UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 333-90649
AdStar.com, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-3666899
- ------------------------------------------------ -------------------
(State or other jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
4553 Glencoe Avenue, Suite 300, Marina del Rey, California 90292
(Address of principal executive offices)
(310) 577-8255
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 30, 2000 the Issuer had
outstanding 2,833,185 shares of its common stock.
Check whether the issuer (1) filed all 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 |_|
Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|
TABLE OF CONTENTS
FORM 10-QSB REPORT
June 30, 2000
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements
(Unaudited)
Balance Sheet - June 30, 2000 3
Statements of Operations
Three-Month and Six-Month Periods
Ended June 30, 1999 and 2000 4
Statements of Cash Flows
Six-Month Periods Ended
June 30, 1999 and 2000 5
Notes to Interim Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Operation 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
SIGNATURES 16
2
AdStar.com, Inc.
Balance Sheet
As of June 30, 2000 (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,662,991
Accounts receivable 187,697
Prepaids and other current assets 140,310
-----------
Total current assets 1,990,998
Property and equipment, net 765,738
Intangible assets, net 143,251
Other assets 24,863
-----------
Total assets $ 2,924,850
===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 269,568
Accrued expenses 241,700
Deferred revenue 77,469
Capital lease obligations 16,032
-----------
Total current liabilities 604,769
Note payable 1,100,000
Interest payable 45,532
Capital lease obligations 53,877
-----------
Total liabilities 1,804,178
Commitments and Contingencies
Stockholders' equity:
Preferred stock, par value $0.0001; authorized 5,000,000 shares;
none issued and outstanding --
Common stock, par value $0.0001; authorized 10,000,000 shares;
issued and outstanding 2,833,185 at June 30, 2000 283
Additional paid-in capital 5,963,020
Deferred compensation (112,948)
Accumulated deficit (4,729,683)
-----------
Total stockholders' equity 1,120,672
-----------
Total liabilities and stockholders' equity 2,924,850
===========
The accompanying notes are an integral part of these
interim financial statements.
3
AdStar.com, Inc.
Statements of Operations
For the three-month and six-month periods
Ended June 30, 1999 and 2000 (unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1999 2000 1999 2000
---- ---- ---- ----
Revenues $ 374,441 $ 621,364 $ 781,043 $ 1,192,093
Cost of revenues 290,269 530,018 489,817 1,016,630
----------- ----------- ----------- -----------
Gross profit 84,172 91,346 291,226 175,463
Sales and administrative expenses 427,299 953,158 662,625 1,729,116
Development costs -- 460,339 -- 760,804
----------- ----------- ----------- -----------
Loss from operations (343,127) (1,322,151) (371,399) (2,314,457)
Interest income (expense), net (42,916) 13,120 (45,800) 32,297
----------- ----------- ----------- -----------
Loss before taxes (386,043) (1,309,031) (417,199) (2,282,160)
Provision for income taxes (200) (200) (400) (400)
----------- ----------- ----------- -----------
Net loss $ (386,243) $(1,309,231) $ (417,599) $(2,282,560)
========================== ==========================
Loss per share -- basic and diluted $ (0.26) $ (0.46) $ (0.28) $ (0.81)
Weighted average number of shares -- basic and diluted 1,479,664 2,832,150 1,479,664 2,829,673
The accompanying notes are an integral part of these interim financial
statements.
4
AdStar.com, Inc.
Statements of Cash Flows
For the six-month periods ended June 30, 1999 and 2000 (unaudited)
- --------------------------------------------------------------------------------
1999 2000
---- ----
Cash flows from operating activities:
Net loss $ (417,599) $(2,282,560)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 28,433 80,656
Stock-based charges -- 136,922
Changes in assets and liabilities:
Accounts receivable (155,330) 272,780
Prepaids and other assets (362,404) (5,775)
Accounts payable 173,058 (859,247)
Accrued expenses 1,864 (211,717)
Deferred revenue (30,123) (29,531)
Interest payable -- 45,532
----------- -----------
Net cash used in operating activities (762,101) (2,852,940)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (276,874) (402,041)
----------- -----------
Net cash used in investing activities (276,874) (402,041)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of convertible
notes payable 1,050,000 --
Proceeds from leasing of property and
equipment -- 68,303
Repayment of notes payable (6,260) (749,466)
Principal repayments on capital leases (3,416) (3,358)
Proceeds from sale of stock 26,300 --
Dividends paid (4,773) --
----------- -----------
Net cash from (used in) financing
activities 1,061,851 (684,521)
----------- -----------
Net increase (decrease) in cash and
cash equivalents 22,876 (3,939,502)
Cash and cash equivalents at beginning of
period 90,007 5,602,493
----------- -----------
Cash and cash equivalents at end of period $ 112,883 $ 1,662,991
=========== ===========
Supplemental cash flow disclosures:
Taxes paid $2,588 $5,096
Interest paid $15,639 $9,413
Non cash investing and financing activities
Purchase of intangible assets,
cancellation of an option and repayment
of accrued liability by issuance of a note
payable $751,710 --
The accompanying notes are an integral part of these interim financial
statements.
5
AdStar.com, Inc.
Notes To Interim Financial Statements
(Unaudited)
1. General
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with instructions to Form 10-QSB and Item 10 of Regulation S-B.
Accordingly they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month and
six-month periods ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000.
For further information, refer to AdStar.com's Registration Statement No.
333-43408 on Form SB-2, dated August 10, 2000.
2. Summary of Significant Accounting Policies
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. Also, at times, cash balances held in financial institutions
are in excess of FDIC insurance limits.
For the three and six months ended June 30, 2000, no customer accounted
for 10% of the Company's revenues. At June 30, 2000 three customers in the
aggregate accounted for 52% of the Company's accounts receivable. For the
three and six months ended June 30, 1999, no customer accounted for 10% of
the Company's revenues. At June 30, 1999 three customers comprised 49%, in
the aggregate, of the Company's accounts receivable. The majority of the
Company's customers have historically consisted of newspapers and
publishers of classified advertisements. The Company's customers on its
Web site are classified advertisers. In the three months and six months
ended June 30, 2000, 32% and 29%, respectively, of the Company's revenues
have been received with respect to ads posted by advertisers on
CareerPath.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
6
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
The Company recognizes revenue from the sale of its software upon delivery
and customer acceptance and when collection of the resulting receivable is
probable. Maintenance, license fees and user support fees are recognized
ratably over the period to which they relate. To the extent that customers
make advance payments for installation fees, license fees, user support or
maintenance fees, the amount received is deferred until the revenue has
been earned. Revenues are recorded net of any discounts.
The Company also sells hardware to certain customers to support the
installation of its Ad-Star technology. The Company charges the customer a
small mark-up on the cost of the hardware and recognizes revenue on
delivery to the customer. Sales of hardware totaled approximately $52,000
and $42,000 for the three-month periods ended June 30, 1999 and 2000,
respectively, and $88,000 and $51,000 for the six-month periods ended June
30, 1999 and 2000, respectively.
In June 1999, the Company introduced a Web-based product that permits
advertisers to compose, schedule and purchase advertising from many print
and online publishers. The Company recognizes revenues on a
per-transaction basis. The manner in which these transaction revenues are
recognized depends on the service sold. With respect to ads composed
directly on the Company's Web site, and where the advertiser does not have
a contract with the publisher, the amount billed to the customer by the
Company is recognized if, and when, the Company accepts the customer's ad
and charges the customer's credit card. In these transactions, the Company
is responsible for the resulting credit risk. Credit card and debit card
processing fees and amounts remitted to the publisher on these
transactions are recognized as a cost of sale. With respect to ads placed
through the Company's Web site, where the customer has a contract with the
publisher, the publisher collects the revenues and remits the transaction
fee to the Company. In these instances, these transaction fees are
recognized when the ad is placed through the Company's system and the
collection from a publisher of the resulting receivable is probable. For
the three months and six months ended June 30, 2000, Internet revenues
totaled approximately $329,000 and $524,000, respectively. For the three
and six month periods ended June 30, 1999, Internet revenues totaled
approximately $30,000.
Research and Development Costs
Costs incurred in the research and development of products are expensed as
7
incurred.
Computation of Earnings Per Share
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share is
computed by dividing the net income (loss) by the weighted average number
of common shares outstanding plus the number of additional common shares
that would have been outstanding if all dilutive potential common shares
had been issued, using the treasury stock method. Potential common shares
are excluded from the computation when their effect is antidilutive.
For the three months and six months ended June 30, 1999 and 2000, diluted
earnings (loss) per share does not include 141,742 and 1,788,164 options
and warrants to purchase common stock and 220,126 and 0 shares issuable on
the conversion of notes payable, as their inclusion is antidilutive.
3. Notes Payable
The Company paid in full in January 2000 notes payable in the principal
amount of $15,000, bearing interest at 10% per annum. In addition the
Company paid in full in January 2000, a note payable in the principal
amount of $734,446, bearing interest at 10% per annum.
At June 30, 2000, the Company had outstanding a note payable bearing
interest at 6% per annum, due in full in October 2001 in the principal
amount of $1,100,000.
4. Capital Transactions
Warrants
In March 2000, the Company granted to a consultant warrants to purchase an
aggregate of 40,000 shares of common stock at an exercise price of $10.00
per share. The warrants expire in March 2005 and are exercisable upon
vesting. 25,000 of the warrants vested immediately and 15,000 vest
when the consultant achieves certain performance goals or, if not then
vested, on the fifth anniversary of the date of grant, provided the
consultant is still providing services to the Company. In connection with
the 25,000 warrants, the Company recorded deferred compensation of
$157,408 representing the fair value of the warrants using the
Black-Scholes option-pricing model. For the three-month and six-month
periods ended June 30, 2000, $39,400 and $52,500, respectively, of the
deferred compensation was charged to expense. The Company will record
additional non-cash charges for the 15,000 warrants over the service
period. To date such charges have been immaterial.
8
Equity Compensation to Vendors
The Company established a vendor compensation plan whereby it may
compensate vendors in shares of its common stock in lieu of cash. Under
the plan, 200,000 shares are available for issuance. In the three-month
and six-month periods ended June 30, 2000, 2,327 shares and 12,921 shares,
respectively, were issued to vendors under the plan representing
respective compensation of $11,500 and $92,500. Of those amounts, $11,500
and $84,500 was expensed in the three-month and six-month periods ended
June 30, 2000, respectively. The balance is deferred and amortized over
periods of three or eleven months.
5 Subsequent Event
On August 10, 2000, the Company filed a registration statement with the
Securities and Exchange Commission in connection with the proposed public
offering of 1,400,000 shares of its common stock based on the market price
at the time of the offering. There can be no assurance that this offering
will be successfully consummated.
9
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and related notes to
the financial statements included elsewhere in this quarterly report. Certain
statements in this discussion and elsewhere in this report constitute
forward-looking statements within the meaning of Section 21E of the Securities
and Exchange Act of 1934 and are subject to the "Risk Factors" included in our
Annual Report on Form 10-KSB for our fiscal year ended December 31, 1999 and in
our registration statement on form SB-2 filed with the Securities and Exchange
Commission on August 10, 2000. Because this discussion involves risk and
uncertainties, our actual results may differ materially from those anticipated
in these forward-looking statements.
Overview
We have developed a one-stop marketplace on the Web for advertisers to buy
classified ads. We enable advertisers, by accessing our Web site, to compose,
schedule and purchase classified advertising from a large number of print and
online publishers. Our service permits both professional and non-professional
advertisers, including the general public, to create and submit to one or many
publishers any number of ads, 24 hours a day, seven days a week, using any
standard Web browser.
This Web-based service is an outgrowth of our historical business that, since
1986, has offered professional advertisers the ability to place ads
electronically with a number of the largest newspapers in the United States
based on circulation. Using this system, we have become the largest provider of
remote entry for classified ads into newspapers in the United States.
In 1999 we commenced our transition from software provider to an Internet
marketplace for print and online classified advertising. We received our first
transaction fees from Internet business in June 1999 with one online publication
available on the site. By the end of the year we had one online and five print
publications available on the site and Internet revenues accounted for
approximately 16% of our total revenues for the year ended December 31,1999. In
addition, we processed approximately $550,000 of classified advertising through
our classified advertising marketplace, Advertise123.com, and private-label
sites.
In the first six months of 2000 we have moved rapidly to build a critical mass
of publications on our Web site. On February 23, 2000, we announced that we had
publications available to advertisers on Advertise123.com that enabled them to
place ads in the top 10 designated market areas, or DMAs, in the U.S. On March
15, 2000, we announced that we had expanded market coverage to the top 20 DMAs;
on March 29, 2000 we had expanded coverage to the top 31 DMAs; and on June 1,
2000 we had expanded coverage to the top 50 DMAs. By the end of the second
quarter we had
10
approximately 80 print and 30 online publications available on our Web site, and
Internet revenues comprised 44% of our revenues for the six months ended June
30, 2000. In addition we processed approximately $1,612,000 of classified
advertising through Advertise123.com and private-label sites in the six-month
period.
Now that we can offer advertisers a critical mass of publishers, we are focused
on bringing advertisers to our site to increase transaction volume and on
enhancing the services offered on that site. To bring more advertisers to
publishers through our Web site, we have established relationships with
publishers, vertical online Web sites in the major classified advertising
categories, with an auction tools site and with search engine sites that will
provide their customers with easy access to our site. Additionally we began an
advertising program in the latter part of July 2000 in high traffic Web
environments.
Revenues from our software business consist of licensing fees and fees for
advertiser service and support charged to publishers. In our Web-based service
our charges are currently based on the advertising fee charged by the publisher.
In certain cases we receive a percentage of the advertising fee charged by the
publisher and in others we mark-up the advertising fee and are paid by the
advertiser. We expect that in the future some of our revenues could be based on
a fixed transaction fee as well. As our business continues its transition from a
software service fee model to a transaction fee based model, there are likely to
be material changes in our financial statements, including changes in revenue
recognition policies, gross margin, timing of cash flows and volume of accounts
receivable as a percentage of revenues.
Our level of revenues through 1998 had generally been sufficient to support our
historic business. In developing our Web-based system we began to incur expenses
in 1998 that could not be offset by the revenues generated by our historic
business. These expenses caused us to incur losses in 1998 and 1999 and in the
first six months of 2000. We intend to continue to make significant financial
investments to support publishers on our Web site, Advertise123.com, for content
development, technology and infrastructure development and marketing and
advertising expense. As a result, we believe that we will incur operating losses
and negative cash flows from operations before the build-up in revenues from our
Internet business offsets anticipated increases in expense. Because we have
limited Internet experience, we cannot accurately forecast the source, magnitude
or timing of our future revenues and therefore cannot forecast if or when we
will return to profitability.
Results of Operations
The following table sets forth the results of operations expressed as a
percentage of revenues:
11
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1999 2000 1999 2000
---- ---- ---- ----
Revenues 100% 100% 100% 100%
Cost of revenues 78% 85% 63% 85%
------ ------ ------ ------
Gross profit 22% 15% 37% 15%
Sales and administrative expenses 114% 153% 85% 145%
Development costs -- 74% -- 64%
------ ------ ------ ------
Loss from operations -92% -213% -47% -194%
Interest expense -12% 2% -6% 3%
------ ------ ------ ------
Loss before taxes -103% -211% -53% -191%
Provision for taxes -- -- -- --
------ ------ ------ ------
Net loss -103% -211% -53% -191%
Three-Month and Six-Month Periods Ended June 30, 2000 and 1999
Revenues. Revenues for the second quarter 2000 increased 66 percent to $621,000
compared to second quarter 1999 revenues of $374,000. Revenues increased to
approximately $1,192,000 for the six-month period ended June 30, 2000 from
$781,000 in the comparable 1999 period, representing 53% growth. These increases
were due to the recording of Internet revenues in the 2000 periods of
approximately $329,000 for the quarter and $524,000 for the six months versus
$30,000 in the 1999 periods. We earned our first Internet revenues in June 1999.
Internet revenues represented approximately 53% of our total revenues in the
second quarter of 2000 and 44% of our total revenues in the first six months of
2000. As we shifted our focus in 1999 to our Website, we also shifted resources
from building our software service business. Consequently, software
installation, license and end-user support revenues (referred to as "service
revenues") were down 11% to approximately $250,000 for the second quarter 2000
from $281,000 in the 1999 second quarter and down 2% to approximately $617,000
for the first six months of 2000 compared with approximately $651,000 for the
comparable 1999 period. While we expect to continue to recognize service
revenues from existing and potential new software licensing contracts, we expect
that Internet transaction based revenues will eventually become our principal
source of revenues. Hardware sales were approximately $42,000 and $51,000 in the
second quarter and first six months of 2000, respectively, compared with
approximately $52,000 and $88,000 in the respective 1999 periods.
Cost of Revenues. Cost of revenues consists primarily of payments to
publications for Internet transactions on our Web site, credit card processing
costs for transactions on our Web site, costs to configure and install the
AdStar software into the publishing systems of newspapers, costs to configure
end-user software for the newspaper's advertiser clients, costs to provide
customer training and end-user support, and payments for hardware and royalty
fees. These costs increased to approximately $530,000 for the second quarter of
2000 from $290,000 for the 1999 quarter and to approximately $1,017,000 for the
first six months of 2000 compared with $490,000 for the comparable 1999 period.
Cost of Internet transactions was $300,000 for the 2000 quarter and $479,000 for
the six-month period of 2000, representing payments to publications and
12
credit card companies and processors. In the comparable 1999 periods, Internet
transaction costs amounted to $27,000. Personnel costs associated with cost of
revenues decreased 19% in the second quarter 2000 to $112,000 compared with
$139,000 in the second quarter 1999. For the six months 2000 those personnel
costs rose 25% to $305,000 compared with $244,000 in the 1999 period. The
increase over the comparable six-month periods is due to added technical support
and end user support staff and associated recruitment expenses necessary to grow
our business. We have endeavored to make ourselves more efficient as our added
staff becomes more knowledgeable about our systems and have managed to bring
these costs down in the 2000 quarter versus the 1999 quarter. Hardware expense
decreased to $39,000 in the 2000 quarter from $45,000 in the 1999 quarter and to
$46,000 for the first six months of 2000 from $78,000 in the 1999 period. We
view sales of hardware as an accommodation to our clients coincident to the
installation of our software in the front-end publishing systems of newspapers.
Royalty expense relating to our fax product increased to $56,000 for the first
six months of 2000 from $18,000 in the1999 period, due to the timing of
installations. We had no royalty expense in either the 2000 or 1999 second
quarters. Cost of revenues increased as a percentage of revenues because our Web
business is a higher volume, lower margin business than our service business.
Sales and Administrative Expenses. Sales and administrative expense consists
primarily of salaries of business development personnel, sales and marketing
personnel, executive and administrative personnel, and other advertising and
sales promotion, marketing, trade show and travel expense. These personnel
expenses increased to $442,000 for the 2000 quarter from $270,000 for the 1999
quarter and to $805,000 for the first half of 2000 from $382,000 for the
comparable 1999 period, representing a tripling in our marketing personnel and
the employment of temporary personnel to expand our business. Our personnel
additions were primarily for marketing, business development and operations for
our Web-based service. We expect to incur additional sales and administrative
expenses as we hire additional personnel and as we develop our Web-based
service. Travel expense, primarily associated with business development and
investor relations, more than doubled in the second quarter 2000 to $100,000
from $45,000 in the 1999 quarter and increased to $174,000 for the 2000
six-month period from $87,000 in 1999 period. Our advertising, sales promotion
and trade show expense grew to $221,000 in the 2000 six-month period compared
with $41,000 for the same period in 1999 reflecting our increased business
development efforts.
Development Costs. Development costs of $460,000 for the 2000 quarter and
$761,000 for the first six months of 2000 represent expenses to design,
configure and build our branded and private label sites. The primary components
of this expense were technical and design consultant fees of $189,000 for the
quarter and $336,000 for the six months and employee expense of $175,000 for the
quarter and $298,000 for the six months. There were no such expenses in the
comparable prior periods.
Interest Income (Expense), Net. Interest income was $30,000 in the second
quarter of 2000 and $74,000 in the first half of 2000 attributable to investment
of available cash in short-term time deposits and money market accounts at
commercial banks. Interest expense was $17,000 in the second quarter 2000 and
$42,000 in the first six months of
13
2000 compared with 1999 expenses of $34,000 for the second quarter and $46,000
for the six-month period.The interest expense in 1999 pertained to $1,050,000
principal amount of 12% convertible notes issued in March and April 1999 and a
10% note in the amount of $752,000 issued in March 1999. The 12% convertible
notes were converted into common stock in December 1999 when we closed our
initial public offering and the 10% note was repaid from the proceeds of that
offering in January 2000. The interest expense in 2000 related primarily to our
6% note payable issued in October 1999.
Liquidity and Capital Resources
As of June 30, 2000, we had cash and cash equivalents of approximately
$1,663,000. Net cash used in operations was approximately $2,853,000 for the
first six months of 2000 compared with $762,000 for the comparable 1999 period.
The difference is due primarily to the sizable net loss from operations in 2000
as we built out our Web presence compared to the smaller net loss in 1999 when
we were developing our Web site for its initial commercial application. Also
during the 2000 period cash of $859,000 was used to reduce accounts payable
largely attributable to the costs related to our initial public offering
completed in December 1999. Net cash used in investing activities increased to
$402,000 in the six-month period in 2000 compared with $277,000 in the
comparable period in 1999 resulting from the purchase and development of
computer equipment and related infrastructure for our Web-based system. Net cash
used in financing activities was approximately $685,000 during the six-month
period in 2000 compared to $1,062,000 provided by financing activities in the
comparable period in 1999. The activity in 2000 primarily reflects repayment of
notes payable of $750,000, partially offset by proceeds of an equipment lease
financing through Imperial Bank of $68,000. The equipment lease financing is
part of a $100,000 line of credit. In March and April 1999, we sold $1,050,000
of our 12% convertible notes in a private placement. These notes converted to
common stock in December 1999 upon the closing of our initial public offering.
At June 30,2000, we had no material commitments for capital expenditures. Over
the next 12 months we do not expect that our capital expenditures will exceed
$200,000.
We anticipate that our operating expenses will continue to run at a level in
excess of our revenues as we continue to build our presence among publishers and
advertisers. Additionally, we may evaluate from time to time possible
investments in new businesses, products and technologies to build our business.
We expect that as our revenues trend upward and we monitor our costs closely,
our available funds will be sufficient to meet our anticipated needs for working
capital and capital expenditures. We cannot guarantee, however, that the assumed
increases in our levels of revenue will occur in a timely manner or that we will
be able to contain our costs in accordance with our plans. We may need to seek
additional funding through public or private financings or other arrangements.
On August 10, 2000, we filed a registration statement with the Securities and
Exchange Commission in connection with the proposed public offering of 1,400,000
shares of our common stock based on the market price at the time of the
offering. There can be no assurance that this offering will be successfully
consummated. Adequate funds may not be available when needed or may not be
available on terms favorable to us. If additional funds are raised through the
issuance of equity securities, dilution to existing stockholders may result. If
funding is insufficient at any time in the future, we may be unable to develop
or enhance our products or services, take advantage of business opportunities or
respond to competitive pressures, any of
14
which could have a material and adverse effect on our financial position,
results of operations and cash flows.
Year 2000 Readiness
Many existing computers and computer programs could have malfunctioned or failed
completely when processing dates past the year 1999 because they used only the
last two digits of the year, for example,"98"or "99". This means that they could
not distinguish between the year 2000 and the year 1900, both of which would be
referred to as "00". To date we have experienced no disruptions due to year 2000
issues.
Recently Issued Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin No.101 ("SAB 101")
"Revenue Recognition in Financial Statements" which contain the SEC Staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues. We are currently evaluating the impact, if any, on our
financial statements.
In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No.44 ("FIN 44") Accounting for Certain Transactions Involving
Stock Based Compensation - an interpretation of APB No.25." FIN 44 clarifies the
accounting for stock based compensation in certain issues. We do not believe
that FIN 44 will have a material effect on our financial statements.
PART II
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities. The Company established a vendor
compensation plan whereby it may compensate vendors in shares of its common
stock in lieu of cash. Under the plan, 200,000 shares are available for
issuance. In the three-month and six-month periods ended June 30, 2000, 2,327
shares and 12,921 shares, respectively, were issued to vendors under the plan
relying upon the exemption under section 4(2) of the Securities Act of 1933 and
which represented compensation for the respective periods of $11,500 and
$92,500. Of those amounts, $11,500 and $84,500 was expensed in the three-month
and six-month periods, respectively. The balance is deferred and amortized over
periods of three or eleven months. The vendors have taken the shares for
investment.
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Use of Proceeds. On December 22, 1999, we completed our initial public offering
of 1,150,000 units, each comprised of one share of our common stock and one
warrant to purchase one share. The offering was lead managed by Paulson
Investment Company, Inc. The Units were sold pursuant to a registration
statement filed with the Securities and Exchange Commission (Reg. No. 333-90649)
and declared effective December 16, 1999. The price of each unit was $6.00.
After deducting expenses of $1,509,000 incurred in connection with the offering,
our net proceeds from the offering were approximately $5,391,000. From our net
proceeds, we repaid three items of indebtedness, which aggregated approximately
$1,600,000, as follows:
Note payable bearing interest at 10% per annum, repayable
in monthly installments of $8,333 comprising principal and
interest. Repaid in January 2000. $ 734,466
Note payable bearing interest at 14% per annum, repayable in
54 equal installments commencing February 2000. Repaid in
December 1999. 850,000
Notes payable bearing interest at 10% per annum, repayable on
demand. Repaid in January 2000. 15,000
----------
Total $1,599,466
==========
From January 1, 2000 through June 30, 2000, we expended approximately $1,440,000
in development and expansion of our Web site and further product development and
site maintenance and approximately $690,000 toward marketing, sales and
administrative expenses. The balance of the net proceeds will be used for
development and expansion of our Advertise123.com Web site and for product
development, site maintenance and for working capital.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AdStar.com, Inc._________________________
(Registrant)
Date August 14, 2000___________________ /s/ LESLIE BERNHARD___________________
President & CEO
Date August 14, 2000___________________ /s/ BENJAMIN J. DOUEK__________________
Senior Vice President & CFO
16