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 March 31, 2001
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to _________________
Commission file number 001-15363
AdStar.com, Inc.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-3666899
------------------------------ ---------------------------------
State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4553 Glencoe Avenue, Suite 325, 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 May 8, 2001 the Issuer had
outstanding 6,630,830 shares of its common stock, including 37,278 shares
issuable pursuant to the vendor compensation plan.
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
March 31, 2001
PAGE
PART I -- FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements
(Unaudited)
Balance Sheet -March 31, 2001 3
Statements of Operations
For the Three-Month Periods
Ended March 31, 2000 and 2001 4
Statements of Cash Flows
For the Three-Month Periods Ended
March 31, 2000 and 2001 5
Notes to Interim Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
SIGNATURES 15
2
AdStar.com, Inc.
Balance Sheet
March 31, 2001 (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 710,613
Restricted cash 100,000
Accounts receivable, net of allowance for
doubtful accounts of $73,000 339,760
Prepaid and other current assets 133,248
------------
Total current assets 1,283,621
Property and equipment, net 1,677,416
Intangible assets, net 114,581
Other assets 29,812
------------
Total assets $ 3,105,430
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 338,189
Accrued expenses 168,529
Deferred revenue 337,748
Capital lease obligations 4,936
------------
Total current liabilities 849,402
Capital lease obligations 12,403
------------
Total liabilities 861,805
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 5,826,363 shares at March 31, 2001 583
Additional paid-in capital 10,044,396
Shareholder receivable (46,756)
Accumulated deficit (7,754,598)
------------
Total stockholders' equity 2,243,625
------------
Total liabilities and stockholders' equity $ 3,105,430
============
The accompanying notes are an integral part of these interim financial
statements.
3
AdStar.com, Inc
Statements of Operations
For the three-month periods
Ended March 31, 2000 and 2001 (unaudited)
Three months ended
March 31,
----------------------------
2000 2001
----------- -----------
Revenues $ 391,848 $ 440,243
Cost of revenues 307,730 175,152
----------- -----------
Gross profit 84,118 265,091
Selling expenses 245,143 167,674
Administrative expenses 528,226 575,509
Development expenses 300,465 202,443
----------- -----------
Loss from operations (989,716) (680,535)
Interest income
(expense), net 19,177 3,401
----------- -----------
Loss before taxes (970,539) (677,134)
Provision for income
taxes 2,790 1,532
----------- -----------
Net loss $ (973,329) $ (678,666)
=========== ===========
Loss per share -- basic
and diluted $ (0.34) $ (0.12)
Weighted average number
of shares -- basic and diluted 2,827,196 5,510,599
The accompanying notes are an integral part of these interim financial
statements.
4
AdStar.com, Inc.
Statements of Cash Flows
For the three-month periods ended March 31, 2000 and 2001 (unaudited)
2000 2001
----------- -----------
Cash flows from operating activities:
Net loss $ (973,329) $ (678,666)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 37,483 70,991
Stock-based charges 62,069 36,489
Loss on disposal of fixed assets -- 16,833
Changes in assets and liabilities:
Accounts receivable 238,410 (112,616)
Prepaid and other assets (73,228) 26,159
Accounts payable (687,707) 39,642
Accrued expenses (226,150) (287,373)
Deferred revenue (15,130) 172,444
----------- -----------
Net cash used in operating activities (1,637,582) (716,097)
Cash flows from investing activities:
Purchase of property and equipment (115,091) (164,937)
Proceeds from disposal of fixed assets -- 25,661
Repayment of shareholder note receivable -- 2,250
----------- -----------
Net cash used in investing activities (115,091) (137,026)
Cash flows from financing activities:
Repayment of notes payable (749,466) --
Principal repayments on capital leases (1,709) (43,263)
----------- -----------
Net cash used in financing activities (751,175) (43,263)
----------- -----------
Net decrease in cash and cash equivalents (2,503,848) (896,386)
Cash and cash equivalents at beginning of period 5,602,493 1,606,999
----------- -----------
Cash and cash equivalents at end of period $ 3,098,645 $ 710,613
=========== ===========
Supplemental cash flow disclosures:
Taxes paid 5,819 3,767
Interest paid 8,360 2,073
Non cash investing and financing activities
Repayment of note payable and accrued interest
with common stock -- 1,186,965
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 for AdStar.com, Inc. (the "Company") 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 period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to the company's
Annual Report on Form 10-KSB for the year ended December 31, 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 months ended March 31, 2001 and 2000, no customer accounted
for 10% of the Company's revenues. At March 31, 2001 three customers in
the aggregate accounted for 27% of the Company's accounts receivable. The
majority of the Company's customers have historically consisted of
newspapers and publishers of classified advertisements.
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
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.
6
In June 1999, the Company introduced a web-based product that permits
advertisers to plan, schedule, compose and purchase advertising from many
print and on-line publishers. The Company recognizes revenues on a
per-transaction basis, when the ad is placed through the Company's system
and the collection from the advertiser of the resulting receivable is
probable.
In December 1999, the Securities Exchange Commission issued Staff
Accounting Bulletin ("SAB) No. 101, "Revenue Recognition" and in July
2000, the Emerging Issues Task Force ("EITF") issued EITF Abstract No.
99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent"
("EITF 99-19") which provided further guidance to SAB 101 on revenue
recognition in certain circumstances. Prior to the introduction of EITF
99-19 the manner in which the Company recognized revenues depended on the
service sold. With respect to ads composed directly on the Company's web
site, and where the Company had a contract with the publisher to process
the transactions and deliver the ads, the amount billed to the customer by
the Company was recognized if, and when, the Company accepted the
customer's ad and charged the customer's credit card. The customer was
charged for the cost of the ad, which was then remitted to the publisher,
less a transaction fee of up to 35% for the Company's service. The Company
in these instances recognized revenue on the gross amount billed to the
customer. Credit card and debit card processing fees and amounts remitted
to the publisher on these transactions were recognized as a cost of sale.
With respect to ads placed through the Company's web site, and where the
Company had a contract with the publisher for delivery of the ads only,
the publisher collected the revenues and remitted a transaction fee to the
Company. In these instances, these net transaction fees were recognized
when the ad was placed through the Company's system and the collection
from a publisher of the resulting receivable was probable. In addition,
where the Company created a private label site for a publisher, the
Company would recognize revenue based on the amount received from the
advertiser and remit the amount collected from the customer less
transaction fees to the publisher. Following the introduction of the EITF
99-19, management believes that the Company is required to change the
manner in which they recognize revenue from transactions on a gross basis
to a net basis. Management now believes that under the provisions of EITF
99-19, the Company is in substance acting as an agent for the publisher
and should recognize all transaction revenues on a net basis, based on the
net transaction fees. In the fourth quarter of 2000, the comparative
financial statements were reclassified to reflect a net basis of
presentation.
The reclassification did not affect net loss for the periods presented.
The impact on the Company's quarterly financial statements for the
three-month period ended March 31, 2000 is summarized below:
For the three-months ended
-------------------------------
March 31, 2000
-------------------------------
As previously
reported As reclassified
(unaudited) (unaudited)
--------------- ---------------
Net revenues 570,730 391,848
Cost of revenues 486,612 307,730
-------------- -------------
Gross Margin 84,118 84,118
7
Research and Development Costs
Costs incurred in the research and development of products are expensed as
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 ended March 31, 2000 and 2001, diluted earnings
(loss) per share does not include 1,772,362 and 1,925,976 options and
warrants to purchase common stock as their inclusion would be
antidilutive.
Reclassifications
Certain reclassifications have been made to prior period amounts to
conform with current period presentation.
3. Notes Payable
On February 16, 2001, the Company issued 593,483 of its authorized but
unregistered shares of common stock in payment of principal and accrued
interest totaling $1,186,965 to satisfy a Note, dated October 21, 1999,
payable to Paulson Capital Corporation.
4. Subsequent Event
On April 6, 2001, the Company sold 400,000 units at a price of $1.00 per
unit. Each unit comprises two shares of the Company's authorized common
stock and one warrant to purchase an additional share of common stock at
$1.07 per share. The warrants expire on April 5, 2006 and have
anti-dilution protection against capital changes.
8
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, 2000 and in
our registration statement on form SB-2 filed with the Securities and Exchange
Commission on September 25, 2000. Because this discussion involves risk and
uncertainties, our actual results may differ materially from those anticipated
in these forward-looking statements.
Overview
The results of the first quarter 2001 have been encouraging and serve to
confirm that we are developing a viable business plan that exploits our
proprietary software products, extensive industry knowledge, and unique position
within the marketplace. We have begun to see an increase to our fee-based
revenues from our Application Service Provider ("ASP") product, as we continue
the process of re-positioning our products that we began in the fourth quarter
of 2000. We are continuing to critically evaluate our products, their profit
contributions, and feasible benefits to customers and potential customers.
During the first quarter 2001, a total of 16,000 transactions were processed
through our web site generating gross billings in excess of $1,318,000. For the
similar quarter in 2000, a total of 6,500 transactions were processed through
our web site generating gross billings in excess of $564,000. During the
quarter, we focused our efforts on re-positioning our products and began to
communicate the benefits of these products to the print and on-line publication
industry. In addition, we have judiciously reviewed our overhead structure and
expenses to develop cost saving initiatives, stream-line operations, and
eliminate non-essential expenditures. We believe that we are just beginning to
see the benefit of these activities.
Description of Business
Over the last two years we have designed, developed and marketed
Advertise123.com, a one-stop marketplace on the web for advertisers to buy
classified ads. We enable advertisers to plan, schedule, compose and purchase
classified advertising from over 120 print and on-line publishers, using one
simple interface. Our service permits advertising agencies ("professional
advertisers") and 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
recognized web browser. In 1999 we began a transition from a software tools
provider to an Internet marketplace for print and on-line classified
advertising. We received our first transaction fees from Internet business in
June 1999 with one on-line publication available on the site. At the end of
1999, we had five print and one on-line publication available on the site. At
the end of the first quarter 2001, we had over 280 print publications and
newspaper networks and 30 on-line publications available on the site. In October
2000, we achieved our target coverage in the top 100 designated market areas
(DMAs) in the US. In addition, in 1999 and 2000, we powered approximately
$550,000 and $4,383,000, respectively, of classified advertising through our
classified advertising marketplace, Advertise123.com, and private-label
ad-taking sites built and powered by us.
9
Advertise123.com, our web portal, is an outgrowth of our historical
business as the largest provider of remote entry for classified ads into
newspapers in the United States. Our historical business enables professional
advertisers to electronically input, format and price ads. It is based on a
software system that we developed which is currently installed on computers used
by over 45 newspapers and more than 1,400 advertising agency and advertiser
locations. Using this system, we have become the largest provider of remote
entry for classified ads into newspapers in the United States. We estimate that
in 2000, more than $300 million of classified ads were placed using our
historical system. We believe we have enjoyed a leadership position in our
historical business because of the extremely difficult process of properly
formatting, pricing and scheduling an ad and finding a way to send this ad to a
print classified system without seriously impeding the processing demands of
both the automated systems and human processes involved.
The web-based services that we have developed permit us to enhance our
service to publishers and professional advertisers while at the same time
allowing us to expand our market to include the general public. For publishers,
the web-based ASP offers them the ability to generate incremental revenue
through their web sites. As an ASP, we contract with publishers to design,
implement, host, and manage the on-line ad-taking capabilities of their web
sites. We provide all the technical and application expertise, support, and
security measures that the publisher needs to get an application up and
generating revenue for them in a short time. For professional advertisers, our
web-based service broadens substantially the range of publishers accessible
through our system while continuing to support the direct access provided by our
historical business. For the general public, our web-based system offers a
complete, interactive and easy to use method to plan, schedule, compose, price
and pay for ads in a broad range of print and on-line publications.
We are now focusing our resources in the areas we believe will provide the
greatest short-term revenue opportunities. We feel that offering the web-based
software engine that we developed for our portal, on a "private label" basis, to
print publications offers a great opportunity to generate additional revenue.
This product is being offered as an ASP, and will host and manage web-based
classified ad-taking for major metropolitan newspapers. This product is a
private label version of Advertise123.com for individual publications and will
allow these publications to generate revenue from their web sites.
Prior to the development of our web business, revenues had been generally
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, 1999, 2000 and first quarter, 2001. Our future success is dependent upon
our ability to substantially grow revenues to the point where we can fund the
current level of operations. To this end, our plans include expanding the
products and services offered to our customers by building on our (i)
proprietary software processes, (ii) established customer relations, and (iii)
unique position within the industry. We feel that there is significant
opportunity to increase revenues by offering the web software and customer
support services that we had initially developed for ourselves, to print
publications.
In addition to actively developing new revenue sources, we have also
reduced our operating costs and significantly curtailed any capital investments
during 2001. In January 2001, we further reduced our workforce from 36 to 23, as
we continue to decrease expenditures associated with developing new web-based
products. We have further reduced expenditures on additional web development
except for targeted service offerings. We expect to become profitable by
December 2001; however there can be no assurance that we will be successful in
these plans.
10
Results of Operations
The following table sets forth the results of operations expressed as a
percentage of revenues:
Three months ended
March 31,
------------------
2000 2001
----- -----
Revenues 100% 100%
Cost of revenues 79% 40%
----- -----
Gross profit 21% 60%
Selling expense 63% 38%
Administrative expenses 135% 131%
Development expenses 77% 46%
----- -----
Loss from operations -253% -155%
Interest income (expense) 5% 1%
----- -----
Loss before taxes -248% -154%
Provision for income taxes 1% --
----- -----
Net loss -248% -154%
Three-Month Periods Ended March 31, 2001 and 2000
REVENUES. Net revenues for the first quarter 2001 increased 12% to $440,000
compared to first quarter 2000 net revenues of $392,000. This increase resulted
from growth in the number of publications utilizing our remote ad entry software
services and web-based infrastructure, offset by a decline in revenue received
from completed new software installations. Our fee-based revenues grew 46% to
$333,000 during the first quarter 2001, from $228,000 in the first quarter 2000.
This includes $28,000 in revenue from our new web-based ad-taking ASP product
that we launched during the first quarter 2001. During 2000, we reallocated
resources away from building our software service business because we had
shifted our focus to expanding and promoting our web portal business.
Consequently, revenue from completed software installations was down 44% during
the first quarter 2001 to $83,000 from $148,000 in the first quarter 2000. We
expect that revenue from our fee-based ASP product will continue to increase as
we increase the number of papers for which we manage their web-based ad taking
function and as transaction volumes on those web sites increase.
COST OF REVENUES. Cost of revenue consists primarily of the 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, cost to
install our web-based ad-taking software, costs associated with operating our
web site and web-based products, and costs to provide customer training and
end-user support. These costs decreased to approximately $175,000 for the first
quarter of 2001 compared with $308,000 for the first quarter 2000. Our Gross
Margin increased to 60% during the first quarter 2001, from 21% during the first
quarter 2000. This large decrease in cost of revenue resulted from reduced
staffing levels and a decrease in royalty expense. We were able to reduce
staffing levels by
11
streamlining the web-based ad-taking software, automating several processes that
had been manually performed during the first quarter 2000, and instituting
operating efficiencies for software installation. Personnel expenses associated
with costs of revenue decreased 38% to $120,000 during the first quarter 2001,
from $193,000 for the first quarter 2000. Royalty expense decreased 88% to
$7,000 during the first quarter 2001 from $56,000 during the first quarter 2000
due to the software installation product mix. Given our current level of web
automation, we will be able to manage significantly greater transaction volumes
with limited increases to our current staffing levels. Accordingly, we expect a
corresponding increase to our gross margin as our revenues increase.
SELLING EXPENSE. Selling expense consists primarily of direct charges for
advertising, sales promotion, marketing, and trade shows, as well as the cost
for business development. Selling expense decreased during the first quarter
2001 32% to $168,000 from $245,000 during the first quarter 2000. As a result of
staff reductions, the personnel related expenses decreased 16% to $146,000
during the first quarter 2001 from $173,000 for the first quarter 2000. Direct
charges decreased 69% to $22,000 during the first quarter 2001 from $72,000
during the first quarter 2000. Direct charges consisted mainly of print and
on-line advertising. The significant decrease is a direct result in our shift in
product line emphasis. As our selling focus is no longer on our web portal
business, we no longer target our advertising and promotions towards the general
public. Consequently, direct advertising and promotional costs decreased
significantly during the first quarter, because we are able to focus our
advertising efforts on activities that target the publishing trade.
ADMINISTRATIVE EXPENSES. Administrative expense consists primarily of the cost
of executive, administrative, technical operations, accounting and finance
personnel. Administrative expenses increased 9% during the first quarter 2001 to
$576,000 from $528,000 during the first quarter 2000. Personnel related expenses
incurred during the first quarter 2001 stayed flat as compared with the first
quarter 2000. During the first quarter 2001, we incurred approximately $50,000
in one-time expenses related to staff reductions. We expect that administrative
expenses will be lower during the remainder of 2001.
DEVELOPMENT EXPENSES. Development expenses consist of expenses to identify
functional requirements, to create content and to populate databases for our
Advertise123.com Web site and the private label sites, and to plan, identify and
conceptually design the required technical infrastructure. The costs consist
primarily of personnel related expenses for technical and design personnel and
consultants. Development expense for the first quarter 2001 decreased 33% to
$202,000 from $300,000 during the first quarter 2000. The overall decrease
resulted from our shift in focus from performing the conceptual design and
feasibility for new functionality to performing site maintenance and routine
fixes. The personnel related expenses increased during the first quarter 2001
63% to $200,000 from $123,000 during the first quarter 2000. The remaining
expense in 2000 related to the cost of outside consultant, which are no longer
utilized. We eliminated the use of design consultants in the third quarter of
2000, and instead have hired technical staff who are able to perform the same
functions, as needed, at a reduced cost, as well as perform the maintenance and
routine fixes required by the web site.
12
INTEREST INCOME (EXPENSE), NET. Interest income decreased 68% during the first
quarter 2001 to $14,000 from $44,000 during the first quarter 2000. This
decrease is attributable to AdStar having less excess cash available to invest
in short-term time deposits and money market accounts at commercial banks, as
well as a reduction in short-term interest rates. Interest expense decreased 56%
during the first quarter 2001 to $11,000 from $25,000 during the first quarter
2000. This decrease resulted from retiring the 6% $1,100,000 note payable
through issuing common stock in February 2001.
Liquidity and Capital Resources
As of March 31, 2001, we had cash and cash equivalents of approximately
$711,000. Net cash used in operations was approximately $716,000 for the first
quarter 2001 compared with $1,638,000 for the comparable 2000 period. The
favorable difference is due primarily to a smaller net loss from operations
during the first quarter 2001, combined with an increase in deferred revenue
during the first quarter 2001. To alleviate this cash stortage, in April 2001,
we raised $400,000 through the private placement discussed below. Also during
the first quarter of 2000, cash of $688,000 was used to reduce accounts payable
and accrued expenses largely attributable to the costs related to our initial
public offering completed in December 1999. Net cash used in investing
activities increased to $137,000 in the first quarter 2001 compared with
$115,000 in the same period in 2000. These expenditures, for computer equipment
purchases and the development of increased functionality for our online business
and web site infrastructure, were partially offset by the proceeds from a sale
of excess office furniture. Net cash used in financing activities was
approximately $43,000 during the first quarter 2001 compared to $751,000 in the
comparable period in 2000. The activity in the first quarter of 2001 reflects
$43,000 in repayment of the equipment financing. In January 2000, the Company
paid in full a note in the principle amount of $749,466 bearing interest at 10%
per annum.
In November, we announced that we were taking steps to reduce our monthly burn
rate (revenues less total cash expenditures) to $150,000 by the end of first
quarter 2001. We achieved this in March 2001. As part of this cost reduction
program, we reduced our workforce from a high of 51 individuals in November 2000
to 23 individuals by February 2001. In addition, we sub-let office space and
instituted other measures to reduce expenditures. By generating increased
revenue from our new ASP product, we plan to further reduce our monthly burn
rate though the second and third quarters of 2001 and expect to be generating
positive monthly cash flow by December 2001.
Subsequent to the end of the quarter, on April 6, 2001, the Company sold 400,000
units, at a price of $1.00 per unit, to 4 accredited investors. Each unit
comprises two shares of the Company's authorized but unregistered common stock
and one warrant to purchase an additional share of common stock at a per share
price of $1.07. The warrants expire on April 5, 2006 and have anti-dilution
protection against capital changes. The common stock issued as part of the units
sold was exempt from registration, as it was a nonpublic offering made pursuant
to Section 4(2) of the Act.
We expect that as we re-focus our near-term sales effort to take advantage of
our position as an ASP in the classified advertising industry, our revenues will
trend upward. Additionally, by monitoring our costs closely, we expect our
available funds, combined with the cash generated from operations, will be
sufficient to meet our anticipated working capital needs through the next twelve
months. We cannot guarantee, however, that the assumed increases in revenue will
occur in a timely manner nor that we will be able to contain our costs in
accordance with our plans. Adequate funds may not be available when needed or
13
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 which could have a
material and adverse effect on our financial position, results of operations and
cash flows.
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 period ended
March 31, 2001, 13,133 shares 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 period of $9,650. The vendors have taken the
shares for investment.
On February 16, 2001, the Company issued 593,483 of its authorized but
unregistered shares of its common stock to satisfy a Note, dated October 21,
1999, payable to Paulson Capital Corporation in payment of principal and accrued
interest totaling $1,186,965. The issuance was exempt from registration, by
reason of it being a nonpublic offering, made pursuant to Section 4(2) of the
Act.
On April 6, 2001, the Company sold 400,000 units at a price of $1.00 per unit,
to 4 accredited investors. Each unit comprises two shares of the Company's
authorized but unregistered common stock and one warrant to purchase an
additional share of Common Stock at a per share price of $1.07. The warrants
expire on April 5, 2006 and have anti-dilution protection against capital
changes. The common stock issued as part of the units sold was exempt from
registration, as it was a nonpublic offering, made pursuant to Section 4(2) of
the Act.
14
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)
/s/ LESLIE BERNHARD
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Date May 14, 2001 President & CEO
---------------------------
/s/ CRIS HOPKINS
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Vice President, Finance
(chief finance and accounting
officer)
Date May 14, 2001
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15