Hitsgalore's Largest Customer Needn't Pay Until 2000 (Correct)
Hitsgalore's Largest Customer Needn't Pay Until 2000 (Correct) (Corrects story, ``Hitsgalore.com's Largest Customer Hasn't Paid Its Bills' that ran Aug. 24 to show Life Foundation Trust has until April 30, 2000 to pay Hitsgalore $1.25 million for advertising and $10 million for 2 million shares it bought.)
Rancho Cucamonga, California, Aug. 24 (Bloomberg) -- Hitsgalore.com Inc., which reported second-quarter sales of $1.29 million, acknowledged in a filing with the Securities and Exchange Commission that 96.5 percent, or $1.25 million of the net revenue, is due from a single customer and doesn't have to be paid until April 15, 2000, according to a regulatory filing.
The Internet advertising company's customer, Life Foundation Trust, also Hitsgalore.com's largest outside shareholder, has until next April to pay for $10 million of stock it received in May.
As of June 30, the Life Foundation Trust hadn't made payments toward either obligation. It guaranteed payment by pledging a postage stamp collection it values at $50 million.
Hitsgalore.com told the SEC revenue tripled in the second quarter. It had no comparable operations last year. Excluding sales to Life Foundation Trust, net revenue would have slumped 89 percent from $391,679 in the first quarter to $44,790.
Hitsgalore.com said profit rose 7 percent in the quarter to $136,803 even as cash flow from operations fell to a negative $868,564 from a positive $92,834 in the first quarter. As recently as July 1, the company projected a return to positive cash flow. It could have had positive cash flow for the quarter if it had received a cash payment from the Life Foundation Trust.
The Rancho Cucamonga, California-based company's stock has fallen 85 percent since May 11 when, Bloomberg News reported its founder, Dorian Reed, and his wife, Audrey, were ordered to pay $613,110 to 100 customers they defrauded at another Internet company two years ago. The fine was a result of a suit against the Reeds by the Federal Trade Commission. Later that month, the company said Reed, its majority shareholder, spent 10 months in a federal prison after being convicted of wire fraud in 1992.
The company's outside auditor, Moore Stephens Lovelace PA of Orlando, Florida, quit last month, citing Reed's background. ``We are pleased with our growth and profitability,' Reed said in a statement. He didn't respond to telephone or e-mailed questions.
Cash on hand slipped 53 percent to $272,955 on June 30 from $581,234 three months earlier.
Higher Costs
The company said expenses increased almost six-fold as it spent on technology, almost doubled its sales and administrative staff to 30, conducted a national radio advertising campaign and bought Web site advertising from other Internet companies.
Hitsgalore.com said it expects to fund operations with $110 million of stock sales to the Life Foundation Trust. That includes the $10 million for 2 million shares sold in April and another 5 million shares to be sold for $100 million. The second sale hasn't been completed.
When Hitsgalore.com announced the $10 million stock sale in April, it said it would use the proceeds to fund a national radio advertising campaign beginning that month.
The company has financed operations since becoming a public company on March 19 by selling 2,547,585 shares of stock at an average price of 73 cents a share. The stock, sold in private placements and upon the exercise of options and warrants, raised $1,849,762. Hitsgalore.com became a public company by merging with Systems Communications Inc., a money-losing software company.
Scottsdale, Arizona-based Life Foundation Trust says it has charitable goals, ``including the provision of food to the hungry, clothes and shelter to the needy, education to the unlearned and to minister to the spiritual needs of all people.' Its trustee, Jeanette Wilcher, has declined requests for interviews.
Hitsgalore.com shares fell 1/4 to 2 31/32, giving the company a market value of $146 million. It's fallen from $1 billion in value on May 10, when the stock peaked at 20 11/16.
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