<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
REGISTRATION NO. 333-74203
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DAG MEDIA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 2741 11-3474831
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
125-10 QUEENS BLVD.
KEW GARDENS, NY 11415
(718) 263-8454
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
------------------------------
ASSAF RAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DAG MEDIA, INC.
125-10 QUEENS BOULEVARD
KEW GARDENS, NY 11415
(718) 263-8454
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN A. ZELNICK, ESQ. MARK A. VON BERGEN, ESQ.
MORSE, ZELNICK, ROSE & LANDER, LLP WEISS, JENSEN, ELLIS & HOWARD
450 PARK AVE. 2300 U.S. BANCORP TOWER
NEW YORK, NY 10022 111 S.W. FIFTH AVENUE
(212) 838-8040 PORTLAND, OR 97204
(212) 838-9190 (FACSIMILE) (503)243-2300
(503) 241-8014 (FACSIMILE)
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK TO OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
DATED APRIL 23, 1999
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
This is the initial public offering of DAG Media, Inc. We are offering
1,250,000 common shares, and Assaf Ran, our founder and principal shareholder,
is offering 75,000 common shares. The initial public offering price for each
common share is $6.50.
There has been no prior market for our common shares. We applied to have our
common shares listed on the Nasdaq SmallCap Market under the symbol "DAGM."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR SOME OF THE FACTORS YOU SHOULD
CONSIDER BEFORE BUYING OUR COMMON SHARES.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
DAG MEDIA SELLING SHAREHOLDER
--------------------------- -------------------------
PER SHARE TOTAL PER SHARE TOTAL
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Initial public offering price.............................. $ 6.50 $ 8,125,000 $ 6.50 $ 487,500
Underwriting discounts and commissions..................... $ 0.65 $ 812,500 $ 0.65 $ 48,750
Proceeds before expenses................................... $ 5.85 $ 7,312,500 $ 5.85 $ 438,750
</TABLE>
We have granted the underwriters a 45-day option to purchase up to an
additional 198,750 common shares from us at the initial public offering price
less the underwriting discounts and commissions to cover over-allotments.
This is a firm commitment underwriting. The underwriters expect to deliver
the common shares offered by this prospectus against payment on or about
, 1999.
PAULSON INVESTMENT COMPANY, INC. REDWINE & COMPANY, INC.
The date of this prospectus is , 1999
<PAGE>
The JEWISH ISRAELI YELLOW PAGES-Registered Trademark- and variants thereof,
and THE JEWISH REFERRAL SERVICE-Registered Trademark- are our registered
trademarks or service marks. We also plan to seek federal trademark and service
mark protection for THE JEWISH MASTER GUIDE-TM- and for NEWYELLOW-TM-. All other
trademarks, service marks and trade names appearing in this prospectus are the
property of their respective holders.
<PAGE>
SUMMARY
UNLESS STATED TO THE CONTRARY, REFERENCES TO "WE," "US,"OR "OUR" REFER TO
DAG MEDIA AND, WHERE APPROPRIATE, OUR PREDECESSORS AND SUBSIDIARIES.
DAG MEDIA
We publish and distribute yellow page directories in print and on the world
wide web. Our largest directory, THE JEWISH ISRAELI YELLOW PAGES, has been
published, bilingually, in English and Hebrew, since February 1990 and covers
the New York metropolitan area. We also publish a smaller English-only yellow
page directory, THE JEWISH MASTER GUIDE, which is distributed to the Hasidic and
ultra-Orthodox Jewish communities in the New York metropolitan area. To give
added value to users of and advertisers in our directories, we also operate THE
JEWISH REFERRAL SERVICE and a "portal" web site on the Internet. The JEWISH
REFERRAL SERVICE directs potential customers and clients to businesses that
advertise in our directories. Our web site contains English-only versions of our
directories and has links to web sites maintained by advertisers in our
directories and other web sites, including those containing programs, events and
news of particular interest to the Jewish and Israeli communities.
GROWTH STRATEGY
We plan to expand our operations by introducing an English-only, general
interest yellow page directory, NEWYELLOW, in the New York metropolitan area
that will compete directly with the Bell Atlantic Yellow Pages. We plan to
introduce the first NEWYELLOW directory in Manhattan by June 2000. If the
Manhattan NEWYELLOW directory is successful, we plan to add additional NEWYELLOW
directories covering other boroughs in New York City and other counties in the
New York metropolitan area. We may also explore opportunities for offering
yellow page directories and referral services in other cities with large Jewish
and Israeli populations such as Miami, Florida and Los Angeles, California.
EXECUTIVE OFFICES AND WEB SITES
Our executive offices are located at 125-10 Queens Boulevard, Kew Gardens,
New York 11415, and our telephone number is (718) 263-8454. Our addresses on the
world wide web are HTTP://WWW.PORTY.COM, HTTP://WWW.JEWISHYELLOW.COM,
HTTP://WWW.DAPEY-ASSAF.COM AND HTTP://WWW.NEWYELLOW.COM.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common shares being offered.............. 1,250,000 by us and 75,000 by our
principal shareholder
Offering price........................... $6.50 per common share
Common shares outstanding:
Before the offering.................... 1,726,190
After the offering..................... 2,976,190
Use of proceeds.......................... Printing, publishing and distribution
costs for NEWYELLOW; sales commission
advances for NEWYELLOW; marketing and
promotional expenses for NEWYELLOW and
our web site; and general corporate
purposes, including working capital.
Proposed Nasdaq SmallCap Market symbol
for the common shares.................. DAGM
</TABLE>
All of the common shares outstanding before this offering will be issued
immediately before the effective date of this offering.
Common shares outstanding excludes 124,000 common shares reserved for
issuance under our 1999 Stock Option Plan.
Common shares outstanding after the offering assumes that the underwriters
will not exercise their option to purchase additional common shares to cover
over-allotments.
4
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data contained in this section of the prospectus
should be read together with our audited consolidated financial statements, the
audited financial statements of Dapey Assaf-Hamadrikh Leassakim Israelim Be New
York and our unaudited pro forma condensed consolidated financial statements,
including the notes accompanying these statements, and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this prospectus.
- Our historical financial data include the accounts of Dapey Assaf-Dapey
Zahav and 50% of the net income of Dapey Assaf-Hamadrikh.
- Pro forma statement of operations data assume that Dapey Assaf-Hamadrikh
became our wholly owned subsidiary on January 1, 1998 and pro forma
balance sheet data assume that it became our wholly owned subsidiary on
December 31, 1998.
- Pro forma, as adjusted balance sheet data assume that Dapey
Assaf-Hamadrikh became our wholly owned subsidiary on January 1, 1998 and
pro forma
balance sheet data assume that it became our wholly owned subsidiary on
December 31, 1998 and give effect to the sale of the common shares offered
by us in this prospectus, after deducting $1,512,500, our share of the
underwriting discounts and commissions and other estimated offering
expenses.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998
1997 1998 (PRO FORMA)
------------- ------------- -------------
Net advertising revenues............................................ $ 2,501,754 $ 2,759,092 $ 2,835,917
Publishing costs.................................................... 441,535 377,983 377,983
------------- ------------- -------------
Gross profit........................................................ 2,060,219 2,381,109 2,457,934
Operating costs and expenses:
Selling expenses.................................................. 922,124 946,315 957,227
Administrative and general expenses............................... 658,956 765,233 893,116
------------- ------------- -------------
Total operating costs and expenses................................ 1,581,080 1,711,548 1,850,343
------------- ------------- -------------
Earnings from operations before provision for income taxes and
equity income..................................................... 479,139 669,561 607,591
Provision for income taxes.......................................... 240,000 329,000 312,000
Equity in earnings of affiliate..................................... 16,012 17,035 --
------------- ------------- -------------
Net income.......................................................... $ 255,151 $ 357,596 $ 295,591
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted net income per common share outstanding........... $ 0.20 $ 0.29 $ 0.17
------------- ------------- -------------
------------- ------------- -------------
Basic and diluted weighted average number of common shares
outstanding....................................................... 1,250,000 1,250,000 1,726,190
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Pro forma administrative and general expenses assumes that the compensation
paid to Assaf Ran was $75,000, the amount payable under his employment agreement
that takes effect on the effective date of this offering, rather than the
$25,000 that was actually paid to him.
5
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash........................................................... $ 310,185 $ 385,325 $ 7,293,088
Working capital................................................ 162,041 162,561 7,070,323
Total assets................................................... 2,970,190 4,363,046 10,975,546
Total liabilities.............................................. 2,445,451 2,445,451 2,445,451
Total shareholders' equity..................................... 524,739 1,917,595 8,530,095
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW, AS WELL AS
THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS, BEFORE PURCHASING ANY OF OUR
COMMON SHARES.
BELL ATLANTIC AND OTHER EXISTING OR POTENTIAL COMPETITORS HAVE SIGNIFICANT
COMPETITIVE ADVANTAGES.
Our principal competitor in the New York metropolitan market is Bell
Atlantic. In addition, there are a number of companies that publish yellow page
directories for distinct neighborhoods. Since there are no significant barriers
to entry, any company with access to a reasonable amount of capital, such as
regional and local telephone companies and publishing companies, can publish
yellow page directories in print and on the Internet that will compete with our
existing directories and directories that we may publish in the future.
Many of our competitors, particularly Bell Atlantic, have significant
operating and financial advantages. These advantages include
- greater financial, personnel, technical and marketing resources,
- superior systems,
- stronger relationships with advertisers,
- greater production capacity,
- better-developed distribution channels, and
- greater name recognition.
Our competitors can reduce advertising rates, particularly where directory
operations can be subsidized by other revenues, making advertising in our
directories less attractive. In response to competitive pressures, we may have
to increase our sales and marketing expenses or reduce our advertising rates.
Since we may not capture a significant share of the markets where we operate, we
cannot assure you that we can compete effectively. See "Business -- Competition"
for a further discussion of the competitive environment in which we operate.
WE ARE PLANNING TO INTRODUCE A NEW PRODUCT, THE SUCCESS OF WHICH DEPENDS ON MANY
FACTORS.
We have never published a general interest yellow page directory. Thus, we
have no relevant operating history upon which you can evaluate whether we will
be successful. Therefore, you should consider our prospects in light of the
risks and uncertainties encountered by companies trying to introduce a new
product, particularly companies proposing to enter markets dominated by large
and well-known companies.
7
<PAGE>
To successfully introduce NEWYELLOW into the New York market and sustain and
increase our profitability, we must do the following:
- convince advertisers that NEWYELLOW will be used by sufficient number of
their potential customers to make it worthwhile and cost effective for
them to advertise in NEWYELLOW;
- manage the production, including ad sales, graphic design, layout, editing
and proofreading, of multiple directories addressing different markets in
varying stages of development;
- attract, retain and motivate qualified personnel and expand the number of
sales, operating and management personnel;
- provide high quality, easy to use and reliable directories;
- establish a brand identity for NEWYELLOW;
- develop new and maintain existing relationships with advertisers without
diverting revenues from our existing directories;
- develop and upgrade our management, technical, information and accounting
systems;
- respond to competitive developments promptly;
- introduce enhancements to our existing products and services to address
new technologies and standards and evolving customer demands;
- control costs and expenses and manage higher levels of capital
expenditures and operating expenses; and
- maintain effective quality control over all of our directories.
Our failure to achieve any of the above in an efficient manner and at a pace
consistent with the growth of our business could adversely affect our business,
financial condition, results of operations and the value of our securities. Our
operating results will also depend on external factors such as the development
of similar or superior services or products by competitors, general economic
conditions and economic conditions specific to publishers of yellow page
directories.
OUR SUCCESS DEPENDS ON OUR ABILITY TO FIELD AN EFFECTIVE SALES FORCE.
The success and growth of our business primarily depends on our ability to
field a highly effective, well-trained sales force. Due to the demands of the
job, many sales representatives leave within one year. In addition,
approximately half of our sales force is provided to us under agreements with
independent sales agencies, which are terminable upon 30 days notice by either
party. Accordingly, on 30 days notice we could lose half of our sales force.
Replenishing our sales force involves significant time and expense for
recruiting and training.
8
<PAGE>
OUR EXPANSION STRATEGY REQUIRES US TO EXPAND OUR SALES FORCE SIGNIFICANTLY.
To meet our goal of publishing NewYellow by June 2000, we will have to
quickly hire and train many new sales representatives. Competition for qualified
sales representative is intense and we cannot assure you that we will be able to
hire and retain qualified personnel to keep pace with our expansion strategy.
WE DO NOT HAVE ANY LONG-TERM COMMITMENTS FROM ADVERTISERS, UPON WHOM OUR SUCCESS
DEPENDS.
We do not have long-term contractual arrangements with advertisers. Thus, we
must obtain new advertisers and renewals from existing advertisers, for each
directory that we publish. There is no assurance that our current advertisers
will continue to place ads in our directories or that we will be able to attract
new advertisers. Any failure to achieve sufficient advertising revenues would
have a material adverse effect on our business, results of operations and
financial condition.
IF WE FAIL TO PUBLISH A DIRECTORY, WE WOULD BE REQUIRED TO GIVE REFUNDS TO OUR
ADVERTISERS.
A significant portion of our revenues is collected prior to the publication
and distribution of our directories and is used to pay our employees,
contractors and suppliers. If we did not publish a directory, we would be
obligated to refund prepaid advertising fees. It is unlikely that we would have
sufficient cash reserves to repay all these advances. In that event, we would
have to generate cash by borrowing money, selling securities or selling assets.
We do not know whether any of those alternatives will be possible. Further, any
of these alternatives, particularly the sale of our assets, would inhibit our
ability to conduct our business.
OUR ABILITY TO PRODUCE DIRECTORIES ON A COST EFFICIENT BASIS DEPENDS ON THE COST
OF PAPER AND PRINTING.
Other than sales commissions, our two largest expenses are the cost of paper
and printing. We do not have any long-term contracts with paper suppliers or
with printers. We buy paper on the open market at prevailing prices. Paper costs
fluctuate according to supply and demand in the marketplace. In addition, paper
costs can be affected by events outside of our control, such as fluctuations in
currency rates, political events, global economic conditions, environmental
issues and acts of God. A substantial increase in paper costs may materially
increase publication costs and will reduce our profitability.
The JEWISH ISRAELI YELLOW PAGES and the MASTER GUIDE are printed in Israel
by HaMakor Printing. To date, we have secured favorable rates and high quality
service from HaMakor. However, we do not have any agreement with HaMakor and we
cannot assure you that we will continue to obtain favorable pricing from them or
that they will continue to provide us with high quality service. If we need to
replace
9
<PAGE>
HaMakor quickly for any reason, our business, results of operations and
financial condition may suffer.
WE DO NOT HAVE THE ABILITY TO MEASURE THE EFFECTIVENESS OF ADVERTISEMENTS. AS
OUR BUSINESS GROWS, OUR CUSTOMERS MAY REQUIRE US TO DO SO.
We do not have the ability to quantify the effectiveness of advertising in
our directories. However, we may have to provide this type of information when
we start publishing a directory that competes directly with the Bell Atlantic
Yellow Pages. The effectiveness of advertising is usually based upon demographic
and other relevant statistical data. If we cannot provide our advertisers with
this information or if they perceive the information that we provide to be
unreliable, they may not advertise in NEWYELLOW or refuse to pay our standard
advertising rates. Accordingly, we will have to either develop the ability to
provide this information to our advertisers or contract with third parties to
provide this information on our behalf. Either alternative will result in
additional personnel and equipment costs, and may also cause interruptions in
our business operations.
WE CANNOT LAUNCH NEWYELLOW WITHOUT THE PROCEEDS OF THIS OFFERING.
The expansion of our operations to add NEWYELLOW, and possibly other yellow
page directories, requires substantial amounts of additional capital. We cannot
undertake this project if this offering is not successful. Most of our costs
relating to NEWYELLOW, including sales commissions, publishing costs and
distribution costs, will be incurred before we begin to collect our advertising
revenue. We expect that the net proceeds from this offering, together with cash
flow from operations, will be sufficient to launch NEWYELLOW and fund our
operations and capital requirements for at least 12 months following the
consummation of this offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and capital
resources" for a further discussion of our current and expected future capital
requirements and our belief regarding our ability to meet those requirements.
OUR QUARTERLY OPERATING RESULTS ARE NOT ALWAYS INDICATIVE OF OUR RESULTS OF
OPERATIONS FOR THE FULL YEAR OR OTHERWISE.
Our results of operations have been subject to quarterly fluctuations. Most
of our revenue and most of our expenses have been recognized in the first and
the third quarters when the JEWISH ISRAELI YELLOW PAGES is printed and
distributed. As a result, quarterly results have not been indicative of annual
results. Future quarterly operating results may fluctuate as a result of these
factors and the timing of publication of NEWYELLOW and associated start-up
costs.
10
<PAGE>
EVEN IF THIS OFFERING IS SUCCESSFUL, WE MAY REQUIRE ADDITIONAL CAPITAL.
If our operating assumptions change or prove to be inaccurate or we
accelerate our plans to launch directories in addition to the Manhattan
NEWYELLOW, we may be required to seek additional sources of capital sooner than
we expect. Our ability to obtain any additional financing may be limited by our
financial condition, our operating results or the condition of the financial
markets. We cannot assure you that we will be able to obtain additional
financing or what will be the terms of such financing.
OUR GROWTH DEPENDS ON THE CONTINUED SERVICES OF ASSAF RAN.
We depend on the continued services of Assaf Ran, our founder, president and
chief executive officer. Mr. Ran supervises all aspects of our business,
including our sales force and production staff. Mr. Ran has the personal
relationships with the principals of HaMakor Printing and the heads of the
independent sales agencies which provide about half of our sales
representatives. If Mr. Ran's employment terminates, our relationships with our
key suppliers and vendors may be jeopardized. Mr. Ran has entered into an
employment agreement, but that is no guarantee that his employment will not
terminate before its expiration on June 30, 2002. In addition, we intend to
purchase a $3 million key man life insurance policy on Mr. Ran. Mr. Ran has not
been approved for such a policy and we do not know whether such a policy will be
available. See "Management -- Employment contracts" for a further discussion
regarding Mr. Ran's employment contract.
SOME OF OUR SENIOR OFFICERS LACK EXPERIENCE IN OUR BUSINESS.
All of our senior executive officers, other than Mr. Ran, are new. Our vice
president of sales commenced his employment in June 1998 and our vice president
of sales and corporate development and our chief financial officer will commence
their employment on the effective date of this offering. It will take some time
before these officers are fully knowledgeable about our business and operations.
This lack of experience and knowledge may cause delays in our expansion plans.
AFTER THIS OFFERING, MR. RAN WILL CONTINUE TO CONTROL OUR AFFAIRS.
Upon completion of this offering, Assaf Ran, our founder, president and
chief executive officer, will beneficially own approximately 47.5% of our
outstanding common shares. If the option we granted to the underwriters to
purchase additional common shares from us is exercised in full, Mr. Ran will own
47.0% of our outstanding common shares. As a result, he will be able to control
substantially all matters submitted to our shareholders for approval, including
the election and removal of directors and any merger, consolidation or sale of
all or substantially all of our assets, and to control our management and
affairs. This concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination
11
<PAGE>
involving us or discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us, which in turn could adversely
affect the market price of the common shares.
COMPUTER PROGRAMS AND MICROPROCESSORS THAT HAVE TIME-SENSITIVE SOFTWARE MAY
RECOGNIZE A DATE USING "00" AS THE YEAR 1900 RATHER THAN THE YEAR 2000, OR NOT
RECOGNIZE THE DATE AT ALL, WHICH COULD RESULT IN MAJOR SYSTEM FAILURES OR
MISCALCULATIONS.
We have not investigated nor spent any significant amount of money to
determine if our operating, management and financial systems, or those of our
suppliers are "Y2K compliant." If these systems are not Y2K compliant, on
January 1, 2000 they may either malfunction or shut down completely. In either
case, historical data critical to our business, operations and financial
condition may be temporarily or permanently lost, forcing us to discontinue
operations for a significant amount of time until such data are retrieved or
recreated, if possible. We may also have to expend significant amounts of
capital to recreate such data and restore our computer systems to working order,
which could force us to delay or discontinue our expansion plans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 compliance" for a further discussion of Year 2000
compliance issues.
THE NET TANGIBLE BOOK VALUE PER COMMON SHARE AFTER THIS OFFERING WILL BE
SUBSTANTIALLY LESS THAN THE PRICE YOU PAID FOR OUR COMMON SHARES.
This offering will result in the immediate and substantial dilution of $4.09
per share, or 62.9% of the initial public offering price, representing the
difference between our net tangible book value per common share after giving
effect to this offering and the assumed public offering price of $6.50 per
share. See "Dilution" for a more detailed description of the dilution which
investors in this offering will experience.
THIS IS OUR INITIAL PUBLIC OFFERING. THE MARKET PRICE OF OUR COMMON SHARES CAN
FLUCTUATE SIGNIFICANTLY, SOMETIMES IN A MANNER UNRELATED TO OUR PERFORMANCE.
This is our initial public offering. We cannot predict the extent to which a
trading market for our common shares will develop or the liquidity of that
market. If an active market does not develop, you may not be able to sell your
common shares.
The initial public offering price for our common shares was determined by
negotiations between us and Paulson and may not be indicative of prices that
will prevail in the trading market. The market price of our common shares could
vary widely in response to various factors and events, including:
- the number of common shares being sold and purchased in the marketplace;
- variations in our operating results;
12
<PAGE>
- press reports;
- regulation and industry trends;
- rumors of significant events which can circulate quickly in the
marketplace, particularly over the Internet; and
- the difference between our actual results and the results expected by
investors and analysts.
Accordingly, you may not be able to sell your common shares at or above the
initial public offering price.
SALES OF COMMON SHARES AFTER THIS OFFERING COULD ADVERSELY AFFECT THE PRICE OF
OUR COMMON SHARES.
Sales of a large number of common shares or the possibility of the sale of a
large number of shares could adversely affect the market price of our the common
shares. After this offering, there will be 2,976,190 common shares issued and
outstanding. If the option granted by us to the underwriters to purchase
additional common shares is exercised in full there will be 3,174,940 common
shares issued and outstanding after this offering. In addition, we have reserved
124,000 common shares for issuance under our 1999 Stock Option Plan. On the date
this offering becomes effective, options covering 43,324 common shares will be
outstanding under this plan. Finally, in connection with this offering we will
issue to the representatives of the underwriters warrants to purchase a total of
132,500 common shares. The common shares sold in this offering and the common
shares covered by options granted under our stock option plan and underlying the
warrant issued to the representatives of the underwriters, other than common
shares purchased by our "affiliates", as defined in Rule 144 under the
Securities Act of 1933, will be freely tradeable.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD HAVE
EFFECTS THAT CONFLICT WITH THE INTERESTS OF OUR SHAREHOLDERS.
Certain provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to our shareholders. For example, our
certificate of incorporation allows us to issue preferred stock without
shareholder approval. Any such issuances of preferred stock could make it more
difficult for a third party to acquire us. As another example, our bylaws
provide that only the board of directors may call a special meeting of
shareholders and that shareholders must follow an advance notification procedure
for certain shareholder nominations of candidates and for certain other
shareholder business to be conducted at the annual meeting. This provision could
delay or frustrate the removal of incumbent directors or a change in control. It
also could discourage, impede or prevent a merger, tender offer or proxy
contest, even if such event would be favorable to the interests of shareholders.
See
13
<PAGE>
"Description of Capital Stock" for other provisions of our certificate of
incorporation that could hinder a third party's attempts to acquire control of
us.
OUR DIRECTORS HAVE LIMITED PERSONAL LIABILITY FOR THEIR ACTIONS.
Subject to limitations imposed by the New York Business Corporation Law, our
certificate of incorporation provides that our directors will not be personally
liable to us or to our shareholders for monetary damages if they breach their
fiduciary duty of care as a director, including breaches which constitute gross
negligence. Thus, under certain circumstances, neither we nor our shareholders
will be able to recover
damages even if directors take actions which are harmful to us. See "Management
- -- Limitation of directors' liability and indemnification" for a further
discussion of director liability.
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS WILL DILUTE THE PERCENTAGE
OWNERSHIP OF OUR OTHER SHAREHOLDERS.
Simultaneously with this offering, the representatives of the underwriters
will receive five-year warrants covering 132,500 common shares. In addition,
there are 124,000 common shares reserved for issuance under our 1999 Stock
Option Plan. At the time this offering becomes effective, options covering
43,324 common shares will be outstanding under this plan. The exercise of any of
these warrants and options will dilute the percentage ownership of our other
shareholders.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believes," "expects,"
"future" and "intends" and similar expressions to identify forward-looking
statements. You should not unduly rely on these forward-looking statements,
which apply only as of the date of this prospectus. Our actual results could
differ materially from those anticipated in these forward-looking statements for
many reasons, including the risks described above and elsewhere in this
prospectus.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the common shares offered by us in
this prospectus will be approximately $6.6 million. Net proceeds from the sale
of common shares are computed by deducting our share of the underwriting
discounts and commissions and estimated offering expenses from the total public
offering price. We intend to use these net proceeds as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
-------------- -----------
<S> <C> <C>
Printing, publishing and distribution costs for NEWYELLOW............................. $ 2,600,000 39.39%
Sales commissions for NEWYELLOW....................................................... 2,400,000 36.36%
Marketing and promotional expenses for NEWYELLOW and our web site..................... 1,400,000 21.21%
General corporate purposes, including working capital................................. 200,000 3.04%
-------------- -----------
$ 6,600,000 100.00%
-------------- -----------
-------------- -----------
</TABLE>
- Printing, publishing and distribution costs represent the actual cost of
printing and distributing approximately 900,000 copies of Manhattan
NEWYELLOW, assuming 1,500 pages per copy.
- Sales commissions reflect commissions that will be paid to our sales force
prior to our actual receipt of advertising revenues.
- Marketing and promotional expenses include expenses related to the
development of strategic alliances and relationships. Such expenses may
include:
- local newspaper, radio and broadcast and cable television advertising,
- bulletin board advertising and
- hiring a public relations firm.
- General corporate purposes include the following:
- hiring additional personnel;
- acquiring and enhancing our operating, support and management
systems;
- costs of opening two new sales offices; and
- capital expenditures for computers and other equipment.
Approximately $100,000 will be used for the further development and
expansion of our web site. The majority of this amount will be used for
programmers.
Working capital may also be applied to acquisitions. We do not have current
plans, agreements or commitments with respect to any acquisition nor are we
currently engaged in any negotiations with respect to any such transaction. Any
15
<PAGE>
proceeds from the exercise of the option we granted to the underwriters to
purchase additional common shares from us will be added to working capital.
We will retain broad discretion in the allocation of the net proceeds of
this offering within the categories listed above. The amounts actually expended
for the purposes may vary significantly and will depend on a number of factors,
including the amount of our future revenues and the other factors described
under "Risk Factors." Pending such uses, the net proceeds of this offering will
be invested in short-term, interest-bearing, investment grade securities.
We expect that the net proceeds from this offering, together with cash flow
from operations, will be sufficient to fund our operations and capital
requirements for at least 12 months following the consummation of this offering.
We may be required to seek additional sources of capital sooner if:
- operating assumptions change or prove to be inaccurate;
- we consummate any acquisitions of significant businesses or assets; or
- we further accelerate our expansion plans and enter new markets more
rapidly.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and capital resources" for a further discussion of
our current and expected future capital requirements and our belief regarding
our ability to meet those requirements.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We may incur indebtedness in the future which may prohibit
or effectively restrict the payment of dividends, although we have no current
plans to do so.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
- on an actual basis,
- on a pro forma basis assuming Dapey Assaf-Hamadrikh became our wholly
owned subsidiary on December 31, 1998 and
- on a pro forma, as adjusted basis assuming Dapey Assaf-Hamadrikh became
our wholly owned subsidiary on December 31, 1998 and giving effect to the
sale of the common shares offered by us in this prospectus after deducting
$1,512,500, our share of the underwriting discounts and commissions and
other estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
<S> <C> <C> <C>
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------------ -------------- --------------
Shareholders' equity:
Preferred shares, $0.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding actual, pro forma or pro
forma, as adjusted............................................. $ -- $ -- $ --
Common shares, $0.001 par value; 25,000,000 shares authorized;
1,250,000 shares issued and outstanding actual; 1,726,190
shares issued and outstanding pro forma; 2,976,190 shares
issued and outstanding as adjusted............................. 1,250 1,726 2,976
Additional paid-in capital....................................... 150 1,392,530 8,003,780
Retained earnings................................................ 523,339 523,339 523,339
------------ -------------- --------------
Total shareholders' equity..................................... 524,739 $ 1,917,595 8,530,095
------------ -------------- --------------
Total capitalization............................................... $ 524,739 $ 1,917,595 $ 8,530,095
------------ -------------- --------------
------------ -------------- --------------
</TABLE>
Common shares outstanding, excludes 124,000 common shares reserved for
issuance pursuant to our 1999 Stock Option Plan. See "Management -- Stock Option
Plan" for a description of our 1999 Stock Option Plan and the options that will
be outstanding under that plan as of the effective date of this offering.
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
approximately $566,614, or $0.33 per common share. Pro forma net tangible book
value per common share represents the amount of total tangible assets less total
liabilities, divided by the pro forma common shares outstanding as of December
31, 1998. Pro forma net tangible book value and pro forma common shares
outstanding as of December 31, 1998 assume that both Dapey Assaf-Dapey Dapey
Zahav and Dapey Assaf-Hamadrikh are our wholly owned subsidiaries. Giving effect
to the issuance and sale of the common shares offered by us in this prospectus,
after deducting $1,512,500, our share of the underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of December 31, 1998 would have been $7,179,114, or $2.41 per common
share. This represents an immediate increase in pro forma net tangible book
value of $2.08 per common share to existing shareholders and an immediate
dilution of $4.09 per common share, or 62.9%, to new investors. The following
table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per common share....................... $ 6.50
Net tangible book value per common share at December 31, 1998........ $ 0.33
Increase in pro forma net tangible book value per common share
attributable to new investors...................................... $ 2.08
Net tangible book value per common share after this offering......... $ 2.41
---------
Dilution per common share to new investors........................... $ 4.09
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of December 31,
1998, the differences between the number of common shares we sold to, the total
consideration and the average price per common share paid by existing
shareholders and to be paid by new investors purchasing common shares from us in
this offering, assuming an initial public offering price of $6.50 per share and
before deducting underwriting discounts and commissions and other offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... 1,726,190 58.00% $ 2,400 0.03% $ 0.00
New investors.............................. 1,250,000 42.00% $ 8,125,000 99.97% $ 6.50
------------ --------- -------------- ---------
Total................................ 2,976,190 100.00% $ 8,127,400 100.00%
------------ --------- -------------- ---------
------------ --------- -------------- ---------
</TABLE>
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
should be read together with, (1) our consolidated financial statements for the
years ended December 31, 1997 and 1998, including the accompanying notes, which
have been audited by Arthur Andersen, LLP, independent public accountants, and
(2) "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------
<S> <C> <C>
1997 1998
-------------- --------------
Net advertising revenues......................................................... $ 2,501,754 $ 2,759,092
Publishing costs................................................................. 441,535 377,983
-------------- --------------
Gross profit..................................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses............................................................... 922,124 946,315
Administrative and general expenses............................................ 658,956 765,233
-------------- --------------
Total operating costs and expenses............................................. 1,581,080 1,711,548
-------------- --------------
Earnings from operations before provision for income taxes and equity income..... 479,139 669,561
Provision for income taxes....................................................... 240,000 329,000
Equity in earnings of affiliate.................................................. 16,012 17,035
-------------- --------------
Net income....................................................................... $ 255,151 $ 357,596
-------------- --------------
-------------- --------------
Basic and diluted net income per common share.................................... $ 0.20 $ 0.29
-------------- --------------
-------------- --------------
Basic and diluted weighted average number of common shares outstanding........... 1,250,000 1,250,000
-------------- --------------
-------------- --------------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998
----------------------
<S> <C>
Cash...................................................................................... $ 310,185
Working capital........................................................................... 162,041
Total assets.............................................................................. 2,970,190
Total liabilities......................................................................... 2,445,451
Total shareholders' equity................................................................ 524,739
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS SECTION OF THIS PROSPECTUS INCLUDES A NUMBER OF FORWARD-LOOKING
STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS "PLAN," "BELIEVES," "EXPECTS,"
"FUTURE" AND "INTENDS" AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING
STATEMENTS. YOU SHOULD NOT UNDULY RELY ON THESE FORWARD-LOOKING STATEMENTS,
WHICH APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR OUR PREDICTIONS. FOR A
DESCRIPTION OF SOME OF THESE RISKS, SEE "RISK FACTORS."
We currently publish and distribute two yellow page directories, the JEWISH
ISRAELI YELLOW PAGES and the MASTER GUIDE, in print and on the world wide web.
These directories cover the New York metropolitan market. In addition, to give
added value to users of and advertisers in our directories, we also operate the
JEWISH REFERRAL SERVICE and a "portal" web site. By June 2000, we plan to launch
NEWYELLOW, an English-only, general interest yellow page directory that will
compete directly with the Bell Atlantic Yellow Pages in the New York
metropolitan market.
Our principal source of revenue derives from the sale of ads for our
directories. Our advertising rates for new advertisers have increased
approximately 20% to 30% a year since 1990. However, we believe it is unlikely
that this trend will continue. Any further increases in our advertising rates
would reduce the disparity between our rates and those of the Bell Atlantic
Yellow Pages and may cause some of our advertisers to stop advertising in our
directories.
Advertising fees, whether collected in cash or evidenced by a receivable,
generated in advance of publication dates is recorded as "Advanced billings for
unpublished directories" on our balance sheet. Many of our advertisers pay the
fee over a period of time. In that case, the entire amount of the deferred
payment is booked as a receivable. Revenues are recognized at the time the
directory in which the ad appears is published. Similarly, costs directly
related to the publication of a directory in advance of publication are recorded
as "Directories in progress" on our balance sheet and are recognized when the
directory to which they relate is published. All other costs are expensed as
incurred.
The principal operating costs incurred in connection with publishing the
directories are commissions payable to sales representatives and costs for paper
and printing. Generally, advertising commissions are paid as advertising revenue
is collected. However, we expect that for the initial edition of NEWYELLOW we
will have to pay commissions to our sales representatives even before we collect
the related advertising revenue. Accordingly, approximately $2.4 million of the
net proceeds of this offering is earmarked for commissions payable with respect
to NEWYELLOW advertising. Administrative and general expenses include
expenditures for marketing,
20
<PAGE>
insurance, rent, state and local franchise taxes, licensing fees, office
overhead and wages and fees paid to employees and contract workers.
RECENT DEVELOPMENTS
Currently, our entire business is operated by Dapey Assaf-Dapey Zahav and
Dapey Assaf-Hamadrikh. Dapey Assaf-Dapey Zahav, 100% owned by Assaf Ran,
publishes the directories and conducts all other aspects of our business. Dapey
Assaf-Hamadrikh owns all the trademarks, trade names and service marks used in
connection with our business and provides collection services to Dapey
Assaf-Dapey Zahav. Mr. Ran owns 50% of Dapey Assaf-Hamadrikh.
Management believed that the success of this offering would depend, in part,
on the ability of the public shareholders to acquire an interest in an entity
that owns all of the assets used in the business, including the intellectual
property rights. Accordingly, DAG Media was organized in February 1999 to serve
as the corporate parent of Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh.
This will be accomplished through an exchange transaction. Immediately before
the effective date of this offering, the shareholders of Dapey Assaf-Dapey Zahav
and Dapey Assaf-Hamadrikh will exchange all of their shares in those entities
for 1,726,190 of our common shares. As a result, Dapey Assaf-Dapey Zahav and
Dapey Assaf-Hamadrikh will become our wholly owned subsidiaries.
The transaction described above will be accounted for under the purchase
method of accounting. Accordingly, the value of the consideration deemed to have
been paid to the minority shareholders of Dapey Assaf-Hamadrikh, 238,095 of our
common shares, will be allocated among the assets of Dapey Assaf-Hamadrikh,
including our trademarks, tradenames and other intellectual property, based on
their relative fair market values and to the extent of their fair market values.
The excess of "purchase price" over the value of these assets will be allocated
to goodwill. The purchase price is deemed to be approximately $1,393,000. Of
this amount, $350,000 will be allocated to the intellectual property rights and
approximately $1 million will be allocated to goodwill. These amounts will be
amortized on a straight-line basis over 25 years, or $54,000 per year, beginning
with our 1999 fiscal year.
Until the exchange transaction described above occurs, our historical
financial data include all of the operations of Dapey Assaf-Dapey Zahav and 50%
of the net income of Dapey Assaf-Hamadrikh.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods presented statement of
operations data as a percentage of net advertising revenue. The trends suggested
by this table may not be indicative of future operating results.
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Net advertising revenues......................................... 100.00% 100.00%
Publishing costs................................................. 17.65% 13.70%
Gross profit..................................................... 82.35% 86.30%
Selling expenses................................................. 36.86% 34.30%
Administrative and general expenses.............................. 26.34% 27.73%
Total operating costs and expenses............................... 63.20% 62.03%
Earnings before provisions for income taxes and equity income.... 19.15% 24.27%
Provision for income taxes....................................... 9.59% 11.92%
Equity in earnings of affilliate................................. 0.64% 0.62%
Net income....................................................... 10.20% 12.96%
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1998
NET ADVERTISING REVENUES. Net advertising revenues for 1998 increased to
$2,759,092 from $2,501,754 in the prior year, an increase of 10.29%. The
increase reflected both increases in ad rates to new advertisers as well as an
increase in the number of advertisers. The 16(th) and 17(th)editions published
in February and August 1998, had 2,675 and 2,776 advertisers, respectively. The
14(th) and 15(th) editions published in February and August 1997, had 2,311 and
2,725 advertisers, respectively.
PUBLISHING COSTS. Publishing costs for 1998 decreased to $377,983 from
$441,535 in 1997, or 14.39%. Such decrease resulted from:
- a global decrease in paper prices,
- the use of thinner paper and
- the printer's agreement to pay shipping costs.
As a result of the increase in net advertising revenues and the decrease in
publishing costs, gross profit for 1998 increased to $2,381,109 from $2,060,219,
or 15.58%.
SELLING EXPENSES. Selling expenses increased 2.62% to $946,315 in 1998 from
$922,124 in the prior year. However, as a percentage of net advertising
revenues, selling expenses declined to 34.30% in 1998 from 36.86% in the prior
year, reflecting lower commission rates and higher advertising rates.
ADMINISTRATIVE AND GENERAL EXPENSES. Administrative and general expenses in
1998 were $765,233 compared to $658,956 in 1997, an increase of 16.13%. This
increase was attributable to the hiring of additional clerical personnel
necessitated by the
22
<PAGE>
growth in the size of the JEWISH ISRAELI YELLOW PAGES and the publication of the
1(st) edition of the MASTER GUIDE.
EARNINGS BEFORE PROVISION FOR INCOME TAXES AND EQUITY INCOME. Earnings
before provision for income taxes and equity income in 1998 were $669,561
compared to $479,139 for the prior year, an increase of 39.74%. This increase is
attributable to a 10.29% increase in net advertising revenues and only a 3.31%
increase in total costs and expenses. More importantly, as a percentage of net
advertising revenues, total costs and expenses decreased from 80.85% in 1997 to
75.73% in 1998.
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of affiliate represents
50% of the net income of Dapey Assaf-Hamadrikh. For 1998 equity in earnings of
affiliate was $17,035 compared to $16,012 for 1997, an increase of 6.39%. As a
percentage of net advertising revenues, equity in earnings of affiliate was
virtually the same in both years.
PROVISION FOR INCOME TAXES. Provision for income taxes in 1998 and 1997 was
$329,000 and $240,000, respectively. As a percentage of net advertising
revenues, provision for income taxes increased to 11.92% in 1998 from 9.59% in
1997.
NET INCOME. Net income for 1998 increased 40.15% to $357,596 from $255,151
in 1997. As a percentage of net advertising revenues, net income in 1998
increased 27.06% to 12.96% from 10.20% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
To date, our only source of funds has been cash flow from operations, which
has funded both our working capital needs and capital expenditures. We have no
debt or credit facilities. Generally, advertising fees, whether collected in
cash or evidenced by a receivable, are generated before the publication of the
related directory and before many of the costs directly associated with
publishing the related directory are incurred.
At December 31, 1998 we had cash and cash equivalents of $310,185 and
working capital of $162,041 compared to cash and cash equivalents of $132,741
and working capital of $47,638 at December 31, 1997. For the year ended December
31, 1998, net cash provided by operating activities was $433,731, compared to
$133,253 for the prior year. Net cash used in investing activities in 1998 was
$34,940 of which $17,035 represented 50% of the net income of Dapey
Assaf-Hamadrikh and $17,905 was used to purchase new computer equipment. Net
cash used in financing activities in 1998 was $221,347, the amount of the loan
made to our principal shareholder, Assaf Ran.
At December 31, 1998, advance billings for unpublished directories and
directories in progress were $1,832,341 and $623,335, respectively. In
comparison, the corresponding amounts at December 31, 1997, were $1,226,343 and
$379,390, respectively. At December 31, 1998, we had income taxes payable of
$358,000 and deferred taxes payable of $171,000. Deferred taxes payable
represents the timing
23
<PAGE>
difference between reporting income on an accrual basis for financial purposes
and on a cash basis for tax purposes.
We do not have any material commitments under any leases, sales agency
agreements or employment agreements, other than the employment agreements with
Assaf Ran and Dvir Langer. However, we expect our working capital requirements
to increase significantly over the next 12 months as we implement our plan to
launch our new directory, NEWYELLOW, and continue to expand our web site. The
net proceeds of this offering will be used to pay sales commissions to our sales
representatives with respect to ad sales for NEWYELLOW, for marketing expenses
for NEWYELLOW and our web site, for the cost of printing and distributing
NEWYELLOW and for other operating expenses that are expected to increase as we
expand our business. Accordingly, we will depend primarily on the net proceeds
of this offering to expand our operations. We expect that the net proceeds of
this offering, together with our cash flow from operations, will be sufficient
to meet our working capital requirements for at least the next 12 months.
YEAR 2000 COMPLIANCE
The "Year 2000" problem, which is the result of certain computer programs
being written using two digits, rather than four digits, to define the
applicable year. Computer programs and microprocessors that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, or not recognize the date at all, which could result in major system
failures or miscalculations. If we or our suppliers or vendors experience Year
2000 problems, these problems could adversely impact our ability to service our
customers or otherwise carry on our business, including causing interruptions in
the operation of our web site, customer billing, and invoicing and data
interfaces to and from these systems.
We are not currently aware of any material operational issues or costs
associated with preparing our internal systems for the Year 2000. Substantially
all of our existing systems, software and hardware have been purchased or
replaced since 1996 and, presumably, are Year 2000 compliant. However, the
possibility exists that, notwithstanding assurances given by our vendors, such
systems may contain undetected errors or defects relating to the Year 2000
problem. We are also subject to external Year 2000-related failures or
disruptions that might generally affect industry and commerce, such as
financial, utility or transportation industry Year 2000 compliance failures and
related service interruptions. All of these factors could materially adversely
affect our business, results of operations and financial condition. We have not
yet developed a contingency plan to address situations that may result if we are
unable to achieve Year 2000 compliance. The cost of developing and implementing
this kind of plan, if necessary, could be material.
24
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This statement establishes the
fair market value based method of accounting for an employee stock option but
allows companies to continue to measure the compensation cost for those plans
using the intrinsic value-based method of accounting prescribed by APB Opinion
No. 25 "Accounting for Stock Issued to Employees." Companies electing to
continue using the accounting provided for under APB Opinion No. 25 must,
however, make pro forma disclosures of net income and earnings per share as if
the fair value-based method of accounting defined in SFAS No. 123 had been
applied. We have elected to account for stock-based compensation awards to
employees and directors under the accounting prescribed by APB Opinion No. 25
and will provide the disclosures required by SFAS No. 123.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement requires the presentation of both
"basic earnings per share" and "diluted earnings per share" on the face of the
statement of operations. Basic earnings per share is computed on the weighted
average number of shares actually outstanding during the year and diluted
earnings per share takes into account the effect of potential dilution from the
exercise of outstanding dilutive stock options and warrants for common stock
using the treasury stock method. We have adopted SFAS No. 128 for the current
fiscal year.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131,
applicable to public companies, established new standards for reporting
information about operating segments in annual and periodic financial
statements. SFAS No. 131 is effective beginning with the year ended December 31,
1998. We believe that we operate in only one segment.
25
<PAGE>
BUSINESS
We currently publish and distribute two yellow page directories, the JEWISH
ISRAELI YELLOW PAGES and the MASTER GUIDE, in print and on the world wide web.
These directories cover the New York metropolitan market, which includes the
five boroughs of New York City, Nassau, Suffolk, Westchester and Rockland
counties and northern New Jersey. Based on our knowledge of the market, we
believe that our yellow page directories have more paying advertisers than those
of any publisher of yellow page directories for the New York metropolitan market
except Bell Atlantic. In addition, to give added value to users of and
advertisers in our directories, we also operate the JEWISH REFERRAL SERVICE, and
a "portal" web site. By June 2000, we plan to launch NEWYELLOW, an English-only,
general interest yellow page directory that will compete directly with the Bell
Atlantic Yellow Pages in the New York metropolitan market.
INDUSTRY BACKGROUND(*)
In 1998, yellow page advertising revenues in the United States were
estimated to be $12.07 billion, a 6.3% increase over 1997 yellow page
advertising revenues of $11.36 billion. The eight largest publishers of yellow
page directories in the United States -- including the five regional bell
operating companies, GTE, SNET and Sprint -- account for the overwhelming
majority of yellow page advertising revenues. Bell Atlantic and SBC Directory
Operations, a division of SBC Corporation, one of the regional bell operating
companies, are the two largest publishers of yellow page directories in the
United States, each having annual yellow page advertising revenue in excess of
$2 billion.
There are many independent publishers of yellow page directories in the
United States. In 1997 United States publishers of yellow page directories not
affiliated with local telephone companies increased their market share to 6.4%
from 6.2% in 1996. Their yellow page advertising revenues were expected to grow
by 15.4% in 1998.
Further, in 1997 the total aggregate yellow page advertising revenues of
companies that publish yellow page directories on the Internet were
approximately $21.8 million. Simba estimates that yellow page Internet
advertising revenues will grow significantly, reaching $164.9 million by 2000.
PRODUCTS AND SERVICES
THE JEWISH ISRAELI YELLOW PAGES. The JEWISH ISRAELI YELLOW PAGES is a
bilingual, yellow page directory that is distributed free through local
commercial and retail establishments in the New York metropolitan area as well
as through travel agencies
- ---------------------
* Except as otherwise indicated, all industry data are based on the YELLOW
PAGES & DIRECTORY REPORT, a publication of Cowles/Simba Information, a unit
of Cowles Business Media; INTERNET YELLOW PAGES, 1998: BUSINESS MODELS AND
MARKET OPPORTUNITIES, an annual research report published by Cowles/Simba;
and oral communications with representatives of Cowles/Simba in January
1999.
26
<PAGE>
in Israel. All ads in the JEWISH ISRAELI YELLOW PAGES are in English and Hebrew
unless the advertiser specifically requests that the ad be English only. The
JEWISH ISRAELI YELLOW PAGES is organized according to the Hebrew alphabet,
although it is indexed in both Hebrew and English. We believe that the JEWISH
ISRAELI YELLOW PAGES is used principally by persons whose native language is
Hebrew although it is also used by members of the Jewish community whether or
not they speak Hebrew.
The JEWISH ISRAELI YELLOW PAGES was first published in February 1990 and has
been published in February and August of each year since 1991. Currently,
approximately 350,000 copies of the JEWISH ISRAELI YELLOW PAGES are printed and
distributed annually. The JEWISH ISRAELI YELLOW PAGES has grown substantially
since its initial edition. The 1(st)edition, published in February 1990, had 118
pages and approximately 217 advertisers. The 18(th) edition, published in
February 1999, has 1,696 pages and more than 3,200 advertisers. No single
advertiser accounts for a material portion of our ad revenues. We believe that,
based on the number of pages and paying advertisers, the JEWISH ISRAELI YELLOW
PAGES is the largest yellow page directory in the New York metropolitan area not
published by Bell Atlantic.
The tables below illustrate the growth in the number of pages and
advertisers of the JEWISH ISRAELI YELLOW PAGES. Data for the years 1991 through
1998 represent an average of the two directories published in each of those
years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PAGES PER DIRECTORY
<S> <C>
PAGES
1990 118
1991 174
1992 215
1993 272
1994 321
1995 430
1996 792
1997 1239
1998 1408
1999 1696
YEAR
</TABLE>
27
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AVERAGE ADVERTISERS PER DIRECTORY
<S> <C>
ADVERTISERS
1990 217
1991 505
1992 574
1993 646
1994 806
1995 1115
1996 1592
1997 2518
1998 2725
1999 3244
YEAR
</TABLE>
Advertisers in the JEWISH ISRAELI YELLOW PAGES include companies such as El
Al Israel Airlines, Sprint PCS and AllState Insurance Company, as well as local
and neighborhood businesses, such as restaurants, car dealerships, retail
establishments, professionals, such as doctors, accountants and lawyers, and
travel agencies. Typically, the advertisers provide us with the copy of their ad
and our trained bilingual staff produces Hebrew text for the ad. Our editors
also design ads for our advertisers. The size of an ad can range from a single
line listing to a full page. Approximately 1% of the ads are line listings; the
balance are at least one-sixth of a page. Prices range from $300 for a line
listing to $4,206 for a full page. Special rates apply for full color ads and
premium positioning. Full color ads are $6,250 and premium positioning ranges
from $8,250 to $22,000. Except for line listings, prices include all copy,
graphic and design work. Basic ads are printed in black and red while premium
ads are printed in four colors. Historically, our advertising rates for new
advertisers have increased at the rate of 20 to 30% annually since 1990, we
believe that it is unlikely that this trend will continue. Any further increases
in our advertising rates would reduce the disparity between our rates and those
of the Bell Atlantic Yellow Pages and may cause some of our advertisers to stop
advertising in our directory.
All production, including layout, design, edit and most proofreading
functions, for the JEWISH ISRAELI YELLOW PAGES is performed at our headquarters
in Queens, New York by our bilingual staff. The final version of the JEWISH
ISRAELI YELLOW PAGES is shipped to Israel to be printed by HaMakor Printing. The
printed directories are shipped to our main office in New York for distribution.
We believe that HaMakor provides us with a competitive advantage with
respect to cost, quality and responsiveness. From time to time we receive
solicitations from printers who would like to publish our directory. We have
consistently found their pricing to be significantly higher than that of
HaMakor, even after taking into account shipping costs. In addition, we believe
the quality of HaMakor's product is superior to anything that a local printer
would produce, particularly because so much of the
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<PAGE>
directory is in Hebrew. Finally, because of our long standing relationship with
HaMakor we receive timely service.
We buy all our paper for our directories on the local market at prevailing
prices. Accordingly, we do not depend on any single source of supply although we
are subject to market forces that affect the price of paper.
THE MASTER GUIDE. In October 1998 we published the first edition of the
MASTER GUIDE, a yellow page directory designed to meet the special needs of the
Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area.
The first edition of the MASTER GUIDE had 124 pages and 80 advertisers. A second
edition is scheduled for publication in June 1999. We produce the MASTER GUIDE
generally in the same manner as we do the JEWISH ISRAELI YELLOW PAGES, including
printing it in Israel. The MASTER GUIDE differs from the JEWISH ISRAELI YELLOW
PAGES in that the MASTER GUIDE is published in English only, does not advertise
products or services that might offend the Hasidic and ultra-Orthodox Jewish
communities and is only published once a year. Generally, advertising rates for
the MASTER GUIDE are lower than those for the JEWISH ISRAELI YELLOW PAGES
because the market that it serves is smaller. Distribution of the MASTER GUIDE
is accomplished by placing copies of the directory in synagogues, community
centers and businesses located in Hasidic and ultra-Orthodox neighborhoods. The
development of the MASTER GUIDE reflects our strategy to expand by identifying
and pursuing niche markets for yellow page directories.
THE JEWISH REFERRAL SERVICE. The JEWISH REFERRAL SERVICE provides added
value to users of and advertisers in our directories. Potential consumers who
are looking to purchase goods or services call the referral service and an
operator directs them to one or more advertisers in our directories. Tourists
also call the referral service with questions involving travel, lodging, visa
issues, driver's license issues and the like. Finally, advertisers use the
referral service as a tool to generate new business.
The telephone number for the JEWISH REFERRAL SERVICE is published throughout
our directories and in newspapers serving the Jewish and Israeli communities. As
part of the referral service, we recently established a program under which
participating advertisers have agreed to give discounts to customers who produce
the Jewish Israeli Yellow Pages Consumer Discount Card. This card is distributed
with the JEWISH ISRAELI YELLOW PAGES or the MASTER GUIDE or can be ordered
directly from us. By presenting the card at participating establishments,
consumers can receive discounts of up to 10%.
ONLINE SERVICES. Initially our web site, launched in 1995, contained an
English-only version of the JEWISH ISRAELI YELLOW PAGES. In 1999 we expanded our
online presence so that our web site functions as a "portal" with links to a
variety of sites on the web, particularly those that carry information and news
that may be of particular interest to the Israeli and Jewish communities. It
also provides a link to our directories as well as the web sites of our
advertisers. We also develop web sites for our advertisers for a fee. We plan to
further enhance our web site by providing links
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<PAGE>
to NEWYELLOW and community-focused yellow page directories, by including news
and information and by creating strategic alliances with other Internet portals.
While we have not yet derived any revenue from our web site, we plan to explore
ways in which it can be used to generate additional advertising revenue.
GROWTH STRATEGY
We plan to expand our operations by introducing NEWYELLOW, English-only,
general interest yellow page directories, in the New York metropolitan area. We
plan to introduce the first NEWYELLOW directory in Manhattan by June 2000. If
the Manhattan NEWYELLOW directory is successful, we plan to offer additional
NEWYELLOW directories covering the other boroughs in New York City, the other
counties in the New York metropolitan area and northern New Jersey.
NEWYELLOW will compete directly with yellow page directories published by
Bell Atlantic. Ads in NEWYELLOW will be priced significantly below the rates
currently charged by Bell Atlantic for its yellow page directories. Thus,
NEWYELLOW will be positioned as a low-cost alternative to the Bell Atlantic
Yellow Pages, appealing to smaller businesses that are looking for a less
expensive alternative. Although we have not conducted any formal marketing
surveys, some of our advertisers have told us that they do not advertise in the
Bell Atlantic Yellow Pages because the rates are too high and other advertisers
have indicated that they would switch from the Bell Atlantic Yellow Pages if a
less expensive alternative were available. We believe that our lower advertising
rates as well as our expertise in publishing yellow page directories,
particularly our ability to hire, train and manage an effective sales force, our
low advertising rates and our low overhead will enable us to compete effectively
with Bell Atlantic.
We may also explore opportunities for adding JEWISH ISRAELI YELLOW PAGES and
MASTER GUIDE directories in other cities with large Jewish and Israeli
populations, such as Miami, Florida and Los Angeles, California.
SALES
Advertisements for the JEWISH ISRAELI YELLOW PAGES and the MASTER GUIDE are
sold through our network of trained sales representatives, all of which are
independent contractors and are paid solely on a commission basis. Of the
approximately 65 sales representatives in our network, 32 are hired directly by
us and 33 are hired by two independent sales agencies with which we have sales
agency agreements, B.I.Y., Inc. and M.I.Y. Inc. The sales representatives hired
by us work out of our offices in Queens, New York and Fairlawn, New Jersey.
B.I.Y. is located in Brooklyn, New York and M.I.Y. is located in Manhattan, New
York. Our selling force is based in these locations because of the high
concentration of Jewish and Israeli consumers in these areas.
We plan to open two new company-owned sales offices in 1999: one in Long
Island that will be dedicated to the JEWISH ISRAELI YELLOW PAGES and the MASTER
GUIDE
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<PAGE>
and one in Manhattan dedicated to NEWYELLOW. We have commenced our search for
managers to supervise these offices but have not taken any further steps in
connection with this expansion. At the appropriate time we will decide whether
to lease or buy the facilities that will house these operations. Funds for the
opening of these offices will come from the net proceeds of this offering and
cash flow from operations.
Under our agreements with the independent sales agencies, which are
terminable upon 30 days notice, the agencies may not sell advertising for any
yellow page directories other than those we publish. Generally, each sales
agency is responsible for all fixed costs relating to its operations. We pay
sales commissions to the agencies, which, in turn, pays commissions to the
individual sales representatives who sell the ads. The commissions payable to
the individual sales representatives are prescribed in our agreements with the
agencies and are consistent with the commissions we pay to the sales
representatives that we hire directly.
We are responsible for training each sales representative, whether hired
directly by us or by one of our sales agencies. Generally, training consists of
one-day orientation, during which one of our sales managers educates the sales
representative about our business and operations, and a two-week period during
which the sales representative receives extensive supervision and support from a
sales manager or another experienced sales representative.
MARKETING STRATEGY
The JEWISH ISRAELI YELLOW PAGES and MASTER GUIDE are marketed to the Jewish
and Israeli communities living in the New York metropolitan area. According to
the American Jewish Congress, there are approximately two million Jews living in
this market, representing approximately 10.6% of the total population.
Furthermore, we believe that the Jewish population has higher than average
disposable income, is well educated and possesses a strong sense of community.
In addition, while there is no precise data as to the number of Israeli
immigrants living in the New York metropolitan area, we believe the number is
substantial. Moreover, a significant number of Israeli tourists visit the area
annually. Accordingly, we believe that advertisers are attracted to the JEWISH
ISRAELI YELLOW PAGES as a way to advertise directly to this market. Furthermore,
we believe that the Jewish population in the New York metropolitan area is
likely use to the JEWISH ISRAELI YELLOW PAGES because of the impression that
businesses that advertise in the JEWISH ISRAELI YELLOW PAGES support or are
affiliated with the Jewish community. In the case of the MASTER GUIDE, users can
be comfortable that none of its advertisers will offend their religious beliefs.
We also believe that our advertising rates are attractive, particulalrly to
small businesses who cannot afford to advertise in the Bell Atlantic Yellow
Pages. Generally, advertising rates for the JEWISH ISRAELI YELLOW PAGES and the
MASTER GUIDE are approximately 33% of the rates for the Bell Atlantic Yellow
Pages.
NEWYELLOW will initially compete directly with the Bell Atlantic Yellow
Pages in Manhattan and then with the Bell Atlantic Yellow Pages in the other
boroughs of
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<PAGE>
New York City and in the surrounding suburbs. Initially, we will dedicate up to
10 sales representatives from our existing network, spread out over the four
sales offices, to selling ads for NEWYELLOW. Before the end of 1999, we expect
to open a new company-owned sales office, which will be staffed by sales
representatives that we will hire directly and which will be dedicated to
selling ads exclusively for NEWYELLOW. Because NEWYELLOW is a new publication,
which may make it more difficult to sell, and because it will compete directly
with Bell Atlantic, the commission structure for NEWYELLOW sales representatives
may have to be higher than it is for our other directories.
We believe that advertisers will be attracted to NEWYELLOW for several
reasons. First, NEWYELLOW is likely to be smaller and less dense than the Bell
Atlantic Yellow Pages, so that each advertisement in NEWYELLOW will stand out
more prominently than it would in the Bell Atlantic Yellow Pages. Second,
advertising rates for NEWYELLOW will be significantly lower than the comparable
rates for advertising in the Bell Atlantic Yellow Pages. Accordingly, we believe
that NEWYELLOW will attract advertisers who do not currently advertise in the
Bell Atlantic Yellow Pages as well as existing Bell Atlantic Yellow Page
advertisers. The table below compares the proposed advertising rates for the
first edition of NEWYELLOW and the advertising rates generally offered by Bell
Atlantic for the 1999 edition of its Yellow Pages. All rates assume single color
ads using black print on yellow paper.
<TABLE>
<CAPTION>
BELL
ATLANTIC
NEWYELLOW YELLOW PAGES
------------ ------------
<S> <C> <C>
Full Page..................................................... $ 21,120 $ 74,496
Half Page..................................................... $ 12,684 $ 37,248
Quarter Page.................................................. $ 6,802 $ 18,624
Sixth Page.................................................... $ 4,864 $ 12,416
Eighth Page................................................... $ 3,686 $ 9,312
Sixteenth Page................................................ $ 1,824 $ 4,656
Inside Front Cover............................................ $ 75,000 $ 300,000
Inside Back Cover............................................. $ 75,000 $ 300,000
Back Cover.................................................... $ 150,000 $ 500,000
Page One...................................................... $ 75,000 ***
</TABLE>
We plan to advertise NEWYELLOW primarily in local media outlets where
advertising rates are relatively low. In addition to marketing NEWYELLOW
independently, we will also seek to enter joint marketing agreements with local
and long distance telecommunications companies. We intend to spend approximately
$1.5 million from the net proceeds of this offering on the marketing campaign
for NEWYELLOW. See "Use of Proceeds" for a more detailed discussion regarding
how we intend to use the net proceeds of this offering.
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<PAGE>
GOVERNMENT REGULATION
We are subject to laws and regulations relating to business corporations
generally, such as the Occupational Safety and Health Act, Fair Employment
Practices and minimum wage standards. We believe that we are in material
compliance with all laws and regulations affecting our business and we do not
have any material liabilities under these laws and regulations. In addition,
compliance with all these laws and regulations does not have a material adverse
effect on our capital expenditures, earnings, or competitive position.
COMPETITION
In New York, the market for yellow page advertising is dominated by Bell
Atlantic. In addition, there are a number of independent publishers of yellow
page directories, including bilingual directories for specific ethnic
communities. There are also independent publishers of yellow page directories
that publish community or neighborhood directories. However, we are not aware of
any other Hebrew-English yellow page directory or a yellow page directory that
is published specifically for the Hasidic and ultra-Orthodox Jewish communities
in the New York metropolitan area. By focusing on the special needs of the
Hebrew speaking and the Hasidic and ultra-Orthodox Jewish communities, we
believe that we have identified niche markets that allows us to compete
effectively with our larger rivals.
Unlike the JEWISH ISRAELI YELLOW PAGES and the MASTER GUIDE, NEWYELLOW will
compete directly with the Bell Atlantic Yellow Pages and other smaller,
English-only, general interest yellow page directories published by companies
other than Bell Atlantic. In addition, since there are virtually no barriers to
entry in this market, any company with a reasonable amount of capital, such as
the RBOCs or publishers, are potential competitors. In addition, the Internet is
growing rapidly and is a current and potential source of even greater
competition. There are a number of online yellow page directories, including Big
Yellow, owned by Bell Atlantic. Finally, strategic alliances could give rise to
new or stronger competitors.
INTELLECTUAL PROPERTY
To protect our rights to our intellectual property, we rely on a combination
of federal, state and common law trademarks, service marks and trade names,
copyrights and trade secret protection. We have registered some of our
trademarks and service marks on the supplemental register of the United States
and some of our trade names in Queens, New York and New Jersey. In addition,
every directory we publish has been registered with the United States copyright
office. The protective steps we have taken may be inadequate to deter
misappropriation of our proprietary information. We may be unable to detect the
unauthorized use of, or take steps to enforce, our intellectual property rights.
In addition, although we believe that our proprietary rights do not infringe on
the intellectual property rights of others, other parties may assert
infringement claims against us or claims that we have violated a trademark,
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<PAGE>
trade name, service mark or copyright belonging to them. These claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources on our part.
EMPLOYEES
As of March 1, 1999, we employed three people, two of whom are full-time,
and all of whom were employed in executive, managerial or administrative
positions capacities. In addition, we retained the services of 10
administrative, accounting and production personnel, all of whom are independent
contractors. Finally, we had a network of 65 sales representatives, 32 hired by
us directly and 33 hired by the independent sales agencies that sell ads for our
directories. We believe that our relationship with our employees and contractors
is good. None of our employees is represented by a labor union.
FACILITIES
Our executive and principal operating office is located in Queens, New York
in 3,000 square feet. This space is occupied under a lease expiring October 30,
1999. The monthly rent is $4,552. After this offering is completed, we intend to
enter into negotiations with the owner of the premises regarding a new lease. If
we cannot reach an agreement within a reasonable amount of time, we will look
for alternative space which we believe will be available on satisfactory terms.
Our New Jersey sales office is located in an approximately 1,000 square foot
facility in Fair Lawn, New Jersey. The space is leased on a month-to-month basis
for $1,100 per month.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, including those who will take office
on the effective date of this offering, and their respective ages, as of April
20, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------
<S> <C> <C>
Assaf Ran.............................. 33 Chief executive officer, president and
director
Dvir Langer............................ 30 Vice president--sales and corporate
development nominee and director nominee
Eyal Huberfeld......................... 24 Vice president--sales and director
Hanan Goldenthal....................... 48 Chief financial and accounting officer,
treasurer and secretary
Yoram Evan............................. 32 Director nominee
Phillip Michals........................ 29 Director nominee
Eran Goldshmid......................... 32 Director nominee
</TABLE>
All directors hold office until the next annual meeting of shareholders and
until their successors are duly elected and qualified. Officers are elected to
serve subject to the discretion of the board of directors.
Set forth below is a brief description of the background and business
experience of our executive officers and directors:
ASSAF RAN, our founder, has been our chief executive officer and president
since our inception in 1989. In 1987 Mr. Ran founded Dapey Assaf Maagarei
Mechirim, Ltd., a publishing company in Israel, and is a member of its board of
directors.
DVIR LANGER will become our vice president--sales and corporate development
and will join our board of directors when this offering becomes effective. From
August 1996 through April 1999, Mr. Langer was employed by Prudential Securities
as a financial advisor. He has also been an employee of Cosmo Management
Corporation, a real estate management firm, since May 1994. Mr. Langer received
a BA degree in philosophy from the University of British Columbia in June 1993
and a JD from Brooklyn Law School in June 1996. He has been a member of the New
York State Bar since February 1997.
EYAL HUBERFELD has been our vice president--sales since June 1998 and a
member of our board of directors since February 1999. From September 1997
through June 1998, was one of our independent sales representatives. From August
1996 to January 1997, Mr. Huberfeld worked for Yedeot Aharonot, an Israeli daily
newspaper,
35
<PAGE>
as a marketing manager and consultant. Between March 1993 and March 1996, Mr.
Huberfeld served in the Israeli Defense Force, in the bomb disposal unit.
HANAN GOLDENTHAL has been our chief financial and accounting officer,
treasurer and secretary since February 1999. For the last 10 years, he has been
engaged in the practice of public accounting. Until December 1998, he was a
principal of Goldenthal & Pankowski, CPAs, and since January 1999, he has been a
principal of Goldenthal & Suss, CPAs, PC. From September 1995 to December 1998,
he was also a principal of GP Business Solutions, Inc., a management consulting
firm. Mr. Goldenthal has been our accountant since our inception. Mr. Goldenthal
is a part-time employee and continues to practice accounting with Goldenthal &
Suss, CPAs, PC. Mr. Goldenthal is a certified public accountant and received a
BBA from Baruch College in June 1976.
YORAM EVAN has been a member of our board of directors since October 1998.
Since January 1999, he has been vice president of operations and finance and,
since July 1997, a member of the board of directors of Netgrocer, an internet
grocery company. From December 1997 to December 1998, he was the chief financial
officer of American Value Brands, Inc., a food marketing company. From April
1996 to September 1997, Mr. Evan has acted as the managing partner of two
investment funds in Israel, which he founded. From March 1992 to April 1996, Mr.
Evan served in the budget department of the Israeli Ministry of Finance. Mr.
Evan received a BA in economics in July 1991 and an MBA in February 1997 from
the University of Tel Aviv in Israel.
PHILLIP MICHALS will join our board of directors when this offering becomes
effective. He is the founder and, since August 1996, the president of Up-Tick
Trading, a consulting company to investment banking firms. Since July 1994, he
has also been a principal and a vice president of Michals and Stockmen
Consulting Inc., a management consulting firm. Mr. Michals received a BS degree
in human resources from the University of Delaware in May 1992.
ERAN GOLDSHMID will join our board of directors when this offering becomes
effective. Since December 1998, he has been the general manager of the Carmiel
Shopping Center in Carmiel, Israel. From April 1995 through December 1998, he
was head of marketing at Environmental Engineering & Design Company, Ltd., Tel
Aviv, Israel. From February 1993 through April 1995, he was head of a sales
office for Yedioth Aharonath, an Israeli daily newspaper. Mr. Goldshmid received
certification as a financial consultant in February 1993 from the School for
Investment Consultants, Tel Aviv, Israel, and a BA in business administration
from the University of Humberside, England in December 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established compensation and audit committees.
Messrs. Evan, Michals and Goldshmid will be members of both committees, and Mr.
Ran will be a member of the audit committee. The compensation committee will
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<PAGE>
review and make recommendations to the board of directors regarding compensation
matters. The compensation committee will also administer our stock option plan.
The audit committee will meet with management and our independent public
accountants to determine the adequacy of internal controls and other financial
reporting matters.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during the year ended December 31, 1998 to our chief executive officer. No
other employee received compensation in excess of $100,000 for such year.
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME SALARY BONUS COMPENSATION COMPENSATION
- -------------------------------------------- --------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C>
Assaf Ran................................... $ 25,000 -- -- --
</TABLE>
In addition, we advanced $295,262, net of repayments, to Mr. Ran in 1998.
Mr. Ran will repay this loan out of the proceeds from the sale of his common
shares offered by this prospectus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until after the consummation of this offering, we will not have a
compensation committee or other board committee performing equivalent functions.
Employment contracts with Messrs. Ran and Langer have been approved by the
entire board of directors, consisting of Messrs. Ran, Huberfeld and Evan.
EMPLOYMENT CONTRACTS
In March 1999, we entered into an employment agreement with Assaf Ran
providing for his employment as president and chief executive officer until June
30, 2002 at an annual base salary of $75,000 and annual bonuses to be determined
by the compensation committee in its sole and absolute discretion. Under the
agreement, Mr. Ran is entitled to participate in all executive benefit plans and
has agreed to a one-year non-competition period following the termination of the
agreement except if his employment is terminated without cause or for good
reason as defined in the agreement. A court may determine not to enforce, or
only partially enforce, the non-compete provisions of this agreement. The
agreement renews automatically for successive one-year terms until either party
gives 180 days notice of its or his intention to terminate the agreement.
In March 1999, we entered into a one-year employment agreement with Dvir
Langer commencing simultaneously with the date of this offering, providing for
his employment, as vice president--sales and corporate development. His
compensation consists of commissions based on advertising revenue generated by
him or other sales representatives whom he supervises. Mr. Langer is guaranteed
a minimum base salary of $60,000. Under the agreement, Mr. Langer has agreed to
a two-year non-competition period following the termination of the agreement. A
court may
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<PAGE>
determine not to enforce, or only partially enforce, the non-compete provisions
of this agreement. The agreement renews automatically for successive one-year
terms until either party gives 14 days notice of its or his intention to
terminate the agreement.
1999 STOCK OPTION PLAN
To attract and retain persons necessary for our success, in March 1999 our
board of directors approved the adoption of the DAG Media, Inc. 1999 Stock
Option Plan covering 124,000 common shares. Pursuant to our Stock Option Plan,
officers, directors and key employees and consultants are eligible to receive
incentive and/or non-qualified stock options. The Stock Option Plan, which has a
term of 10 years from the date of its adoption, will be administered by the
compensation committee. The selection of participants, allotment of shares,
determination of price and other conditions relating to the purchase of options
will be determined by the compensation committee in its sole discretion.
Incentive stock options granted under the Stock Option Plan are exercisable for
a period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the common shares on the date of the
grant, except that the term of an incentive stock option granted under the Stock
Option Plan to a shareholder owning more than 10% of the outstanding common
shares may not exceed five years and its exercise price may not be less than
110% of the fair market value of the common shares on the date of the grant.
When this offering becomes effective, options covering 43,324 common shares
will be outstanding under our Stock Option Plan. None of these options are
exercisable before the effective date of this offering. Options covering 21,000
common shares will be granted to our non-employee directors and are described in
more detail below under the subheading "Compensation of directors." Options
covering 14,884 common shares were granted to two of our employees. These
options have an exercise price of $6.50 per share and a term of five years. The
options granted to one employee will be exercisable immediately upon the
effective date of this offering and the options granted to the other will be
exercisable one year from the effective date of this offering. Options covering
the remaining 7,440 common shares were granted to a person who is expected to
become an employee before this offering, subject to her becoming an employee.
They will have an exercise price equal to the fair market value on the date her
employment commences or $6.50 if her employment commences before the effective
date of this offering. Such options have a term of five years and are
exercisable one year from the effective date of this offering. No other options
have been granted under our 1999 Stock Option Plan.
COMPENSATION OF DIRECTORS
Each director, other than employee directors, upon first taking office after
the effective date of this offering will receive a one-time grant under the
Stock Option Plan of options to purchase 7,000 common shares at a price equal to
the fair market value on the date of grant. These options will vest immediately
upon grant. In
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<PAGE>
addition, each non-employee director will receive a $200 stipend for each board
meeting he or she attends in person and reimbursement for travel expenses for
attendance at meetings.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of individual
directors for certain breaches of their fiduciary duty in performing their
duties. The effect of this provision is to eliminate the liability of directors
for monetary damages arising out of their failure, through negligent or grossly
negligent conduct, to satisfy their duty of care, which requires them to
exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of the individual director's duty
of loyalty in performing their duties, a failure to act in good faith,
intentional misconduct, a knowing violation of the law, an improper personal
benefit or an illegal dividend or stock purchase.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents in which we are required or permitted to provide
indemnification. We are not aware of any threatened litigation or proceeding
that may result in a claim for indemnification.
Our certificate of incorporation also provides that we will indemnify and
hold harmless each of our directors or officers to the fullest extent authorized
by the New York Business Corporation Law, against all expense, liability and
loss, including attorneys fees, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties and amounts paid or to be paid in
settlement, reasonably incurred or suffered by such person in connection
therewith.
We have been informed that, in the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the Securities Act, as
provided in our certificate of incorporation, is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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<PAGE>
CERTAIN TRANSACTIONS
During the year ended December 31, 1998, we advanced $295,262, net of
repayments, to Assaf Ran, our principal shareholder. This amount is evidenced by
a five-year promissory note bearing interest at 4.74% per annum and repayable in
quarterly installments with interest only payable during the first two years and
interest and principal payments payable over the last three years of the note.
Mr. Ran is selling 75,000 of his common shares in this offering, the net
proceeds of which will be used to repay this loan upon completion of this
offering.
In February 1999, we entered into an agreement with Dapey Assaf-Dapey Zahav,
Dapey Assaf-Hamadrikh and their respective shareholders, including Mr. Ran, Eyal
Huberfeld, one of our officers and directors, and Dvir Langer, who will become
an officer and director on the effective date of this offering. Under this
agreement, the shareholders agreed to exchange all of the shares that they own
in Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh for 1,726,190 of our common
shares. This exchange will take place immediately before the effective date of
this offering.
In February 1999, our board of directors authorized the granting of options
covering 7,444 common shares to Hanan Goldenthal, our chief financial and
accounting officer. These options are not exercisable until this offering is
effective and have an exercise of $6.50, the initial public offering price. In
addition, the board of directors authorized the granting of options covering
7,000 common shares to each of Yoram Evan, Philip Michals and Evan Goldshmid,
our non-employee directors. These options will not be exercisable until Messrs.
Evan, Michals and Goldshmid take office, which will be on the effective date of
this offering.
At the time of the loan to Mr. Ran described above, we lacked independent
directors to ratify the transaction and did not determine whether the terms of
the loan were as favorable to us as those generally available from unaffiliated
third parties. Our bylaws now provide that, all material transactions and loans
between us and any of our affiliates must be on terms that are no less favorable
than those that can be obtained from unaffiliated third parties. Also, all
future material transactions, loans, and any foregiveness of loans involving
affiliates must be approved by a majority of our independent directors who do
not have an interest in the transaction and who have access, at our expense, to
our or independent legal counsel.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common shares as of the date of this prospectus and as adjusted to
reflect the sale of the common shares offered by this prospectus by:
- each shareholder who we know owns beneficially more than 5% of our
outstanding common shares,
- each of our directors,
- our chief executive officer and
- all of our directors and executive officers as a group.
In connection with this table:
- The address of each person listed is c/o DAG Media, Inc., 125-10 Queens
Boulevard, Kew Gardens, New York 11415.
- As required by the rules and regulations of the Securities and Exchange
Commission, number of common shares beneficially owned after this offering
by Messrs. Goldenthal, Evan, Michals, and Goldschmid represents common
shares issuable upon exercise of options that vest immediately upon the
effective date of this offering.
- All officers and directors as a group consists of five persons before this
offering and seven persons after this offering.
All of the common shares set forth in the following table are subject to
agreements prohibiting the sale, assignment or transfer for a period of one year
from the date of this prospectus without the prior written consent of Paulson.
See "Underwriting" for more information about these agreements. Each person
listed below has sole investment and voting power with respect to the common
shares that he owns.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
---------------------------------- ----------------------------------
NUMBER OF PERCENTAGE OF COMMON SHARES NUMBER OF PERCENTAGE OF
COMMON SHARES COMMON SHARES OFFERED BY COMMON SHARES COMMON SHARES
BENEFICIALLY BENEFICIALLY SELLING BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED OWNED SHAREHOLDER OWNED OWNED
- ------------------------------ --------------- ----------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Assaf Ran..................... 1,488,095 86.21% 75,000 1,413,095 47.48%
Dvir Langer................... 148,809 8.62% -- 148,809 5.00%
Eyal Huberfeld................ 29,762 1.72% -- 29,762 1.00%
Hanan Goldenthal.............. -- -- -- 7,444 *
Yoram Evan.................... -- -- -- 7,000 *
Phillip Michals............... -- -- -- 7,000 *
Eran Goldshmid................ -- -- -- 7,000 *
All officers and directors as
a group..................... 1,666,666 96.55% 75,000 1,620,110 53.92%
</TABLE>
- ---------------------
* Less than 1%
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 common shares, par value
$.001 per share, and 5,000,000 preferred shares, par value of $.01 per share.
Prior to the consummation of the transactions in the agreement described in the
next paragraph, we do not have any shares of capital stock issued and
outstanding.
We have entered into an agreement with Dapey Assaf-Dapey Zahav and Dapey
Assaf-Hamadrikh and their respective shareholders, which provides that
immediately prior to the effective date of this offering, the shareholders of
Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh, five individuals in total,
will exchange all of their shares in those two companies for an aggregate of
1,726,190 of our common shares. Upon completion of this offering, there will be
2,976,190 of our common shares issued and outstanding. If the option we granted
to the underwriters to purchase additional common shares from us in this
offering is exercised in full we will have 3,174,940 common shares issued and
outstanding. There are no preferred shares outstanding.
COMMON SHARES
Subject to preferences that may apply to preferred shares outstanding at the
time, the holders of outstanding common shares are entitled to receive dividends
out of assets legally available for the payment of dividends at the times and in
the amounts that the board of directors determines. Each shareholder is entitled
to one vote for each common share held on all matters submitted to a vote of
shareholders. The holders of a majority of the common shares voted can elect all
of the directors then standing for election. The common shares are not entitled
to preemptive rights and are not subject to conversion or redemption. If we are
liquidated or dissolved or our business is otherwise wound up, the holders of
common shares would be entitled to share ratably in the distribution of all of
our assets remaining available for distribution after satisfaction of all our
liabilities and the payment of the liquidation preference of any outstanding
preferred shares. Each outstanding common share is, and all common shares to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED SHARES
The board of directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, to provide by
resolution for the issuance of preferred shares, in one or more classes or
series, and to fix the rights, preferences, privileges and restrictions of the
series of preferred shares, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of a series. Any issuance of
preferred shares must be approved by a majority of our independent directors who
do not have an interest in the transaction and who have access, at our expense,
to our or independent legal counsel. The issuance of preferred shares could have
the effect
42
<PAGE>
of decreasing the market price of the common shares and could adversely affect
the voting and other rights of the holders of common shares.
OPTIONS
We have reserved 124,000 common shares for issuance under our 1999 Stock
Option Plan. When this offering is effective, options covering 43,324 common
shares will be outstanding. See "Management -- 1999 Stock Option Plan" for a
further description of our 1999 Stock Option Plan and the terms of the options
that we have granted.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued common shares and preferred shares are available
for future issuance without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued common shares and preferred shares
could render more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
The New York Business Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our certificate of incorporation does not impose
any supermajority vote requirements.
LISTING ON NASDAQ SMALLCAP MARKET
We applied to list the common shares on the Nasdaq SmallCap Market under the
symbol "DAGM."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common shares will be American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there was no public market for the common shares. We
cannot predict the effect, if any, that sales of common shares or the
availability of such shares for sale will have on the market price of the common
shares prevailing from time to time. Future sales of substantial amounts of
common shares in the public market, including shares issued upon the exercise of
options to be granted pursuant to our 1999 Stock Option Plan, could adversely
affect the prevailing market price of the common shares.
Upon completion of this offering, we will have 2,976,190 common shares
outstanding, or 3,174,940 if the option we granted to the underwriters to
purchase additional common shares from us in this offering is exercised in full.
Of these common shares, 1,325,000, or 1,523,750 if the option we granted to the
underwriters to purchase additional common shares from us in this offering is
exercised in full, will be freely transferable without restriction under the
Securities Act of 1933, except for any shares held by someone who is our
"affiliate" as that term is defined by the rules and regulations issued under
the Securities Act. Common shares held by an affiliate will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act. The
remaining 1,651,190 common shares held by existing shareholders are "restricted
securities" as that term is defined in Rule 144. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. The shares could be available for resale immediately upon the expiration of
the one-year lock-up period imposed by the lock-up agreements described below.
LOCK-UP AGREEMENTS
All of our officers, directors and shareholders will sign lock-up agreements
under which they will agree not to transfer or dispose of, directly or
indirectly, any common shares or any securities convertible into or exercisable
or exchangeable for common shares, for a period of one year after the date of
this prospectus. Transfers or dispositions can be made sooner with the prior
written consent Paulson. See "Underwriting" for a further discussion of the
terms of the lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person, or persons whose shares are aggregated, who has
beneficially owned common shares for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding common shares or the average
weekly trading volume of the common shares on the Nasdaq SmallCap Market during
the four calendar weeks
44
<PAGE>
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about us. Under Rule 144(k) any person, or persons whose shares are
aggregated, who is not deemed to have been one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell those shares
without regard to the volume limitations, manner-of-sale provisions, public
information requirements or notice requirements of Rule 144.
STOCK OPTIONS
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering 124,000 common shares
reserved for issuance under our 1999 Stock Option Plan. The registration
statement will become effective automatically upon filing. See "Management --
1999 Stock Option Plan" for a further description of our 1999 Stock Option Plan
and the terms of the options that will be outstanding on the effective date of
this offering.
45
<PAGE>
UNDERWRITING
The underwriters named below, for whom Paulson Investment Company, Inc. and
Redwine & Company, Inc. are acting as representatives, have severally agreed,
subject to the terms and conditions contained in an underwriting agreement with
us, to purchase 1,250,000 common shares from us and 75,000 common shares from
Assaf Ran, at the price set forth on the cover page of this prospectus, in
accordance with the following table.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON SHARES
- --------------------------------------------------------------------------- ---------------
<S> <C>
Paulson Investment Company, Inc............................................
Redwine & Company, Inc.....................................................
Total.................................................................. 1,325,000
---------------
---------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase common shares are subject to conditions. The underwriters are
committed to purchase all the common shares offered by this prospectus if any
common shares are purchased, other than the 198,750 common shares subject to the
option granted by us to the underwriters to purchase additional common shares in
this offering.
The representatives have advised us that they propose to offer the common
shares offered by this prospectus to the public at the initial public offering
price set forth on the cover page of this prospectus, and to selected dealers at
such price less a concession within their discretion and that the underwriters
and selected dealers may reallow a concession to other dealers, including the
underwriters, within the discretion of the representatives. After completion of
the initial public distribution of the common shares offered by this prospectus,
the public offering price, the concessions to selected dealers and the
reallowance to their dealers may be changed by the representatives.
We have granted the underwriters an option, expiring at the close of
business 45 days after the date of this prospectus, to purchase up to an
aggregate of 198,750 additional common shares from us on the same terms as set
forth in this prospectus. The underwriters may exercise this option, in whole or
in part, only to cover over-allotments, if any, incurred in the sale of the
common shares offered by this prospectus.
The representatives have informed us that they do not expect to confirm
sales of common shares offered by this prospectus on a discretionary basis.
Until the distribution of the common shares offered by this prospectus is
completed, rules of the Securities and Exchange Commission may limit the ability
of the underwriters and selling group members to bid for and purchase common
shares. As an exception to these rules, the underwriters may engage in certain
transactions that stabilize the price of the common shares. These transactions
consist of bids or
46
<PAGE>
purchases for the purpose of pegging, fixing or maintaining the price of the
common shares. If the underwriters create a short position in connection with
the offering, that is, if they sell more common shares than are set forth on the
cover page of this prospectus, the representatives may reduce that short
position by purchasing common shares in the open market. The representatives may
also elect to reduce any short position by exercising all or part of the option
granted by us to purchase additional common shares described above.
The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that if the representatives purchase
common shares in the open market to reduce the underwriters' short position or
to stabilize the price of the common shares, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those securities as part of this offering.
In general, the purchase of a security to stabilize or to reduce a short
position could cause the price of the security to be higher than it might be
otherwise. The imposition of a penalty bid might also affect the price of a
security to the extent that it were to discourage resales of the security.
Neither we nor the underwriters make any representation of predictions as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the common shares. In addition, neither we nor the
underwriters represent that the underwriters will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
The underwriting agreement provides for indemnification between us and the
underwriters against specified liabilities, including liabilities under the
Securities Act and for contribution by us and the underwriters to payments that
may be required to be made in respect thereof. To the extent that we are
permitted to indemnity of our directors, officers and controlling persons for
liabilities under the Securities Act under to the underwriting agreement, or
otherwise, we have been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
We have agreed to pay Paulson a nonaccountable expense allowance equal to
three percent of the gross proceeds from the sale of the common shares offered
by us by this prospectus, of which $35,000 has already been paid. If this
offering is not consummated, any nonaccountable portion of the advanced payment
will be promptly returned to us.
Assaf Ran, the selling shareholder, has also agreed to pay Paulson a
nonaccountable expense allowance equal to three percent of the gross proceeds
from the sale of his common shares offered by this prospectus. Additionally, Mr.
Ran has agreed to pay the registration fee of the Securities and Exchange
Commission and the blue sky filing fees attributable to the common shares he is
selling by this prospectus, as well as his pro rata share of the underwriting
discounts and commissions.
47
<PAGE>
We have agreed to issue warrants to the representatives to purchase from the
Company up to 132,500 common shares at an exercise price per share equal to
$7.80 per share. These warrants are exercisable during the four-year period
beginning one year from the date of this prospectus. These warrants are not
transferable for one year from the date of issuance, except to an individual who
is either a partner or an officer of an underwriter, by will or by the laws of
descent and distribution and are not redeemable. We have agreed to maintain an
effective registration statement with respect to the issuance of the common
shares underlying these warrants, if necessary, to allow their public resale
without restriction, at all times during the period in which they are
exercisable. These common shares are being registered on the registration
statement of which this prospectus is a part.
We have agreed that, for a period of one year following the closing of this
offering, in general we will not offer, sell, contract to sell, grant any option
for the sale or otherwise dispose of any of our securities without Paulson's
consent, other than with respect to option grants under our 1999 Stock Option
Plan. Our officers, directors and the shareholders also have agreed that, for a
period of one year following this offering, they will not offer, sell, contract
to sell, grant any option for the sale or otherwise dispose of any common shares
(other than intra-family transfers or transfers to trusts for estate planning
purposes) without Paulson's consent, which consent will not be unreasonably
withheld. They have also agreed that for the five-year period beginning on the
date of this prospectus that they will notify Paulson before they sell common
shares under Rule 144.
Before this offering, there has been no public market for the common shares.
Accordingly, the initial public offering price of the common shares offered by
this prospectus was determined by negotiations between us and the
representatives. Among the factors considered in determining the initial public
offering price of the common shares offered by this prospectus were:
- our history and our prospects,
- the industry in which we operate,
- the status and development prospects for our proposed products and
services,
- our past and present operating results and the trends of such results,
- the previous experience of our executive officers, and
- the general condition of the securities markets at the time of this
offering.
The offering price stated on the cover page of this prospectus should not be
considered an indication of the actual value of the common shares. That price is
subject to change as a result of market conditions and other factors, and we
cannot assure you that the common shares can be resold at or above the initial
public offering price.
48
<PAGE>
LEGAL MATTERS
The validity of the common shares offered by this prospectus will be passed
upon for us and for Mr. Ran by Morse, Zelnick, Rose & Lander, LLP, New York, New
York. Weiss, Jensen, Ellis & Howard, Portland, Oregon, has acted as counsel to
the underwriters named in this prospectus in connection with this offering.
EXPERTS
Our consolidated financial statements and the financial statements of Dapey
Assaf-Hamadrikh included in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect to those statements, and
are included in this prospectus in reliance upon their authority as experts in
giving those reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act
with respect to our common shares with the Securities and Exchange Commission.
This prospectus does not contain all of the information included in the
registration statement and the accompanying exhibits and schedules. For further
information with respect to us and our common shares, you should refer to the
registration statement and the accompanying exhibits and schedules. Statements
contained in this prospectus regarding the contents of any contract or any other
document to which reference is made are not necessarily complete, and in each
instance you should refer to the copy of that contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. You may inspect a copy of the registration
statement and the accompanying exhibits and schedules without charge at the
public reference facilities maintained by the Securities and Exchange Commission
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Securities and Exchange Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13(th) Floor, New York, New York
10048, and you may obtain copies of all or any part of the registration
statement from such offices upon the payment of the fees prescribed by the
Securities and Exchange Commission. You may obtain information on the operation
of the public reference room may be obtained by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. The address of the site is
HTTP://WWW.SEC.GOV.
We intend to furnish our shareholders with annual reports containing
financial statements audited by its independent certified public accountants.
49
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheet at December 31, 1998............................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and 1998....................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 and 1998............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1998....................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the consummation of the exchange discussed in notes 1 and 8 to the
consolidated financial statements, the undersigned would be able to render the
following audit report.
Arthur Andersen LLP
New York, New York
March 10, 1999
To the Shareholders of DAG Media, Inc.:
We have audited the accompanying consolidated balance sheet of DAG Media,
Inc. (a New York corporation) and subsidiary as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1997 and 1998. These consolidated
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DAG Media,
Inc. and subsidiary as of December 31, 1998, and the results of their operations
and their cash flows for the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.
F-2
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 310,185
Trade accounts receivable (less allowance of $451,378 for doubtful
accounts).......................................................... 1,652,972
Directories in progress.............................................. 623,335
Deferred tax asset................................................... 21,000
----------
Total current assets............................................... 2,607,492
----------
Fixed assets, net of accumulated depreciation of $18,041............... 90,383
----------
Other noncurrent assets:
Shareholder loan receivable.......................................... 221,347
Investment in affiliate.............................................. 41,875
Deposits............................................................. 9,093
----------
Total assets....................................................... $2,970,190
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................ $ 84,110
Advance billings for unpublished directories......................... 1,832,341
Income taxes payable................................................. 358,000
Deferred taxes payable............................................... 171,000
----------
Total current liabilities.......................................... 2,445,451
----------
Shareholders' equity:
Common shares, $.001 par value; 1,250,000 shares issued and
outstanding........................................................ 1,250
Additional paid-in capital........................................... 150
Retained earnings.................................................... 523,339
----------
Total shareholders' equity......................................... 524,739
----------
Total liabilities and shareholders' equity......................... $2,970,190
----------
----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<S> <C> <C>
Net advertising revenues......................................................... $ 2,501,754 $ 2,759,092
Publishing costs................................................................. 441,535 377,983
-------------- --------------
Gross profit............................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses............................................................... 922,124 946,315
Administrative and general expenses............................................ 658,956 765,233
-------------- --------------
Total operating costs and expenses......................................... 1,581,080 1,711,548
-------------- --------------
Earnings from operations before provision for income taxes and equity income..... 479,139 669,561
Provision for income taxes....................................................... 240,000 329,000
Equity in earnings of affiliate.................................................. 16,012 17,035
-------------- --------------
Net income................................................................. $ 255,151 $ 357,596
-------------- --------------
-------------- --------------
Basic and diluted net income per common share outstanding...................... $ .20 $ .29
-------------- --------------
-------------- --------------
Basic and diluted weighted average number of common shares outstanding......... 1,250,000 1,250,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
SHARES CAPITAL (DEFICIT) TOTAL
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996..................................... $ 1,250 $ 150 $ (89,408) $ (88,008)
Net income for the year ended December 31, 1997.............. -- -- 255,151 255,151
--------- ----- ------------ ------------
Balance, December 31, 1997..................................... 1,250 150 165,743 167,143
Net income for the year ended December 31, 1998.............. -- -- 357,596 357,596
--------- ----- ------------ ------------
Balance, December 31, 1998..................................... $ 1,250 $ 150 $ 523,339 $ 524,739
--------- ----- ------------ ------------
--------- ----- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 255,151 $ 357,596
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization................................................... 3,917 13,094
Provision for bad debts......................................................... 136,155 208,909
Changes in operating assets and liabilities--
Accounts receivable........................................................... (779,747) (837,513)
Directories in progress....................................................... (531) (243,945)
Deferred tax asset............................................................ 40,000 --
Other current and noncurrent assets........................................... (1,002) --
Accounts payable and accrued expenses......................................... (41,124) 592
Advance billing for unpublished directories................................... 320,434 605,998
Income and deferred taxes payable............................................. 200,000 329,000
------------ ------------
Net cash provided by operating activities............................ 133,253 433,731
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliate, net........................................................ (16,012) (17,035)
Purchase of fixed assets............................................................ (80,219) (17,905)
------------ ------------
Net cash used in investing activities................................ (96,231) (34,940)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to shareholder, net........................................................... (11,819) (221,347)
------------ ------------
Net cash used in financing activities................................ (11,819) (221,347)
------------ ------------
Net increase in cash................................................. 25,203 177,444
Cash and cash equivalents, beginning of year.......................................... 107,538 132,741
------------ ------------
Cash and cash equivalents, end of year................................................ $ 132,741 $ 310,185
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. COMPANY BACKGROUND AND SUMMARY
EXCHANGE
DAG Media, Inc. (the "Company" or "DAG") was incorporated in the State of
New York in February 1999. Immediately prior to the initial public offering
("IPO") (see note 8), Assaf Ran, the sole shareholder of Dapey Assaf-Dapey
Zahav, Ltd. ("DAZ"), will exchange all of his shares in DAZ for 1,250,000 Common
Shares of the Company and all of his shares in Dapey Assaf-Hamadrikh Leassakim
Israelim Be New York, Ltd. ("DAH"), an entity in which he has a 50% interest,
for 238,095 Common Shares of the Company. In addition, the minority shareholders
of DAH who own the remaining 50% of DAH will exchange all of their shares in DAH
for 238,095 Common Shares of the Company. As a result, DAZ and DAH will become
wholly owned subsidiaries of the Company. DAH is reflected in the accompanying
consolidated financial statements as an investment in affiliate. (See notes 2
and 8.)
NATURE OF BUSINESS
The Company publishes and distributes yellow page directories in print and
online. DAG's primary product is a bilingual (English--Hebrew) yellow page
directory called The Jewish Israeli Yellow Pages (the "JI Directory"). It was
first published in February 1990 and has been published in February and August
of each year since February 1991 and covers the New York metropolitan area. In
October 1998, the Company published the initial edition of a smaller,
English-only yellow page directory called The Jewish Master Guide (the "Master
Guide"), which is distributed to certain orthodox Jewish communities in the New
York metropolitan area. The JI Directory and the Master Guide are published on
DAG's web site at the address WWW.PORTY.COM (the "Portal"). The Company also
provides its customers and users with a referral service.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of DAG include the accounts of DAG and
DAZ. Significant intercompany accounts and transactions have been eliminated in
consolidation. The Company's 50% investment in DAH, the operating and financial
policies of which the Company is able to influence significantly, is accounted
for using the equity method of accounting. Accordingly, the Company's share of
the net earnings in DAH is included in consolidated net income.
F-7
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 amounts could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
DIRECTORIES IN PROGRESS/ADVANCE BILLINGS FOR UNPUBLISHED DIRECTORIES
Directories in progress include direct costs applicable to unpublished
directories. Advance billings for unpublished directories arise from prepayments
on advertising contracts. Upon publication, revenue and the related expense are
recognized.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis to distribute costs evenly over the useful economic lives of
the assets involved.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION
Advertising revenues are recognized under the point-of-publication method,
which is the method generally followed by publishing companies. Under this
method, revenues and expenses are recognized when the related directories are
published.
F-8
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Financial Accounting Standard Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Under this standard, basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. diluted earnings per share includes the potential dilution from the
exercise of outstanding dilutive stock options and warrrants for common shares
using the treasury stock method. As of December 31, 1998, the stock option plan
(see note 7) was not in effect. Accordingly there is no difference between basic
and fully diluted earnings per share.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes a fair market value based method of
accounting for an employee stock option but allows companies to continue to
measure compensation cost for those plans using the intrinsic value based method
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees."
Companies electing to continue using the accounting under APB Opinion No. 25
must, however, make pro forma disclosure of net income and earnings per share as
if the fair value based method of accounting in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation awards to
employees and directors under the accounting prescribed by APB Opinion No. 25,
under which no compensation cost has been recognized. The Company will be
required to make pro forma disclosures at December 31, 1999.
SEGMENT DISCLOSURE
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS 131, applicable to public companies,
established new standards for reporting information about operating segments in
annual financial statements. The disclosure prescribed by SFAS 131 is effective
beginning with the year ended December 31, 1998. The Company does not believe
that it operates in more than one segment.
F-9
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
3. FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Office equipment....................................................... $ 26,620
Automobile............................................................. 64,598
Leasehold improvement.................................................. 17,206
-----------------
Total fixed assets................................................... 108,424
Less: accumulated depreciation......................................... (18,041)
-----------------
Fixed assets, net of accumulated depreciation........................ $ 90,383
-----------------
-----------------
</TABLE>
4. SHAREHOLDER LOAN
During the year ended December 31, 1998, the Company advanced $221,347 to
Assaf Ran, its principal shareholder. In addition, Mr. Ran owes $73,915 to DAH.
The aggregate amount owed by Mr. Ran, $295,262, is evidenced by a five-year
promissory note bearing interest at 4.74% per annum and repayable in quarterly
installments with interest only payable during the first two years and interest
and principal payments payable over the last three years of the note.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Current taxes:
Federal..................................................... $ (13,000) $ 218,000
State....................................................... (8,000) 140,000
------------ ------------
Total current taxes....................................... (21,000) 358,000
------------ ------------
Deferred taxes:
Federal..................................................... 159,000 (18,000)
State....................................................... 102,000 (11,000)
------------ ------------
Total deferred taxes...................................... 261,000 (29,000)
------------ ------------
Provision for income taxes................................ $ 240,000 $ 329,000
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
5. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
------------------------------
1997 1998
------------- ---------------
<S> <C> <C>
Accounts receivable...................................... $ (469,000) $ (675,000)
Prepaid expenses......................................... (174,000) (285,000)
Other deferred tax liabilities, net...................... -- (50,000)
------------- ---------------
Gross deferred tax liability......................... (643,000) (1,010,000)
------------- ---------------
Advance billings for unpublished directories............. 564,000 839,000
Other deferred tax asset, net............................ 4,000 --
------------- ---------------
Gross deferred tax asset............................. 568,000 839,000
------------- ---------------
Net deferred tax liability........................... $ (75,000) $ (171,000)
------------- ---------------
------------- ---------------
</TABLE>
The Company is on the cash method of accounting for tax purposes. The
deferred tax items indicated above are primarily a result of recognizing items
of income or expense under the cash method in a different period from when those
items are recognized for accrual basis financial purposes. The provision for
income taxes on income differs from the amount computed by applying the U.S.
federal income tax rate (34%) because of the effect of the following items:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Tax at U.S. federal income tax rate........................... $ 163,000 $ 228,000
State income taxes, net of U.S. federal income tax benefit.... 62,000 85,000
Other......................................................... 15,000 16,000
------------ ------------
Provision for income taxes................................ $ 240,000 $ 329,000
------------ ------------
------------ ------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
In March 1999 the Company entered into employment agreements with its two
principal officers. One agreement was entered into with Assaf Ran providing for
his employment as President and Chief Executive Officer through June 30, 2002.
The agreement renews automatically for successive one-year periods until either
party gives
F-11
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
180 days written notice of its intention to terminate the agreement. Under the
agreement, Mr. Ran will receive an annual base salary of $75,000, annual bonuses
as is determined by the Compensation Committee in its sole and absolute
discretion and participation in all executive benefit plans. Under the agreement
Mr. Ran has also agreed to a one-year non-competition period following the
termination of the agreement so long as the Company is not in breach of the
agreement. The other agreement is with Dvir Langer providing for his employment
as Vice President-Sales and Corporate Development. The employment term is for
one year commencing upon the closing of the IPO. This agreement is renewable for
additional one-year terms until either party gives 14 days written notice of its
intention to terminate the agreement. Under the agreement, Mr. Langer will
receive a minimum base salary of $60,000. Under the agreement, Mr. Langer has
agreed to a two-year non-competition period following the termination of his
agreement.
LITIGATION
From time to time in the normal course of business, the Company is party to
various claims and/or litigation. Management believes that the settlement of all
such claims and/or litigation, considered in the aggregate, will not have a
material adverse effect on the Company's financial position and results of
operations.
7. STOCK OPTION PLAN
To attract and retain persons necessary for the success of the Company, in
March 1999, the Board of Directors approved the adoption of DAG Media, Inc. 1999
Stock Option Plan ("the Stock Option Plan") covering 124,000 Common Shares.
Pursuant to this Stock Option Plan, officers, directors and key employees and
consultants are eligible to receive incentive and/or non-qualified stock
options. The Stock Option Plan, which has a term of ten years from the date of
its adoption, will be administered by the Compensation Committee. The selection
of participants, allotment of shares, determination of price and other
conditions relating to the purchase of options will be determined by the
Compensation Committee, in its sole discretion. Incentive stock options granted
under the Stock Option Plan are exercisable for a period of up to ten years from
the date of grant at an exercise price which is not less than the fair market
value of the Common Shares on the date of grant, except that the term of an
incentive stock option granted under the Stock Option Plan to a shareholder
owning more than 10% of the outstanding Common Shares may not exceed five years
and its exercise price may not be less than 110% of the fair market value of the
Common
F-12
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
7. STOCK OPTION PLAN (CONTINUED)
Shares on the date of grant. The Company will grant options covering 22,324
Common Shares as of the effective date of the IPO. These options will have an
exercise price equal to the initial public offering price per Common Share in
the IPO (see note 8) and will have a five-year term. The Options granted to the
employees are intended to qualify as incentive stock options. Options granted to
one employee will vest immediately and the options granted to the other two
persons will vest one year from the date of the IPO.
8. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING
On March 10, 1999, the Company filed a registration statement with the
Securities and Exchange Commission to register 1,325,000 Common Shares at an
expected IPO price of $6.50 per share. Of the 1,325,000 Common Shares offered,
1,250,000 are being offered by the Company and 75,000 are being offered by Assaf
Ran, the Company's principal shareholder. Mr. Ran will use the net proceeds from
the sale of his shares to repay his loan from the Company. (See note 4.) The
Company expects to realize proceeds of approximately $6,600,000 from the sale of
its Common Shares, net of commissions and offering expenses.
In connection with the IPO, the Company entered into an Exchange Agreement
with Dapey Assaf-Dapey Zahav Ltd. ("DAZ"), Dapey Assaf-Hamadrikh Le Assakim Be
New York Ltd. ("DAH") and the shareholders of DAZ and DAH. Pursuant to the
Exchange Agreement, the shareholders of DAZ and DAH will exchange all of their
common shares in DAZ and DAH, as the case may be, for Common Shares of the
Company and DAZ and DAH will become wholly owned subsidiaries of the Company.
The exchange will be accounted for under the purchase method of accounting,
resulting in a "step up" in the basis of the Company's assets to the extent of
the interests of the minority shareholders. The value of the minority interest
is estimated to be $1,393,000 (assuming a 10% discount from the anticipated IPO
price) and is allocated among the assets of the Company based on their relative
fair market values. Of this amount, approximately $42,000 will be allocated to
the Company's tangible assets, $350,000 will be allocated to the Company's
trademarks, trade names and other intellectual property and $1.0 million will be
allocated to goodwill. The amounts allocated to the Company's intellectual
property and goodwill will be amortized on a straight-line basis over 25 years,
or approximately $54,000 per year, after the IPO.
F-13
<PAGE>
DAPEY ASSAF--HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants.................................................................. F-15
Balance Sheet at October 31, 1998......................................................................... F-16
Statements of Operations for the years ended October 31, 1997 and 1998.................................... F-17
Statements of Shareholders' Equity for the years ended October 31, 1997 and 1998.......................... F-18
Statements of Cash Flows for the years ended October 31, 1997 and 1998.................................... F-19
Notes to Financial Statements............................................................................. F-20
</TABLE>
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Dapey Assaf-Hamadrikh Leassakim Israelim Be New York,
Ltd.:
We have audited the accompanying balance sheet of Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. as of October 31, 1998, and the related
statements of operations, shareholders' equity and cash flows for the years
ended October 31, 1997 and 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. as of October 31, 1998, and the results of
its operations and its cash flows for the years ended October 31, 1997 and 1998,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
March 10, 1999
F-15
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
BALANCE SHEET
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $ 75,140
Fixed assets, net of accumulated depreciation of $10,525............................................ 9,315
Other noncurrent assets:
Shareholder loan receivable....................................................................... 73,915
------------
Total assets.................................................................................... $ 158,370
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................................. $ 74,620
Shareholders' equity:
Common shares, no par value; 200 shares authorized; 100 shares issued and outstanding............. 1,000
Retained earnings................................................................................. 82,750
------------
Total shareholders' equity...................................................................... 83,750
------------
Total liabilities and shareholders' equity...................................................... $ 158,370
------------
------------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-16
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net revenues, related party.............................................................. $ 75,728 $ 76,825
Operating costs and expenses:
Selling expenses....................................................................... 10,301 10,912
Administrative and general expenses.................................................... 26,403 23,844
---------- ----------
Total operating costs and expenses................................................... 36,704 34,756
---------- ----------
Earnings from operations before provision for income taxes............................... 39,024 42,069
Provision for income taxes............................................................... 7,000 8,000
---------- ----------
Net income............................................................................... $ 32,024 $ 34,069
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON RETAINED
SHARES EARNINGS TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Balance, October 31, 1996..................................................... $ 1,000 $ 16,657 $ 17,657
Net income for the year ended October 31, 1997.............................. -- 32,024 32,024
--------- ---------- ----------
Balance, October 31, 1997..................................................... 1,000 48,681 49,681
Net income for the year ended October 31, 1998.............................. -- 34,069 34,069
--------- ---------- ----------
Balance, October 31, 1998..................................................... $ 1,000 $ 82,750 $ 83,750
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................... $ 32,024 $ 34,069
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation..................................................................... 3,130 1,595
Loss on retirement of fixed assets............................................... -- 180
Changes in operating assets and liabilities-
Accounts payable and accrued expenses.......................................... 2,824 70,025
Deposits....................................................................... 4,400 --
----------- -----------
Net cash provided by operating activities.................................... 42,378 105,869
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to shareholder, net............................................................ (44,532) (38,915)
----------- -----------
Net cash used in financing activities........................................ (44,532) (38,915)
----------- -----------
Net increase (decrease) in cash.............................................. (2,154) 66,954
Cash, beginning of year................................................................ 10,340 8,186
----------- -----------
Cash, end of year...................................................................... $ 8,186 $ 75,140
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1998
1. COMPANY BACKGROUND
NATURE OF BUSINESS
Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd ("the Company" or
"DAH") acts as an agent on behalf of Dapey Assaf-Dapey Zahav, LTD. ("DAZ") (see
note 5) and represents DAZ in the collection of advertising fees from its
customers. DAH also owns the Jewish Israeli Yellow Pages and The Jewish Referral
Service registered trademarks and service marks.
2. SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on October 31.
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 amounts could differ from those estimates.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis to distribute costs evenly over the useful economic lives of
the assets involved.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-20
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company has entered into an agreement with DAZ, a related entity, to
represent DAZ in the collection of advertising fees from its customers. All of
the Company's revenue in the current and prior year was derived from the
agreement. (See note 5.)
3. FIXED ASSETS
<TABLE>
<CAPTION>
OCTOBER 31,
1998
---------------
<S> <C>
Automobile............................................................. $ 19,840
Less-Accumulated depreciation.......................................... (10,525)
---------------
Fixed assets, net of accumulated depreciation........................ $ 9,315
---------------
---------------
</TABLE>
4. SHAREHOLDER LOAN
During the year ended October 31, 1998, the Company advanced $73,915 to
Assaf Ran, its 50% shareholder, which is evidenced by a five-year promissory
note bearing interest at 4.74% per annum and repayable in quarterly installments
with interest only payable during the first two years and interest and principal
payments payable over the last three years of the note.
5. RELATED PARTY TRANSACTIONS
As discussed in note 1, the Company has an agreement with DAZ to collect
advertising fees from its customers. The agreement also includes reimbursement
of all commission and marketing expenses incurred by DAH on behalf of DAZ.
Management believes that the fees charged are consistent with those that would
be available from an unrelated party.
F-21
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 AND 1998
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Current taxes:
Federal........................................................... $ 5,656 $ 6,310
State............................................................. 1,344 1,690
--------- ---------
Provision for income taxes...................................... $ 7,000 $ 8,000
--------- ---------
--------- ---------
</TABLE>
The provision for income taxes differs from the amount computed by applying
the U.S. federal income tax rates because of the effect of the following items:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
OCTOBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Tax at U.S. federal income tax rate................................. $ 5,656 $ 6,310
State income taxes, net of U.S. federal income tax benefit.......... 1,344 1,690
--------- ---------
Provision for income taxes...................................... $ 7,000 $ 8,000
--------- ---------
--------- ---------
</TABLE>
7. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING
On March 10, 1999, DAG Media, Inc. ("DAG") filed a registration statement
with the Securities and Exchange Commission to register 1,325,000 Common Shares
at an expected IPO price of $6.50 per share. Of the 1,325,000 Common Shares
offered, 1,250,000 are being offered by DAG and 75,000 are being offered by
Assaf Ran, the Company's principal shareholder. Mr. Ran will use the net
proceeds from the sale of his shares to repay his loan from the Company. (See
note 4.) DAG expects to realize proceeds of approximately $6,600,000 from the
sale of the Common Shares, net of commissions and offering expenses.
In connection with the IPO, DAG entered into an Exchange Agreement with DAZ,
DAH and the shareholders of DAZ and DAH. Pursuant to the Exchange
Agreement, the shareholders of DAZ and DAH will exchange all of their common
shares in DAZ and DAH, as the case may be, for Common Shares of DAG and DAZ and
DAH will become wholly owned subsidiaries of DAG. The exchange will be accounted
for under the purchase method of accounting, resulting in a "step up" in the
basis of DAG's assets to the extent of the interests of the minority
shareholders of
F-22
<PAGE>
DAPEY ASSAF-HAMADRIKH LEASSAKIM ISRAELIM BE NEW YORK, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997 AND 1998
7. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING (CONTINUED)
DAH. The value of the minority interest is estimated to be $1,393,000 (assuming
a 10% discount from the anticipated IPO price) and is allocated among the assets
of the Company based on their relative fair market values. Of this amount,
approximately $42,000 will be allocated to DAG's tangible assets, $350,000 will
be allocated to the DAG's trademarks, trade names and other intellectual
property and $1.0 million will be allocated to goodwill. The amounts allocated
to the DAG's intellectual property and goodwill will be amortized on a
straight-line basis over 25 years, or approximately $54,000 per year, after the
IPO.
F-23
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statements........................................... F-25
Unaudited Pro Forma Condensed Consolidated Balance Sheet.................................................. F-26
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet......................................... F-27
Unaudited Pro Forma Condensed Consolidated Statement of Operations........................................ F-29
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations............................... F-30
</TABLE>
F-24
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements as of and for the year ended December 31, 1998 have been derived from
the application of pro forma adjustments to the historical consolidated
financial statements of DAG Media, Inc. and those of Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. The unaudited pro forma condensed
consolidated balance sheet gives effect to the transaction by which Dapey
Assaf-Hamadrikh became a wholly owned subsidiary of DAG Media as if it occurred
on December 31, 1998 and the unaudited pro forma consolidated statement of
operations information for the year ended December 31, 1998 gives effect to that
transaction as if it occurred on January 1, 1998. The unaudited pro forma
condensed consolidated financial statements do not purport to be indicative of
DAG Media's results of operations or financial condition would have been
assuming that the transaction by which Dapey Assaf-Hamadrikh becomes a wholly
owned subsidiary of DAG Media had occurred on such dates, nor does it purport to
be indicative of DAG Media's future operating results or financial condition.
The acquisition of the minority interest of Dapey Assaf-Hamadrikh will be
accounted for using the purchase method of accounting. The purchase method of
accounting allocates the aggregate purchase price to the assets acquired and
liabilities assumed based upon their respective fair values. The excess purchase
price over the fair value of net assets acquired, was approximately $1.3 million
and has been allocated to goodwill and trademarks.
F-25
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
<S> <C> <C> <C> <C>
10/31/98
12/31/98 DAPEY ASSAF- PRO FORMA
DAG MEDIA, INC. HAMADRIKH ADJUSTMENTS PRO FORMA
--------------- ------------ ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents............................... $ 310,185 $ 75,140 $ -- $ 385,325
Trade accounts receivable, net.......................... 1,652,972 -- (74,620)(a) 1,578,352
Directories in progress................................. 623,335 -- -- 623,335
Deferred tax asset...................................... 21,000 -- -- 21,000
--------------- ------------ ------------ -----------
Total current assets.................................. 2,607,492 75,140 (74,620) 2,608,012
--------------- ------------ ------------ -----------
Fixed assets, net....................................... 90,383 9,315 -- 99,698
--------------- ------------ ------------ -----------
Other noncurrent assets:
Intangibles............................................. -- 1,350,981(b) 1,350,981
Shareholder loan receivable............................. 221,347 73,915 -- 295,262
Investment in affiliate................................. 41,875 -- (41,875)(c) 0
Deposits................................................ 9,093 -- -- 9,093
--------------- ------------ ------------ -----------
Total assets.......................................... $2,970,190 $158,370 $ 1,234,486 $4,363,046
--------------- ------------ ------------ -----------
--------------- ------------ ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Due to Dapey Assaf...................................... $ -- $ 74,620 $ (74,620)(a) $ --
Accounts payable and accrued expenses................... 84,110 -- -- 84,110
Advance billings for unpublished directories............ 1,832,341 -- -- 1,832,341
Income taxes payable.................................... 358,000 -- -- 358,000
Deferred taxes payable.................................. 171,000 -- -- 171,000
--------------- ------------ ------------ -----------
Total current liabilities............................. 2,445,451 74,620 (74,620) 2,445,451
--------------- ------------ ------------ -----------
Shareholders' equity:
Common shares........................................... 1,250 1,000 (524) 1,726
Additional paid-in capital.............................. 150 0 1,392,380 1,392,530
Retained earnings....................................... 523,339 82,750 (82,750) 523,339
--------------- ------------ ------------ -----------
Total shareholders' equity............................ 524,739 83,750 1,309,106(c) 1,917,595
--------------- ------------ ------------ -----------
Total liabilities and shareholders' equity............ $2,970,190 $158,370 $ 1,234,486 $4,363,046
--------------- ------------ ------------ -----------
--------------- ------------ ------------ -----------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this statement
F-26
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(a) Reflects the elimination of the intercompany payable/receivable.
(b) Hamadrikh acquistion
Immediately prior to the effective date of the initial public offering,
DAG Media, Inc. ("DAG"), pursuant to an Exchange Agreement among DAG,
Dapey Assaf-Dapey Zahav, Ltd. ("DAZ"), Dapey Assaf-Hamadrikh Le Assakim
Be New York, Ltd. ("DAH") and the shareholders of DAZ and DAH, will
acquire all of the outstanding shares of capital stock of DAH in exchange
for an aggregate of 476,190 of its common shares. Of this amount, 238,095
common shares represent DAG's 50% interest in DAH. The remaining 238,095
common shares issued to the minority shareholders of DAH will be
accounted for under the purchase method of accounting, resulting in a
"step up" in the basis of the DAH's assets. The deemed purchase price for
these assets is the value of the DAG common shares received by the
minority shareholders of DAH. For this purpose, the value of such share
is deemed to be 90% of the initial public offering price. Assuming that
the actual offering price of the shares offered hereby is $6.50 per
share, the deemed purchase price will be approximately $1,393,000
million.
Set forth below is DAG's allocation of the purchase price to the DAH
assets:
<TABLE>
<S> <C>
Aggregate purchase price.............................. $1,392,856
Less: net book value of assets acquired........... 41,875
----------
Excess of cost over net book value of assets
acquired............................................ $1,350,981
----------
----------
</TABLE>
Allocation of excess of cost over net book value of assets acquired:
<TABLE>
<S> <C>
Goodwill.............................................. $1,000,981
Trademarks............................................ 350,000
----------
Total............................................. $1,350,981
----------
----------
</TABLE>
The portion of the purchase price allocated to the intangible assets is
based on an estimated value of these assets by DAG.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Trademarks.............................................. 25 years
Goodwill................................................ 25 years
</TABLE>
F-27
<PAGE>
DAG MEDIA, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(c) Reflects the adjustments to shareholders' equity as follows:
<TABLE>
<S> <C>
Elimination of DAZ common shares...................... $ (500)
Elimination of intercompany investment................ (500)
Issuance of common shares in connection with the
acquisition of DAH.................................. 476
----------
Subtotal.......................................... (524)
----------
Additional paid-in capital:
Additional paid-in capital from issuance of common
shares in connection with the acquisition of
DAH............................................. 1,392,380
Retained earnings:
Elimination of DAH historical retained earnings... (41,375)
Elimination of intercompany investment............ (41,375)
----------
(82,750)
----------
Total........................................... $1,309,106
----------
----------
</TABLE>
F-28
<PAGE>
DAG MEDIA, INC AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
<S> <C> <C> <C> <C>
10/31/98
12/31/98 DAPEY ASSAF- PRO FORMA
DAG MEDIA, INC. HAMADRIKH ADJUSTMENTS PRO FORMA
--------------- ------------ ------------- ----------
Net advertising revenues......................................... $2,759,092 $76,825 $ -- $2,835,917
Publishing costs................................................. 377,983 -- -- 377,983
--------------- ------------ ------------- ----------
Gross profit............................................... 2,381,109 76,825 -- 2,457,934
Operating costs and expenses:
Selling expenses............................................... 946,315 10,912 -- 957,227
Administrative expenses........................................ 765,233 23,844 104,039(a) 893,116
--------------- ------------ ------------- ----------
Total operating costs and expenses......................... 1,711,548 34,756 104,039 1,850,343
--------------- ------------ ------------- ----------
Earnings from operations before provision for income taxes and
equity income.................................................. 669,561 42,069 104,039 607,591
Provision (benefit) for income taxes............................. 329,000 8,000 (25,000)(b) 312,000
Equity in earnings of affiliate.................................. 17,035 -- 17,035(c) --
--------------- ------------ ------------- ----------
Net income....................................................... $ 357,596 $34,069 $ 96,074 $ 295,591
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
Basic and diluted net income per common share outstanding........ $0.29 -- -- $0.17
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
Basic and diluted weighted number of common shares outstanding... 1,250,000 -- -- 1,726,190
--------------- ------------ ------------- ----------
--------------- ------------ ------------- ----------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this statement
F-29
<PAGE>
DAG MEDIA, INC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Pro forma adjustments to administrative and general expenses include:
<TABLE>
<S> <C>
Amortization of intangibles for the year ended December 31, 1998..... $ 54,039
Pro forma effect of increase compensation expense for chief executive
officer............................................................ 50,000
---------
Total.............................................................. $ 104,039
---------
---------
(b) The income tax benefit reflects a reduction in income taxes due to
increased administrative expenses.
(c) Reflects the elimination of equity in earnings of affiliate.
</TABLE>
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION THAT IS DIFFERENT. THIS DOCUMENT
MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN
THIS PROSPECTUS MAY ONLY BE ACCURATE ON ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 15
Dividend Policy................................ 16
Capitalization................................. 17
Dilution....................................... 18
Selected Financial Data........................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 26
Management..................................... 35
Certain Transactions........................... 40
Principal and Selling Shareholders............. 41
Description of Capital Stock................... 42
Shares Eligible for Future Sale................ 44
Underwriting................................... 46
Legal Matters.................................. 49
Experts........................................ 49
Where You Can Find Additional Information...... 49
Index to DAG Media, Inc. and Subsidiary
Consolidated Financial Statements............ F-1
Index to Dapey Assaf-Hamadrikh Leassakim Be New
York, Ltd. Financial Statements.............. F-14
Index to DAG Media, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated
Financial Statements......................... F-24
</TABLE>
THROUGH AND INCLUDING , 1999, ALL BROKER-DEALERS THAT BUY, SELL OR
TRADE THESE COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THEIR OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT COMPANY, INC.
REDWINE & COMPANY, INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 and 723 of the New York Business Corporation Law grant to the
Company the power to indemnify the officers and directors of the Company as
follows:
(a) A corporation may indemnify any person made, or threatened to be made, a
party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made, a
party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer
II-1
<PAGE>
acted, in good faith, for a purpose which he reasonably believed to be in, or,
in the case of service for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, not opposed to, the
best interest of the corporation, except that no indemnification under this
paragraph shall be made in respect of (1) a threatened action, or a pending
action which is settled or otherwise disposed of, or (2) any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court on which the action
was brought, or, if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such portion of
the settlement amount and expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with respect to an employee benefit plan in
the performance of such person's duties for a purpose reasonably believed by
such person to be in the interest of the participants and beneficiaries of the
plan shall be deemed to be for a purpose which is not opposed to the best
interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722 shall be entitled to indemnification as authorized in such
section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or
officer has met the standard of conduct set forth in section 722 or
established pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal
counsel that indemnification is proper in the circumstances because the
applicable standard of conduct set forth in such sections has been met by
such director or officer, or
II-2
<PAGE>
(B) By the shareholders upon a finding that the director or officer
has met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amounts as, and
to the extent, required by paragraph (a) of section 725.
The Company's Certificate of Incorporation provides as follows:
"TENTH: (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigation
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Business Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights that
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall incur to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Business
Corporation Law requires, the payment of such expenses incurred by a director or
officer (in his or her capacity as a director or officer and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall
II-3
<PAGE>
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
"(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Business Corporation Law for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Business Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
"(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
"(d) INSURANCE. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the Business Corporation Law.
"ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for any breach of duty in such
capacity, except for the liability of any director if a judgment or other final
adjudication adverse to him establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
he personally gained in fact a
II-4
<PAGE>
financial profit or other advantage to which he was not legally entitled or that
his acts violated Section 719 of the New York Business Corporation Law."
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the Underwriters
and their respective controlling persons, on the other hand, against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by us. Other than the SEC registration fee and the
NASD filing fees and the underwriter's nonaccountable expenses, all of such
expenses are estimated.
<TABLE>
<S> <C>
Registration fee...................................................... $ 3,217.67
NASD fee.............................................................. $ 1,593.79
Nasdaq SmallCap Market listing fee.................................... $ 6,523.75*
Printing expenses..................................................... $ 62,500.00*
Accounting fees and expenses.......................................... $180,000.00*
Legal fees and expenses............................................... $165,000.00*
State securities law fees and expenses................................ $ 30,000.00*
Transfer agent and registrar fees and expenses........................ $ 3,500.00*
Underwriter's nonaccountable expenses................................. $258,375.00
Miscellaneous......................................................... $ 3,914.79*
-----------
Total............................................................. $714,625.00
-----------
-----------
</TABLE>
- ---------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None of DAG Media, Dapey Assaf-Dapey Zahav, Ltd. or Dapey Assaf-Hamadrikh
Leassakim Israelim Be New York, Ltd. has issued any unregistered securities in
the last three years. Prior to the consummation of the exchange described below,
DAG Media does not have any shares of capital stock issued and outstanding. DAG
Media, Dapey Assaf-Dapey Zahav, Dapey Assaf-Hamadrikh and the shareholders of
Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh have entered into an
agreement. As provided in this agreement, immediately before the effective date
of this offering, Assaf Ran, the sole shareholder of Dapey Assaf-Dapey Zahav,
will exchange all of his shares in that company for 1,250,000 common shares of
DAG Media and Assaf Ran, Dvir Langer, Eyal Huberfeld, Avi Shefi and Daniel
Frank, the shareholders of Dapey Assaf-Hamadrikh, will exchange all of their
shares in that
II-5
<PAGE>
company for 476,190 common shares of DAG Media. Consequently, Dapey Assaf-Dapey
Zahav and Dapey Assaf-Hamadrikh will become wholly owned subsidiaries of DAG
Media.
The issuance of the common shares in the exchange transaction described
above is exempt from registration under Section 4(2) of the Securities Act.
Messrs. Ran and Huberfeld are executive officers and directors of DAG Media. Mr.
Langer will become an executive officer and director of DAG Media on the
effective date of this offering. Messrs. Shefi and Frank are owners of the
independent sales agencies that have entered into sales agency agreements with
DAG Media. Except with respect to Mr. Ran's 75,000 common shares being
registered in this registration statement, all of the shareholders have agreed
that they are acquiring their common shares for investment purposes only and
without a view towards distribution and each certificate evidencing such shares
will bear an appropriate restrictive legend.
In February 1999 the board of directors authorized the granting of options
to the following persons. All options are nontransferable, have a five-year term
and are subject to this offering being effective.
<TABLE>
<CAPTION>
NUMBER OF
COMMON SHARES EXERCISE
NAME COVERED BY OPTIONS EXERCISE DATE PRICE PER SHARE
- --------------------- ------------------- ---------------------------------- ----------------------------------
<S> <C> <C> <C>
Hanan Goldenthal..... 7,444 Effective Date of Offering $6.50
Edith Grossman....... 7,440 1st Anniversary of Effective Date $6.50
of Offering
Avital Rubino........ 7,440 The later of the (1) first $6.50 if the exercise date is the
anniversary of effective date of first anniversary of the
this offering and (2) first effective date of this offering
anniversary of date she first or the fair market value of a
becomes an employee common share on the date she
becomes an employee if the first
exercise date is the first
anniversary of the date she first
becomes an employee
Yoram Evan........... 7,000 Effective Date of Offering $6.50
Philip Michels....... 7,000 Effective Date of Offering $6.50
Evan Goldschmid...... 7,000 Effective Date of Offering $6.50
</TABLE>
All common shares issued pursuant to these options will be held for
investment and without a view towards distribution or sale and all share
certificates evidencing the shares underlying such options will be appropriately
legended. Accordingly, the issuance of such shares will be exempt from
registration under Section 4(2) of the Securities Act.
II-6
<PAGE>
ITEM 27. EXHIBITS
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement(1)
2.1 Form of Exchange Agreement(1)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Specimen Stock Certificate
4.2 Form of Representatives' Warrant(1)
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP(1)
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan(1)
10.2 Form of Employment Agreement between the Company and Assaf Ran(1)
10.3 Form of Employment Agreement between the Company and Dvir Langer(1)
10.4 Intentionally ommitted*
10.5 Intentionally ommitted*
10.6 Form of Promissory Note of Assaf Ran(1)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)(1)
24 Power of Attorney (included in signature page)(1)
27 Financial data schedule (2)
99.1 Officer and Director Nominee Consent (Dvir Langer)(1)
99.2 Director Nominee Consent (Phillip Michals)(1)
99.3 Director Nominee Consent (Eran Goldshmid)(1)
</TABLE>
- ---------------------
* To be filed by amendment.
(1) Previously filed
(2) Previously filed with respect to DAG Media, Inc. and subsidiary. Included
herewith with respect to Dapey Assaf-Hamadrikh Leassakim Israelim Be New
York, Ltd.
ITEM 28. CERTAIN UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
II-7
<PAGE>
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Amendment No. 1 to Registration Statement No. 333-74203 to be signed on its
behalf by the undersigned, in the City of New York, State of New York on April
23, 1999.
DAG MEDIA, INC.
BY: /S/ ASSAF RAN
-------------------------------------
ASSAF RAN, PRESIDENT
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to Registration Statement No. 333-74203 has been
signed below by the following persons in the capacities indicated on April 23,
1999.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ ASSAF RAN President, Chief Executive
- ------------------------------ Officer and Director
Assaf Ran
/s/ HANAN GOLDENTHAL Chief Financial and
- ------------------------------ Accounting Officer
Hanan Goldenthal
/s/ EYAL HUBERFELD Director
- ------------------------------
Eyal Huberfeld
/s/ YORAM EVAN Director
- ------------------------------
Yoram Evan
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement(1)
2.1 Form of Exchange Agreement(1)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 Specimen Stock Certificate
4.2 Form of Representatives' Warrant(1)
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP(1)
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan(1)
10.2 Form of Employment Agreement between the Company and Assaf Ran(1)
10.3 Form of Employment Agreement between the Company and Dvir Langer(1)
10.4 Intentionally omitted*
10.5 Intentionally omitted*
10.6 Form of Promissory Note of Assaf Ran(1)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)(1)
24 Power of Attorney (included in signature page)(1)
27 Financial data schedule(2)
99.1 Officer and Director Nominee Consent (Dvir Langer)(1)
99.2 Director Nominee Consent (Phillip Michals)(1)
99.3 Director Nominee Consent (Eran Goldshmid)(1)
</TABLE>
- ---------------------
* To be filed by amendment.
(1) Previously filed.
(2) Previously filed with respect to DAG Media, Inc. and subsidiary. Included
herewith with respect to Dapey Assaf-Hamadrikh Leassakim Israelim Be New
York, Ltd.
<PAGE>
Exhibit 4.1
DAG MEDIA, INC.
DAG
INCORPORATED UNDER THE LAWS OF CUSIP 233729 10 2
THE STATE OF NEW YORK SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.001
PER SHARE OF
- -------------------------------- ---------------------------------
- --------------------------------DAG MEDIA, INC.---------------------------------
- -------------------------------- ---------------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation
and the facsimile signatures of its duly authorized officers.
Dated:
TREASURER PRESIDENT
[Seal]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
DAG MEDIA, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-D________Custodian___________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_____________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________
____________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
_______________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 10, 1999 included in this registration statement Form SB-2 and to
all references to our firm included in this registration statement.
New York, New York ARTHUR ANDERSEN LLP
April 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001080340
<NAME> DAPEY ASSAF - HAMADRIKH LEASSAKIM ISRELIM BE NEW YORK LTD
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 75,140
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,840
<DEPRECIATION> 10,525
<TOTAL-ASSETS> 158,370
<CURRENT-LIABILITIES> 74,620
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 82,750
<TOTAL-LIABILITY-AND-EQUITY> 158,370
<SALES> 76,825
<TOTAL-REVENUES> 76,825
<CGS> 0
<TOTAL-COSTS> 34,756
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,069
<INCOME-TAX> 8,000
<INCOME-CONTINUING> 42,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,069
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
