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
ResourceNet Communications, Inc.
(A Development Stage Enterprise)
San Francisco, California
We have audited the accompanying balance sheets of ResourceNet Communications,
Inc., a development stage enterprise, (the "Company") as of December 31, 1996
and the related statements of operations, stockholders' equity and cash flows
for the two years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and the results of its operations and its cash flows for the two years then
ended in conformity with generally accepted accounting principles.
Durland & Company, CPAs, P.A.
/s/Durland & Company, CPAs PA
Palm Beach, Florida
April 14, 1997
F-2
ResourceNet Communications, Inc.
(A Development Stage Enterprise)
Balance Sheets
December 31, 1996 and March 31, 1997
1996 1997
-------------- ---------
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 304,328 181,547
Federal income tax receivable 0 0
-------------- -------------
Total current assets 304,328 181,547
--------- --------
FIXED ASSETS
Computer equipment 1,983 6,092
Furniture and fixtures 0 684
Less: accumulated depreciation (826) (1,015)
----------- -----------
Total fixed assets 1,157 5,761
----------- ----------
OTHER ASSETS
Prepaid insurance 4,500 7,050
Internet site development, net of amortization 3,599 3,599
Deferred offering costs 35,036 47,945
---------- ---------
Total other assets 43,135 58,594
---------- ---------
Total Assets $ 348,620 245,902
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 42,692 20,085
Payroll taxes payable 2,976 (2,374)
Accrued salaries 5,692 0
State franchise tax payable 0 0
State sales taxes payable 0 0
------------- -------------
Total current liabilities 51,360 17,711
------------ -----------
LONG-TERM LIABILITIES
Notes payable (note 1b) 8,842 8,842
----------- ----------
Total long-term liabilities 8,842 8,842
----------- ----------
Total Liabilities 60,202 26,553
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized 5,000,000 shares;
issued and outstanding 2,058,064 in 1996 and 1,482,256
in 1997 (note 5) 583,959 583,959
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 (295,541) (346,610)
---------- ---------
Total Stockholders' Equity 288,418 219,349
---------- ----------
Total Liabilities and Stockholders' Equity 348,620 245,902
========== ==========
The accompanying notes are an integral part of the financial statements.
F-3
ResourceNet Communications, Inc.
(A Development Stage Enterprise)
Statements of Operations
0
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
1995 1996 1996 1997 March 31, 1997
------------ ---------- ------------- ------------- ----------------
REVENUE (Unaudited) (Unaudited) (Unaudited)
Sales $ 0 0 0 0 6,813
Interest 0 0 0 0 413
------------- ----------- ------------ ------------ -------------
Total revenue 0 0 0 0 7,226
------------- ----------- ------------ ------------ -------------
COST OF SALES
Cost of sales 0 0 0 0 6,823
------------- ------------ -------------- ----------- -------------
Gross profit/(loss) 0 0 0 0 403
------------- ------------ -------------- ----------- -------------
EXPENSES
Advertising 0 208 0 246 454
Auto expenses 0 0 0 1,437 1,437
Bank charges 22 0 0 0 493
Concept development cost 0 0 0 0 120,000
Contract labor 14,243 21,447 6,000 2,432 68,122
Depreciation 397 396 99 189 1,015
Dues and subscriptions 400 0 0 0 507
Franchise offering document preparation 0 0 0 0 5,955
State franchise filing fee 1,087 1,260 1,260 0 3,697
Insurance 0 0 0 3,158 3,158
Internet site fee 0 1,455 2,450 0 1,455
Licenses and taxes 1,000 668 0 4,582 11,484
Office expenses 4,071 1,819 863 630 11,612
Postage 565 951 40 484 3,610
Printing 2 0 0 0 2,188
Professional services 14,366 15,577 0 14,746 75,729
Rent 0 0 0 2,335 2,335
Salaries 0 8,000 0 32,883 40,883
Telephone 0 0 0 768 768
Travel and entertainment 250 1,792 1,792 5,179 9,468
Miscellaneous 0 267 0 0 643
-------------- ----------- -------- -------------- --------------
Total expenses 36,403 53,840 12,504 69,069 365,013
-------------- ----------- --------- -------------- --------------
Net loss before tax benefit (36,403) (53,840) (12,504) (69,609) (364,610)
-------------- ----------- --------- -------------- --------------
Income tax benefit (note 4) 0 0 0 0 0
-------------- ----------- ----------- -------------- ---------------
Net loss $ (36,403) (53,840) (12,504) (69,609) (364,610)
================= ================ ============= =============== ===============
Net loss per share $ (0.02) (0.03) (0.01) (0.38) (0.15)
================== ================= ============ ============= ===============
Weighted average number of
shares outstanding 2,006,864 2,009,032 2,006,864 1,834,139 2,009,032
=========== =============== ============= ============= =================
The accompanying notes are an integral part of thefinancial statements.
F-4
ResourceNet Communications, 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: 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
Capital investment
G) 304,954 0 0 304,954
Net loss 0 0 (53,840) (53,840)
------------- ------------- -------------- -----------
BALANCE, December 31, 1996 583,959 0 (295,541) 288,418
Capital investment
H) 0 0 0 0
Net loss 0 0 (69,069) (69,069)
------------- ------------- -------------- -----------
BALANCE, March 31,
1997 (unaudited) $ 583,959 0 (364,610) 219,349
============= ============== =============== ===========
<FN>
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.
G) December 20, 1996; 51,200 shares of common; $304,954 in cash, net of deferred offering costs.
H) February 24, 1997; (575,808) shares of common; contributed back to the Company by certain officers, directors and
founders.
* Restated to reflect increase in authorized and stock split effective September
24, 1993.
The accompanying notes are an integral part of the financial statements.
</FN>
F-5
ResourceNet Communications, 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
1995 1996 1996 1997 March 31, 1997
-------------- -------------- ------------ ------------ --------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES: (Unaudited) (Unaudited) (Unaudited)
Net loss $ (36,403) (53,840) (12,504) (69,069) (364,610)
Adjustments to reconcile net loss to
net cash used for development activities:
Stock issued for concept development costs 0 0 0 0 120,000
Depreciation 397 396 99 189 1,015
Changes in operating assets and liabilities:
(Increase) decrease in receivables 0 22 0 0 0
(Increase) decrease in prepaids 0 (4,500) 0 (2,550) (7,050)
(Increase) decrease in internet site development 0 (3,599) 0 0 (3,599)
(Increase) decrease in deferred offering costs 0 (35,036) 0 (12,909) (47,945)
Increase (decrease) in accounts payable 102 40,876 0 (22,607) 20,085
Increase (decrease) in state taxes payable 0 (1,311) 0 0 0
Increase (decrease) in payroll taxes payable 0 2,976 0 (5,350) (2,374)
Increase (decrease) in accrued salaries 0 5,692 0 (5,692) 0
--------------- ---------------- -------------- ------------ --------------
Net cash used for development activities (35,904) (48,324) (12,405) (117,988) (284,478)
---------------- ---------------- -------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets 0 0 0 (4,793) (6,776)
----------------- ---------------- -------------- ------------- --------------
Net cash used by investing activities 0 0 0 (4,793) (6,776)
------------------ ---------------- -------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed by existing stockholders 74,985 0 0 0 74,985
Common stock issued for cash 0 304,954 0 0 388,974
Cash received for notes payable 0 0 0 0 8,842
------------------ ---------------- --------------- ------------- ---------------
Net cash provided by financing activities 74,985 304,954 0 0 472,801
------------------ ---------------- ---------------- ------------- ---------------
Net increase (decrease) in cash 39,081 (256,630) (12,405) (122,781) 181,547
----------------- ---------------- --------------- ------------- ---------------
CASH, beginning of period 8,617 47,698 47,698 304,328 0
------------------ ----------------- --------------- ------------ ---------------
CASH, end of period $ 47,698 304,328 35,293 181,547 181,547
================== ================= =============== ============ ===============
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
ResourceNet Communications, 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 and 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. Depreciation expense
for the three months ended March 31, 1996 and 1997 was $99 and $189.
(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. 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
F-7
ResourceNet Communications, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements, Continued
(4) Income Taxes, continued 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, 1997 the Company has a net operating loss carry-forward
for income tax purposes of approximately $364,610, 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, $53,840 in 2011 and $69,609 in 2012.
The amount recorded as deferred income tax asset as of March 31, 1997, $145,800,
represents the amount of tax benefits of loss carry-forwards. The Company has
established a $145,800 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. In February 1997, certain officers, directors and
founders of the Company contributed 575,808 of their shares back to the Company.
(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 was 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, June 26,1996. 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, which was exceeded in December 1996. The Company sold
51,200 shares in December 1996. 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. (No sales
commissions and non-accountables will be paid to any officer or director under
any circumstances).
The Company is preparing a post-effective amendment which is expected to be
filed in early June 1997 to extend the offering and reflect certain changes in
the Company.
F-8