AdStar Reports Second Quarter Results, Including 120 Percent Increase in Net Revenues

AdStar Reports Second Quarter Results, Including 120 Percent
Increase in Net Revenues
Company Records Second Straight Quarter With Triple-Digit Growth in Gross
Profits 


MARINA DEL REY, Calif., Aug. 16  /PRNewswire-FirstCall/ -- AdStar, Inc.
(Nasdaq: ADST; ADSTW), a leading applications service provider of e-commerce
transaction technology for the advertising and publishing industries, today
reported operating results for the second quarter and first half of 2004.

For the three months ended June 30, 2004, AdStar reported an increase of 120
percent in net revenues to $1.39 million, compared with net revenues of
$632,000 in the second quarter of 2003.  The increase in net revenue for 2004
is primarily comprised of a net increase of $353,528, or 166.5 percent, in
licensing and software revenues; a net increase of $353,093, or 898 percent, in
customization and other revenues; and continued growth in ASP revenues. The
increase in licensing and software revenues is primarily related to the
addition of EdgCapture and EdgFlow to the company's suite of e-commerce
services for the newspaper publishing industry, while the increase in
customization and other revenues was augmented by major contracts with The
Washington Post and The Atlanta Journal-Constitution.  No revenues from
EdgCapture or EdgFlow and related customization services were reflected in
AdStar's 2003 results as they were not part of the company's service offering
until the acquisition of Edgil Associates in October 2003.

AdStar reported earnings before interest, taxes, depreciation and amortization
(EBITDA -- a non-GAAP measure) of ($9,962) for the quarter ended June 30, 2004.
 In comparison, AdStar reported EBITDA of ($324,784) for the first quarter of
2004.  The company reported a second quarter net loss of $388,000 or $0.03 per
share, compared with a net loss of $504,000 or $0.06 per share, in the second
quarter of 2003.

Gross profit margin improved to 63 percent of net revenues during the second
quarter of 2004, from 54 percent during the second quarter of 2003, and gross
profits for the quarter increased by more than 150 percent to $871,000,
compared with $341,000 in the prior-year period.  The $227,000 increase in cost
of revenues during the most recent quarter was primarily comprised of a net
increase of $158,000, or 70 percent, in costs underlying the EdgCapture and
EdgFlow services that were not part of AdStar's service offerings during the
comparable period in 2003.

"We are very encouraged by our growth in revenues and gross profits, and our
achievement of near-breakeven EBITDA during the most recent quarter," stated
Leslie Bernhard, president and chief executive officer of AdStar, Inc. "These
results demonstrate that our ASP model, combined with our successful
acquisition strategy, have positioned AdStar to achieve its strategic
objectives in coming quarters.  Edgil continues to lead the industry in
automated payment processing services, and our XML Gateway technology continues
to produce innovative ASP solutions for our customers, as demonstrated by
several recent customization service contracts with leading U.S. newspapers."

"The technological applications that we are developing and implementing for
publications such as The Atlanta Journal-Constitution and The Washington Post
can address important needs in a variety of publishing environments," continued
Bernhard.  "Our technology and ASP model provide AdStar with the flexibility to
tailor solutions to the needs of individual publishers as they seek to truly
integrate their print and Web advertising strategies."

General and administrative expenses increased 44 percent during the second
quarter of 2004, to $467,000, from $324,000 during the prior-year quarter. 
Selling expenses increased 67 percent to $328,000 (vs. $196,000), while product
maintenance and development expenses decreased 18 percent to $265,000 (vs.
$325,000).  The total number of ad transactions that were processed utilizing
AdStar's technology infrastructure increased more than 11 percent in the most
recent quarter, to more than 118,000, and ad transaction value rose by 15
percent to $19.5 million (vs. $16.5 million in the second quarter of 2003).

"We had a very active second quarter, solidifying new contracts with The
Washington Post, Los Angeles Times and The Atlanta Journal-Constitution;
announcing sales and marketing agreements with Innovectra and Data Based Ads;
and strengthening our product and service offerings," Bernhard added.  "In
light of our current cash on hand (approximately $2.9 million), Edgil's
positive cash flow contributions, our first quarter cost reduction activities,
and anticipated near-term growth, we are confident that AdStar is moving
steadily towards profitability.  In addition to our organic growth, the company
is well-positioned to take advantage of strategic acquisition and revenue
sharing opportunities that may become available."

Net revenues for the six months ended June 30, 2004 increased 99 percent, to
$2.44 million, versus $1.23 million in the first half of 2003.  The increase in
net revenue during the first half of 2004 resulted primarily from the
acquisition of Edgil Associates and an increase in ASP, customization and other
revenues, partially offset by a slight decrease in licensing and software
revenues.  The company reported a net loss of $930,000, or $0.07 per share, in
the first half of 2004, compared with a prior-year net loss of $948,000, or
$0.12 per share.  Although the net losses improved slightly for the first half
of the year, the current period reflects $164,000 in beneficial interest and
amortization of financing fees on a convertible note, a non-cash item, which
AdStar did not have in the prior year.

About AdStar, Inc.

AdStar, Inc. (Nasdaq: ADST; ADSTW) is the leading provider of e-commerce
transaction software and services for the advertising and publishing
industries.  The company's proprietary suite of e-commerce services includes
remote ad entry software and web-based ad transaction services, as well as
payment processing and content processing solutions that are provided through
its Edgil Associates subsidiary (the industry's largest supplier of automated
payment processing services).  AdStar's ad transaction infrastructure powers
classified ad sales for more than 40 of the largest newspapers in the United
States, along with the Newspaper Association of America's
bonafideclassifieds.com web portal, CareerBuilder.com, and a growing number of
other online and print media companies.  EdgCapture, Edgil's automated payment
process solution, is currently employed by call centers at more than 100 of the
nation's leading newspaper and magazines.  AdStar is headquartered in Marina
del Rey, Calif., and its Edgil office is located in North Chelmsford, Mass. 
For additional information on AdStar, Inc., visit http://www.adstar.com/.

Forward Looking Statements

This release contains forward-looking statements concerning the business and
products of the company.  Actual results may differ from those projected or
implied by such forward-looking statements depending on a number of risks and
uncertainties including, but not limited to, the following: historical business
has already matured, new online business is unproven and may not generate
expected revenues, and Internet security risks.  Other risks inherent in the
business of the company are described in Securities and Exchange Commission
filings, including the company's annual report on Form 10-KSB.  The company
undertakes no obligation to revise or update any forward-looking statements to
reflect events or circumstances after the date of this release.

For further information, please contact Jeff Baudo of AdStar, Inc.,
[phone], ; or Media, Kevin Wilson, [phone], , for AdStar, Inc.

   AdStar, Inc. and Subsidiary
   Consolidated Balance Sheet
   June 30, 2004 (unaudited)

   Assets
   Current assets:
    Cash and cash equivalents                                  $2,939,949
    Accounts receivable, net of allowance for doubtful
     accounts of $59,000                                          581,323
    Notes receivable from officers - current portion                7,802
    Prepaid and other current assets                              250,646
      Total current assets                                      3,779,720

   Notes receivable from officers, net of current portion         228,400
   Property and equipment, net                                    140,559
   Capitalized and purchased software, net                      1,920,978
   Intangible assets, net                                       1,443,287
   Goodwill                                                     2,246,454
   Other assets                                                   125,342

      Total assets                                             $9,884,740

   Liabilities and Stockholders' Equity
   Current liabilities:
    Due to publications                                        $1,717,503
    Accounts payable and accrued expenses                         920,248
    Deferred revenue and customer deposits - current portion      105,824
    Loans from Stockholders - current portion                      21,000
    Capital lease obligations - current portion                    31,658
    Convertible Note - current portion                            157,876
      Total current liabilities                                 2,954,109

   Deferred revenue - net of current portion                      149,139
   Capital lease obligations - net of current portion                 602
   Loans from Stockholders - net of current portion                31,500
   Convertible Note - net of current portion                      536,367
      Total liabilities                                         3,671,717

   Commitments and contingencies

   Stockholders' equity:
    Convertible Preferred stock, par value $0.0001;
     authorized 5,000,000 shares; 3,443,457
     Issued, and outstanding:
      Series B-2, 2,000,000 issued and outstanding;
       liquidation preference of $1,649,995                     1,342,404
    Common stock, par value $0.0001; authorized
     20,000,000 shares; 14,460,966 shares issued and
     outstanding                                                    1,446
    Additional paid-in capital                                 20,033,400
    Treasury stock, par value $0.0001; 67,796 shares              (67,796)
    Accumulated deficit                                       (15,096,431)
      Total stockholders' equity                                6,213,023

    Total liabilities and stockholders' equity                 $9,884,740


   AdStar, Inc.
   Statements of Operations
   For the three month and six month periods
   ended June 30, 2003 and 2004 (unaudited)

                             Three months ended        Six months ended
                                  June 30,                 June 30,
                               2004       2003        2004        2003

   ASP, net                  $428,531   $380,215    $824,204    $702,474
   Licensing and software     565,865    212,337   1,113,853     428,039
   Customization and other    394,628     39,535     498,453      94,667
   Net Revenues             1,389,024    632,087   2,436,510   1,225,180

   Cost of revenues,
    including depreciation
    and amortization of
    $124,803, $235,613,
    $163,501 and $349,689     517,863    291,226     935,183     626,137

   Gross profit               871,161    340,861   1,501,327     599,043
   General and
    administrative expense    466,837    323,952     904,695     612,942
   Selling and marketing
    expense                   327,845    196,236     655,464     357,374
   Product maintenance and
    development expenses      265,300    324,687     640,958     577,528

   Amortization                21,997         --      44,113          --

    Loss from operations     (210,818)  (504,014)   (743,903)   (948,801)

   Beneficial interest
    and amortization of
    financing fees on
    Convertible Note         (163,670)        --    (163,670)         --
   Interest income, net       (10,185)     1,345     (11,338)      2,280

    Loss before taxes        (384,673)  (502,669)   (918,911)   (946,521)

    Provision for income
     taxes                      3,463        963      11,082       1,925

    Net loss                $(388,136) $(503,632)  $(929,993)  $(948,446)

   Loss per share - basic
    and diluted                $(0.03)    $(0.06)     $(0.07)     $(0.12)

   Weighted average number
    of shares - basic and
    diluted                14,361,348  8,265,194  13,585,883   8,241,446


   AdStar, Inc. and Subsidiary
   Statements of Cash Flows
   For the six month periods ended
   June 30, 2003 and 2004 (unaudited)
                                                    2004          2003

   Cash flows from operating activities:
    Net loss                                      $(929,993)    $(948,446)
    Adjustments to reconcile net loss to net
     cash used in operating activities
     Depreciation and amortization                  408,284       377,508
     Beneficial interest and amortization of
      financing fees on Convertible Note            163,670            --
     Allowance for doubtful accounts                 25,000            --
     Stock based vendor payments                     57,357        57,500
     Changes in assets and liabilities:
      Accounts receivable                          (266,451)      (68,699)
      Prepaid and other assets                      (79,971)      (67,702)
      Due to publications                           633,530       876,865
      Accounts payable and accrued expenses        (273,179)     (216,362)
      Deferred revenue and customer deposits         65,190         5,235
     Net cash provided by (used in) operating
      activities                                   (196,563)       15,899

   Cash flows from investing activities:
    Purchase of Edgil Associates, Inc.              (85,000)           --
    Purchase of property and equipment              (38,137)      (35,760)
    Additions to capitalized and purchased
     software                                      (310,112)     (392,092)
    Additions to intangible assets                   (4,000)           --
    Principal repayments of shareholder notes
     receivable                                       3,743         3,550

     Net cash used in investing activities         (433,506)     (424,302)

   Cash flows from financing activities:
   Decrease to restricted cash                           --       154,918
   Proceeds from issuance of convertible note
    payable                                       1,353,181            --
   Proceeds from issuance of note payable                --       200,000
   Repayment of note payable                             --      (200,000)
   Proceeds from issuance of Series B-2 preferred
    stock                                                --       528,683
   Proceeds from exercises of options and warrants  167,579            --
   Costs of conversion of Series A preferred stock  (14,978)           --
   Principal repayments on loans from shareholders  (10,500)           --
   Principal repayments on capital leases           (17,740)      (13,457)

     Net cash provided by financing activities    1,477,542       670,144

     Net increase in cash and cash equivalents      847,472       261,731

   Cash and cash equivalents at beginning of
    period                                        2,092,477       940,378

   Cash and cash equivalents at end of period    $2,939,949    $1,202,109

   Supplemental cash flow disclosure:
    Taxes paid                                         $965        $7,354
    Interest paid                                   $19,857        $7,747
   Non cash investing and financing activities
    Conversion of 1,443,457 shares of
     convertible preferred stock into equivalent
     shares of common stock - Note X             $1,697,000           $--
    Conversion of $225,000 of convertible note
     into 100,000 shares of common stock - Note X  $225,000           $--
    Conversion of accrued legal fees to common
     stock                                              $--       $50,000
    Issuance of common stock to financial
     consultants                                        $--       $30,000


DATASOURCE: AdStar, Inc.



CONTACT:  Jeff Baudo of AdStar, Inc., [phone], ;

or Media, Kevin Wilson, [phone], , for

AdStar, Inc.



Web site:  http://www.adstar.com/ 

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