UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

|X|  Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange
     Act of 1934

                   For the Fiscal Year ended December 31, 1999

|_|  Transition Report Pursuant to Section 13 or 15(D) of the Securities
     Exchange Act of 1934

        For the transition period from _______________ to _______________

                       Commission File Number 333-90649

                                AdStar.com, Inc.
                                ----------------
                 (Name of Small Business Issuer in its Charter)

                  Delaware                                 22-3666899
                  --------                                 ----------
        (State or other jurisdiction                    (I.R.S. Employer
      of incorporation or organization                 Identification No.)

        4553 Glencoe Avenue, Suite 300, Marina del Rey, California 90292
        ----------------------------------------------------------------
               (Address of Principal Executive Office) (Zip Code)

                  Registrant's telephone number (310) 577-8255

Securities registered under Section 12(b) of the Exchange Act:

              Title of Each Class                          Name of Each Exchange
              -------------------                           on Which Registered
    Common Stock, par value $.0001 per share               ---------------------
                    Warrants                               Boston Stock Exchange

Securities Registered under Section 12(g) of the Exchange Act:

                    Common Stock, par value $.0001 per share
--------------------------------------------------------------------------------
                                 Title of Class

                                    Warrants
--------------------------------------------------------------------------------
                                 Title of Class

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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  |_|

      Indicate by check mark if there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B in this form and no disclosure will be
contained, to the best of the registrant's
<PAGE>

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. |X|

      For the year ended December 31, 1999, the revenues of the registrant were
$1,685,000.

      The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the closing price on the Nasdaq
Market on March 27, 2000 of $7.375 was approximately $12,500,000.

      As of March 27, 2000, the registrant has a total of 2,820,264 shares of
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE


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                                ADSTAR.COM, INC.

                            Form 10-KSB Annual Report
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PART I
  Item 1.  Description of Business...........................................  5
  Item 2.  Description of Property........................................... 17
  Item 3.  Legal Proceedings................................................. 18
  Item 4.  Submission of Matters to a Vote of Security Holders............... 18

PART II
  Item 5.  Market for Common Equity and Related Stockholder Matters.......... 19
  Item 6.  Management's Discussion and Analysis of Operations of Financial
           Condition and Results of Operation................................ 21
  Item 7.  Financial Statements..............................................F-1
  Item 8.  Changes in and Disagreements With Accountants on Accounting and
           Financial Disclosure.............................................. 26

PART III
  Item 9.  Directors and Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act................. 27
  Item 10. Executive Compensation............................................ 30
  Item 11. Security Ownership of Certain Beneficial Owners and Management.... 32
  Item 12. Certain Relationships and Related Transactions.................... 33
  Item 13. Exhibits, List and Reports on Form 8-K............................ 34

                           FORWARD-LOOKING STATEMENTS

      Certain statements made in this Annual Report on Form 10-KSB are
"forward-looking statements" within the meaning of Section 21E of the Securities
and Exchange Act of 1934 regarding the plans and objectives of management for
future operations and market trends and expectations. Such statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties. Our
plans and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control.
Although we believe that our assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking statements
included in this report will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein,
particularly in view of our early stage operations, the inclusion of such
information should not be regarded as a representation by us or any other person
that our objectives and plans will be achieved. The terms "we", "our", "us", or
any derivative thereof, as used herein shall mean AdStar.com, Inc., a Delaware
corporation.


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<PAGE>

                                     PART I

Item 1. Description of Business

OUR BUSINESS

AdStar has developed a one-stop marketplace on the Web for advertisers to buy
classified ads. We enable advertisers by accessing our Web site on their
computers to plan, schedule, compose and purchase classified advertising from a
large number of print and on-line publishers. Our service will permit 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 recognized Web browser.

This new 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 growing 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. However, because of the high cost of installation, training and on-going
support at advertiser sites, our system has been limited to use by large
advertisers or ad agencies for placement of ads in the largest newspapers in the
United States. We have had losses from operations in each of the last three
years.

In order to eliminate the cost impediments to the expansion of our historical
remote ad entry business and broaden our market penetration, we have developed
and recently implemented a Web-based service through our Web site,
Advertise123.com. By accessing our Web site using any recognized Web browser,
advertisers can:

            o     Select publications for ad placement, including both print and
                  on-line media;

            o     Compose and format ads using formats supported by each
                  publication;

            o     Preview the ad as it will appear in each publication;

            o     Specify editions and scheduled publication dates;

            o     Electronically transfer ads to the selected publications; and

            o     Price and pay for each ad using a credit or debit card.

In contrast to our historical business, from which we have earned revenue from
software licensing fees, our Advertise123.com revenues are transaction fee
based; allowing us to earn revenue based on numbers of ads and advertising
dollar volume. Our principal executive office is located at 4553 Glencoe Avenue,
Suite 300, Marina del Rey, California 90292. Our telephone number is (310)
577-8255 and our Web site addresses are www.AdStar.com and www.Advertise123.com.

BUSINESS

Since 1986 we have enabled advertisers to place classified advertisements in
publications by electronic means. Our historic AdStar business, was confined to
permitting some large advertisers to place classified ads in a limited number of
newspapers through the use of our proprietary software. Our new Advertise123.com
service, offers anyone with access to the Internet the opportunity to create,
price, pay for and submit a classified ad for publication in print or on-line in
one or more of an increasing number of publications.


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THE CLASSIFIED ADVERTISING MARKET

Classified newspaper advertisements consist of small to full page print and
combined print and graphic or pictorial advertisements that appear in designated
sections and are organized by category. The principal categories of classified
ads are employment, automotive and real estate. Classified ads generated
approximately $18.6 billion in revenues for daily newspapers in the United
States in 1999. Classified ads are placed by advertising agencies, large and
small businesses and individuals. Some large volume advertisers enter into
contractual relationships with publishers providing for discounted rates in
return for volume commitments.

Classified advertising in newspapers represents one of the highest margin
revenue sources for newspapers. Although the market for classified advertising
on-line is relatively new, it is growing rapidly.

Most classified ads are placed by the advertiser or its agent directly with a
newspaper by telephone, fax, email, mail or messenger. The process can be
cumbersome, time consuming and inefficient. Ads placed in this way are
susceptible to error and misunderstanding in the voice or fax transmission or in
re-keying print submissions; they may require multiple phone calls or faxes
especially if ads are being placed in more than one newspaper; they require
familiarization with each newspaper's separate printing and pricing practices;
access both by phone and fax may be available only during limited business hours
and even then access may be difficult in periods of heavy phone activity or
facsimile transmission activity and there is much duplication of work between
the advertiser and the newspaper.

OUR HISTORICAL APPROACH -- THE ADSTAR REMOTE AD ENTRY SOLUTION

Our AdStar business is based on technology we developed that simplifies the
media buying process by providing professional advertisers with software to
compose and submit advertising directly into a newspaper's computer systems. Our
software automatically adapts the ad to the publisher's formatting
specifications. This technology affords the advertiser greater control of the
advertising process, including:

            o     submission of ads directly into a newspaper's classified ad
                  system;

            o     ability to work closer to deadlines;

            o     fewer errors from copy re-keying, elimination of messengers
                  and overnight delivery;

            o     simplified resubmission of ads;

            o     administrative and reporting functions; and

            o     in many cases, more favorable rates.

One of the principal advantages of this system is that the advertiser using our
software is able to view the computer screen and configure the ad exactly as it
will run in the selected newspapers. Another important advantage is that with
our system the information viewed by the user for all publishers is the same, so
users do not have to learn a different system for each publisher.

In our AdStar business, we collect no fees from advertisers. Our clients are the
newspapers to which we license our technology. These are primarily large
metropolitan newspapers. The benefits of our AdStar system to newspapers are
significant. By automating the ad input process, we reduce the time required of
a publisher's personnel, as well as the publisher's total processing time; we
virtually eliminate credits and give backs associated with re-keying copy
errors; and we enable newspapers to extend ad deadlines to maximize revenues and
permit integration of the automatic remote entry of advertisements into their
computer system with their order entry, advertising and pagination systems. Our
license agreements with


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<PAGE>

newspapers are for terms of three to ten years. We charge fixed license and
maintenance fees and installation charges, all of which are unrelated to the
amount of advertising revenue generated by our licensed technology. While one or
two single customers may account for more than 10% of our revenue in a single
year, no customer has accounted for more than 10% in successive years. In 1997
the L.A. Times accounted for 13% of our revenues, in 1998 the Chicago Tribune
accounted for 12% of our revenues and in 1999 no software client accounted for
more than 10% of our total revenues .

Our license and support fees are circulation based. License fees range from
$25,000 to $100,000 for the first year and from $6,000 to $18,000 for years two
through ten. User support fees generally range between $6,000 to $30,000 per
year during the life of a contract. Implementation fees usually are between
$15,000 and $30,000, excluding hardware costs.

We also offer a fax management system. Under this system faxed ads are received,
logged, stored and converted into text files at the newspaper. They are then
routed to special workstations designed for split screen editing. This is a two
way system allowing for manipulation of ads in various ways and interactive
discourse between the newspaper and the advertiser for both interim and final
fax-back acknowledgements of acceptance by the advertiser.

Fax management license fees are circulation based. License fees range from
$20,000 to $80,000 for the first year and from $6,000 to $16,500 for years two
through ten. Implementation fees generally range from $15,000 to $30,000,
excluding hardware costs.

Our 43 current newspaper customers account for approximately 25% of the total
1999 Sunday newspaper circulation in the United States. These newspapers include
major metropolitan newspapers including The Chicago Tribune, The Washington
Post, The (Newark) Star Ledger, The Los Angeles Times, The Denver Post, The
Miami Herald, The Philadelphia Inquirer, The (New York) Daily News and The
(Atlanta) Journal-Constitution as well as smaller suburban and regional
newspapers like the Ventura County (CA) Star, The (Lansdale PA) Reporter and
(NJ) Courier Post. In 1999, more than 1,400 advertiser locations, including
advertising agencies like Bernard Hodes Advertising, TMP Worldwide, Shaker
Advertising, Nationwide Advertising, and Austin Knight Advertising and large
direct advertisers like Century 21, Coldwell Banker, Ford and General Cinema,
placed, by our estimate, classified advertising valued at more than $175 million
in newspaper revenue with our newspaper customers through our AdStar system.
However, this volume represents less than 1% of the $18.6 billion in newspaper
classified advertising sold in 1999.

However, this volume represents less than 1% of the $18.6 billion in newspaper
classified advertising sold in 1999.

The use of our AdStar remote ad entry system has been limited to connecting
large metropolitan newspapers with their highest volume commercial classified
advertisers. Most classified advertisers are small and medium sized businesses
which have been excluded from participating in the AdStar system, as has anyone
seeking to place an ad with any of the approximately 1,500 daily and 7,200
weekly newspapers in the United States which are not among the 43 AdStar
licensees. Additionally, the AdStar system does not provide for the placement of
classified advertising in online publications. In order to overcome the
limitations of our AdStar business and reach virtually the entire classified ad
market, including the growing market for Internet publications, we commenced our
Web-based classified ad service.

OUR NEW WEB-BASED CLASSIFIED AD MARKETPLACE -- ADVERTISE123.COM

Our new Advertise123.com Web site was launched in June 1999.It permits any
prospective advertiser, individual or commercial, with Internet access, to:


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<PAGE>

            o     select print and on-line publications for ad placement;

            o     compose and format ads;

            o     preview ads;

            o     schedule publication dates;

            o     price and pay for ads at standard rates; and

            o     electronically submit ads to publications.

In order to use our Advertise123.com system, the advertiser accesses our Web
site and composes and formats the ad for each selected publication. In certain
cases, we support proprietary Web sites maintained by us for our publisher
customers. The system incorporates the particular style, format and data
parameters unique to each publication's advertising or ad posting system. For
print ads this feature enables the user to preview the ad as it will appear in
the publication, allowing an accurate sizing usually measured in lines or
inches, of the ad which in turn usually determines the price of the print ad.
Online publications usually place a limit on ad size based upon text size and
have a fixed price for a given publication schedule. All these variables can be
obtained from the publication and entered into our system so as to give anyone
that qualifies the published rate.

If the advertiser pays for the ad by credit card or debit card we access a
separate third-party on-line service that processes credit card and debit card
payments on the Web. We either mark-up the ad with a fee, which is paid by the
advertiser, or, if we have a preexisting arrangement, we deduct our fee from the
amount paid to the publisher. In 1999 CareerPath.com, a new Web based client,
accounted for 14% of our revenues.

Once the ad has been composed and formatted, the ad is transferred to the
publication selected. If it is directed to a newspaper that is an AdStar
licensee, the ad is transferred directly into that newspaper's computer
publishing system. If the ad is directed to a publication which is not an AdStar
licensee or which is an on-line publisher, then Advertise123.com transfers it by
e-mail, fax or by means of an Internet file transfer protocol known as an FTP,
as instructed by the publisher. We are encouraging more print publishers to
acquire the necessary AdStar software to enable them to receive ads directly
into their computer publishing systems from Advertise123.com; most online
publishers that can accept FTP transfer of ads will be able to use their own
software to accept Advertise123.com ad feeds.

OUR EVOLUTION

We believe that our Web-based ad-taking services represents a major improvement,
with benefits to the advertiser and the publisher, not only over the way most
classified ads are being placed today but even over those placed by our own
remote entry process. Most classified ads are still manually placed in a
person-to-person exchange by an individual, advertising agency or commercial
entity with each publication in which the advertiser seeks to place an ad. This
process is time consuming and expensive both for the advertiser and the
publisher, particularly for advertisers not familiar with the procedures and
cost schedules of a particular publication. In these cases, the placing of an ad
may involve long telephone or repeat phone calls or fax transmissions or other
communications before an ad is actually placed. The likelihood for error
resulting in costly refunds or credits is high. We believe our AdStar remote
entry process expedites the process and reduces the likelihood of these
problems. But, it is available only for large advertisers, and then only with
respect to their placing ads in print in any of our 43 newspaper customers. Our
new Web-based ad taking process improves on this business model in the following
respects:


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<PAGE>

            o     It is accessible for use by any individual, small business or
                  professional advertiser with access to a computer.

            o     Classified ads may be placed by any of the above parties not
                  only in our 43 remote entry newspaper customers but in many
                  other print publications that we are enabling on our site.

            o     Ads may be placed for dissemination online on any one of
                  several Web sites engaged in the online distribution of
                  classified ad postings.

            o     Classified ads from non-contract advertisers can be priced and
                  paid for in real time; ads from contract advertisers can be
                  submitted directly to the publisher for invoicing to the
                  advertiser.

            o     A classified ad can be placed in multiple publications in one
                  transaction.

            o     While some of these features are available with various
                  services currently being offered by others, we believe that we
                  will be the only company offering all of these features in one
                  service.

BUILDING AND MARKETING ADVERTISE123

Our first goal in making Advertise123.com into a marketplace for purchasing
classified ads is to build a critical mass of newspapers and Web publishers that
are accessible on our site as ad recipients. The more publishers accessible on
Advertise123.com, the more attractive our service is to advertisers. In order to
accelerate the build-up of Advertise123.com, we have begun adding publications
to the site by using publicly available data. Consequently, we are able to
control the pace at which publications are added. We refer to these publications
as destination publications. At the same time we have entered into, and are
actively marketing, agreements with publications that include a broad range of
services. These services would include building and powering a private label
site for the placement of classified ads and offering any special pricing that a
publication indicates in addition to its published rates. We refer to these
publications as partner publications. The input of information into our Web site
is time consuming and restricts our ability to add new publishers to our Web
site as fast as we would like.

As we build a critical mass of publishers, we are also focusing our marketing
efforts on bringing advertisers to our 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 country. On March 15, 2000, we announced that we had expanded market
coverage to the top 20 DMAs; and on March 29, 2000 we had expanded coverage to
the top 31 DMAs.

DISTRIBUTION AGREEMENTS

There are six major sites on the Web which aggregate and republish classified
ads which appear in newspapers. None of these Web publishers originates ads
on-line -- whether for publication online or in print. We are focusing our
initial marketing efforts on promoting the e-commerce opportunity of
Advertise123 to these Web publishers and through them to the participating
newspapers whose classified ads are republished online by these publishers. We
have entered into distribution agreements with two of these Web publishers:
AdOne, LLC (AdOne.com) and PowerAdz, LLC (PowerAdz.com), which enable them to
offer versions of Advertise123 to their participating newspapers so that these
newspapers can obtain ads through Advertise123.com for publication either online
or in print. AdOne.com and PowerAdz.com provide online republication of the
classified ads from approximately 1,200 newspapers. Under our distribution
agreements, in order for anyone coming to one of our distribution partners'
sites or the site of one of their participating newspapers added to our system
-- to place an ad for publication in print or online -- the prospective
advertiser will click-on a "place an ad" button which will link such party


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to a co-branded version of Advertise123.com hosted by us. As we implement this
ad taking service for our distribution partners and their participating
newspapers, each of these publications becomes accessible on Advertise123.com
which enhances our value to advertisers.

Each of our distribution agreements grants us the right to provide our
distribution partners and their participating newspapers with the ability to
enable advertisers to select, transact and process ads for print and online
publication from their Web sites and from Advertise123.com. For any
advertisement entered on a Web site of a distribution partner or one of its
participating newspapers -- which we call partnered sites -- and for any ad
entered on Advertise123.com for placement on a partnered site or in a
participating newspaper of one of our distribution partners, a percentage of the
publisher's charges for this advertisement is divided among us and the other
party or parties in the distribution chain to the transaction. Our agreements
with AdOne and PowerAdz are for three years but may be terminated on short
notice by either party. Our Advertise123.com service is being made available to
users of the AdOne and PowerAdz Web sites. We have begun installing our ad entry
software on the Web sites of their participating newspapers -- and these
newspapers will join our Advertise123.com marketplace as their publications are
also accessible on our Web site.

In addition, AdStar.com has recently entered into a distribution agreement with
Recruitment Marketplace, a division of Landon Media Group, a major newspaper
representative firm which represents over two thirds of the nation's newspapers.
The Recruitment Marketplace division is dedicated to increasing newspaper
exposure to recruitment advertising buyers and their agents. AdStar will provide
Recruitment Marketplace's online channel for buying and selling print
recruitment advertising. Recruitment Marketplace will drive increased
recruitment advertising to the publications it represents via its soon to be
released RecruitmentMarketPlace Web site. Advertisers who are solicited by
Recruitment Marketplace will be able to go to its RecruitmentMarketplace.com Web
site to create, schedule and submit their recruitment advertising directly to
the newspaper. AdStar's Advertise123.com service will power the Recruitment
Marketplace Web site.

SERVICE AGREEMENT

We have also entered into three year agreements with Web publishers,
CareerPath.com and CareerEngine, which aggregate and republish job recruitment
advertisements online. These agreements grant us the right to provide our
Advertise123.com ad entry services on these Web sites, the co-branded Web sites
of CareerPath.com's participating newspapers, and on CareerEngine's 23 category
specific Web sites. This will enable prospective employers to place job related
ads on these sites.

CareerPath.com sources its listings from the help wanted ads of more than 90
daily newspapers and from employer Web sites. We have installed a "Post A Job
On-line" button on CareerPath.com and on the sites of its more than 90
participating newspapers which takes a prospective advertiser to a private label
version of Advertise123.com.

CareerEngine sponsors the: ITClassifieds.com, SalesClassifieds.com and
AccountingClassifieds.com Web sites. CareerEngine job counselors and recruiters
help prospective candidates define, locate and secure career opportunities
and/or consulting assignments. CareerEngine offers e-recruiting services to
Fortune 1000 companies and has distribution partnerships with leading recruiting
firms, which sell the services of CareerEngine's sites.

In addition to making the Advertise123.com service available directly from the
respective Web sites of CareerPath.com and CareerEngine, advertising
opportunities of both will be available directly from the Advertise123.com Web
site. Pursuant to our service agreements, we receive installation fees and a


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percentage of revenues generated by the service. Our service with CareerPath.com
and CareerEngine are fully operational.

OUR STRATEGY

We have now expanded our business to make remote ad entry available to virtually
all newspapers and advertisers by utilizing the Internet. We believe this
expansion is a natural extension of our business.

In working to establish Advertise123.com as a leading online e-commerce
marketplace for publishers and classified advertisers to transact business, we
intend to:

            o     leverage our knowledge and experience in classified
                  advertisements to establish our credibility in the Web-based
                  ad taking business;

            o     quickly build our online presence by covering the top DMAs in
                  the country with destination publications;

            o     rapidly build online business with our established newspaper
                  customer base and commercial advertiser relationships;

            o     expand the number of publications accessible on
                  Advertise123.com and therefore its attractiveness to
                  advertisers by emphasizing the e-commerce opportunities of our
                  site for building ad revenues as well as the many proven
                  advantages of remote ad entry over traditional manual methods
                  of classified ad placement to both advertisers and publishers;

            o     convert our revenue and pricing model from fixed software
                  license fees to transaction fees for each ad purchased on
                  Advertise123.com and the private label and co-branded sites
                  which we host;

            o     expand our ad placement distribution channels through private
                  label and co-branded relationships with leading Web publishers
                  which aggregate and republish print media classified ads but
                  do not provide for ad entry; and

            o     develop revenue sources for reporting trends and statistical
                  information of interest to print and online publishers and
                  advertisers assembled from data collected from our Web sites.

REVENUE

Our historical revenues have been derived principally from our license fees and
installation charges billed to our newspaper customers for our AdStar remote ad
entry service. We expect this revenue to continue in accordance with our
outstanding license agreements.

Our revenue sources from Advertise123.com are expected to fall into the
following categories:

(1) TRANSACTION FEES. These fees will be charged for placing classified ads on
our Web site or on a partnered site. The charge for each advertisement by the
online or print publication will be prepaid by the advertiser by credit card
payment through third party facilities accessible online or in cases involving
large volume purchases, in separate arrangements which we may establish with the
advertiser. Fees for ads placed in print publications on our Advertise123.com
Web site paid for by credit cards will generally be 10% of the cost of the ad,
either as a mark-up to the ad price paid by the advertiser or a discount from
the ad price remitted to the publisher, but may change as a result of changing
market conditions. We expect those paid for by advertisers under contracts with
publishers will carry a per ad charge of $.25. For those ads placed in existing
AdStar newspapers there is no charge to the publisher for use of


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Advertise123.com by contract advertisers. We expect that fees on ads which
originate on the publisher's Web site which flow through our system will be
subject to annual caps ranging from $6,000 to $33,000 per publisher. There are
no caps for revenues on ads originating on Advertise123.com. Existing fees for
online publications will range between 5% to 10% of the cost of the ad if
originated on their Web site and 10% to 35% of the cost of the ad if originated
on Advertise123.com. In our distribution arrangements, we share this fee with
our partners. We expect our sharing arrangements to be separately negotiated for
each distribution arrangement. Credit card fees in partner publications will be
paid for by the publications or a fixed handling charge or percentage will be
charged.

(2) CARRIAGE FEES. In co-marketing or co-branding situations in which we carry
or display the brand of another company on our Web site, we will in certain
circumstances charge a fixed fee, known in the trade as a carriage fee.

(3) MARKET RESEARCH REPORTS. We expect to be able to derive a separate revenue
stream for providing market research and reporting services to both advertisers
and newspapers based on data we are able to assemble from the operation of our
Web-based market place.

(4) FEES FROM ADVERTISEMENTS ON OUR WEB SITE. Additional revenues should be
provided by premium positioning and promotional advertising sold to media and
advertising companies and carried on our Web site. Initially we may provide an
opportunity to these prospective advertisers to advertise on our Web site
without fee. As we develop activity on our site, we will adopt a rate schedule
for these advertisers based on the number of "hits" each advertiser receives
from visitors to our site.

COMPETITION

We expect to provide a "marketplace" or "one-stop-shop" Internet location for
publishers and advertisers. We will be competing with all traditional methods of
ad origination and entry -- as conducted by newspapers and Web publishers.

Our ability to compete will also depend upon the timing and market acceptance of
our new Web-based ad taking service, the enhancements developed by us, the
quality of our customer service, and the ease of use, performance, price and
reliability of our services.

We also have to expect that other companies may enter our market and compete
with us for ad origination business. Many of these potential new competitors may
have longer operating histories, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than us.
We cannot guarantee that we will be able to compete successfully against current
or future competitors or that competitive pressures will not have a material and
adverse effect on our financial position, results of operations and cash flows.

INTELLECTUAL PROPERTY

We regard our intellectual property as critical to our success, and we rely upon
trademark, copyright and trade secret laws in the United States to protect our
proprietary rights. We do not currently own any patents. We have established
trademark rights in the mark AD-STAR, based on our use of this mark since 1985
and our ownership of the incontestible United States trademark registration No.
1,497,387 for AD-STAR issued in 1988. While this registration covers computer
programs for preparation, editing and electronic transmission of classified
advertisements, we have expanded our use of the trademark AD-STAR to
Internet-related advertising services and we will be filing a new trademark
application to cover these services. Our trademark search, along with our
longstanding use of the mark AD-STAR and our


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<PAGE>

ownership of the U.S. Registration for AD-STAR, should entitle us to further
registration, although we cannot guarantee how the Trademark Office will view
our proposed application or whether our expanded use of the mark will encounter
any opposition in the marketplace. We have also recently begun to use the
trademark and Internet domain name Advertise123.com but have not yet applied for
registration.

We seek to protect our proprietary rights through the use of confidentiality
agreements with employees, consultants, advisors and others. We cannot guarantee
that these agreements will provide adequate protection for our proprietary
rights in the event of any unauthorized use or disclosure, that our employees,
consultants, advisors or others will maintain the confidentiality of proprietary
information, or that proprietary information will not otherwise become known, or
be independently developed, by competitors.

We have licensed in the past, and expect that we may license in the future,
elements of our trademarks, trade dress and similar proprietary rights to third
parties. While we attempt to ensure that the quality of our name and brand are
maintained by our business partners, we cannot guarantee that these partners
will not take actions that could materially and adversely affect the value of
our proprietary rights or the reputation of our solutions and technologies.

Legal standards relating to the validity, enforceability and scope of protection
of certain proprietary rights in Internet-related industries are uncertain and
still evolving, and we cannot make any guarantees as to the future viability or
value of any of our proprietary rights or those of other companies within the
industry. We cannot guarantee that the steps taken by us to protect our
proprietary rights will be adequate or that third parties will not infringe or
misappropriate our proprietary rights. Any infringement or misappropriation,
should it occur, could have a material adverse effect on our business, our
results of operations of our financial condition. Furthermore, we cannot
guarantee that our business activities will not infringe upon the proprietary
rights of others, or that other parties will not assert infringement claims
against us.

EMPLOYEES

As of December 31, 1999, we had 28 full-time employees, including two in sales
and marketing, two in business development, 11 in technical staff and product
development, 10 in operations and customer support, and three in finance,
accounting, clerical and administration. We are not subject to any collective
bargaining agreements and we believe that our relations with our employees are
good. In order to implement our business plan for building our Web based service
we expect over a relatively short period of time to significantly increase our
work force. We will be looking to add approximately 13 people to our staff
during the next 12 months as follows:

            o     7 people to our technical and product development staff

            o     2 persons to our operations and support staff;

            o     3 persons for marketing and business development staff; and

            o     1 person to our accounting and administrative staff.

         CERTAIN RISK FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY

      The following factors may affect the growth and profitability of the
Company:

Dividend Policy. We do not expect to pay any cash dividends on our common stock
in the foreseeable future.


                                       9
<PAGE>

Limitation On Liability And Indemnification Matters. As authorized by the
Delaware General Corporation Law, our certificate of incorporation provides that
none of our directors shall be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for:

            o     Any breach of the director's duty of loyalty to us or our
                  stockholders;

            o     Acts or omissions not in good faith or which involve
                  intentional misconduct or a knowing violation of law;

            o     Unlawful payments of dividends or unlawful stock redemptions
                  or repurchases; or

            o     Any transaction from which the director derived an improper
                  personal benefit.

This provision limits our rights and the rights of our stockholders to recover
monetary damages against a director for breach of the fiduciary duty of care
except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his duty of care.

Our certificate of incorporation further provides for the indemnification of any
and all persons who serve as our director, officer, employee or agent, to the
fullest extent permitted under the Delaware General Corporation Law.

Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.

We have obtained a policy of insurance under which our directors and officers
will be insured, subject to the limits of the policy, against certain losses
arising from claims made against our directors and officers by reason of any
acts or omissions covered under this policy in their capacities as directors or
officers, including liabilities under the Securities Act.

      Growth Of Historical Adstar Business Is Limited. Our historical AdStar
remote ad entry business is limited both in current size and growth potential
due principally to the high cost of installation, training and on-going support
at advertiser sites and the requirement that advertisers separately dial-up each
publication in which they intend to buy an ad. Our ability to achieve sufficient
revenues to justify the expectations of our investors is dependent on the
success of our new online business which we believe eliminates these barriers.
Our belief that we can successfully expand our business by migrating to a
delivery system over the Internet may not be correct.

      Our New Online Business Is Unproven And May Not Be Successful. We did not
begin to offer our remote ad entry services over the Internet until June 1999.
Moreover, we know of no company that accepts classified ads online for
publication both online and in print. Accordingly, we cannot guarantee that we
will be able to generate the public interest necessary to sustain our business
model. You must particularly consider the risks and difficulties frequently
encountered by an early-stage business in a rapidly evolving market, which makes
our ability to successfully implement our business plan uncertain. These risks
include whether we will be able to:


                                       10
<PAGE>

            o     attract a large number of advertisers to our Web sites;

            o     develop profitable pricing models for our transaction fees for
                  ad placements over our Web sites;

            o     increase awareness of our Advertise123.com brand;

            o     maintain current and develop new distribution relationships
                  with highly trafficked sites of Web publishers;

            o     continue to utilize our current software and effectively
                  develop new software and systems;

            o     respond effectively to competitive pressures; and

            o     attract, retain and motivate qualified personnel.

We may not be able to successfully address these risks. Our failure to do so
will adversely affect our ability to develop an online business.

      Our Unproven Online Business Model May Not Generate Expected Revenues.
Because we have limited Internet experience, we cannot accurately forecast the
source, magnitude or timing of our future revenues. Current expectations are
that we will receive:

            o     transaction-based fees for ads processed on our Web sites
                  except where we agree to waive our fees in transactions
                  between advertisers using our licensed software with
                  newspapers paying us license fees;

            o     fixed fees to be paid by online media clients;

            o     fees from media and advertising companies who advertise on our
                  Web sites; and

            o     fees from advertisers and newspapers for statistical reports
                  generated by data assembled from ads processed on our Web
                  sites.

      Our expectations with respect to future revenues are principally based on
our ability to attract advertisers and publications to our Web sites and thus
facilitate ad placements on these sites. In particular, our assumption that we
will not encounter any significant resistance by publishers to accepting
Web-based ads obtained by us may be wrong. Publishers might view transactions in
which we deduct a transaction fee as reducing the amounts they would receive if
they obtained the ads directly. Conversely, advertisers may be reluctant to pay
a mark-up to published classified advertising costs. No standards exist for
measuring the effectiveness of classified advertising. If because of these
factors, the revenues are not generated in the amounts and within the time
periods necessary to sustain our operations our prospects for our online
business will be seriously compromised.

      We Have A History Of Losses And We Expect Increased Losses. For the years
ended December 31, 1997, 1998 and 1999 we incurred net losses of approximately
$60,000, $69,000, and $2,865,000 respectively. Our 1999 loss was principally
attributable to expenses incurred in starting our new online business and
offering expenses incurred in an earlier abandoned offering. We expect to
continue to incur losses until we are able to significantly increase our
Internet revenues from transaction fees based on the number of ad purchases
transacted on our Web sites. Our operating expenses are expected to continue to
increase significantly in connection with our proposed expanded activities. Our
future profitability will depend on our ability to increase our online
advertiser base and transaction revenues while controlling our costs. We may not
be able to achieve profitability.

      We May Be Unable To Obtain The Additional Capital Required To Grow Our
Business. Our ability to grow depends significantly on our ability to
substantially increase our work force. Our operating expenses will increase
substantially as the number of employees increases. We estimate that the costs


                                       11
<PAGE>

associated with the increase of the number of our employees from 28 at December
31, 1999 to 41 over a period of 12 months will be at least $1,500,000. We expect
that the net proceeds from our recent offering will be sufficient to meet our
cash needs for at least 12 months. However, if the actual costs of our expanded
operations are higher than projected or the revenues from our new operations
fall below our current expectations, we may need additional financing before the
expiration of 12 months. In either event if our revenues are insufficient to
provide the necessary cash flow for ongoing operations, we will need to seek
additional capital from public or private equity or debt sources to fund our
growth and operating plans and respond to other contingencies. We may not be
able to raise needed cash on terms acceptable to us or at all. Financings may be
on terms that are dilutive or potentially dilutive to our stockholders. If
sources of financing are required, but are insufficient or unavailable, we will
be required to modify our growth and operating plans to the extent of available
funding, which would have a material and adverse effect on the successful
implementation of our planned business expansion.

      Our New Online Service Is Only Partially Implemented. Our Advertise123.com
Web-based service is currently available for the placement of ads with a growing
number of publishers. Until our Web site can display a critical mass of
publishers, we do not expect to attract a significant number of advertisers to
our Web site and cannot guarantee its performance as a commercial sales channel.

      Our Early Stage And Untested Internet Operations Are Particularly
Vulnerable To Breakdowns In Service. As an early stage Internet business, we are
particularly vulnerable to break downs and interruptions in our service which
could disrupt our ability to provide continued and sustained support to
advertisers and publishers. We have not yet suffered any breakdowns in service.
However, our service has not yet been tested by repeated and continuous use and
vulnerability to interruptions in service should increase as we develop
increased traffic on our Web site. If because of interruptions our customers and
prospective customers lose faith in our ability to service their needs, they may
choose more traditional and dependable means for placing their classified ads.
If this were to occur, we will not be successful in building an on-line
business.

      The Successful Introduction Of Our New Online Business May Diminish The
Value Of Our Historical Licensed Software Business, Causing Many Of Our
Newspaper Customers To Terminate Or Not Renew Their Software License Agreements.
Once our Web site is fully implemented, its versatility may encourage many of
the more than 1,400 large advertisers currently using our AdStar software, to
process their ad buys on Advertise123.com. This in turn may reduce the value of
our licensed software to our newspaper customers which could discourage them
from renewing their license agreements with us. We have experienced a decline in
our revenues from our historical business from $1,559,000 in 1998 to $1,418,000
in 1999. Our loss of any revenue source would need to be replaced with
transaction fees from ad buys on our Web sites. The failure to replace license
fees with transaction fees will materially and adversely affect our revenue and
cash flow. We received revenues from our internet business of $267,000 in 1999.

      Our Online Business Could Face Competition From Many Sources. We are
unaware of any company which provides a centralized on-line sales channel for
the selection, transaction and processing of classified ads in multiple print
and on-line publications. Those publishers which accept and process ads by
traditional means like telephone, facsimile transmission and printed copy
submissions are potential competitors. Advertise123.com seeks to attract
advertisers to its Web site to capture the transaction whereby they will select
and process classified ads before they contact a publisher directly. Our ability
to compete successfully will depend on the cost effectiveness of our services
and whether the transaction fees charged to publishers for ads processed through
Advertise123.com are economical.


                                       12
<PAGE>

      In addition, many companies not now in the business of providing online
remote ad entry and possessing larger capital resources than we do may seek to
develop their own technology and enter into the business of offering a similar
broad based, centralized on-line classified ad placement services to ours. Many
of these companies will have longer operating histories, greater name
recognition, larger customer bases and significantly greater technical and
marketing resources than we have. As a result, they may be able to respond more
quickly than us to new or emerging technologies and can devote greater resources
than us to development, promotion and sale of their services. Faced with this
type of competition, our ability to compete effectively and operate profitably
cannot be assured.

      We May Be Unable To Manage Our Growth Which Contemplates 50% Increase In
Our Work Force. Our business plan contemplates an increase in the number of our
employees from 28 to 42 over a period of 12 months. The recruitment, training
and integration of these persons into our operations will place a significant
strain on our managerial, operational and financial resources. To handle this
influx of personnel and our projected growth in customer base and operations we
must install and operate new and more complex accounting, bookkeeping and
telephone systems. We cannot guarantee that we will be able to manage
effectively the expansion of our operations or that our personnel, systems,
procedures and controls will be adequate to meet our anticipated future
operations. If this were to occur, it would materially and adversely affect our
business and prospects.

      We May Not Be Able To Retain Key Existing Employees Or Attract The Large
Number Of Additional Employees Essential To The Success Of Our New Online
Business. Our performance is substantially dependent on the performance of our
senior management and key technical personnel and on our ability to attract the
new internet oriented employees required in the implementation of our business
plan. Our success depends in the first instance on the continued efforts of our
Chief Executive Officer, Leslie Bernhard, and of our Executive Vice President
and Chief Technical Officer, Eli Rousso. In addition, our future personnel needs
contemplate a 50% increase in our work force over a period of 12 months. The
competition for Internet oriented people of the type we will be seeking is
intense and we may be hard pressed to find the personnel needed as fast as we
need them. If we are unable to retain our key existing employees or to rapidly
attract, hire and assimilate the qualified employees we will be seeking, the
growth of our online business will be arrested and we will not be able to meet
the projected revenue increases within the time period contemplated in our
business plan, if at all.

      We Are Vulnerable To Potential Lawsuits Regarding Ad Content Or System
Failure. Because we facilitate the placement of advertisements in print and
online publications, potential claims may be asserted against us for negligence,
defamation or personal injury, or based on other theories, due to the nature of
the content of these advertisements. Our technology does not contemplate our
reviewing classified advertisements processed on our Web sites for libelous or
other statements that might give rise to possible liability.

      Although we carry general liability insurance, our coverage may not cover
potential claims or may not be adequate to fully indemnify us. Any imposition of
liability or legal defense expenses that are not covered by insurance or that
are in excess of our insurance coverage could place a strain on our available
cash resources, could seriously jeopardize the success of our business plan and
could materially and adversely affect our financial position, results of
operations and cash flows.

      Our Limited Internet Experience May Affect Our Ability To Deal Effectively
With Technological Change. Our new on-line business is characterized by:

      o     rapidly changing technology;

      o     evolving industry standards;


                                       13
<PAGE>

      o     frequent new product and service announcements;

      o     introductions and enhancements; and

      o     changing customer demands.

      These market characteristics are heightened by the emerging nature of the
Internet and Internet advertising and in particular by our limited experience
and short operating history in this market. For these reasons, our future
success depends on:

      o     our ability to adapt the rapidly changing technologies to the needs
            of our advertising and publishing clients; and

      o     our ability to continually improve the performance, features and
            reliability of our online services.

      Furthermore, we do not know if we will have the experience and talent to
overcome technical difficulties that may arise from time to time that could
delay or prevent the successful design, development, testing, introduction or
marketing of solutions, or that any new solutions or enhancements to existing
solutions will adequately meet the requirements of our current and prospective
customers and achieve any degree of significant market acceptance. If we are
unable, for technological or any other reasons, to develop and introduce new
solutions or enhancements to existing solutions in a timely manner or in
response to changing market conditions or customer requirements, or if our
solutions or enhancements contain errors or do not achieve a significant degree
of market acceptance, our financial position, results of operations and cash
flows could be materially and adversely affected.

      We Do Not Own Any Patents And May Not Be Able To Protect Our Proprietary
Rights. We believe that our future success will depend, in part, on our ability
to develop proprietary rights with respect to our systems and services including
domain names, trademarks, trade names, service marks and copyrights. This is
particularly true with respect to our Web-based service technology. Although we
are in the process of determining whether patent protection is available for
certain aspects of our technology, we do not currently own any patents or patent
applications on our technology and we have no assurance that our rights to that
technology are patentable or otherwise protectable. Moreover there is no
assurance that others might not develop alternate technologies that might be
more effective than ours whether or not we obtain patent protection.

      We have recently begun to use the trademark and Internet domain name
Advertise123.com but have not yet applied for registration of the trademark. We
cannot guarantee that our application for a registration of this trademark will
be granted and, if granted, that it will not be successfully challenged by
others or invalidated through administrative process or litigation. Further, if
our Advertise123.com trademark application is not granted due to the prior
rights of a third party we may not be able to obtain a license on commercially
reasonable terms to allow us to continue to use this trademark.

      Despite our existing trademark rights in the marks AD-STAR, from use and
registration, and Advertise123.com, from use and our proposed expanded federal
protection for these marks, the marks remain susceptible to trademark
infringement due to the frequent illicit use and piracy of trademarks by
"cybersquatters" on the Internet. Although we own the domain names
Advertise123.com and ADSTAR.com, there remains the risk that third parties will
seek to register our marks AD-STAR and Advertise123 in the other "top level"
domains, e.g., .org, .net, and .gov, or that they will register close copies of
our marks that we may be unable to stop.


                                       14
<PAGE>

      Furthermore, we cannot guarantee that our business activities will not
infringe upon the proprietary rights of others, or that other parties will not
assert infringement claims against us.

      If for any of the above reasons we are deprived of any proprietary rights
to our technology or trade style our prospects for success may be seriously and
adversely affected. See "Business -- Intellectual Property".

      Our Operations And Services Are Vulnerable To Natural Disasters. Our
operations and services depend on the extent to which our computer equipment and
the telecommunications infrastructure of our third-party network providers is
protected against damage from fire, earthquakes, power loss, telecommunications
failures, and similar events. A significant portion of our computer equipment,
including critical equipment dedicated to our internet access is located in the
Los Angeles area. Despite precautions taken by us and our third-party network
providers, over which we have no control, a natural disaster or other
unanticipated problems at our network hub, or a third-party network provider
point of presence could cause interruptions in the services that we provide. If
disruptions occur, we may have no means of replacing these network elements on a
timely basis or at all. We do not currently maintain back-up Internet services
or facilities or other back-up computing and telecommunications facilities.
Extensive or multiple interruptions in providing users with Internet access are
a reason for user decisions to stop using access services. Accordingly, any
disruption of our services due to system failure could have a material and
adverse effect on our business, results of operations and financial condition.
Furthermore, we do not currently have any business disruption insurance.

      Concentration Of Voting Rights May Prevent You From Having Any Voice In
Corporate Affairs. Leslie Bernhard and Eli Rousso each has voting rights with
respect to 26% of our issued and outstanding shares of common stock. With these
holdings, Ms. Bernhard and Mr. Rousso are able to control all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing any change in how and by whom we are
controlled.

      Our Corporate Documents May Limit Rights Of Stockholders. Our Board of
Directors has the authority to issue up to 5,000,000 shares of preferred stock
without any further vote or action by our stockholders, and to determine the
price, rights, preferences, privileges and restrictions, including voting rights
of these shares. Since the preferred stock could be issued with voting,
liquidation, dividend and other rights superior to the rights accompanying
shares of our common stock, the rights of the holders of shares of common stock
included in the units, will be subject to, and may be adversely affected by, the
superior rights of the holders of preferred stock.

      The issuance of preferred stock could also make it more difficult for a
third party to acquire a majority of our outstanding voting stock. Furthermore,
certain provisions of our Certificate of Incorporation, and certain provisions
of our Bylaws and of Delaware law, could have the effect of delaying or
preventing a change in control of the company which you may deem to be in the
best interests of the company.

      The Units In Our Initial Public Offering May Have Been Offered Or Sold In
Violation Of The Securities Act Of 1933. In a listing agreement with the
managing underwriter in our recent offering, IPO.COM was authorized to include
our prospectus on the IPO.COM Web site. The listing agreement neither authorized
nor requested that any additional information about us be provided. However,
IPO.COM provided, on other pages reachable from its Web site home page, summary
material that it extracted from our prospectus, relating to us and our initial
public offering. Those pages also provided a direct link to our Web site.
If, the listing agreement created an agency relationship with the managing
underwriter and, through the managing underwriter, with us, then the summary
material


                                       15
<PAGE>

contained on the IPO.COM Web site and the information contained in our Web site
could be deemed to constitute a prospectus that does not meet the requirements
of the Securities Act of 1933.

      If there was a violation of the Securities Act, then for a period of one
year from the date of their purchase of units, investors in the recent offering
could bring a claim against us and our underwriters. In that action investors
would seek recovery of the consideration they paid for their units or, if these
persons had already sold the units, for damages resulting from their purchase
and sale of these securities. Recovery would be based on the theory that the
summary materials or the materials contained in our Web site were offering
materials for which we are responsible and which constitute a violation of the
Securities Act. If plaintiffs were to prevail, then damages could total up to
$6,900,000, plus interest, based on the initial public offering price of $6.00
per unit for 1,150,000 units and further assuming investors seek recovery or
damages after a loss of their entire investment and all purchasers in the
offering are entitled to this recovery. We expect that investors would not be
inclined to assert a claim for rescission or damages unless, during the one-year
period following the date of their purchase of securities, the trading prices of
the securities fall significantly below the initial public offering price. If
litigation was instituted and if the plaintiffs were to prevail, our business,
results of operations and financial condition would be harmed. However, we
believe it has no material liability and would contest any action of this kind
vigorously. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation."

      Risk Of Low-Priced Securities. The Securities and Exchange Commission has
adopted regulations which generally define "penny stock" to be an equity
security that has a market price, as defined, of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions,
including an exception of an equity security that is quoted on The Nasdaq Stock
Market. If our shares of common stock are removed or delisted from The Nasdaq
SmallCap Market, the security may become subject to rules that impose additional
sales practice requirements on broker-dealers who sell these securities. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchaser of such securities and have received
the purchaser's written consent to the transactions prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered underwriter, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally among other requirements, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As such, the "penny stock"
rules, in the event the company's securities are delisted from The Nasdaq
SmallCap Market, may restrict the ability of stockholders to sell our common
stock and warrants in the secondary market.

      Possible Delisting Of Securities From Nasdaq. While the shares of common
stock met current Nasdaq listing requirements when initially listed and are
currently included on Nasdaq, there can be no assurance that we will meet the
criteria for continued listing. Continued listing on Nasdaq generally requires
that (i) we maintain at least $2,000,000 in net tangible assets, or $35,000,000
in market capitalization, or $500,000 in net income for either the last fiscal
year, or two out of the last three fiscal years, (ii) the minimum bid price of
the common stock be $1.00 per share, (iii) there be at least 500,000 shares in
the public float valued at $1,000,000 or more, (iv) the common stock have at
least two active market makers, and (v) the Common Stock be held by at least 300
holders. If we are unable to satisfy Nasdaq's maintenance requirements, our
securities may be delisted from Nasdaq. In that event, trading, if any, in the
common stock and warrants would be conducted in the over the counter market in
the so called "pink sheets" or the NASD's "Electronic Bulletin Board."
Consequently the liquidity of our securities


                                       16
<PAGE>

could be impaired, not only in the number of securities which could be bought
and sold, but also through delays in the timing of transactions, reduction in
security analysts and new media coverage of the company, and lower prices for
our securities than might otherwise be obtained.

Item 2.  Description of Property

      Our principal offices are currently located in two separate facilities.
One in Marina del Rey, California consisting of an aggregate of approximately
7,200 square feet and one in Syosset, New York consisting of approximately 1,400
square feet. We also have an option on 1,100 square feet of space contiguous to
our Marina del Rey facilities which we can sublet if need be. The existing
leases expire on March 31, 2005 and March 31, 2002 respectively. The aggregate
monthly rent is approximately $20,000. We believe that if these leases are not
renewed, satisfactory alternative space will be available.


                                       17
<PAGE>

Item 3. Legal Proceedings

      We are not currently a party to any legal proceeding.

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

      (a)   Not applicable.

      (b)   Not applicable.

      (c)   Not applicable.


                                       18
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

      (a)   Market Information

      The Company's Common Stock commenced trading on The Nasdaq SmallCap Market
under the symbol "ADST" in January 2000. The following table sets forth the high
and low bid prices as quoted by The Nasdaq SmallCap Market from January 18, 2000
through March 27, 2000. Such quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission and may not necessarily represent actual
transactions.

                                                            Bid Price
                                                High                       Low

January 18, 2000 to March 27, 2000             $10.875                    $4.50

      (b)   Holders

      As of March 10, 2000, the number of record holders of the Common Stock of
the Company was 16. The Company believes that there are more than 660 beneficial
holders of the Common Stock.

      (c)   Dividends

      The holders of Common Stock are entitled to receive such dividends as may
be declared by the Company's Board of Directors. The Company has not paid and
does not expect to declare or pay any dividends in the foreseeable future.

      (d)   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:


                                       19
<PAGE>

--------------------------------------------------------------------------------
Note payable bearing interest at 10% per annum, repayable in
monthly instalments of $8,333 comprising principal and
interest. Repaid in January 2000                                 $  734,500
--------------------------------------------------------------------------------
Note payable bearing interest at 14% per annum, repayable in
54 equal instalments 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                                                            $1,599,500
--------------------------------------------------------------------------------

Through February 29, 2000, we expended approximately $370,000 in development and
expansion of our Web site and further product development and site maintenance.
The balance of the net proceeds will be used for development and expansion of
our Advertise123.com Web site and for product development and site maintenance.


                                       20
<PAGE>

Item 6. Management's Discussion and Analysis of Financial
        Condition and Results 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 annual
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. See "Forward-Looking Statements" following
the Table of Contents of this 10-KSB. Because this discussion involves risk and
uncertainties, our actual results may differ materially from those anticipated
in these forward-looking statements.

Overview

      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 five print and one online
publications available on the site and Internet revenues accounted for
approximately 16% of our total revenues. In addition, we powered approximately
$550,000 of classified advertising through our classified advertising
marketplace, Advertise123.com, and private-label sites built and powered by us.
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
software service fee model to Internet classified advertising marketplace
transaction fee model, this change will result in material changes in our
financial statements, including changes in revenue recognition, gross margin,
timing of cash flows and volume of accounts receivable as a percentage of
revenues.

      Our level of 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 and 1999. 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.

      Through June 30, 1999, we had elected to be taxed under Subchapter S of
the Internal Revenue Code of 1986. Effective July 1, 1999, we have been taxed as
a Subchapter C corporation, and therefore pay tax on our income, if any, at the
corporate level. This tax will be recorded as an expense and will affect our
operating results. Because we were a Subchapter S corporation through June 30,
1999, we have accumulated loss or credit carryforwards only since that date that
are usable to offset future income, if any. As a result of these changes, our
historical financial statements are not necessarily reflective of future
operating results.


                                       21
<PAGE>

Results of Operations

      The following table sets forth the results of operations expressed as a
percentage of revenues:

                                                              Year Ended
                                                             December 31,
                                                      ==========================
                                                       1997      1998      1999
                                                       ----      ----      ----
Revenues ...........................................   100%      100%      100%
Cost of Revenues ...................................    49%       51%       61%
                                                       ---       ---       ---
Gross Profit .......................................    51%       49%       39%
Sales, general and administrative expenses .........    55%       53%      126%
Web development costs ..............................    --        --        54%
Abandoned offering costs, net ......................    --        --        10%
                                                       ===       ===       ===
Loss from operations ...............................    -4%       -4%     -150%
Interest expense ...................................    -1%       --       -20%
                                                       ---       ---       ---
Loss before taxes ..................................    -5%       -4%     -170%
Provision for taxes ................................    --        --        --
                                                       ===       ===       ===
Net loss ...........................................    -5%       -4%     -170%

Years Ended December 31, 1999, 1998 and 1997 Revenues

      Revenues increased to approximately $1,685,000 for 1999 from $1,559,000 in
1998 and $1,148,000 for 1997. These levels represent growth of approximately 8%
for 1999 over 1998 and 36% for 1998 over 1997. The increase in 1999 was due
primarily to the recording of our first Internet revenues, beginning in June
1999, of $267,000. Internet revenues represented approximately 16% of our total
revenues. As we shifted our focus in 1999 to the Web, we also shifted resources
from building our software service business. Consequently, software
installation, license and end-user support revenues (referred to as "service
revenues") declined to $1,286,000 for 1999 from $1,465,000 for 1998. The
increase in revenue from 1997 to 1998 was due primarily to the large volume of
installation work performed in 1998 for new and existing customers. Three
customers installed the AdStar fax system to complement their pre-existing basic
systems and one additional existing customer upgraded its system. Additionally,
two new customers were added in 1998. 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 increase at a faster
rate than service revenues and will eventually become our principal source of
revenues. Hardware sales were approximately $132,000 in 1999, $94,000 in 1998
and $8,700 in 1997.

Cost of Revenues

      Cost of revenues consists primarily of charges to make payments to
publications for transactions placed on our Internet system, to pay for credit
card processing costs for transactions placed on our Internet system, to
configure and install the AdStar software into the publishing systems of
newspapers, to configure end-user software for the newspaper's advertiser
clients, to provide customer training and end-user support, and to pay costs of
hardware sales and royalty fees. These costs increased to approximately
$1,020,000 for 1999, as compared with approximately $801,000 in 1998. Cost of
Internet transactions


                                       22
<PAGE>

was $231,000, representing payments to publications and credit card companies
and processors. Personnel costs associated with cost of revenues increased by
26% to $428,600 in 1999 compared with $339,000 in 1998 as we added technical
support and end user support staff. Hardware expense increased to $116,000 in
1999 from $86,000 in 1998. These increases were offset in part by a reduction in
royalty expense to $17,000 in 1999 from $100,000 in 1998 due to the timing of
royalties payable on installation of our fax product. Cost of revenues increased
as a percentage of net revenues in that our Web business is a higher volume
lower margin business than our service business and also due to increases in
hardware sales at a lower margin than our service revenues. 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. Cost of revenues
increased by 42% in 1998 to $801,000 from $565,000 in 1997. As a percentage of
net revenues, cost of revenues increased by 2% from 1997 to 1998 as a result of
an increase in lower margin hardware sales.

Sales, General and Administrative.

     Sales, general 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 costs increased to $907,000 in
1999 from $415,000 in 1998, primarily because of the addition of business
development personnel for our Web-based service. We expect to incur additional
sales, general and administrative expenses as we hire additional personnel and
incur additional expenses related to the development of our Web-based service.
Travel expense, primarily associated with business development, increased to
$321,000 in 1999 from $110,000 in 1998. Accounting and legal fees grew to
$203,000 in 1999 from $35,000 in 1998 as we made the transition from an insider
owned company to a publicly owned company. Sales, general and administrative
expense increased by approximately 29% to $821,000 in 1998 compared with
$634,000 in 1997. The primary factors accounting for the increase were
compensation and recruitment costs that increased to $415,000 in 1998 from
$374,000 in 1997 and increased travel expenses from $40,000 in 1997 to $110,000
in 1998.

Web Site Development

     Web site development costs 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 $508,000 and employee
expense of $303,000.

Abandoned Offering Expenses

     In September 1999, a proposed public offering of our securities was
declared effective but did not close. In connection with that offering we
incurred expenses of approximately $672,000. We also received $500,000 in
reimbursement of expenses from the representative of the underwriters, which has
been recorded net of the actual expenses incurred.

Interest Expense

     Interest expense increased for 1999 to $333,000 from $4,500 due to the
issuance by us of $1,050,000 of 12% convertible notes in March and April 1999, a
10% note for $751,710 to purchase the technology intellectual property and
software rights for the AdStar technology and a 14% note for $850,000 issued in
July 1999. We also amortized $138,000 of debt discount related to the issuance
of the 14% note. The 12% convertible notes were converted into common stock in
December 1999 when we


                                       23
<PAGE>

closed our initial public offering. We repaid the 14% and 10% notes with
proceeds from that offering in December 1999 and January 2000, respectively.

Liquidity and Capital Resources

     Prior to 1999 we financed our business primarily from cash generated by
operations. In 1999, we raised gross proceeds of $9.9 million in debt and equity
financings. As of December 31, 1999, we had cash and cash equivalents of
approximately $5,602,000 compared with approximately $90,000 at December 31,
1998. At December 31, 1999, 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.

     Net cash provided by operations was approximately $98,600 for 1998 compared
to net cash used in operations of $12,800 in 1997, primarily because of an
increase in accounts payable and accrued expenses offset by a reduction in
deferred revenue in 1998. Net cash used in investment activities increased to
$25,500 in 1998 from $12,900 in 1997. The difference is attributable to an
increase in the purchase of equipment to support additional personnel. Net cash
used in financing activities was approximately $30,600 in 1998 compared with
cash provided by financing activities in 1997 of $1,500. Principally, these
activities involved proceeds from, and repayments of, capitalized leases or
notes payable.

      Net cash used in operations was approximately $1,599,000 for 1999 compared
with net cash provided by operations of $98,600 for 1998. The difference is due
primarily to the sizable net loss from operations in 1999 compared to the small
net loss in 1998. Net cash used in investing activities increased to $406,000 in
1999 compared with $25,500 in 1998 resulting from the purchase and development
of computer equipment and related infrastructure for our Web-based system. Net
cash provided by financing activities was approximately $7,500,000 during 1999
compared to $30,600 used in financing activities in 1998. The activity in 1999
reflects conversion to equity and repayment of three sets of notes and the
initial public offering of our common stock. 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. Also in March 1999, we purchased the technology, intellectual
property and software rights related to the AdStar technology for $751,710 by
the issuance of a 10% note. This note is payable in monthly installments of
$8,333 comprising principal and interest. We repaid this note from the proceeds
of our initial public offering in January 2000. In July 1999, we borrowed
$850,000 from InterEquity Capital Partners, L.P. a small business investment
company. The loan bears interest at 14% per annum and was repayable in 54 equal
installments commencing six months after the date of issuance. The holder of the
note also received 22,534 shares of our common stock. We repaid this note from
the proceeds of our initial public offering in December 1999. In October 1999 we
sold $1,100,000 of our 6% note to Paulson Investment Company, the parent company
of the managing underwriter in our public offering. This note is due in October
2001. In December 1999 we consummated a public offering of 1,150,000 units,
comprised of one share of our common stock and one warrant to purchase one share
of our common stock for gross proceeds of $6,900,000 and net proceeds of
$5,391,000.

      The proceeds of these financings will be used for working capital,
primarily to support the development of our Web-based service. We anticipate
that our operating expenses will increase substantially as the number of our
employees increases. Additionally we may evaluate from time to time possible
investments in businesses, products and technologies to build our business. We
expect that the net proceeds from our recent offering, will be sufficient to
meet our anticipated needs for working capital and capital expenditures for at
least the next 12 months. We may need to seek additional funding through public
or private financings or other arrangements prior to the expiration of the 12
month period. 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


                                       24
<PAGE>

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.

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, for
example, 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.


                                       25
<PAGE>

Item 7. Financial Statements

                          Index To Financial Statements

                                                                            Page
                                                                            ----

Report of Independent Accountants                                            F-2

Financial Statements:

      Balance Sheets as of December 31, 1998 and 1999                        F-3

      Statements of Operations for each of the three years
          in the period ended December 31, 1999                              F-4

      Statements of Stockholders' Equity (Deficit) for each of the
          three years in the period ended December 31, 1999                  F-5

      Statements of Cash Flows for each of the three years
          in the period ended December 31, 1999                              F-6

      Notes to Financial Statements                                          F-7


                                      F-1
<PAGE>

                        Report of Independent Accountants

To  the Board of Directors and Stockholders of AdStar.com, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of AdStar.com, Inc. (the
"Company") as of December 31, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. 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 of these statements in
accordance with auditing standards generally accepted in the United States which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.


/s/ Pricewaterhouse Coopers LLP

Woodland Hills, California
February 18, 2000


                                      F-2
<PAGE>

AdStar.com, Inc.
Balance Sheets
As of December 31, 1998 and 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                     1998        1999
                                                                     ----        ----
<S>                                                               <C>         <C>
Assets

Current assets:
    Cash and cash equivalents                                     $  90,007   $ 5,602,493
    Accounts receivable                                             125,313       460,477
    Receivable from the sale of stock                                26,300          --
    Prepaids and other current assets                                16,763       136,814
                                                                  ---------   -----------

            Total current assets                                    258,383     6,199,784

Property and equipment, net                                          77,561       424,819
Intangible assets, net                                                 --         162,785
Other assets                                                          3,203        22,584
                                                                  ---------   -----------

            Total assets                                          $ 339,147   $ 6,809,972
                                                                  =========   ===========

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:
    Accounts payable                                              $ 177,929   $ 1,128,815
    Accrued expenses                                                275,019       453,417
    Deferred revenue                                                 34,656       107,000
    Dividends payable                                                20,750          --
    Notes payable                                                    15,000       749,466
    Capital lease obligations                                         6,833         4,964
                                                                  ---------   -----------

            Total current liabilities                               530,187     2,443,662

Notes payable                                                          --       1,100,000
Capital lease obligations                                             4,964          --
                                                                  ---------   -----------

            Total liabilities                                       535,151     3,543,662
                                                                  ---------   -----------

Commitments and contingencies (Note 9)

Stockholders' equity (deficit):
    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 1,479,664 at December 31,
       1998 and 2,820,264 at December 31, 1999                       28,300           282
    Additional paid-in capital                                         --       5,713,151
    Accumulated deficit                                            (224,304)   (2,447,123)
                                                                  ---------   -----------

            Total stockholders' equity (deficit)                   (196,004)    3,266,310
                                                                  ---------   -----------

            Total liabilities and stockholders' equity (deficit)  $ 339,147   $ 6,809,972
                                                                  =========   ===========
</TABLE>

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


                                      F-3
<PAGE>

AdStar.com, Inc.
Statements of Operations
For Each of the Three Years
in the Period Ended December 31, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                   1997          1998          1999
                                                   ----          ----          ----

<S>                                            <C>           <C>           <C>
Revenues                                       $ 1,148,233   $ 1,559,361   $ 1,685,144
Cost of revenues                                   565,329       800,532     1,020,882
                                               -----------   -----------   -----------

            Gross profit                           582,904       758,829       664,262

Sales, general and administrative expenses         634,029       820,574     2,118,857
Web site development costs                            --            --         904,009
Abandoned offering expenses, net                      --            --         171,854
                                               -----------   -----------   -----------

            Loss from operations                   (51,125)      (61,745)   (2,530,458)

Interest expense, net                               (7,873)       (4,518)     (333,464)
                                               -----------   -----------   -----------

            Loss before taxes                      (58,998)      (66,263)   (2,863,922)

Provision for income taxes                            (823)       (2,760)         (800)
                                               -----------   -----------   -----------

            Net loss                           $   (59,821)  $   (69,023)  ($2,864,722)
                                               ===========   ===========   ===========

Loss per share - basic and diluted             $     (0.04)  $     (0.05)  $     (1.90)

Weighted average number of shares - basic and
    Diluted                                      1,405,723     1,458,393     1,510,093
</TABLE>

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


                                      F-4
<PAGE>

AdStar.com, Inc.
Statements of Stockholders' Equity (Deficit)
For Each of the Three Years
in the Period Ended December 31, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                               Total
                                             Common Stock       Additional                 Stockholders'
                                          ------------------     Paid-In      Accumulated     Equity
                                          Shares      Amount     Capital       (Deficit)     (Deficit)
                                          ------      ------    ----------    -----------  -------------

<S>                                     <C>         <C>        <C>           <C>           <C>
Balance, December 31, 1996              1,405,723   $  2,000   $      --     $   (68,861)  $   (66,861)

   Net loss                                  --         --            --         (59,821)      (59,821)
   Dividends                                 --         --            --          (1,000)       (1,000)
                                       ----------   --------   -----------   -----------   -----------

Balance, December 31, 1997              1,405,723      2,000          --        (129,682)     (127,682)

   Net loss                                  --         --            --         (69,023)      (69,023)
   Sale of common stock                    73,941     26,300          --            --          26,300
   Dividends                                 --         --            --         (25,599)      (25,599)
                                       ----------   --------   -----------   -----------   -----------

Balance, December 31, 1998              1,479,664     28,300          --        (224,304)     (196,004)

   Net loss                                  --         --            --      (2,864,722)   (2,864,722)
   Repurchase of option                      --         --            --        (447,935)     (447,935)
   Reclassification of deficit due to
     Termination of S Corporation
     Election                                --         --      (1,094,611)    1,094,611          --
   Warrants issued for services              --         --         146,600          --         146,600
   Contribution of common stock           (63,848)        (6)            6          --            --
   Net proceeds from initial public
     Offering                           1,150,000        115     5,390,526          --       5,390,641
   Reincorporation in Delaware and
     Change in par value                     --      (28,152)       28,152          --            --
   Dividends                                 --         --            --          (4,773)       (4,773)
   Conversion of redeemable
     Common stock                          22,534          2       137,534          --         137,536
   Conversion of convertible
     Notes and accrued interest           231,914         23     1,104,944          --       1,104,967
                                       ----------   --------   -----------   -----------   -----------

Balance, December 31, 1999              2,820,264   $    282   $ 5,713,151   ($2,447,123)  $ 3,266,310
                                       ==========   ========   ===========   ===========   ===========
</TABLE>

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


                                      F-5
<PAGE>

AdStar.com, Inc.
Statements of Cash Flows
For Each of the Three Years
in the Period Ended December 31, 1999
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                    1997         1998        1999
                                                                    ----         ----        ----
<S>                                                              <C>         <C>         <C>
Cash flows from operating activities:
   Net loss                                                      $ (59,821)  $ (69,023)  ($2,864,722)
   Adjustments to reconcile net loss to net cash
     Provided by (used in) operating activities:
     Depreciation and amortization                                  23,523      21,032        91,426
     Amortization of debt discount                                    --          --         137,536
     Warrants issued for services                                     --          --         146,600
     Interest on convertible notes                                    --          --          54,967
     Changes in assets and liabilities:
       Accounts receivable                                         (25,567)    (20,913)     (335,164)
       Prepaids and other assets                                       612       1,522      (139,432)
       Accounts payable                                             20,505     104,371       950,886
       Accrued expenses                                            (21,578)     78,248       286,830
       Deferred revenue                                             49,500     (16,634)       72,344
                                                                 ---------   ---------   -----------

           Net cash provided by (used in) operating activities     (12,826)     98,603    (1,598,729)
                                                                 ---------   ---------   -----------
Cash flows from investing activities:
   Purchase of property and equipment                              (12,902)    (25,532)     (406,126)
                                                                 ---------   ---------   -----------

           Net cash used in investing activities                   (12,902)    (25,532)     (406,126)
                                                                 ---------   ---------   -----------

Cash flows from financing activities:
   Proceeds from issuance from convertible notes payable              --          --       1,050,000
   Proceeds from issuance of notes payable                           2,500        --       1,950,000
   Proceeds from sale of stock                                        --          --          26,300
   Proceeds from initial public offering                              --          --       5,390,641
   Repayment of note payable                                          --       (22,500)     (867,244)
   Principal repayments on capital leases                             --        (3,203)       (6,833)
   Dividends paid                                                   (1,000)     (4,849)      (25,523)
                                                                 ---------   ---------   -----------

           Net cash from (used in) financing activities              1,500     (30,552)    7,517,341
                                                                 ---------   ---------   -----------

           Net increase (decrease) in cash and
              cash equivalents                                     (24,228)     42,519     5,512,486

Cash and cash equivalents at beginning of period                    71,716      47,488        90,007
                                                                 ---------   ---------   -----------

Cash and cash equivalents at end of period                       $  47,488   $  90,007   $ 5,602,493
                                                                 =========   =========   ===========
Supplemental cash flow disclosure:
   Taxes paid                                                    $   9,138   $   6,052   $     6,300
   Interest paid                                                 $   7,873   $   4,518   $   139,092

Noncash investing and financing activities:
   Purchase of intangible assets, cancellation of an option and
     Repayment of accrued liability by issuance of note payable  $    --     $    --     $   751,710
   Issuance of redeemable shares in connection with                                          137,536
     Note payable                                                     --          --
   Issuance of common stock for note receivable                       --        26,300          --
   Property and equipment leases                                      --        15,000          --
   Dividends declared                                                 --        20,750          --
   Conversion of notes payable and accrued interest to
     Common stock                                                     --          --       1,104,967
</TABLE>

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


                                      F-6
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

1.    Organization and Business

      AdStar.com, Inc. (the "Company") (formerly Ad-Star Services, Inc.) was
      incorporated in the State of New York on June 29, 1991 as an S-Corporation
      under the Internal Revenue Code. On August 31, 1999, the Company
      reincorporated in Delaware by merging the New York predecessor corporation
      into the Delaware corporation and issuing to each stockholder of the New
      York corporation, 25,303 shares of the Delaware corporation with a par
      value of $0.0001 per share for each issued and outstanding share, no par
      value, of the New York corporation. On December 13, 1999, the Company
      authorized and implemented a five-for-nine reverse stock split. The share
      information in the accompanying financial statements has been
      retroactively restated to reflect the effect of the stock split. Effective
      July 1, 1999, the Company converted from an S-Corporation to a
      C-Corporation. Had the accompanying statements of operations reflected a
      pro forma tax provision for all periods presented, based upon pre-tax
      income (loss), as if the Company had been subject to C-Corporation federal
      and state income taxes, the net income or loss would not have been
      materially different from that shown.

      The Company's principal business has been the provision of software
      services which allow for the direct entry of classified advertisements by
      large commercial advertisers, on a dial-up basis through modems directly
      into the publishing systems of the Company's customers. The Company's
      customers are principally located in the United States.

      In June, 1999, the Company commenced offering a one-stop marketplace on
      the World Wide Web for advertisers to buy classified ads. This service
      enables advertisers to plan, schedule, compose and purchase classified
      advertising from many print and on-line publishers, using one interface.

      In December 1999, the Company completed its initial public offering and
      raised net proceeds of approximately $5,391,000, through the issuance of
      1,150,000 units, consisting of one share and one warrant to purchase one
      share of the Company's common stock. The units traded for 30 days, after
      which the shares and warrants traded separately.

2.    Summary of Significant Accounting Policies

      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.


                                      F-7
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

2.    Summary of Significant Accounting Policies (Continued)

      Cash and Cash Equivalents

      The Company considers all investments purchased with an initial maturity
      of three months or less to be cash equivalents. Cash and cash equivalents
      are carried at cost, which approximates fair value. At times, cash
      balances held at financial institutions are in excess of FDIC insurance
      limits.

      Concentration of Credit Risk and Major Customers

      Financial instruments that potentially subject the Company to significant
      concentrations of credit risk are principally comprised of trade accounts
      receivable.

      For the year ended December 31, 1997, one customer accounted for 13% of
      the Company's revenues, and for the year ended December 31, 1998, two
      different customers accounted for 9% and 12% of the Company's revenues,
      respectively. As of December 31, 1998, three customers accounted for 53%
      of the Company's accounts receivable.

      For the year ended December 31, 1999, one customer accounted for 14% of
      the Company's revenues. As of December 31, 1999, four customers, in the
      aggregate, accounted for 51% 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.

      Property and Equipment

      Property and equipment are stated at cost less accumulated depreciation
      and amortization. When such items are retired or otherwise disposed of,
      the cost and related accumulated depreciation and amortization are
      relieved from the accounts and the resulting gain or loss is reflected in
      operations. Depreciation and amortization are provided using the
      straight-line method over the estimated useful lives of the assets. The
      depreciation and amortization periods by asset category are as follows:

             Furniture and fixtures         7 years
             Computer equipment             5 years
             Leasehold improvements         Shorter of useful life or lease term

      Maintenance and minor replacements are charged to expense as incurred
      while renewals and improvements are capitalized.


                                      F-8
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

2.    Summary of Significant Accounting Policies (Continued)

      Intangible Assets

      Intangible assets comprise trademarks, license agreements and proprietary
      technology and are carried at cost less accumulated amortization.
      Amortization is calculated on a straight-line basis over the estimated
      useful lives of the intangible assets of 5 years.

      Long-Lived Assets

      The carrying value of long-lived assets is periodically reviewed by
      management and impairment losses, if any are recognized when the expected
      nondiscounted future operating cash flows derived from such assets are
      less than their carrying value. To date, no such impairment has been
      recorded.

      Fair Value of Financial Instruments

      Cash and cash equivalents, accounts receivable, other assets, accounts
      payable, deferred revenue, notes payable and accrued expenses are carried
      at cost which approximates their fair value because of the short-term
      maturity of these instruments.

      Software Costs

      Costs incurred to establish technological feasibility of software
      developed by the Company are charged to expense as incurred. Costs
      incurred subsequent to the achievement of technological feasibility are
      capitalized and amortized over the estimated useful life of the software.
      Amortization of such costs commences when the software is available for
      general release to customers. Through December 31, 1999, no such costs
      have been capitalized, as costs incurred by the Company between completion
      of the working model and the point at which the product was ready for
      general release have been insignificant.

      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.


                                      F-9
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

2.    Summary of Significant Accounting Policies (Continued)

      Revenue Recognition (Continued)

      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. For the years ended December 31, 1997, 1998 and
      1999, sales of hardware totaled approximately $9,000, $94,000 and
      $132,000, respectively.

      In June 1999, the Company introduced a Web-based product which 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. 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 year ended December 31, 1999, Internet revenues totaled approximately
      $267,000.

      The Company also recognizes revenue from banner advertising as the
      impressions are displayed; carriage revenues are recognized as the
      services are performed. To date, revenues from these services have been
      immaterial.

      Research and Development Costs

      Costs incurred in the research and development of products are expensed as
      incurred.

      Income Taxes

      The Company utilizes the liability method of accounting for income taxes.
      Under this method, deferred tax liabilities and assets are determined
      based on the difference between the financial statement and tax bases of
      assets and liabilities using enacted tax rates in effect for the period in
      which the differences are expected to reverse. Valuation allowances are
      established, when necessary, to reduce the deferred tax assets to the
      amounts expected to be realized.

      Effective July 1, 1999, the Company is taxed as a C-Corporation.


                                      F-10
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

2.    Summary of Significant Accounting Policies (Continued)

      Income Taxes (Continued)

      The Company had elected to be taxed under the provisions of Subchapter S
      of the Internal Revenue Code through June 30, 1999. As such, the Company
      was not subject to income taxes at the corporate level and was subject to
      reduced franchise tax; either based on a percentage of income or gross
      payroll costs, which is provided for in the financial statements. The
      Company's income through June 30, 1999 was included in the tax return of
      its stockholders and any resultant liability thereon was the individual
      responsibility of the stockholder.

      Advertising Costs

      The Company expenses the costs of advertising in the periods in which
      those costs are incurred. Advertising expense was approximately $24,400,
      $58,800 and $73,000 for the years ended December 31, 1997, 1998 and 1999,
      respectively.

      Earnings (Loss) 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 years ended December 31, 1997, 1998 and 1999, diluted earnings
      (loss) per share does not include 0, 0 and 1,527,769 options and warrants
      to purchase common stock, as their inclusion is antidilutive.

      Comprehensive Income

      In January 1998, the Company adopted the provisions of Statement of
      Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
      Income." This statement establishes standards for reporting and disclosure
      of comprehensive income and its components in a full set of general
      purpose financial statements. Comprehensive income generally represents
      all changes in stockholders' equity (deficit) during the period except
      those resulting from investments by, or distributions to, stockholders.
      SFAS No. 130 is effective for fiscal years beginning after December 15,
      1997, and requires restatement of earlier periods presented. SFAS No. 130
      defines comprehensive income as net income plus all other changes in
      equity from non-owner sources. The Company has no other comprehensive
      income items and, accordingly, net income equals comprehensive income for
      all periods presented.


                                      F-11
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

2.    Summary of Significant Accounting Policies (Continued)

      Segment Reporting

      The Company adopted SFAS No. 131, "Disclosures about Segments of an
      Enterprise and Related Information," for the year ended December 31, 1998.
      SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of
      a Business Enterprise," replacing the "industry segment" approach with the
      "management" approach. The management approach designates the internal
      organization that is used by management for making operating decisions and
      assessing performance as the source of a company's reportable segments.
      SFAS No. 131 also requires disclosures about products or services,
      geographic areas and major customers. The Company's management reporting
      structure provides for only one reportable segment and accordingly, no
      separate segment information is presented.

      Accounting for Stock-Based Compensation

      The Company accounts for stock-based employee compensation arrangements in
      accordance with the provisions of Accounting Principles Board ("APB")
      Opinion No. 25, "Accounting for Stock Issued to Employees," and has
      elected the disclosure-only provisions of SFAS No. 123, "Accounting for
      Stock-Based Compensation." Under APB No. 25, compensation expense is based
      on the difference, if any, on the date of grant, between the fair value of
      the Company's stock for financial reporting purposes and the exercise
      price of the option. The Company accounts for equity instruments issued to
      non-employees in accordance with the provisions of SFAS No. 123 and
      Emerging Issues Task Force ("EITF") 96-18.

      Recently Issued Account Pronouncements

      In December 1999, the SEC issued Staff Accounting Bulletin No. 101
      "Revenue Recognition in Financial Statements" which contains the SEC's
      views in applying generally accepted accounting principles to selected
      revenue recognition issues.

3.    Receivable On the Sale of Stock

      In April 1998, the Company sold 73,941 shares of common stock for
      aggregate consideration of $26,300 by issuance of a note receivable
      bearing interest at 5.6% per annum. In April 1999, the Company received
      the proceeds in full on the note receivable plus the then outstanding
      interest.


                                      F-12
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

4.    Property and Equipment

      Property and equipment consisted of the following at December 31, 1998 and
      1999:

                                                            1998         1999
                                                            ----         ----

      Computer equipment and software                     $164,752     $564,018
      Furniture and fixtures                                26,752       36,466
      Leasehold improvements                                 2,854      -
                                                         ---------     --------

                                                           194,358      600,484
      Less: Accumulated depreciation and amortization     (116,797)    (175,665)
                                                           -------     --------

                       Net property and equipment        $  77,561     $424,819
                                                          ========     ========

      Computer equipment includes $15,000 of equipment held under capital
      leases. Depreciation and amortization expense for the years ended December
      31, 1997, 1998 and 1999 was approximately $23,500, $21,000 and $59,000,
      respectively. Accumulated depreciation and amortization includes
      amortization of computer equipment held under capital leases of
      approximately $3,000 and $10,000 for the years ended December 31, 1998 and
      1999, respectively.

5.    Intangible Assets

      At December 31, 1999, intangible assets are comprised of:

            Cost                                                        $195,343
            Less: Accumulated amortization                                32,558
                                                                        --------

                                                                        $162,785
                                                                        ========

      In March 1999, the Company purchased the technology, related intellectual
      property and software rights related to the AdStar technology for
      $752,000, which includes amounts owed to the seller of approximately
      $108,000. The Company formerly licensed these assets from the seller. As
      part of the transaction, the seller also sold its option to purchase 15%
      of the Company's common stock back to the Company. The net purchase price
      of approximately $643,000 has been allocated to the technology, related
      intellectual property and software rights and the option based on their
      relative fair values. The amount ascribed to the option of approximately
      $448,000 has been recorded as an increase to stockholders' deficit. The
      amount ascribed to the technology, related intellectual property and
      software rights of approximately $195,000 is being amortized over the
      estimated useful economic life of 5 years.


                                      F-13
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

6.    Notes Payable

      At December 31, 1998 and 1999, notes payable consisted of the following:

                                                             1998        1999
                                                             ----        ----

      Notes payable bearing interest at 10% per annum,
         payable semiannually. Repaid in full in
         January 2000.                                     $15,000    $   15,000

      Note payable bearing interest at 10% per annum,
         repayable in monthly installments of $8,333
         comprising principal and interest. Repaid
         in full in January 2000.                                -       734,466

      Note payable bearing interest at 6% per annum,
         due in full in October 2001.                            -     1,100,000
                                                           -------    ----------
                                                            15,000     1,849,466

      Less: Short-term portion                              15,000       749,466
                                                           -------    ----------

      Notes payable, net of current portion                $  --      $1,100,000
                                                           =======    ==========

      Convertible Unsecured Notes Payable

      In March and April 1999, the Company issued $1,050,000 convertible
      unsecured notes payable to certain individuals and corporations, bearing
      interest at 12% per annum payable annually in arrears. The convertible
      notes and accrued interest automatically converted on the closing of the
      Company's initial public offering into 231,914 shares of common stock at a
      conversion price of $4.77 per share.

      Notes Payable

      In July 1999, the Company entered into an $850,000 Loan Agreement with a
      small business investment company. The note issued under the Loan
      Agreement bore interest at 14% per annum, and was repayable in 54 equal
      monthly installments commencing six months after the date of issuance.
      Pursuant to the Loan Agreement, the small business investment company
      received 22,534 shares of redeemable common stock for an aggregate
      consideration of $1,000. In accordance with APB Opinion No. 14,
      "Accounting for Convertible Debt and Debt Issued with Stock Purchase
      Warrants," the amount ascribed to the relative value of the stock of
      $137,536 was recorded as a discount to the note payable and was amortized
      over the expected term of the note. The Company amortized $137,536 of the
      debt discount during the year ended December 31, 1999. The issuance of the
      common stock was recorded as redeemable


                                      F-14
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

6.    Notes Payable (Continued)

      common stock, as the Company had the option to repurchase the stock. On
      the initial public offering, this option lapsed and the redeemable common
      stock was transferred to common stock. On the closing of the Company's
      initial public offering in December 1999, the Company repaid the $850,000
      in full.

      On October 21, 1999, the parent company of Paulson Investment Company, the
      underwriter in the Company's initial public offering, Paulson Capital
      Corporation, lent the Company $1,100,000 evidenced by a promissory note
      due on October 21, 2001 bearing interest at 6% per annum payable at
      maturity.

      In September 1999, a proposed public offering of the Company's securities
      was declared effective but did not close. On October 21, 1999, in full
      settlement of the Company's claims, if any, against Paulson Investment
      Company, the representative of the underwriters in that offering, the
      Company received $500,000 for the reimbursement of expenses incurred in
      connection with the offering. During the year ended December 31, 1999, the
      Company incurred approximately $672,000 of expenses related to the
      abandoned offering. The actual expenses incurred have been recorded net of
      the reimbursement in the statement of operations for the year ended
      December 31, 1999.

7.    Income Taxes

      Prior to June 30, 1999, the Company was taxed as an S-Corporation.

      Deferred taxes reflect the net tax effects of temporary differences
      between the carrying amounts of assets and liabilities for financial
      reporting purposes and the amounts used for income tax purposes.
      Significant components for the Company's deferred taxes consisted of the
      following at December 31, 1999:

            Deferred tax assets:
                Net operating loss carryforwards                       $786,000
                Depreciation and amortization                             8,000
                Deferred revenue                                         14,000
                Other                                                   113,000
                Less:  Valuation allowance                             (921,000)
                                                                       --------

                              Net deferred tax asset                   $   -
                                                                       ========


                                      F-15
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

7.    Income Taxes (Continued)

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will be realized. Based upon the level of
      historical losses and projections of future taxable income over the
      periods in which the deferred tax assets are deductible, a full valuation
      allowance has been provided as management believes that it is more likely
      than not, based upon available evidence, that the deferred tax assets will
      not be realized.

      As of December 31, 1999, the Company has federal and state net operating
      loss carryforwards of approximately $2,124,000 and $1,062,000,
      respectively. The federal and state net operating loss carryforwards will
      begin to expire in 2019 and 2004, respectively. The Company's ability to
      utilize net operating loss carryforwards may be limited in the event that
      a change in ownership, as defined in the Internal Revenue Code, occurs.

      The provision for income taxes for the year ended December 31, 1999
      differs from the amount that would result from applying the federal
      statutory rate as follows:

             Statutory regular federal income tax rate           (34.0%)
             Change in valuation allowance                        37.5%
             State taxes, net of federal benefit                  (3.4%)
             Other                                                (0.1%)
                                                                  -----

                                                                    -
                                                                  =====

8.    Capitalization

      Preferred Stock

      Under the Company's certificate of incorporation, the Board of Directors
      is authorized, subject to certain limitations, to issue up to an aggregate
      of 5,000,000 shares of preferred stock. The preferred stock may be issued
      in one or more series, with each series having different rights,
      preferences and designations relating to dividends, conversion, voting,
      redemption and other features. No shares of preferred stock have been
      issued at December 31, 1998 and 1999.

      Stock Options

      In 1999, the Board of Directors adopted the 1999 Stock Option Plan (the
      "Plan") in order to attract and retain officers, other key employees,
      consultants and non-employee directors of the Company. An aggregate of
      500,000 shares of common stock has been authorized for issuance under the
      Plan.


                                      F-16
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

8.    Capitalization (Continued)

      Stock Options (Continued)

      The Plan provides for issuance of nonqualified and incentive stock options
      to officers, key employees, consultants and non-employee directors to the
      Company. Each nonqualified stock option shall have an exercise price not
      less than 100% of the fair value of the common stock on the date of grant,
      unless as otherwise determined by the committee that administers the Plan.
      Incentive stock options shall have an exercise price equal to or greater
      than the fair value of the common stock on the date of grant provided that
      incentive stock options granted to a 10% holder of the Company's voting
      stock shall have an exercise price equal to or greater than 110% of the
      fair market value of the common stock on the date of grant. Each option
      generally has a term of ten years from the date of grant unless otherwise
      determined by the committee that administers the Plan. All options granted
      in 1999 have a five-year term.

      Upon the occurrence of a change in control, as defined, each option
      granted under the Plan shall thereupon become fully vested and
      exercisable.

      The following table summarizes activity under the Plan for the year ended
      December 31, 1999:

                                                                        Weighted
                                                                         Average
                                                                        Exercise
                                                            Shares        Price
                                                            ------      --------

      Outstanding at December 31, 1998                        --           --

         Granted                                           327,768        $5.73
         Exercised                                            --           --
         Forfeited                                            --           --
                                                           -------        -----

      Outstanding at December 31, 1999                     327,768        $5.73
                                                           =======        =====

      Options exercisable at December 31, 1999             103,673        $5.41

      Options available for future grant                   172,232

      Weighted average fair value of options granted
         in the period                                                    $0.99


                                      F-17
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

8.    Capitalization (Continued)

      Stock Options (Continued)

      The following table summarizes information about stock options outstanding
      at December 31, 1999:

                          Options Outstanding at         Options Exercisable at
                             December 31, 1999              December 31, 1999
                 --------------------------------------  -----------------------
                                 Weighted
                                 Average       Weighted                 Weighted
                 Number of      Remaining      Average     Number of    Average
    Exercise      Shares       Contractual     Exercise     Shares      Exercise
      Price     Outstanding    Life (years)     Price     Exercisable     Price
    --------    -----------    ------------    --------   -----------   --------

      $4.77      141,742          4.33           $4.77       64,657      $4.77
      $6.00      115,667          4.96           $6.00       23,461      $6.00
      $7.20       70,359          4.50           $7.20       15,555      $7.20
                 -------                                    -------

                 327,768                                    103,673
                 =======                                    =======

      Fair Value Disclosures

      Prior to the Company's initial public offering, the fair value of each
      option grant was determined on the date of grant using the minimum value
      method. The Company calculated the fair value of each option granted on
      the date of grant using the minimum value method as prescribed by SFAS No.
      123 using the following assumptions:

                                                                     Year Ended
                                                                    December 31,
                                                                        1999
                                                                    ------------

      Risk-free interest rate                                           5.5%
      Expected lives (years)                                            3.5
      Dividend yield                                                    0.0%
      Expected volatility                                               0.0%


                                      F-18
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

8.    Capitalization (Continued)

      Fair Value Disclosures (Continued)

      The Company has adopted the disclosure only provisions of SFAS No. 123. If
      compensation cost associated with the Company's stock-based compensation
      plan had been determined using the fair value prescribed by SFAS No. 123,
      the Company's net loss would have increased to the pro forma amounts
      indicated below:

                                                                     Year Ended
                                                                    December 31,
                                                                        1999
                                                                    ------------

      Net loss -       as reported                                   $2,864,722
                       pro forma                                      2,942,893

      Loss per share - as reported                                        $1.90
                       pro forma                                          $1.95

      Because additional stock options are expected to be granted each year the
      above pro forma disclosures are not representative of pro forma effects on
      reported financial results for future years.

      Warrants

      During 1999, the Company granted to three individuals warrants to purchase
      an aggregate of 50,001 shares of common stock at an exercise price of
      $6.00 per share. 33,334 of the warrants expire on June 30, 2002 and 16,667
      expire on December 15, 2002. The warrants are exercisable from the date of
      grant. The Company recorded a non-cash charge of $146,600 representing the
      deemed value of the warrants using the Black-Scholes option pricing model.

      In connection with the Company's initial public offering, the Company
      issued 1,150,000 warrants as part of the unit offering. The warrants have
      an exercise price of $7.20 per share until September 2000 and $9.00 per
      share thereafter. The options expire in December 2004. The Company may
      redeem the warrants for $0.25 per share commencing June 2000, if the
      closing price of the Company's stock is greater than or equal to $12.00
      per share for 10 consecutive trading days.

      Sale of Company Stock

      In July 1999, a stockholder of the Company sold his entire stockholding of
      281,144 shares of common stock to a third party for $500,000. The third
      party contributed 63,848 of the 281,144 shares of common stock to the
      Company's capitalization. Pursuant to this agreement, the stockholder
      agreed to provide technical services to the Company for one year for
      $100,000.


                                      F-19
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

9.    Commitments and Contingencies

      Operating and Capital Lease Commitments

      The Company has certain noncancelable operating lease obligations for
      office space and capital lease obligations for computer equipment. The
      operating leases are for office space located in New York and in
      California and expire through March 2002. The leases contain certain
      escalation clauses based on certain charges that the landlord of the
      properties may incur over the base year, as defined in the lease
      agreements. Future minimum lease payments under the noncancelable
      operating and capital leases as of December 31, 1999 are as follows:

      Years Ending                                     Operating        Capital
      December 31,                                      Leases           Leases
      ------------                                     ---------        -------

           2000                                       $  203,322         $6,066
           2001                                          235,494           --
           2002                                          216,667           --
           2003                                          193,049           --
           2004                                          196,877           --
                                                      ----------         ------

                  Total minimum obligations           $1,045,409          6,066
                                                      ==========

      Less:  Amounts representing interest                               (1,102)

      Present value of minimum obligations                                4,964
      Less:  Current portion                                             (4,964)

                  Noncurrent portion                                     $ --
                                                                         ======

      Rent expense for the years ended December 31, 1997, 1998 and 1999 was
      approximately $49,700, $50,600 and $78,100, respectively, including
      month-to-month rentals. Through June 1999, the Company subleased a portion
      of its office space to a third party on a month-to-month basis. For the
      years ended December 31, 1997, 1998 and 1999, the Company received
      approximately $17,500, $15,900 and $7,600, respectively, of sublease
      income.

      Employment Agreements

      In July 1999, the Company entered into two employment agreements with two
      officers of the Company. The agreements provide for base salaries of
      $200,000 per annum effective upon the closing of a qualified initial
      public offering and certain fringe benefits and are effective through June
      30, 2002. The agreements provide that on termination of employment by the
      Company without cause, or by the employee for good reason, the Company is
      obligated to pay severance costs based on the higher of the remaining term
      of the agreement or 12 months.


                                      F-20
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

9.    Commitments and Contingencies (Continued)

      License Agreement

      In April 1996, the Company entered into an exclusive license agreement
      with a software company that developed the facsimile technology. This
      agreement provides that the Company pays royalties of up to 50% of net
      revenues generated by the Company on license fees, implementation fees and
      maintenance fees. This agreement is for an initial term of 20 years,
      though it can be terminated by the Company upon six months' notice or by
      the software company in certain circumstances. For the year ended December
      31, 1997, 1998 and 1999, the Company paid royalties of approximately
      $50,000, $140,000 and $17,000, respectively.

      Agency Relationship

      In a listing agreement with the managing underwriter of the Company's
      initial public offering, IPO.COM was authorized to include the Company's
      prospectus on the IPO.COM Web site. The listing agreement neither
      authorized nor requested that any additional information about the Company
      be provided. However, IPO.COM provided, on other pages reachable from its
      Web site home page, summary material that it extracted from the Company's
      prospectus, relating to the Company and its initial public offering. Those
      pages also provided a direct link to the Company's Web site. Although the
      managing underwriter did not authorize IPO.COM to do anything other than
      provide the Company's prospectus, and was not aware that it had done so,
      the listing agreement may have created an agency relationship with the
      managing underwriter and, through the managing underwriter with the
      Company. It may further be possible to argue that the IPO.COM agency so
      created extended to all of IPO.COM's actions. If that argument is valid,
      then the summary material contained on the IPO.COM Web site and the
      information contained in the Company's Web site could be deemed to
      constitute a prospectus that does not meet the requirements of the
      Securities Act of 1933. However, the Company and the managing underwriter
      believe that no agency was created, or, even if an agency relationship is
      established, IPO.COM was acting outside the scope of its agency authority
      in posting information on its Web site other than the Company's
      Prospectus. They also believe that neither the managing underwriter nor
      the Company is responsible for that material. Additionally, investors in
      the initial public offering were cautioned not to rely on the Company's
      Web site as part of the initial public offering prospectus. Even if an
      agency relationship and responsibility for this other material is
      established, the other information on the Web site would constitute a
      violation of the Securities Act only if it is considered without regard to
      the Company's complete prospectus which also appears on that same Web
      site. Taken in context with the prospectus the extracts would, in the
      Company's view, still be considered a preliminary prospectus meeting the
      requirements of the Securities Act.


                                      F-21
<PAGE>

                                AdStar.com, Inc.
                          Notes to Financial Statements

9.    Commitments and Contingencies (Continued)

      Agency Relationship (Continued)

      If there is a violation of the Securities Act, then for a period of one
      year from the date of their purchase of units, investors in the initial
      public offering could bring a claim against the Company and the
      underwriters to obtain recovery of the consideration they paid for their
      units or, if these persons had already sold the units, for damages
      resulting from their purchase and sale of securities. Recovery would be
      based on the theory that the summary materials or the materials contained
      in the Company's Web site were offering materials for which the Company is
      responsible and which constitute a violation of the Securities Act. If
      plaintiffs were to prevail, then damages could total up to $6,900,000,
      plus interest, based on the initial public offering price of $6.00 per
      unit for 1,150,000 units and further assuming investors seek recovery of
      damages after a loss of their entire investment and all purchasers in the
      offering are entitled to this recovery. The Company expects that investors
      would not be inclined to assert a claim for rescission or damages unless,
      during the one-year period following the date of their purchase of
      securities, the trading prices of the securities fall significantly below
      the initial public offering price. If litigation was instituted and if the
      plaintiffs were to prevail, the Company's business, results of operations
      and financial condition would be harmed. However, upon the advice of
      counsel, the Company believes it has no material liability and would
      contest any action of this kind vigorously. Further, upon the advice of
      counsel, the Company believes that only persons who purchased securities
      on the basis of the material on the IPO.COM Web site, other than the
      Company's prospectus, would be able to prevail in those actions and then
      only if they could establish that those other materials did not comply
      with the Securities Act. Although the Company cannot be certain of the
      ultimate disposition of this matter, it is the opinion of the Company's
      management, based upon the advice of counsel and the information available
      to it, that in the event of an assertion of a claim, if any, for violation
      of the Securities Act of 1933 related to the IPO.COM Web site or the
      materials contained in the Company's Web site based on the agency theory
      above, the likelihood of a recovery is remote. Consequently, based on the
      advice of counsel, the Company's management believes that the expected
      outcome of this matter will not significant affect the results of
      operations and financial condition of the Company.


                                      F-22
<PAGE>

Item 8. Change in and Disagreements with Accountants on Accounting Financial
        Disclosure

            Not applicable

                                       26
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act

      Our current executive officers and directors and their respective ages as
of December 31, 1999 are as follows:

                                                                       Director
         Name          Age                  Position                    Since
--------------------  -----   -------------------------------------   ----------

Leslie Bernhard        56    President, Chief Executive Officer
                             and Director                                1991

Eli Rousso             62    Executive Vice President, Chief             1991
                             Technology Officer and Director

Michael Kline          33    Senior Vice President - Strategy &
                             Products

Adam Leff              34    Senior Vice President - Business
                             Development & Corporate Communications

Benjamin J. Douek      49    Senior Vice President, Chief Financial      1999
                             Officer, Secretary and Director

Richard Bassler        41    Senior Vice President - Operations

Ronald S. Posner(1)    57    Director                                    1999

Chris A. Karkenny(1)   31    Director                                    1999

--------
(1)   Member of the compensation committee and the audit committee of the Board
      of Directors.


                                       27
<PAGE>

      Leslie Bernhard is one of our co-founders and has served as our President
and Chief Executive Officer since the organization of our predecessor in 1986.

      Eli Rousso is our other co-founder and has served as our Executive Vice
President and Chief Technology Officer since the organization of our predecessor
in 1986.

      Michael Kline joined us in January 1999 first as a consultant and then in
April as a Senior Vice President-Strategy and Products. Prior to joining us, Mr.
Kline was associated with Recycler.com, a popular online classifieds publisher,
as a consultant from July 1998 to January 1999 and General Manager from March
1996 through July 1998. From October 1995 to March 1996 Mr. Kline worked as a
consultant for Recycler Classifieds, a newspaper company based in Los Angeles,
California. From August 1994 to October 1995 Mr. Kline was Assistant
Director-Strategic Development for the Times Mirror, Inc., a leading media
company.

      Adam Leff joined us in August 1998 and is Senior Vice President-Business
Development and Corporate Communications. Prior to joining us Mr. Leff served as
Vice President-Product Development and Marketing and Vice President-Business
Development of AdOne Classified Network since June 1996. From 1993 to May 1996
he held various positions within the classified and new media departments of the
LA Times as well as positions with a joint venture in which the LA Times was a
co-venturer with PacBell.

      Benjamin J. Douek joined us in April 1999 as Senior Vice President and
Chief Financial Officer. Mr. Douek has been a consultant and private investor
for more than the last five years during which period he also served as Director
of Investment Banking for Ladenberg Thalmann & Co., Inc. (1997-1998), Vice
Chairman for Coleman & Company (1996-1997) and Managing Director for Bankers
Trust Company (1992-1994).

      Richard Bassler joined us in April 1999 as Vice President/Operations and
was promoted to Senior Vice President-Operations in January 2000. Prior to his
joining us he was Vice President-General Manager of AdOne Classified Network
from June 1998 to March 1999, and Vice President-Affiliate Relations from May
1997 to June 1998. Previously he served as Director of New Media with Packet
Publications and News Director of Princeton Packet from May 1994 to May 1997.

      Ronald S. Posner has been Co-Chief Executive Officer of GlobalNet
Financial.Com, Inc., a provider of online financial news and information
services since July 1999. For more than five years Mr. Posner has also served as
Chairman of the Board of P S Capital, a venture capital firm which he founded
that focuses on the Internet, software and technology markets. Mr. Posner is a
director of Beyond.com, a software superstore, Asymetrix Learning Systems, Inc.,
a provider of Internet-based learning solutions and Smallworld, a seller of
new-era GIS applications to the energy industry.

      Chris A. Karkenny has been Chief Executive Officer of Technologz.com LLC,
an incubator and venture catalyst company, since January 1999. Prior to January
1999 and since February 1998 Mr. Karkenny was a private consultant in corporate
finance. From September 1995 to February 1998 he was Treasurer of Quarterdeck
Corporation, a technology and software company and prior to September 1995 Mr.
Karkenny was a consultant for CDK Industries, a consulting firm specializing in
mergers and acquisitions.

      All directors hold office until the next annual meeting of stockholders
and until their successors are duly elected and qualified. Officers are elected
to serve, subject to the discretion of the Board of Directors, until their
successors are appointed.


                                       28
<PAGE>

      The Company's Board of Directors has established compensation and audit
committees. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all the officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company, and administers the issuance of stock options to the
Company's officers, employees, directors and consultants. The Audit Committee
meets with management and the Company's independent auditors to determine the
adequacy of internal controls and other financial reporting matters.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent (10%)
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.

      To the best of the Company's knowledge, based solely on review of the
copies of such forms furnished to the Company, or written representations that
no other forms were required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
(10%) shareholders were complied with during 1999.


                                       29
<PAGE>

Item 10. Executive Compensation.

      The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 1999, 1998
and 1997 by our (i) Chief Executive Officer and (ii) the only executive
officers, other than the CEO, whose salary for the 1999 fiscal year as
determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals
falling within categories (i) and (ii) are collectively referred to as the
"Named Executives").

                           Summary Compensation Table

                                                      Long-Term Compensation
                                              ----------------------------------
                                  Annual
                               Compensation         Awards           Payouts
                              --------------  ------------------  --------------
                                                 Common Stock        All Other
 Name and Principal              Salary       Underlying Options   Compensation
      Position         Year        ($)                (#)               ($)
--------------------  ------  --------------  ------------------  --------------

Leslie Bernhard,       1999      $201,894               0                0
Chief Executive        1998       150,131               0                0
Officer & President    1997       150,131               0                0

Eli Rousso             1999      $201,894               0                0
Executive Vice         1998       145,662               0                0
President & Chief      1997       145,357               0                0
Technology Officer

Adam Leff              1999      $168,834            24,460              0
Senior Vice            1998        40,000               0                0
President - Busi-
ness Development
and Corporate
Communications

----------
* Applies to less than a full year.


                                       30
<PAGE>

Stock Options

      The following tables show certain information with respect to incentive
and non-qualified stock options granted in 1999 to the only Named Executives
under the Company's 1999 Stock Option Plan who received options and the
aggregate value at March 27, 2000 of such options. The per share exercise price
of all options is equal to the fair market value of a share of Common Stock on
the date of grant. No options granted to any Named Executives have been
exercised.

                              Option Grants in 1999
--------------------------------------------------------------------------------
Individual Grants of Options
--------------------------------------------------------------------------------

                         Number of
                         Shares of     Percent of
                          Common      Total Options
                          Stock        Granted to     Exercise
                        Underlying    Employees in      Price
         Name            Option #         1999         ($/Sh)    Expiration Date
---------------------  ------------  ---------------  ---------  ---------------

Adam Leff                 24,460           7.5%         $4.77      April 2004

                     Aggregated 1999 Year End Options Values
--------------------------------------------------------------------------------

                              Number of Shares of
                            Common Stock Underlying      Value of Unexercised
                            Unexercised Options at       In-The-Money Options
                                   12/31/99               At March 27, 2000
             Name          Exercisable/Unexercisable   Exercisable/Unexercisable
------------------------  ---------------------------  -------------------------

Adam Leff                          24,460/--                  $63,718/--

Employment Contracts

      We entered into three year employment agreements with each of Leslie
Bernhard and Eli Rousso, as of July 12, 1999. Pursuant to her employment
agreement, Leslie Bernhard was retained as our Chief Executive Officer at an
annual rate of $150,000 per year, which rate was increased to $200,000 per year
on December 16, 1999, the date of our initial public offering. Pursuant to his
employment agreement, Eli Rousso was retained as our Executive Vice President
and Chief Technology Officer rate of $150,000 per year, which rate was increased
to $200,000 per year on December 16, 1999.

      Each agreement provides, among other things, for participation in an
equitable manner in any profit-sharing or retirement, separation and disability
plans for employees or executives and for participation in other employee
benefits applicable to employees and executives of our company. Each agreement
further provides for the use of an automobile and other fringe benefits
commensurate with the executive's duties and responsibilities.

      Under each agreement, employment may be terminated by us with cause or by
the executive with good reason. Termination by us without cause, or by the
executive for good reason, would subject us to liability for liquidated damages
in an amount equal to the terminated executive's base salary for the remaining
term of his or her employment agreement or 12 months, whichever is greater.


                                       31
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

      The following table, together with the accompanying footnotes, sets forth
information, as of March 10, 2000, regarding stock ownership of all persons
known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, certain executive officers, all directors, and all
directors and officers of the Company as a group:

                                               Shares of
                                              Common Stock
                                              Beneficially      Percentage of
         Name of Beneficial Owner (1)          Owned (3)          Ownership
-------------------------------------------  --------------  -------------------
Executive Officers and Directors
Leslie Bernhard (2)                             731,667            25.9%
Eli Rousso (2)                                  731,667            25.9%
Michael Kline (4)                                73,941             2.6%
Adam Leff (5)                                    98,401             3.5%
Benjamin J. Douek (6)                            50,187             1.7%
Richard Bassler (7)                              28,093             1.0%
Ronald Posner (8)                                16,667             0.6*
Chris A. Karkenny (9)                            16,667             0.6*
All Directors and Officers as a group(10)
                                              1,543,460            50.9%

(1)   The addresses of the persons named in this table are as follows: Leslie
      Bernhard c/o AdStar.com, Inc., 4553 Glencoe Avenue, Suite 300, Marina del
      Rey, California 90292; Eli Rousso c/o AdStar.com, Inc., 4553 Glencoe
      Avenue, Suite 300, Marina del Rey, California 90292; Michael Kline c/o
      AdStar.com, Inc., c/o AdStar.com, Inc., 4553 Glencoe Avenue, Suite 300,
      Marina del Rey, California 90292; Adam Leff, c/o AdStar.com, Inc., 4553
      Glencoe Avenue, Suite 300, Marina del Rey, California 90292, Benjamin J.
      Douek, c/o AdStar.com, Inc., 4553 Glencoe Avenue, Suite 300, Marina del
      Rey, California 90292, Richard Bassler, c/o AdStar.com, Inc., 4553 Glencoe
      Avenue, Suite 300, Marina del Rey, California 90292,; Ronald Posner, c/o
      P.S. Capital,32 Lower Crescent, Sausalito, CA 94965, and Chris A.
      Karkenny, Net Catalyst, LLC. _11670 Chenault St. Los Angeles, CA 90049.

(2)   Includes an aggregate of 203,830 shares in respect of which Ms. Bernhard
      and Mr. Rousso have voting power.

(3)   A person is deemed to be a beneficial owner of securities that can be
      acquired by such person within 60 days from the filing of this report upon
      the exercise of options and warrants or conversion of convertible
      securities. Each beneficial owner's percentage ownership is determined by
      assuming that options, warrants and convertible securities that are held
      by such person (but not held by any other person) and that are exercisable
      or convertible within 60 days from. the filing of this report have been
      exercise or converted. Except as otherwise indicated, and subject to
      applicable community property and similar laws, each of the persons named
      has sole voting and investment power with respect to the shares shown as
      beneficially owned. All percentages are determined based on 2,820,264
      shares outstanding on March 27, 2000.


                                       32
<PAGE>

(4)   Consists of 73,941 shares subject to stock options, exercisable within 60
      days of the date hereof at $4.77 per share.

(5)   Includes 24,460 shares subject to stock options exercisable within 60 days
      of the date hereof at $4.77 per share.

(6)   Includes 17,226 shares subject to stock options, exercisable within 60
      days of the date hereof at $4.77 per share and 32,961 shares subject to
      stock options exercisable within 60 days of the date hereof at $6.00 per
      share.

(7)   Includes 11,484 shares subject to stock options, exercisable within 60
      days of the date hereof at $4.77 per share, 12,776 shares subject to stock
      options, exercisable within 60 days of the date hereof at $7.20 per share,
      and 3,833 shares subject to stock options, exercisable within 60 days of
      the date hereof at $6.00 per share .

(8)   Consists of 16,667 shares subject to warrants, exercisable within 60 days
      of the date hereof at $6.00 per share in the name of PS Capital.

(9)   Consists of 16,667 shares subject to warrants, exercisable within 60 days
      of the date hereof at $6.00 per share in the name of Net Catalyst LLC.

(10)  Includes 210,015 shares of common stock that could be purchased by
      exercise of options and warrants within 60 days of the date hereof;
      127,111 at $4.77, 20,128 at $6.00 and 12,776 at $7.20.



Item 12. Certain Relationships and Related Transactions

      In July 1999 Jeffrey Diamond, an employee and former director and officer,
sold 281,144 shares of our common stock to some of the holders of our
convertible notes for $500,000 pursuant to an agreement among Jeffrey Diamond, a
representative of the purchasers and us under which Diamond agreed to provide
technical services for us for a year at his current compensation of $100,000 a
year. In connection with this transaction the purchasers transferred 63,848
shares of our common stock to us. In July 1999 we issued to a company controlled
by Ronald S. Posner, and in December 1999 we issued to a company controlled by
Chris Karkenny, each a director nominee of the Company, three year warrants to
purchase 16,667 shares of common stock at $6.00. Each of the above transactions
was approved by the Board of Directors, in which at least two members were
disinterested.

      In September 1999, a proposed $15.5 million initial public offering of our
securities became effective but did not close. AdStar originally offered units
consisting of common stock and warrants in September 1999. That offering was
declared effective by the Securities and Exchange Commission and resulted in the
stock and warrants included in those units being traded on the American Stock
Exchange between September 30 and October 4, 1999. Initial trading in the units
resulted in a decline in the unit price to which we responded by announcing a
reduction of the warrant exercise price. The American Stock Exchange took the
position that this reduction caused our securities to no longer meet its listing
requirements and therefore stopped trading in the units. As a result of these
events, the former offering was not consummated. In full settlement of our
claims, if any, against Paulson Investment Company, Inc., the representative of
the underwriters in that offering, we received $500,000 from the representative.
In addition, Paulson Capital Corporation, the parent of the representative lent
us $1.1 million evidenced by a promissory note due on October 21, 2001 and
bearing interest at 6% per annum payable at maturity. Paulson Investment
Company, Inc. was the representative of the underwriters in our successful
offering which closed in December 1999.

      All future transactions between the Company and its officers, directors or
five percent shareholders, and their respective affiliates, will be on terms no
less favorable than could be obtained from unaffiliated third parties and will
be approved by a majority of the independent, disinterested directors of the
Company.


                                       33
<PAGE>

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

(a)   Certain of the following exhibits were filed as Exhibits to the
      registration statement on form SB-2, Registration No. 333-90649 and
      amendments thereto (the "Registration Statement") filed by the Registrant
      under the Securities Act of 1933, as amended, or the reports filed under
      the Securities and Exchange Act of 1934, as amended, and are hereby
      incorporated by reference.

           Exhibit No.                            Description
      --------------------------------------------------------------------------

      3.1        Certificate of Incorporation of the Company
      3.1a       Amendment to Certificate of Incorporation
      3.2        By-Laws of the Company
      3.3        Agreement and Plan ofMerger
      4.1        Specimen Stock Certificate
      4.2        Form of Public Warrant
      4.3        Form of Underwriter's Warrant
      4.4        Form of Warrant Agreement
      10.1       1999 Stock Option Plan
      10.4       Employment Agreement between the Company and Leslie Bernhard
      10.5       Employment Agreement between the Company and Eli Rousso
      10.6       Memorandum of Agreement between the Company and CareerPath.com
                 LLC dated March 11, 1999
      10.7       Distribution and Service Agreement dated February 9, 1999 by
                 and between the Company and PowerAdz
      10.8       Distribution and Service Agreement dated November 19, 1998 by
                 and between the Company and AdOne Classified Network, Inc.
      10.9       Agreement dated March 16, 1999 by and between James E. Mann and
                 the Company
      10.10      Form of warrant to purchase 16,667 shares of Common Stock
                 issued to Jonathan Cohen and Ronald Posner
      10.12      Loan and Subscription Agreement dated July 13, 1999 by and
                 between the Company and Interequity Capital Partners L.P.
      10.13      Form of Subscription Agreement for 12% Convertible Subordinated
                 Unsecured Promissory Note
      10.14      Form of 12% Convertible Subordinated Unsecured Promissory Note
      10.15      Form of Shareholders' Agreement by and among the Company, its
                 principal stockholders and certain investors
      10.16      Employment Agreement dated July 20, 1998 between Adam Leff and
                 the Company and amendment dated July 15, 1999
      10.17      Employment Agreement dated as of April 12, 1999 between Michael
                 Kline and the Company
      10.18      Promissory Note issued to Paulson Capital Corporation
      10.19      Distribution and Service Agreement dated as of September 3,
                 1999 by and between the Company and Landon Media Group, Inc.
      10.20      Distribution and Service Agreement dated as of August 30, 1999
                 by and between the Company and Career Engine
      10.21      Distribution and Service Agreement dated as of August 27, 1999
                 by and between the Company and CareerPath.com
      10.22      Engagement Agreement dated August 24, 1999 by and between the


                                       34
<PAGE>

                 Company and RCG Capital Markets Group, Inc.
      27.1       Financial Data Schedule

----------

* Filed herewith.

(b)   No reports on Form 8-K have been filed during the period covered by this
      report.

                                   SIGNATURES

      Pursuant to the requirements of 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.

                                      AdStar.com, Inc.

                                      By:  /s/Leslie Bernhard
                                           -------------------------------------
                                           Leslie Bernhard,
                                           President and Chief Executive Officer

Date: March 29, 2000

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 indicated on
March 29, 2000.

                Signature                  Title
                ---------                  -----

         /s/ Leslie Bernhard               President and Chief Executive Officer
         ----------------------             and Director
         Leslie Bernhard


         /s/ Eli Rousso                    Executive Vice President
         ----------------------             and Director
         Eli Rousso


         /s/ Benjamin J. Douek             Senior Vice President and Chief
         ----------------------             Financial Officer and Director
         Benjamin J. Douek


                                       35