In order to invest in the securities: (1) Complete and sign the Subscription Agreement. (2) Enclose a check in the appropriate amount for the shares you desire to purchase. The check should be payable to: "The AdsOnly Group, Inc. - Escrow Account" (3) Trustees and other persons acting in a representative capacity must provide a copy of their trust agreement, power of attorney or other instrument granting the power and authority to invest. (4) Mail or deliver the above items to: Mr. Michael Hinshaw The AdsOnly Group, Inc. 2269 Chestnut Street Suite 637 San Francisco, California 94123 (5) You should receive an executed Subscription Agreement within ten days. If you have not received this material by this time please notify The AdsOnly Group, Inc. at the above address. 33 THE ADSONLY GROUP, INC. SUBSCRIPTION AGREEMENT To: Mr. Michael Hinshaw President The AdsOnly Group, Inc. 2269 Chestnut Street, Suite 637 San Francisco, CA 94123 Dear Mr. Hinshaw: I have read and understand the Prospectus of The AdsOnly Group, Inc. dated XXXXXXX, 1996. I am tendering this Subscription Agreement, together with a check made payable in United States currency to "The AdsOnly Group, Inc. - Escrow Account" in the amount of $____________________ for _________ shares of stock at $6.00 per share. I represent and warrant to The AdsOnly Group, Inc. that I have alone, or together with my Investor's Representative, if any, such knowledge and experience in financial matters as to be capable of evaluating the relative risks and merits of the prospective investment. I represent that the information contained herein is accurate and may be relied upon by you, and I will immediately notify you, in writing, of any material change in the accuracy or completeness of this information. I acknowledge that acceptance of this subscription is at the sole discretion of The AdsOnly Group Inc. Sincerely, Signature of Investor Printed or Typed Name Street Address City / State / Zip Code Telephone Numbers - Home / Work Date 34 Exhibit 5.1 WILLIAM W. WASHAUR Attorney at Law Of Counsel To: Dooley, Johnson, Pardini, Stumbos & Pollioni Citicorp Center, Suite 2100 One Sansome Street P.O. Box 472019 San Francisco, California 94147 Telephone: (415) 951-4636 Facsimile: (415) 474-4166 May 20, 1996 via facisimile and first class mail Board of Directors AdsOnly Group, Inc. 2269 Chestnut Street, Suite 637 San Francisco, CA 94123 Re: AdsOnly Group, Inc. (the "Company") Registration Statement on Form SB-2 Ladies and Gentlemen: The undersigned is an attorney licensed to practice uinder the laws of the State of California. I have reviewed the Company's Articles of Incorporation, as amended, Bylaws, resolutions of the Board of Directors, and other relevant document pertaining to the intended issuance 850,000 shares of Common Stock by the Company in connection with the filing of a Registration Statement on Form SB-2 with the Securities and Exchange Commission. It is my opinion that these securities, when issued in accordance with the Registration Statement, will be legally issued, fully paid, and non- accessable. Very truly yours, /S/ William W. Washauer William W. Washauer WWW/wfw Exhibit 24.1(a) DURLAND & COMPANY Certified Public Accountants 340 Royal Palm Way, Suite 201 Palm Beach, FL 33480 (407) 822 9995 Fax (407) 822 9942 The Board of Directors The AdsOnly Group, Inc. (A Development Stage Enterprise) San Francisco, California Gentlemen: We hereby consent to the use of our report dated March 25, 1996 on the financial statements of the company and of the reference to our firm under the caption "Experts" in the prospectus included in the Registration Statement on Form SB-2 being submitted to the Securities and Exchange Commission by the company. /s/ Durland & Company, CPAs, P.A. Durland & Company, CPAs, P.A. Palm Beach, Florida May 31, 1996 Exhibit 24.1(b) MINTMIRE & ASSOCIATES ATTORNEYS AT LAW 2710 ALT. 19 NORTH SUITE 406 PALM HARBOR, FLORIDA 34683 TEL: (813) 771-1084 FAX: (813) 771-1206 May 28, 1996 Board of Directors The AdsOnly Group, Incorporated 2269 Chestnut Street Suite 637 San Francisco, CA 94123 Dear Sirs: I hereby consent to the use of my name as an expert under the heading "Legal Matters" in the prospectus included in the Registration Statement on Form SB-2 being filed with the Securities and Exchange Commission by The AdsOnly Group, Incorporated. Sincerely, Donald F. Mintmire DFM:ir EX-27 2 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 First Quarter 1996 none none 1 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 1 35,293 0 22 0 0 35,315 1,983 (529) 36,769 3,127 8,842 0 0 279,005 0 36,769 0 0 0 12,504 0 0 0 (12,504) 0 (12,504) 0 0 0 (12,504) (0.01) (0.01)
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