U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)
[X] ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
1934 [Fee Required]
         For the fiscal year ended December 31, 1996

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
OF 1934 [No Fee Required]
         For the transition period from                    to

                         Commission file number 33-90672

                             THE ADSONLY GROUP, INC.
                 (Name of small business issuer in its charter)

          California                                 93-1026060
(State or other jurisdiction of                 (IRS Employer ID No.)
 incorporation or organization)

                           One Sansone St., Suite 2000
                         San Francisco, California 94104
                    (Address of principal executive offices)

Issuer's telephone number  (415) 721-0299

Securities registered under 12(b) of the Exchange Act:
   Title of each class                 Name of each exchange on which registered
         None                                            N/A

Securities registered under 12(g) of the Exchange Act:
                           Common stock, no par value
                              (Title of each class)

Check whether the issuer (1) has filed  reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.   Yes X    No

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the best of the  registrant's  knowledge,  in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State the issuer's revenues for its most recent fiscal year. $0

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days.  (See  definition  of affiliate in Rule 12b-2 of the Exchange  Act). As of
March 31, 1997 - $307,200

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest  practicable  date:  As of March 31,  1997 - 1,482,255
shares of common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None
<PAGE>
                                     PART I

Item 1. Description of Business.

         The AdsOnly Group, Inc., ("AOG" or "Company"),  was incorporated in the
State  of  California  on  April  6,  1990  by a  group  of  advertising  agency
executives,  including executives  experienced with large worldwide  advertising
agencies such as Ogilvy & Mather and BBDO. The Company seeks to develop, market,
and sell its advertising franchise system throughout the United States. Based on
its experience in the advertising industry,  management believes that there is a
significant opportunity to develop market share by offering advertising services
for companies with advertising  budgets in the $250,000 annual range, while also
targeting divisions of larger companies and advertisers  requesting "perjob", or
project based services.

         Historically,  larger advertising  agencies such as Ogilvy & Mather, J.
Walter  Thompson,  and  BBDO,   concentrated  marketing  efforts  toward  larger
advertising  clients,  often those clients with  advertising  budgets  exceeding
$1,000,000.  As a result,  management  believes that a  broad-based  advertising
system which specializes in meeting the needs of mid-size companies with smaller
advertising  budgets  provides the company  with a  significant  opportunity  to
develop and expand market share within this target market.

         AOG was founded by experienced advertising executives, whose cumulative
experience  led them to conclude that large and mid-size  agencies  cannot serve
the smaller advertiser profitably and effectively.  Large,  international groups
of  advertising  agencies are organized to service  clients on an  international
basis and often focus on such clients as Procter & Gamble, Coca-Cola, Ford Motor
Company,  Exxon,  etc.  These larger  advertising  agencies are unable to devote
attention to the considerable number of smaller advertising clients.

         Based on their  experience,  management  believes  that "full  service"
advertising agencies have not traditionally attempted to capture the business of
these  advertisers,  and management  believes that even if existing full service
advertising  agencies  attempt to capture  market share from these  advertisers,
they  will  not be  able to  serve  this  type of  advertiser  using  their  top
advertising  personnel,  primarily  due to  cost  and  price  constraints.  This
situation could result in these agencies delegating creative and other decisions
to  unseasoned  junior staff who are not equipped to provide  these  advertisers
with the level of service and creative  quality  required to produce top quality
advertising campaigns.

         Smaller,  regional  advertising  agencies,  which management defines as
advertising  agencies  which realize  between  $100,000 and  $1,000,000 in gross
profit from operations, often serve smaller local and regional clients. However,
due  to  the  constraints  imposed  by  maintaining   day-to-day  operating  and
client-based tasks, these smaller advertising agencies often lack the ability to
engage in any appreciable new business planning and self promotion.

         As a result,  when confronted with a prospective client with a sizeable
advertising  budget,   smaller  agencies  frequently  experience  difficulty  in
securing these larger clients. Even if these smaller advertising agencies manage
to capture larger clients,  their limited  resources often make it difficult for
these  smaller  agencies  to retain  these  clients  on a  long-term  basis.  In
addition, if the founders or principals of these smaller agencies leave, or sell
the firms, a number of advertising  clients may follow the founders to their new
advertising agencies.

         Based on budgetary  constraints,  advertisers  with  marketing  budgets
under $250,000 must spend their  advertising  resources  wisely and effectively.
Most  smaller  advertisers  cannot  afford  the fees  which  larger  advertising
agencies would typically charge them, thus, effective and affordable advertising
and  marketing  are  critical  to  smaller   advertisers.   Large  and  mid-size
advertising  firms are not able to focus on smaller  advertising  clients and so
often provide  inferior  service to smaller  clients while having to charge "top
dollar" for these services.

         An additional  burden placed on both the small  advertising  agency and
the  small  advertiser  is that  many  smaller  advertising  agencies  lack  any
appreciable level of name recognition. As a result, advertisers may be skeptical
regarding placing their  advertising  dollars in the hands of an unknown agency.
As  smaller   advertising   agencies  often  operate  within  their  own  budget
constraints,  these agencies frequently employ freelance personnel who typically
cannot offer
                                        2
<PAGE>
the resources or experience provided by full-time advertising agency employees.

         The AdsOnly Group was founded to be the first franchisor of advertising
agencies.  Other than the public in  general,  one  specific  target  market the
Company  intends to market its franchises to is small "mom and pop"  advertising
agencies  run by fewer  than ten  people  with  backgrounds  in the  advertising
business  including  copywriting,   art  direction,  direct  mail,  and  account
management.  This potential  market is made up of individuals who are already in
the advertising  business but do not have the knowledge,  experience and support
of a  "full-service"  national firm behind them.  The Company has patterned this
strategy  after large real estate  franchisers  such as Prudential,  ReMax,  and
others  who  market  their  membership  to  existing  "mom and pop" real  estate
brokers.

         These franchises are designed to target the rapidly growing advertising
niche which includes  expanding local and regional  businesses with  advertising
budgets under $250,000, while also targeting larger advertisers and divisions of
larger  companies  requesting "per job" or project based  advertising  services.
Based on management's  experience,  due to the recent downsizing that many large
advertisers  have   experienced  over  the  past  several  years,   these  major
advertisers  are  out-sourcing  marketing  services at a greater level than ever
before  and, in many  instances,  are  unwilling  to pay the costs of a national
full-service advertising agency.

Item 2.  Description of Property.

         None

Item 3.  Legal Proceedings.

         The Company is not a party to any pending legal proceedings.

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

         The Company  did not submit any  matters to a vote of security  holders
during the fiscal year.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

         There is currently no public  trading  market for the Company's  common
stock.

Item 6. Management's Discussion and Analysis or Plan of Operation.

         The AdsOnly Group is a start-up company offering advertising  franchise
opportunities  for  sale  on a  national  basis.  The  Company  has  been  in an
organizational  and development  stage since 1990,  during which time management
incorporated  the Company,  filed for and completed  franchise  registration and
concentrated its efforts on the legal and logistical  issues involved in selling
franchise offerings of a service-based enterprise.

         AOG sold the minimum  number of shares and the proceeds  thereof became
available to the Company on December 24, 1996. The Company is now operating on a
full-time basis. The Company currently has three full-time employees and expects
to hire an additional  three to twelve  employees for its  administrative  staff
over the first year.

         The Company has set aside  $75,740 under the minimum Use of Proceeds of
the  Offering  for the  payment of  salaries to  employees.  Although  this is a
significant  amount of the minimum proceeds,  the Company feels that this amount
will be  sufficient  to cover the salary  expense of its employees for the first
year of operation  while not negatively  impacting the liquidity of the Company.
AOG currently has  sufficient  employees to operate the company for the first 12
months.  As amounts in excess pf the minimum  proceeds  are raised,  the Company
will  proportionally  set aside funds for salaries up to the expected maximum of
$941,740. The Company will hire additional employees to expand its
                                        3
<PAGE>
operations,  however,  not to the degree that the amount of  employees  are more
than can be supported  for one year under the amount of proceeds  raised and set
aside for salaries  from the  Offering.  Any addition of employees and increased
operations  would also be expected to allow the AOG to increase its revenues and
thus gain an even greater liquidity.

         Should  only the  minimum  sale of shares  offered be sold,  management
believes that it would meet the Company's minimum cash  requirements  until such
time as AOG's operations begin generating  revenues.  Management believes it may
not be necessary to seek additional funding during the twelve-month period after
receipt  of the  minimum  amount  of  proceeds  as  the  Company  expects  to be
generating  revenues  prior to the end of the  12th  month  of  operation  after
funding.

         AOG  has  secured  operating  facilities  in the  San  Francisco  area.
Management  anticipates  that this base of  operations  will  demonstrate a real
world  example  of "the  virtual  office"  rather  than a large  physical  plant
associated with past agencies.  Should adequate funding be available,  AOG plans
to employ additional key personnel to proceed with the Company's franchise sales
effort  and  commence  with the  design  and  development  of the  communication
network/computer system necessary to organize the sales and marketing effort, as
well as future franchise communications.

         AOG intends to contract with a leading  public  relations firm to begin
the process of  promoting  its  franchise  business and  operations.  Initially,
management  intends to orchestrate an extensive  awareness  campaign to generate
interest and leads,  on a  market-by-market  basis,  just prior to  conducting a
sales  blitz  in that  area.  As  part of its  marketing  and  public  relations
strategy, management plans to solicit press coverage, personal interviews, trade
articles and industry  related forums that will further  promote the Company and
its operations.  Management intends to target publications,  trade journals, and
other communication  vehicles geared to the advertising  industry in conjunction
with its planned self-promotional advertising campaign.

         In keeping with a technologically-based,  information-sharing  concept,
management feels that the implementation of computer systems and the training of
new  franchisees  in the use of such  systems  will  be an  important  part of a
successful  approach to the  establishment  of any  communication  based service
industry.  Therefore,  as soon as  capitalization  allows,  one of the Company's
first  organizational  plans will be to implement the use of a LAN/WAN  computer
system to connect AOG's home office with its franchisees. The system AOG intends
to  install  will be a custom  designed  database/network  utilizing  the  Apple
Computer  platform.   Management   believes  this  system  will  allow  for  the
collection,  archiving,  and exchange of advertising ideas and products produced
and digitally stored within AOG's system database.  This system, which AOG plans
to make available for its franchisees,  is intended to offer the  communication,
knowledge,  and support  which often are only  available  from a large  national
advertising  agency.  The  network,  referred  to by AOG as the "CET"  (Creative
Exchange  Technology)  system, will also allow the Company to monitor individual
franchise sales and operational activities as well as react to needs and demands
in real-time.  In addition,  management believes this ability to share ideas and
information  will be a distinct  competitive  advantage and marketing tool to be
used for AOG's franchisees  seeking  market-by-market  data,  creative and other
operational support.

         The  interactive  capabilities  of the CET  system  will also allow for
digital creative exchanges, while allowing The AdsOnly Group and franchisees to:
communicate  at will with text and graphics,  retrieve text and graphics from an
advertisement database, allow remote brain-storming sessions and conduct on-line
research, as well as access existing mainstream on-line services.

         Management  intends,  due to  practical  reasons  and  the  size of its
potential national market, to concentrate its initial franchising efforts in the
California  area markets.  These first few franchises will then be able to serve
both as examples to new franchisees,  as well as franchisee training centers and
beta test sites for franchised system development.

         Management  intends to complete  production  of AdsOnly  marketing  and
sales tools,  which will include a franchise  sales brochure with an interactive
computer  disk  and the  AdsOnly  Video(TM),  targeted  trade,  direct  mail and
specialized  business-to-business  advertising campaigns. The AdsOnly Video will
be  produced by AOG on a quarterly  basis for use as a  communication  and sales
tool.  Parts of the video will be used to update  franchisees of current events,
trends   campaigns,   and  issues  concerning  the  AdsOnly  franchise  and  the
advertising industry. The AdsOnly Video will
                                        4
<PAGE>
be regularly updated for show as demo reels, highlighting the best work for that
quarter with case study examples.  An initial "working model" of this video will
be produced for the purpose of  introducing  prospective  franchisees to the AOG
concept and to be supplied as a leave behind sales tool.

         Simultaneously,  AOG intends to complete the  production of the AdsOnly
Franchise Business and Marketing Manual, which is currently in draft form. Items
outlined will include detailed  education of the franchisee and their employees,
pre-opening activities, agency advertising and promotion,  professional systems,
administrative  systems  and  professional  support.  Additionally,   management
intends to re-create all existing franchise advertising and direct mail programs
in customizable electronics format for use within the CET system.

         Management is currently  developing specific training tools designed to
teach new franchisees the operational  systems of the AdsOnly franchise package,
including the nut-and-bolts of opening,  promoting and maintaining their AdsOnly
office,  and running it  profitably.  This  training  will be  conducted in both
classroom  sessions  prior to opening a franchise as well as through  self-paced
computer  based training that will also instruct the operators on how to use the
CET  system.  This  coursework  and  corresponding  instruction  tools  will  be
copyright  protected to protect investor interests in AOG. Management intends to
hold  bi-annual  training  seminars  held in  conjunction  with  national  sales
conferences  that  AdsOnly   franchises  will  be  obligated  to  attend  or  be
represented  at. Future  continuing  education for franchisees is expected to be
implemented utilizing on line programs developed by the Company.

         AOG intends to form relationships between its management and their past
associations in the advertising  industry by  establishing  strategic  alliances
that  can be used to  benefit  the  organization  as a  whole.  These  strategic
alliance candidates include:  The American  Association of Advertising  Agencies
("AAAA"),  The National Ad Council,  Direct Marketing Association ("DMA"), Media
Buying Services, and the National Association of Franchises.

         As a  result  of these  alliances,  AOG  hopes to be able to  negotiate
blanket  discounts,  wholesale  buying  arrangements and group rates that can be
passed on throughout the AdsOnly network.  Management believes that this ability
to leverage the Company's  mass  marketing  approach will enable AOG to create a
stronger  competitive  advantage for the entire AOG  organization  allowing each
franchisee  to offer prices and service that  individual  agencies  would not be
able. While larger agencies are able to offer services in similar ways to larger
budget  clients,  AOG's ability to offer boutique  style  creative  support with
competitive  prices could  position  AdsOnly  franchisees to compete for clients
against agencies of all sizes.

         Management  anticipates that by the end of the first year of operation,
AOG will have  completed  all  franchise  development,  systems and  operational
issues both at the corporate level and at the franchise level. AOG projects this
length of time to completely "field test" the AOG franchise  concept,  allow for
the  sale  and  training  of the  first  franchises,  and  modifications  to the
operating systems for the organization.

         While systems and communication  tools are the tangible aspects of what
the AdsOnly franchise consists of, the Company feels that there is a significant
"intangible"  benefit to the business AOG offers. For small local agencies,  and
for that matter,  people that would like to leave a large shop to "go it alone",
there is the isolation  factor present in any single start-up  business that can
impede an individual's  ability to compete.  Management  believes that AdsOnly's
ability to create and support a growing network of franchise agencies around the
country which will create an organizational  network to supply support which can
be extremely  beneficial  in the early  stages of  franchisee  development.  The
ability of franchisees to network,  share ideas, research industries and draw on
inside  knowledge  from within the AdsOnly  organization  and its database  will
allow the  individual  franchisees  to have a much  greater  advantage as far as
competitiveness and support.

Franchising

         In  July  of  1993,   AOG  began  the   preparation  of  its  franchise
registration  documents  including a Uniform Franchise  Offering Circular (UFOC)
for submission to the Federal Trade Commission which has now been completed. The
Company  has also began  preparing  and  submitting  the  required  registration
materials  will enable AOG to sell  franchises  in  approximately  thirty states
which the Company has targeted to begin its marketing. The Company expects
                                        5
<PAGE>
to be  registered  with all the states  that it has  initially  targeted  within
several months after the completion of the offering.

         AOG intends to sell franchises for an initial non-refundable  franchise
fee of $19,500, for which AOG intends to provide a franchisee with assistance in
establishing  the  franchise  location,  assistance  pursuant to  operating  the
franchise,  legal and  accounting  work, and training  expenses.  AOG intends to
train each franchise owner in AOG's advertising business operating systems.

         Franchisees  will be required to pay AOG a monthly royalty fee equal to
five percent (5) of the monthly sales.  Franchisees will also pay AOG a national
advertising  fee equal to one and a half percent (1 1/2) of monthly gross sales.
These fees will be used to purchase regional  advertising to benefit franchisees
as well as benefit AOG.

         Franchisees  will be  responsible  for  obtaining  all zoning  permits,
licensing  and  variances  which may be required to open and operate a franchise
location. AOG will require all of its franchisees to sign strict confidentiality
and non-  disclosure  agreements  pursuant  to the trade  secrets  disclosed  to
franchisees in order for them to operate franchise locations.

         On February  25,  1997,  certain  officers and founders of AOG returned
575,809  of  their  shares,  or  approximately  30%,  to the  Company.  This was
accomplished  as a direct  result of a request by the  purchasers of the minimum
shares in the Company's public offering.

Item 7. Financial Statements.

         Attached as Exhibit 1.

Item 8. Changes in and Disagreements With Acountants on Accounting and Financial
Disclosure.

         None.
                                    PART III

Item 9. Directors and Executive Officers of the Registrant.

         Michael Hinshaw - Chairman and Chief Executive Officer
         Tracey F. Miner - President and Director
         Henry Corona - Chief Financial Officer
         Paul Holzapfel - Vice President - Sales and Marketing
         Richard Beerman - Chief Information Officer and Secretary
         Kimberly M. Young - Director
         Michael Yale Reif - Director
         Per Barnes - Director

Item 10. Management Remuneration and Transactions.

         Michael Hinshaw - Earned $8,000 in compensation in 1996.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and Management.

         Michael Hinshaw - owns 175,000 shares
         Tracey F. Miner - owns 43,750 shares
         Kimberly M. Young - owns 131,250 shares
         Michael Yale Reif - owns 262,500 shares
         Per Barnes - owns 350,000 shares

                                        6
<PAGE>
Item 12. Certain Relationships and Related Transactions.

         On February  25,  1997,  certain  officers and founders of AOG returned
575,809  of  their  shares,  or  approximately  30%,  to the  Company.  This was
accomplished  as a direct  result of a request by the  purchasers of the minimum
shares in the Company's public offering.

         Michael Hinshaw - contributed 75,000 shares
         Tracey F. Miner - contributed 18,750 shares
         Kimberly M. Young - contributed 56,250 shares
         Michael Yale Reif - contributed 112,500 shares
         Per Barnes - contributed 150,000 shares

Item 13. Exhibits and Reports on Form 8-K.

         The Company did not file any reports on Form 8-K during the last fiscal
year.

                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

(Registrant)  THE ADSONLY GROUP, INC.
By: (Signature and Title) /s/ Michael Hinshaw, Chairman and CEO
                              Michael Hinshaw, Chairman and CEO
Date: April 15, 1997

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

Date: April 15, 1997         By:  /s/ Michael Hinshaw
                                  Michael Hinshaw, CEO and Chairman of the Board

Date: April 15, 1997         By:  /s/ Tracey F. Miner
                                  Tracey F. Miner, President and Director

Date: April 15, 1997         By:  /s/ Henry L. Corona
                                  Henry L. Corona, Chief Financial Officer

Date: April 15, 1997         By:  /s/ Kimberly M. Young
                                  Kimberly M. Young, Director

Date: April 15, 1997         By:  /s/ Michael Y. Reif
                                  Michael Y. Reif, Director

Date: April 15, 1997         By:  /s/ Per Barnes
                                  Per Barnes, Director








                                        7
<PAGE>
EXHIBIT 1


                          INDEX TO FINANCIAL STATEMENTS


                                                                            Page

Report of Independent Certified Public Accountant............................F-2

Balance Sheets...............................................................F-3

Statements of Operations.....................................................F-4

Statements of Stockholders' Equity...........................................F-5

Statements of Cash Flows.....................................................F-6

Notes to Financial Statements................................................F-7




















                                       F-1
<PAGE>





               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



TO:  The Board of Directors and Stockholders
     The AdsOnly Group, Inc.
     (A Development Stage Enterprise)
     San Francisco, California


We have audited the  accompanying  balance sheets of The AdsOnly Group,  Inc., a
development stage  enterprise,  (the "Company") as of December 31, 1995 and 1996
and the related  statements of operations,  stockholders'  equity and cash flows
for the two years then ended. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
1996 and the results of its operations and its cash flows for the two years then
ended in conformity with generally accepted accounting principles.



 
                                                   Durland & Company, CPAs, P.A.

Palm Beach, Florida
April 14, 1997


                                       F-2
<PAGE>
                             THE ADSONLY GROUP, INC.
                        (A Development Stage Enterprise)
                                 Balance Sheets
                                  December 31,
                                          1995                         1996
                                     ------------                   ------------
                          ASSETS
CURRENT ASSETS
   Cash                              $    47,698                       304,328
   Federal income tax receivable              22                             0
                                     ------------                   ------------
     Total current assets                 47,720                       304,328
                                     ------------                   ------------
FIXED ASSETS
   Computer equipment                      1,983                         1,983
   Less: accumulated depreciation           (430)                         (826)
                                     -------------                  ------------
     Total fixed assets                    1,553                         1,157
                                     -------------                  ------------
OTHER ASSETS
   Prepaid insurance                           0                         4,500
   Internet site development, net
     of amortization (note 8)                  0                         3,599
   Deferred offering costs (note 7)            0                        35,036
                                     -------------                  ------------
     Total other assets                        0                        43,135
                                     -------------                  ------------
Total Assets                         $    49,273                       348,620
                                     =============                  ============
           LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
   Accounts payable                  $     1,816                        42,692
   Payroll taxes payable                       0                         2,976
   Accrued salaries                            0                         5,692
   State franchise tax payable               800                             0
   State sales tax payable                   511                             0
                                     -------------                 -------------
     Total current liabilities             3,127                        51,360
                                     -------------                 -------------
LONG-TERM LIABILITIES
   Notes payable (note 1b)                 8,842                         8,842
                                     -------------                 -------------
     Total long-term liabilities           8,842                         8,842
                                     -------------                 -------------
     Total Liabilities                    11,969                        60,202
                                     -------------                 -------------
STOCKHOLDERS' EQUITY
   Common stock, no par value, 
    authorized 5,000,000 shares;
    2,006,864 and 2,058,064 at
    December 31, 1995 and December
    31, 1996 issued and outstanding.
    (note 5)                             279,005                       583,959
   Preferred stock, no par value,
    authorized 1,000,000 shares; 0
    shares issued and outstanding.
    (note 5)                                   0                             0
   Deficit accumulated during the
    development stage                   (241,701)                     (295,541)
                                      ------------                --------------
 Total Stockholders' Equity               37,304                       288,418
                                      ------------                --------------
 Total Liabilities and Stockholders'
    Equity                            $   49,273                       348,620
                                      ============                ==============
     The accompanying notes are an integral part of the financial statements
                                       F-3
<PAGE>
                             THE ADSONLY GROUP, INC.
                        (A Development Stage Enterprise)
                            Statements of Operations
<TABLE>
<S>                                                        <C>                  <C>                 <C>
                                                                                                     Period from
                                                                                                     April 6, 1990
                                                                Years ended December 31,             (Inception) to
                                                                1995                1996             Dec. 31, 1996
                       REVENUE
Sales                                                   $                0                  0                   6,813
Interest                                                                 0                  0                     413
                                                            --------------      -------------       -----------------
  Total revenue                                                          0                  0                   7,226
                                                            --------------      -------------       -----------------
                     COST OF SALES
Cost of sales                                                            0                  0                   6,823
                                                            --------------      -------------       -----------------
   Gross profit/(loss)                                                   0                  0                     403
                       EXPENSES
Advertising                                                              0                208                     208
Bank charges                                                            22                  0                     493
Concept development cost                                                 0                  0                 120,000
Contract labor                                                      14,243             21,447                  65,690
Depreciation                                                           397                396                     826
Dues and subscriptions                                                 400                  0                     507
Executive salaries                                                       0              8,000                   8,000
Franchise offering document preparation                                  0                  0                   5,955
State franchise filing fee                                           1,087              1,260                   3,697
Internet site fee                                                        0              1,455                   1,455
Licenses and taxes                                                   1,000                668                   6,902
Office expenses                                                      4,071              1,819                  10,982
Postage                                                                565                951                   3,126
Printing                                                                 2                  0                   2,188
Professional Services                                               14,366             15,577                  60,983
Travel and entertainment                                               250              1,792                   4,289
Miscellaneous                                                            0                267                     643
                                                            --------------      -------------       -----------------
  Total expenses                                                    36,403             53,840                 295,944
                                                            --------------      -------------       -----------------
Net loss before tax benefit                                       (36,403)           (53,840)               (295,541)
                                                            --------------      -------------       -----------------
Income tax benefit (note 4)                                              0                  0                       0
                                                            --------------      -------------       -----------------
Net loss                                                $         (36,403)           (53,840)               (295,541)
                                                            ==============      =============       =================
Weighted average number of shares outstanding                   2,006,684          2,009,032               2,009,032
                                                            ==============      =============       =================
Net loss per share                                      $           (0.02)             (0.03)                  (0.15)
                                                            ==============      =============       =================
</TABLE>
    The accompanying notes are an integral part of the financial statements.
                                       F-4
<PAGE>
                             THE ADSONLY GROUP, INC.
                        (A Development Stage Enterprise)
                       Statements of Stockholders' Equity
<TABLE>
<S>                               <C>                <C>                 <C>                <C>                    <C>  
                                    Shares of                                                                            Total
                                     Common             Common             Preferred           Accumulated           Stockholders'
                                      Stock              Stock               Stock               Deficit                 Equity

BALANCE, December                     2,006,864    $       204,020                   0               (205,298)              (1,278)
   31, 1994
Capital investment:
     A)                                       0             50,000                   0                       0              50,000
     B)                                       0             24,985                   0                       0              24,985
Net loss                                      0                  0                   0                (36,403)             (36,403)
                                  -------------      -------------       -------------      ------------------     ----------------
BALANCE, December                     2,006,864            279,005                   0               (241,701)              37,304
   31, 1995
Capital investment:
     C)                                  51,200            304,954                   0                       0             304,954
Net loss                                      0                  0                   0                (53,840)             (53,840)
                                  -------------      -------------       -------------      ------------------     ----------------
BALANCE, December
   31, 1996                           2,058,064    $       583,959                   0               (295,541)             288,418
                                  =============      =============       =============      ==================     ================
</TABLE>
A) May 26, 1995;  0 shares of common;  $50,000 in cash  contributed  by existing
stockholders.

B) June 1, 1995;  0 shares of common;  $24,985 in cash  contributed  by existing
stockholders.

C) December 20 1996; 51,200 shares of common;  $304,954 in cash, net of deferred
offering costs.





    The accompanying notes are an integral part of the financial statements.


                                       F-5
<PAGE>
                             THE ADSONLY GROUP, INC.
                        (A Development Stage Enterprise)
                            Statements of Cash Flows
<TABLE>
<S>                                                                        <C>                     <C>             <C>
                                                                                                                    Period from
                                                                                                                   April 6, 1990
                                                                                Year ended December 31,            (Inception) to
                                                                                   1995            1996            Dec. 31, 1996
                                                                           ----------------     -----------        -------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss                                                            $          (36,403)            (53,840)            (295,541)
Adjustments to reconcile net loss to net cash used for development activities:
    Stock issued for concept development costs                                       0                   0              120,000
    Depreciation                                                                   397                 396                  826
Changes in operating assets and liabilities:
    (Increase) decrease in receivables                                               0                  22                    0
    (Increase) decrease in prepaids                                                  0              (4,500)              (4,500)
    (Increase) decrease in internet site development                                 0              (3,599)              (3,599)
    (Increase) decrease in deferred offering costs                                   0             (35,036)             (35,036)
    Increase (decrease) in accounts payable                                        102              40,876               42,692
    Increase (decrease) in state taxes payable                                       0              (1,311)                   0
    Increase (decrease) in payroll taxes payable                                     0               2,976                2,976
    Increase (decrease) in accrued salaries                                          0               5,692                5,692
                                                                           --------------      ------------        ---------------
Net cash used for development activities                                       (35,904)            (48,324)            (166,490)
                                                                           --------------      ------------        ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets                                                             0                   0               (1,983)
                                                                           --------------      ------------        ---------------
Net cash provided by investing activities                                            0                   0               (1,983)
                                                                           --------------      ------------        ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash                                                         0             304,954              388,974
Cash contributed by existing stockholders                                       74,985                   0               74,985
Cash received for notes payable                                                      0                   0                8,842
                                                                           --------------      ------------        ---------------
Net cash provided by financing activities                                       74,985             304,954              472,801
                                                                           --------------      ------------        ---------------
Increase (decrease) increase in cash                                            39,081           (256,630)              304,328
                                                                           --------------      ------------        ---------------
CASH, beginning of period                                                        8,617              47,698                    0
                                                                           --------------      ------------        ---------------
CASH, end of period                                                 $           47,698             304,328              304,328
                                                                           ==============      ============        ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash                                               $                0                   0                    0
                                                                           ==============      ============        ===============
Stock issued for intangible asset                                   $                0                   0              120,000
                                                                           ==============      ============        ===============
</TABLE>
    The accompanying notes are an integral part of the financial statements.

                                       F-6
<PAGE>
                             THE ADSONLY GROUP, INC.
                        (A Development Stage Enterprise)
                          Notes to Financial Statements

(1) Summary of significant accounting policies
     The Company   The AdsOnly Group, Inc. is a California chartered development
         stage  corporation which conducts business from its headquarters in San
         Francisco. It was incorporated on April 6, 1990.

         The  financial   statements  have  been  prepared  in  conformity  with
         generally accepted  accounting  principles.  In preparing the financial
         statements,  management is required to make  estimates and  assumptions
         that affect the reported  amounts of assets and  liabilities  as of the
         dates  of the  statements  of  financial  condition  and  revenues  and
         expenses  for  the  years  then  ended.  Actual  results  could  differ
         significantly  from  those  estimates.   Material  estimates  that  are
         particularly  susceptible to significant change in the near-term relate
         to the book-tax  difference of accounting for the development  expenses
         (see note 4). The following  summarize the more significant  accounting
         and reporting policies and practices of the Company:

     a)  Fixed assets Fixed asset are recorded at cost. Depreciation is computed
         by the  straight-line  method over the  estimated  useful  lives of the
         assets, generally five or seven years. Expenditures for maintenance and
         repairs are charged to  operations as incurred.  Depreciation  was $397
         and $396 for the fiscal years ended December 31, 1995 and 1996.

     b)  Notes  payable  The  Company  issued  notes  payable  to two  principal
         stockholders in exchange for cash. These notes carry no stated interest
         rate or maturity date.

     c)  Net loss per share Net loss per share is computed  by dividing  the net
         loss by the number of shares outstanding during the period.

     d) Concept development  At inception the Company exchanged common stock for
         $120,000  of  concept  development  costs  previously  expended  by two
         individuals  previously  unrelated  to the founders of the Company. The
         Company chose to immediately expense these costs.

(2)      Franchise  offering document  expenses The franchise  offering document
         expenses  pertain   exclusively  to  the  development  of  the  Uniform
         Franchise Offering Circular,  (UFOC),  which represents the bulk of the
         Company's  near-term  future  marketing  efforts and  revenues.  SFAS 2
         requires  that all  generated  development  costs be charged to expense
         when  incurred.  Accordingly,  the  Company has  expenses  the costs to
         develop its UFOC.

(3)      Franchise  revenues The Company has not as yet  received any  franchise
         fee revenues,  but it expects to record such revenue in accordance with
         SFAS 45.

(4)      Income taxes The Company recorded the franchise offering document costs
         as  expenses  in the  period  when  incurred  for  financial  statement
         purposes,   per  note  2  above.   The  Company  recorded  the  concept
         development costs as expense immediately,  per note 1b above.  However,
         for income tax  purposes,  these costs were  recorded as an  intangible
         asset to be amortized over future years.  The primary  purpose for this
         treatment  for  tax  purposes  is to  retain  the  tax  benefit  of the
         development costs.  California tax law did not recognize operating loss
         carryforwards as the Federal tax code does, at that time. Therefore, by
         capitalizing  and  amortizing  these  costs,  the tax  benefit of these
         expenses  is  retained  for state tax  purposes  rather than being lost
         forever as immediate  expensing would have caused.  This treatment will
         require a longer time before the tax benefit of the costs is  realized,
         but will increase the tax benefit  realized over time.  California  tax
         law  was  changed  for tax  years  beginning  after  January  1,  1994.
         California tax law now recognizes net operating loss  carryforwards  on
         the same basis as the federal tax code.

         The amounts recorded as deferred income tax assets at December 31, 1995
         and 1996, $96,700 and $118,200 
                                      F-7
<PAGE>
                             THE ADSONLY GROUP, INC.
                        (A Development Stage Enterprise)
                          Notes to Financial Statements

(4)      Income  taxes,  continued  respectively,  represent  the  amount of tax
         benefit of loss  carryforwards.  The Company has established a $118,200
         valuation  allowance  against this asset, as the Company has no history
         of profitable  operations.  At December 31, 1996, the Company has a net
         operating loss  carry-forward  for income tax purposes of approximately
         $295,541, expiring as follows: $126,490 in 2005, $6,891 in 2006, $2,921
         in 2007,  $45,483 in 2008, $23,513 in 2009, $36,403 in 2010 and $53,840
         in 2011.

(5)      Stockholders'  equity The Company has authorized 5,000,000 shares of no
         par value common stock and 1,000,000  shares of no par preferred stock.
         In April 1990, the Company issued  1,550,000  shares of common stock in
         exchange for $3,900 in cash and $120,000 of previously expended concept
         development  costs.  In May 1993,  the Company issued 273,530 shares of
         common stock in exchange  for $29,970 in cash.  In November  1993,  the
         Company  issued  150,000 shares of common stock in exchange for $150 in
         cash.  In February  1994,  the Company  issued  33,334 shares of common
         stock in  exchange  for  $50,000 in cash.  In May 1995,  and June 1995,
         existing  stockholders  contributed  $50,000 and $24,985 in cash to the
         Company.  In December  1996,  the Company sold 51,200  shares of common
         stock in exchange for $307,200 in cash,  which was the minimum required
         to break escrow under the Company's public offering.

(6)      Common stock public  offering  The board of  directors  authorized  the
         Company to sell up to 850,000 shares of the Company's common stock in a
         "self-underwritten"   public   offering   pursuant  to  a  Registration
         Statement on Form SB-2 under the Securities Act of 1933.  This offering
         is being made with a 50,000 share  minimum,  and is  effective  for one
         year from the effective date of the registration, June 26, 1996.

         In December 1996, the Company  completed the sale of the minimum shares
         under its registration,  and therefore broke its escrow. The Company is
         proceeding with the continued sale of its shares.

(7)      Deferred  offering costs The Company's  public  offering is a continous
         offering.  The  Company  has  incurred  costs  directly  related to the
         offering,  but which are not directly  related to specific  portions of
         security  sales.  The Company has chosen to  capitalize  such costs and
         amortize them directly to paid-in capital in direct  proportion of such
         securities sales to the total offering. At such time as the Company has
         completed its offering, all such costs will have been amortized against
         paid-in  capital.  Should the Company  terminate  its offering  without
         fully subscribing the offering the Company then intends to amortize any
         balance remaining of such costs to paid-in capital.

(8)      Website  development costs The Company has begun the development of its
         Internet,  (or World Wide Web), website.  The Company expects to employ
         its website as its primary introductory selling tool in the sale of its
         franchises.  The  Company  expects  to  employ  a  variety  of  outside
         third-party  companies  and  contractors  to develop the website.  Upon
         completion of the website development,  the Company expects to amortize
         this cost over its expected useful life,  currently  projected as three
         years.

(9) Subsequent events
    a)   Stockholders'  equity  On  February  25,  1997,  certain  officers  and
         founders of AOG returned 575,809 of their shares, or approximately 30%,
         to the Company. This transaction was accomplished as a direct result of
         a request by the  purchasers  of the  minimum  shares in the  Company's
         public offering.

                                       F-8
<PAGE>