SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
Commission File Number 000-25991
DAG MEDIA, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3474831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
125-10 Queens Boulevard
Kew Gardens, NY 11415
(Address of principal executive offices) (Zip Code)
(718) 263-8454
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |_|
As of October 21, 1999, there were outstanding 2,933,960 shares of the
issuer's common shares, $.001 par value.
<PAGE>
DAG MEDIA, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements (unaudited)
Balance Sheet at September 30, 1999 (unaudited)....................2
Statement of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998...........................3
Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998......................4
Statement of Shareholder's Equity at September 30, 1999............5
Notes to Financial Statements......................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................17
Item 2. Changes in Securities and Use of Proceeds..........................17
Item 3. Defaults Under Senior Securities...................................18
Item 4. Submission of Matters to Vote of Security Holders..................18
Item 5. Other Information..................................................18
Item 6. Exhibits and Reports...............................................18
SIGNATURES.................................................................19
<PAGE>
DAG MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,168,949
Trade accounts receivable, net of allowance for doubtful accounts $465,493 2,435,356
Directories in progess 438,418
Other current assets 68,738
------------
Total current assets 10,111,461
Fixed assets, net of accumulated depreciation $34,276 76,655
Goodwill and trademarks, net of accumulated amortization $20,265 1,330,715
Other assets 9,093
------------
Total assets $ 11,527,924
============
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 357,462
Advanced billing for unpublished directories 1,163,722
Income tax payable 266,321
Deferred tax payable 670,070
------------
Total current liabilities 2,457,575
Shareholders' equity:
Preferred shares - $.01 par value; 5,000,000 shares authorized; no shares issued $ --
Common shares - $.001 par value; 25,000,000 authorized; 2,976,190 issued and 2,933,960 outstanding 2,976
Additional paid-in capital 7,815,042
Common shares in treasury, at cost - 42,230 shares (147,381)
Retained earnings 1,399,712
------------
Total shareholders' equity 9,070,349
------------
Total liabilities and shareholders' equity $ 11,527,924
============
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
2
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DAG MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net advertising revenues $ 2,158,905 $ 1,687,994 $ 4,427,686 $ 2,674,606
Publishing costs 69,034 126,426 399,803 352,983
----------- ----------- ----------- -----------
Gross profit 2,089,871 1,561,568 4,027,883 2,321,623
Operating costs and expenses:
Selling expenses 830,457 480,337 1,450,239 815,380
Administrative and general 570,847 241,222 1,072,846 605,024
----------- ----------- ----------- -----------
Total operating costs and expenses 1,401,304 721,559 2,523,085 1,420,404
Interest income, net 86,838 702 129,899 2,011
Earnings from operations before provision for income taxes
and equity income 775,405 840,711 1,634,697 903,230
Provision for income taxes 349,757 295,000 755,670 325,000
Equity in earnings of affiliate -- 2,100 (2,654) 13,434
----------- ----------- ----------- -----------
Net income $ 425,648 $ 547,811 $ 876,373 $ 591,664
=========== =========== =========== ===========
Basic and diluted net income per common share outstanding $ 0.14 $ 0.44 $ 0.30 $ 0.47
=========== =========== =========== ===========
Basic and diluted weighted average number of common
shares outstanding 2,964,785 1,250,000 2,968,695 1,250,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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DAG MEDIA, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 876,373 $ 591,664
Adjustments to reconcile net income to net cash provided by
operating activities -
Depreciation and amortization 36,501 11,073
Change in allowance for possible losses on accounts receivable 14,112 46,773
Changes in operating assets and liabilities -
Accounts receivable (796,499) (375,548)
Directories in progress 184,917 103,550
Deferred tax asset 21,000 21,000
Other current and noncurrent assets (54,687) --
Dividend receivable (14,050) --
Accounts payable and accrued expenses 273,352 (40,704)
Advanced billing for unpublished directories (668,619) (634,829)
Income and deferred taxes payable 407,391 304,000
----------- -----------
Net cash provided by operating activities 279,791 26,979
----------- -----------
Cash flows from investing activities:
Investments in affiliates, net 41,875 (38,275)
Acquisition of affiliate 43,125 (16,411)
Purchase of fixed assets (2,507) --
----------- -----------
Net cash provided by (used) in investing activities 82,493 (54,686)
----------- -----------
Cash flows from financing activities:
Proceeds from IPO, net of expenses 6,422,514 --
Purchase of treasury shares (147,381) --
Repayment of loans to shareholders, net 221,347 24,841
----------- -----------
Net cash provided by financing activities 6,496,480 24,841
----------- -----------
Net increase (decrease) in cash and cash equivalents 6,858,764 (2,866)
Cash and cash equivalents, begining of period 310,185 132,741
----------- -----------
Cash and cash equivalents, end of period $ 7,168,949 $ 129,875
=========== ===========
Supplemental Cash Flow Information:
Acquisition of affiliate:
Goodwill and trademarks acquired .............................................. $ 1,350,981
Fair value of other net assets acquired ....................................... $ 41,875
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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DAG MEDIA INC.
STATEMENT OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30,1999
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Shares
------------ Paid-in ---------------
Shares Amount Capital Shares Cost
------ ------ ------- ------ ----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ............................ 1,250,000 $ 1,250 $ 150 -- --
Acquisition ........................................... -- -- 1,392,855
Sale of common stock in public offering,
net of expenses .................................. 1,726,190 1,726 6,422,037
Treasury shares purchased ............................. -- -- -- (42,230) (147,381)
Net income for the nine months ended September 30, 1999 -- -- --
----------- ----------- ----------- ----------- -----------
Balance, September 30,1999 ............................ 2,976,190 $ 2,976 $ 7,815,042 (42,230) $ (147,381)
=========== =========== =========== =========== ===========
<CAPTION>
Retained
Earnings Total
-------- -----
<S> <C> <C>
Balance, December 31, 1998 ............................ $ 523,339 $ 524,739
Acquisition ........................................... -- 1,392,855
Sale of common stock in public offering,
net of expenses .................................. -- 6,423,763
Treasury shares purchased ............................. -- (147,381)
Net income for the nine months ended September 30, 1999 876,373 876,373
----------- -----------
Balance, September 30,1999 ............................ $ 1,399,712 $ 9,070,349
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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DAG MEDIA, INC.
Item 1. NOTES TO FINANCIAL STATEMENTS
September 30, 1999
1. THE COMPANY
The accompanying unaudited financial statements of DAG Media, Inc. ("DAG" or the
"Company") included herein have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. However, in the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The accompanying unaudited financial
statements should be read in conjunction with the Company's audited financial
statements for the years ended December 31, 1998 and 1997 and the notes thereto
included in the Company's Registration Statement on Form SB-2. Results of
operations for the interim period are not necessarily indicative of the
operating results to be attained in the entire fiscal year.
Effective September 28, 1999, the wholly-owned subsidiaries of the Company,
Dapey Assaf-Dapey Zahav Ltd. (a New York corporation) and Dapey Assaf-Hamadrikh
Leassakim Be New York Ltd. (a New York corporation), were merged into DAG
pursuant to the laws of the State of New York.
2. REVENUE RECOGNITION
Advertising revenues are recognized under the point-of-publication method, which
is a method generally followed by publishing companies. Internet related
advertising revenue is recognized at the time the ad appears in the online
version of the relevant directory.
3. COMMITMENTS AND CONTINGENCIES
In March 1999, the Company entered into an employment agreement with Assaf Ran,
its president and chief executive officer. Mr. Ran's employment term initially
ends June 30, 2002 but renews automatically for successive one-year periods
until either party gives 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 determined by the compensation committee of the
Board of Directors in its sole and absolute discretion and is eligible to
participate in all executive benefit plans established and maintained by the
Company. Under the agreement, Mr. Ran has also agreed to a one-year
non-competition period following the termination of his employment. In March
1999, the Company also entered into an employment
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agreement with Dvir Langer providing for his employment as vice president-sales
and corporate development with an annual minimum base salary of $60,000. Mr.
Langer's employment commenced on May 14, 1999. He resigned on July 19, 1999, and
his duties as an officer have been assumed by Mr. Ran.
On July 19, 1999, the Company entered into an employment agreement with Orna
Kirsh, providing for her employment as chief financial officer of the Company
through July 19, 2001 at a base salary of $100,000. The agreement with Ms. Kirsh
renews automatically for successive one-year periods until either party gives 14
days written notice of its intention to terminate the agreement.
4. FIXED ASSETS
September 30, 1999
------------------
Office equipment $ 17,206
Automobiles 64,419
Leasehold improvements 29,306
---------
Total fixed assets 110,931
Less: accumulated depreciation (34,276)
---------
Fixed assets, net of accumulated depreciation $ 76,665
=========
5. INITIAL PUBLIC OFFERING
On May 13, 1999, the Company's initial public offering of common shares was
declared effective and trading in the Company's common shares commenced on the
Nasdaq SmallCap Market. An aggregate of 1,325,000 common shares were sold in the
offering of which 1,250,000 common shares were sold by the Company and 75,000
common shares were sold by Assaf Ran. The initial public offering price for the
common shares sold in the offering was $6.50 per share and the net proceeds to
the Company from the sale of its common shares, after payment of underwriting
discounts and commissions and other expenses related to the offering of
$1,693,210, were $6,423,763. In addition, Mr. Ran repaid a loan of $295,262 out
of the net proceeds he received from the sale of his common shares. Prior to the
initial public offering, there was no public market for any of the Company's
securities.
6. ACQUISITIONS
In connection with the initial public offering, the Company entered into an
Exchange Agreement with Dapey Assaf-Dapey Zahav, Ltd. ("DAZ"), Dapey
Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd. ("DAH") and the
shareholders of DAZ and DAH. Pursuant to the Exchange Agreement, on May 11, 1999
the shareholders of DAZ and DAH exchanged all of their common shares in DAZ and
DAH, as the case may be, for the common shares of the Company and DAZ and DAH
became wholly owned subsidiaries of the Company. The exchange has been 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
7
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minority interest is approximately $1,393,000 (assuming a 10% discount from the
initial public offering price) and has been allocated among the assets of the
Company based on their relative fair market values. Of this amount,
approximately $42,000 has been allocated to the Company's tangible assets,
$350,000 has been allocated to the Company's trademarks, trade names and other
intellectual property and $1,000,000 has been allocated to goodwill. The amounts
allocated to the Company's intellectual property and goodwill are being
amortized on a straight-line basis over 25 years, or approximately $54,000 per
year. The pro forma effect of the aforementioned transaction is immaterial to
the overall presentation of the consolidated financial statements.
7. 1999 STOCK OPTION PLAN
Immediately prior to the initial public offering, the Company adopted the DAG
Media, Inc. 1999 Stock Option Plan (the "Plan") reserving 124,000 common shares
of the Company for issuance upon exercise of stock options granted pursuant to
the Plan. The exercise price of options granted under the Plan may not be less
than the fair market value on the date of grant. The options may vest over a
period not to exceed ten years. Stock options under the Plan may be awarded to
officers, key-employees, consultants and non-employee directors of the Company.
Under the Plan, every non-employee director of the Company will be granted 7,000
options upon first taking office. The objectives of the Plan include attracting
and retaining key personnel, providing for additional performance incentives and
promoting the success of the Company by increasing the efforts of such officers,
employees, consultants and directors. The Plan is the only plan that the Company
has adopted with stock options available for grant.
8. SHAREHOLDER'S EQUITY
In August 1999, the Board of the Directors of the Company authorized a stock
repurchase program. The program authorizes the Company to purchase up to 150,000
common shares of the Company within the upcoming year. To date, the Company has
purchased 42,230 common shares at an aggregate cost of approximately $147,000.
None of the proceeds of the Company's initial public offering have been used in
connection with this stock repurchase program. The purpose of the stock
repurchase program is to help the Company achieve its long-term goal of
enhancing shareholder value.
9. SUBSEQUENT EVENTS
In October 1999, the Company entered into an agreement with Ursus Telecom
Corporation, the parent company of "TheStream.com", an e-business site that
hosts a range of communication services over the Internet. The agreement will
allow DAG the ability to provide its customers and Web portal users with
computer-to-phone voice services. No significant costs were incurred with
respect to this agreement.
8
<PAGE>
DAG MEDIA, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with our unaudited
consolidated financial statements and notes thereto contained elsewhere in this
report. This discussion contains forward-looking statements based on current
expectations that involve risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in such
forward-looking statements.
We currently publish and distribute two yellow page directories, the Jewish
Israeli Yellow Pages and the Master Guide, in print and on the worldwide web.
These directories are primarily distributed to the Israeli and Jewish
communities throughout the greater New York metropolitan area and northern New
Jersey. In addition, to give added value to users and advertisers in our
directories, we also operate the Jewish Referral Service and a "portal" web
site, www.porty.com.
On May 12, 1999, we launched NewYellow, a general interest, English only yellow
page directory that competes directly with the Bell Atlantic Yellow Pages in New
York City. Currently, NewYellow is available online at our web site and we
expect that the first edition of NewYellow will be available in print by June
2000. We have recently opened three new sales offices. Two offices are dedicated
exclusively to NewYellow sales and the third office is dedicated to the Jewish
Israeli Yellow Pages.
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, are 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. In the case of NewYellow, a
portion of the advertising fee is allocated to Internet advertising, and is,
therefore, recognized when the ad is published in the online version of
NewYellow. 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.
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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, in connection with NewYellow we pay commissions to our
sales representatives even before we collect the related advertising revenue. We
do not have any agreements with paper suppliers or printers. Since ads are sold
before we purchase paper and print a particular directory, a substantial
increase in the cost of paper or printing costs would reduce our profitability.
Administrative and general expenses include expenditures for marketing,
insurance, rent, sales and local franchise taxes, licensing fees, office
overhead and wages and fees paid to employees and contract workers (other than
sales representatives).
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Net advertising revenues
Net advertising revenues for three months ended September 30, 1999 were
$2,159,000 compared to $1,688,000 for the three months ended September 30, 1998,
an increase of 27.9%. The increase was primarily attributable to: (1) increased
advertising revenue with respect to the publication of the August 1999 issue of
the The Jewish Israeli Yellow Pages, (2) the recognition of revenues related to
Internet advertising sales and (3) an overall increase in our advertising rates.
In the prior comparable period, we did not recognize any Internet advertising
sales.
Publication costs
Publication costs for the three months ended September 30, 1999 were $69,000
compared to $126,000, for the corresponding period in 1998, a decrease of 45.2%.
As a percentage of net advertising revenues, publication costs were 3.2% in the
1999 period compared to 7.5%, in the 1998 period. The decrease in publication
costs primarily reflects that in the three month period ending September 30,
1998, we published two directories, The Jewish Israeli Yellow Pages and the
first edition of the Master Guide, whereas during the comparable period in 1999
we published only one directory, The Jewish Israeli Yellow Pages.
Selling expenses
Selling expenses for the three months ended September 30, 1999 were $830,000
compared to $480,000 for the corresponding period in 1998, an increase of 72.9%.
As a percentage of net advertising revenues, selling expenses increased to 38.4%
from 28.4%. The increase in selling expenses was attributable to commissions
paid on the increased net advertising revenues as well as initial costs related
to the expansion of our sales force.
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Administrative and general costs
Administrative and general expenses for the quarter ended September 30, 1999
were $571,000 compared to $241,000 for the same period in 1998, an increase of
136.9%. This increase is primarily attributable to (1) various increased
overhead costs of approximately $193,000 related to the expansion of the Company
(2) increased consulting and professional service costs of $67,000 related to
our status as a public company and (2) increased officer expenses of $48,000.
Interest income, net
For the quarter ended September 30, 1999, we had net interest income of $87,000
compared to net interest income of $700 for the quarter ended September 30,
1998. This increase was attributable to the investment of the net proceeds from
our initial public offering.
Earnings before provision for income taxes and equity income
Earnings before provision for income taxes and equity income for the quarter
ended September 30, 1999 were $775,000 as compared to $840,000 for the quarter
ended September 30, 1998. The decrease was attributable to the increased
operating costs and expenses.
Provision for income taxes
Provision for income taxes for the three months ended September 30, 1999 and
September 30, 1998 were $350,000 and $295,000, respectively. In the third
quarter of 1999, we used a 45% rate to calculate taxes, whereas we used a 35%
rate to calculate taxes for the comparable 1998 period. The lower tax rate used
for the 1998 period reflected our expected performance for the entire fiscal
year.
Equity in earnings of affiliate
Immediately prior to our initial public offering, DAH became our wholly owned
subsidiary. Consequently, we had no equity in earnings of affiliate for the
quarter ended September 30, 1999. For quarter ended September 30, 1998 equity in
earnings of affiliate was $2,100.
Net income
Net income for the quarter ended September 30, 1999 was $426,000 compared to
$548,000 for the corresponding period in 1998. This decrease was primarily the
result of increased operating costs and expenses. As a percentage of net
advertising revenues, net income for the three month period ended September 30,
1999, decreased to 19.7% from 32.5% in the corresponding period in 1998.
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Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Net advertising revenues
Net advertising revenues for the nine months ended September 30, 1999 were
$4,428,000 compared to $2,675,000 for the nine months ended September 30, 1998,
an increase of 65.5%. The increase was primarily attributable to: (1) increased
advertising revenue with respect to the publication of both August and February
1999 issues of the The Jewish Israeli Yellow Pages, (2) publication of the
second edition of the Master Guide directory in June 1999, (3) recognition of
revenues related to Internet advertising sales and (4) an overall increase in
our advertising rates. In the prior comparable period, we did not recognize any
Internet advertising sales.
Publication costs
Publication costs for the nine months ended September 30, 1999 were $400,000
compared to $353,000, for the corresponding period in 1998, an increase of
13.3%. However, as a percentage of net advertising revenues, publication costs
were 9.0% in the 1999 period compared to 13.0%, in the 1998 period. The increase
in publication costs reflects the fact that we published three directories in
the nine month period ending September 30, 1999 compared to only two directories
in the comparable period in 1998. The decrease of publication costs as a
percentage of net advertising revenues reflects additional advertising revenues.
Selling expenses
Selling expenses for the nine months ended September 30, 1999 were $1,450,000
compared to $815,000 for the corresponding period in 1998, an increase of 77.9%.
As a percentage of net advertising revenues, selling expenses increased to 32.8%
from 30.5%. The increase in selling expenses was attributable to the increase in
net advertising revenues as well as an increase in selling expenses resulting
from the expansion of the sales force for NewYellow.
Administrative and general costs
Administrative and general costs for the nine months ended September 30, 1999
were $1,073,000 compared to $605,000 for the same period in 1998, an increase of
77.3%. The increase was primarily attributable to an increase in the expense for
uncollectible receivables to $337,000 for the nine months ended September 30,
1999 from $47,000 for the nine months ended September 30, 1998. Additionally,
there was an increase of approximately $66,000 relating to consulting
and professional fees incurred as a result of our status as a public company.
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Interest income, net
For the nine months ended September 30, 1999 we had net interest income of
$130,000 compared to net interest income of $2,000 for the nine months ended
September 30, 1998. This increase was attributable to the investment of the net
proceeds of our initial public offering.
Earnings before provision for income taxes and equity income
Earnings before provision for income taxes and equity for the nine months ended
September 30, 1999 were $1,635,000 compared to $903,000 for the nine months
ended September 30, 1998. This increase is directly attributable to the growth
in revenues.
Provision for income taxes
Provision for income taxes for the nine months ended September 30, 1999 and
September 30, 1998 were $756,000 and $325,000, respectively. The increase in the
provision for income taxes is attributable to the increase in operating income.
Equity (loss) in earnings of affiliate
Immediately prior to our initial public offering, DAH became our wholly owned
subsidiary. Accordingly, for the nine months ended September 30, 1999 we
recorded a loss with respect to the earnings of DAH of $3,000, all of which was
incurred in the first quarter. For nine months ended September 30, 1998 equity
in earnings of affiliate was $13,000.
Net income
Net income for the nine months period ended September 30, 1999 increased to
$876,000 from $592,000 for the corresponding period in 1998. This increase was
primarily the result of an increase in net advertising revenues. As a percentage
of net advertising revenues, net income for the nine month period ended
September 30, 1999, decreased to 19.8% from 22.1% in the corresponding period in
1998.
Liquidity and Capital Resources
Until our initial public offering, our only source of funds was 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.
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As a result of our initial public offering in May 1999, we received proceeds of
approximately $6.4 million net of underwriting discounts and commissions and
other expenses of approximately $1.7 million. Assaf Ran, our president, chief
executive officer and principal shareholder, also repaid a loan of $295,000 out
of the proceeds from the sale of his common shares in the offering. These funds,
$6.7 million in the aggregate, were deposited in an interest bearing money
market account.
The net proceeds of the public offering will be used to pay our sales
representatives commissions on ad sales for NewYellow, for marketing expenses
for NewYellow, for the cost of printing and distributing NewYellow, for
marketing and developing our web site and online services and for other
operating expenses that are expected to increase as we expand our business.
We do not have any material commitments under any leases, sales agency
agreements or employment agreements, other than those of the employment
agreements with Assaf Ran and Orna Kirsh. Those agreements call for annual
salaries of $75,000 and $100,000 respectively. Mr. Ran's contract runs through
June 30, 2002, and Ms. Kirsh's agreement expires on July 19, 2001. We had
entered into an employment agreement with Dvir Langer. However, Mr. Langer
resigned in July 1999. We do not have any severance obligations to Mr. Langer.
At September 30, 1999 we had cash and cash equivalents of $7,169,000 and working
capital of $7,654,000 as compared to cash and cash equivalents of $130,000 and
working capital of $621,000 at September 30, 1998. These increases reflect the
net proceeds of our initial public offering.
Net cash provided by operating activities was $280,000 for the nine months ended
September 30, 1999. For the comparable 1998 period, net cash operating
activities was $27,000. The increase in net cash provided by operating
activities reflects increased advertising sales in the nine month period ending
September 30, 1999 compared to the same period in 1998.
Net cash provided by investing activities was $82,000 for the nine months ended
September 30, 1999. For the comparable 1998 period, net cash used in investing
activities was $55,000. Net cash provided by investing activities in the nine
month period ended September 30, 1999 is primarily the result of our acquisition
of the 50% interest in DAH that we did not previously own immediately prior to
our initial public offering.
Net cash provided by financing activities for the nine months ended September
30, 1999 was $6,496,000 consisting primarily of the net proceeds of our initial
public offering and the proceeds from the repayment of Mr. Ran's loan offset by
the amount used to repurchase common shares under the stock repurchase program.
For the comparable 1998 period, net cash provided by financing activities was
$25,000.
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We anticipate that our current cash balances together with our cash flows from
operations will be sufficient to fund the production of our directories and the
maintenance of our web site as well as increases in our marketing and
promotional activities for the next 12 months. However, we expect our working
capital requirements to increase significantly over the next 12 months as we
continue to market NewYellow and expand our on-line services.
Year 2000 Compliance
The "Year 2000" problem is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Computers, 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 that date at
all, which could result in major systems failures or miscalculations. Year 2000
problems experienced by us or our suppliers, 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 have not yet developed a
contingency plan to address situations that may result if our suppliers or we
are unable to achieve Year 2000 compliance. The cost of developing and
implementing this kind of plan, if necessary, could be material.
We believe, based upon an evaluation by our own staff and an outside consultant,
that substantially all of our existing systems, software and hardware are Year
2000 compliant. The possibility exists that, despite assurances given by our
vendors and suppliers and our own internal assessment, our systems may contain
undetected errors or defects relating to the Year 2000 problem. If these systems
are not Year 2000 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 lost forcing us to
discontinue operations for a significant period of time until the lost data are
retrieved or recreated, if possible. We may also have to expend significant
amounts of capital to recreate the lost data and restore our computer systems to
working order, which could force us to delay or discontinue our expansion plans.
We have contacted the banks, utility companies, telecommunications,
transportation providers and material suppliers on whom we rely, including
HaMakor Printing, the printer we use to publish our directories, to assess their
compliance with Year 2000 related issues. Based on their responses we believe
that these providers and material suppliers are Year 2000 compliant. These
inquires did not involve any significant cost and expense.
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements are
15
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typically identified by the words "believe", "expect", "intend", "estimate" and
similar expressions. Those statements appear in a number of places in this
report and include statements regarding our intent, belief or current
expectations or those of our directors or officers with respect to, among other
things, trends affecting our financial conditions and results of operations and
our business and growth strategies. These forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected, expressed or implied in the
forward-looking statements as a result of various factors (such factors are
referred to herein as "Cautionary Statements"), including but not limited to the
following: (i) our limited operating history, (ii) potential fluctuations in our
quarterly operating results, (iii) challenges facing us relating to our rapid
growth, (iv) our dependence on a limited number of suppliers and (v) our ability
and those of third parties, including customers or suppliers, to adequately
address the Year 2000 issue. The accompanying information contained in this
report, including the information set forth under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", identifies important
factors that could cause such differences. These forward-looking statements
speak only as of the date of this report, and we caution potential investors not
to place undue reliance on such statements. We undertake no obligation to update
or revise any forward-looking statements. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the Cautionary Statements.
16
<PAGE>
DAG MEDIA, INC.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In May 1999, we completed an initial public offering of 1,325,000 common shares
(the "IPO"), of which we sold 1,250,000 common shares and Assaf Ran, our
president, chief executive officer and principal shareholder, sold 75,000 common
shares. The common shares were sold for $6.50 each. Net proceeds, after expenses
of the IPO, were $6,423,763.
We have not previously filed an initial report of sales of securities and use of
proceeds. We will report the following information in our quarterly and annual
filings until the proceeds have been fully used.
(a) Effective date of Registration Statement: May 13, 1999 (File No.
333-74203).
(b) The offering was declared effective May 13, 1999 and was consummated on
May 18, 1999.
(c) The managing underwriters were Paulson Investment Company, Inc. and
Redwine & Company, Inc.
(d) Securities Sold:
(i) Common shares - common shares par value $.001 per share
(ii) Representatives' warrants - warrants convertible into 132,500 common
shares at a price of $7.80 per share. The representatives' warrants
are exercisable over the four year period beginning on the first
anniversary of the offering. These warrants were issued to the
underwriters in connection with the offering.
(e) Amount registered and sold:
(i) Common shares - 1,523,750 common shares were registered; 1,250,000
common shares were sold for the account of the issuer and 75,000
common shares were sold for the account of
17
<PAGE>
Assaf Ran, our president, chief executive officer and principal
shareholder.
(ii) Representatives' warrants - 132,500 warrants registered and issued
to the underwriters in connection with the IPO.
(iii) Common shares issuable upon exercise of representatives' warrants -
132,500 common shares registered.
(f) Gross proceeds to issuer: $8,125,000.
(g) Expenses incurred in connection with issuance of securities:
Underwriting discounts and commissions $ 731,250
Expenses paid to the underwriters $ 252,455
Other expenses $ 717,532
----------
$1,701,237
(h) Net proceeds: $6,423,763.
(i) Amount of net offering proceeds used for the purposes listed below:
Temporary investments with maturities of
three months or less: $6,423,763
==========
Item 3. Defaults under Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K - none
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAG Media, Inc. (Registrant)
Date: October 21, 1999 By: /s/ Assaf Ran
-----------------------------------
Assaf Ran, President
Date: October 21, 1999 By: /s/ Orna Kirsh
-----------------------------------
Orna Kirsh, Chief Financial and
Accounting Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FIANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN THE SEPTEMBER 30, 1999 QUARTERLY REPORT FILED ON THE
FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,168,949
<SECURITIES> 0
<RECEIVABLES> 2,900,849
<ALLOWANCES> 465,493
<INVENTORY> 438,418
<CURRENT-ASSETS> 10,111,461
<PP&E> 110,931
<DEPRECIATION> 34,276
<TOTAL-ASSETS> 11,527,924
<CURRENT-LIABILITIES> 2,457,575
<BONDS> 0
0
0
<COMMON> 2,976
<OTHER-SE> 9,067,373
<TOTAL-LIABILITY-AND-EQUITY> 11,527,924
<SALES> 4,427,686
<TOTAL-REVENUES> 4,427,686
<CGS> 399,803
<TOTAL-COSTS> 2,523,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,634,697
<INCOME-TAX> 755,670
<INCOME-CONTINUING> 1,634,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 876,373
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
