SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange
Act of 1934
For the Fiscal Year ended December 31, 1999
|_| Transition Report Pursuant to Section 13 or 15(D) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 000-25991 _____________
DAG Media, Inc.
------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
New York 11-3474831
----------------------------- -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
125-10 Queens Blvd. Kew Gardens, NY 11415
(Address of Principal Executive Office) (Zip Code)
Issuer's telephone number (718) 535-2717
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange
------------------- on Which Registered
-------------------
None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past
90 days. Yes |X| No |_|
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|
For the year ended December 31, 1999, the revenues of the registrant were
$4,365,107.
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the closing price on the Nasdaq
SmallCap Market on March 21, 2000 was approximately $13,810,435.
As of March 21, 2000, the registrant has a total of 2,907,460 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
DAG MEDIA, INC.
Form 10-KSB Annual Report
TABLE OF CONTENTS
Page
----
PART I
Item 1. Description of Business .......................................... 4
Item 2. Description of Property .......................................... 11
Item 3. Legal Proceedings. ............................................... 11
Item 4. Submission of Matters to a Vote of Security Holders .............. 11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ......... 11
Item 6. Management's Discussion and Analysis or Plan of Operations ....... 12
Item 7. Financial Statements ............................................. 16
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure ........................................... 16
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act .............. 16
Item 10. Executive Compensation .......................................... 17
Item 11. Security Ownership of Certain Beneficial Owners and Management .. 18
Item 12. Certain Relationships and Related Transactions .................. 19
Item 13. Exhibits, List and Reports on Form 8-K .......................... 19
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Forward-looking statements are 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 growth and (iv) our
dependence on a limited number of suppliers. 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.
3
<PAGE>
PART I
Item 1. Description of 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. However, there is no independent source to confirm this
belief. 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. In May 1999, we launched NewYellow, an English-only, general interest
yellow page directory that competes directly with the Bell Atlantic Yellow Pages
in the New York metropolitan market.
Industry background*
In 1999, yellow page advertising revenues in the United States were
estimated by the Yellow Pages Publishers Association ("YPPA") to be $12.6
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 1998, the yellow page advertising revenues of United States
publishers of yellow page directories not affiliated with local telephone
companies were estimated by the YPPA to be between 7% to 10% of the United
States yellow page advertising market.
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 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 1st edition, published in February 1990, had 118
pages and approximately 217
- ----------
* 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 and of the
YPPA in March 2000.
4
<PAGE>
advertisers. The 19th edition, published in August 1999, has 1,632 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.
Advertisers in the Jewish Israeli Yellow Pages include companies such as
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 others 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.
All production, including layout, design, edit and most proofreading
functions, for the Jewish Israeli Yellow Pages is performed locally. The final
version of the Jewish Israeli Yellow Pages is shipped to Israel to be printed by
HaMakor Printing Ltd. 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
directory is in Hebrew. Finally, because of our long standing relationship with
HaMakor we receive timely service.
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 second edition was published in June 1999 and the third publication is
scheduled for April 2000. 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.
We buy all our paper for our Jewish Israeli Yellow Pages and Master Guide
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. 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 nature.
NewYellow. On May 12, 1999, we launched a general interest English-only
yellow page directory that competes directly with 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 in March
2000. In November 1999, we signed a printing contract with the Quebecor Printing
Directory Sales Corporation located in Pennsylvania for the printing of the
first edition of NewYellow. We have recently opened two new sales agencies
dedicated exclusively to NewYellow.
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
5
<PAGE>
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 to NewYellow and
community-focused yellow page directories, by including news and information and
by creating strategic alliances with other Internet portals. We plan to explore
ways in which our portal can be used to generate additional advertising revenue.
Growth strategy
In May 1999, we expanded our operations by introducing an internet version
of NewYellow, an English-only, general interest yellow page directory, in the
New York metropolitan area. In March 2000, we printed and intend to begin to
distribute the first print edition of this directory in Manhattan. 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 competes directly with yellow page directories published by Bell
Atlantic. Ads in NewYellow are priced significantly below the rates currently
charged by Bell Atlantic for its yellow page directories. Thus, NewYellow is
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, and our low overhead will
enable us to compete effectively with Bell Atlantic.
To successfully introduce NewYellow into the New York market and sustain
and increase our profitability, we must do the following:
o 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;
o manage the production, including ad sales, graphic design, layout,
editing and proofreading, of multiple directories addressing
different markets in varying stages of development;
o attract, retain and motivate qualified personnel and expand the
number of sales, operating and management personnel;
o provide high quality, easy to use and reliable directories;
o establish a brand identity for NewYellow;
o develop new and maintain existing relationships with advertisers
without diverting revenues from our existing directories;
6
<PAGE>
o develop and upgrade our management, technical, information and
accounting systems;
o respond to competitive developments promptly;
o introduce enhancements to our existing products and services to
address new technologies and standards and evolving customer
demands;
o control costs and expenses and manage higher levels of capital
expenditures and operating expenses; and
o 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 and results of operations.
In order to prepare for publishing NewYellow in March 2000, during 1999 we
hired and trained many new sales representatives and established two sales
agencies to promote and sell NewYellow.
We may also explore opportunities for adding Jewish Israeli Yellow Pages
and Master Guide directories in other cities with large Jewish and Israeli
populations, like Miami, Florida and Los Angeles, California.
In 1999, DAG Media signed an Agreement with InfoUSA.com ("infoUSA") which
owns information on approximately 10 million businesses and 110 million
individuals, and has incorporated this information into a FREE yellow and white
page online directory assistance service. We are authorized and have linked our
Internet service to infoUSA. Additional corporate plans include the expansion
and development of our website porty.com and increase its capacity for on-line
advertisement and increased traffic-flow. We also plan to consider the
enhancement of our website and progress with additional corporate affiliations.
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. There are
approximately 80 sales representatives in our network including those employees
hired by the respective sales agencies with which we have agency agreements,
B.I.Y., Inc. and M.I.Y. Inc. The sales representatives operated 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. M.I.Y. is owned by Daniel Frank and B.I.Y.
is owned by Avi Sheffi.
In 1999, we contracted with three new sales agencies. One agency is
located in Long Island and is dedicated to the Jewish Israeli Yellow Pages and
the Master Guide. Two agencies are located in Manhattan and are exclusively
dedicated to the sales of NewYellow. We also plan to open a new company -owned
sales office in Manhattan dedicated to NewYellow.
Under our agreements with the 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
7
<PAGE>
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. 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.
We further believe that the Jewish population in the New York metropolitan
area is likely to use 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, particularly to small
businesses which 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 New York City and in the surrounding suburbs. Initially, we
dedicated 10 sales representatives from our existing network, spread out over
the four sales offices, to selling ads for NewYellow. In the year 2000, we will
open a new company-owned sales office, which will be staffed by sales
representatives that we hire directly and which will be dedicated to selling ads
exclusively for NewYellow. Because NewYellow is a new publication, it is more
difficult to sell, and because it competes directly with Bell Atlantic, the
commission structure for NewYellow sales representatives is 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 are 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.
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
8
<PAGE>
and the Hasidic and ultra-Orthodox Jewish communities, we believe that we have
identified niche markets that allow us to compete effectively with our larger
rivals.
Unlike the Jewish Israeli Yellow Pages and the Master Guide, NewYellow
competes directly with the Bell Atlantic Yellow Pages and other smaller,
English-only, general interest yellow page directories published by companies
other than Bell Atlantic. Since there are virtually no barriers to entry in this
market, any company with a reasonable amount of capital, like the regional bell
operating companies or publishers, are potential competitors. Recently, an
independent yellow page publisher, Yellow Book USA, announced its proposed
publication of a Manhattan yellow page directory that will also compete with the
Bell Atlantic Yellow Pages and began soliciting advertisement for this
directory. 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. Many of our
competitors, such as Bell Atlantic, 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.
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,
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 December 31, 1999, we employed four people, three 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 13
administrative, accounting and production personnel, all of whom are independent
contractors. Finally, we had a network of 80 sales representatives, 32
contracted by us and 48 hired by the 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.
CERTAIN RISK FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY
The following factors may affect the growth and profitability of the Company and
should be considered by any prospective purchaser of the Company.
Bell Atlantic and other existing or potential competitors have significant
competitive advantages.
Many of our competitors, particularly Bell Atlantic, have significant
operating and financial advantages. Our competitors' advantages include:
o greater financial, personnel, technical and marketing resources,
9
<PAGE>
o superior systems,
o stronger relationships with advertisers,
o greater production capacity,
o better-developed distribution channels, and
o greater name recognition.
We have never published a general interest yellow page directory. Thus, our
prospects for success are uncertain.
Since we have never published a general interest yellow page directory, we
have no relevant operating history upon which you can evaluate whether we will
be successful. The risks and uncertainties involved are similar to those
encountered by companies trying to introduce a new product, particularly
companies proposing to enter markets dominated by large and well-known
companies. In addition, our success with publishing NewYellow depends on factors
outside of our control, including the development of similar or superior
products by competitors, general economic conditions and economic conditions
specific to publishers of yellow page directories.
Because we contract with sales agencies, we could lose half our sales force on
30 days notice.
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. In addition, due to the demands of the job, many sales representatives
leave within one year of their hire. Replenishing our sales force involves
significant time and expense for recruiting and training.
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 may not have sufficient cash to refund 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 certain prepaid advertising fees, but not with
respect to New Yellow's portion of the fees related to the internet placement of
the ad. We may possibly not 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.
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
10
<PAGE>
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 for which we have not budgeted, and may also cause interruptions in our
business operations.
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 our key service providers including our
printer, HaMakor Printing Ltd., 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 have purchased a $500,000 key man life insurance
policy on Mr. Ran.
Item 2. Description of Properties
Our executive and principal operating office is located in Queens, New
York in 3,000 square feet. This space is occupied under a lease that expires
October 30, 2001. The monthly rent is $4,805. 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 $1,200 per month.
Item 3. Legal proceedings
We are not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information
The Company's Common Stock is traded on The Nasdaq SmallCap Market under
the symbol "DAGM".
The following table sets forth the high and low bid prices as quoted by
The Nasdaq SmallCap Market since May 13, 1999 the date the stock first
started to trade. Such quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission and may not necessarily represent
actual transactions.
Bid Price
High Low
May 13, 1999 - End of Second Quarter $7.000 $3.625
Third Quarter $4.688 $3.000
Fourth Quarter $5.125 $2.703
11
<PAGE>
(b) Holders
As of March 21, 2000, the approximate number of record holders of the
Common Stock of the Company was 10.
(c) Dividends
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.
Item 6. Management's Discussion and Analysis or Plan of Operations
The following management's discussion and analysis of financial condition and
results of operations should be read in conjunction with our audited 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.
Overview
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 March
2000. We have recently opened one new sales office for the Jewish Israeli Yellow
Pages and contracted with two agency offices that are dedicated exclusively to
NewYellow.
Our principal source of revenue is derived 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.
The principal operating costs incurred in connection with publishing the
directories are commissions payable to sales representatives and costs for paper
and printing. Generally,
12
<PAGE>
advertising commissions are paid as advertising revenue is collected. However,
in connection with DAG owned sales offices, we pay commission 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).
In order to eliminate the cost of maintaining separate corporate identities,
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. There were no significant costs
or expenses incurred with respect to this merger.
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.
1999 1998
---- ----
Net advertising revenues ................................... 100.0% 100.0%
Publishing costs ........................................... 10.0% 13.7%
Gross profit ............................................... 90.0% 86.3%
Selling expenses ........................................... 38.1% 34.3%
Administrative and general expenses ........................ 38.0% 27.7%
Total operating costs and expenses ......................... 76.0% 62.0%
Other income, net .......................................... 5.0% --
Earnings before provisions for income taxes and equity
income ................................................... 18.9% 24.3%
Provision for income taxes ................................. 9.0% 11.9%
Equity in earnings of affiliate ............................ -.01% 0.6%
Net income ................................................. 9.9% 13.0%
Years-ended December 31, 1999 and 1998
Net advertising revenues
Net advertising revenues in 1999 and 1998 were $4,365,000 and $2,759,000,
respectively, representing an increase of $1,606,000, or 58.2 % in 1999. This
increase was primarily attributable to: (1) increased advertising revenue with
respect to the publication of the The Jewish Israeli Yellow Pages and The Master
Guide (2) the recognition of revenues related to Internet advertising sales and
(3) an overall increase in our advertising rates. In 1998, we did not recognize
any Internet advertising sales.
13
<PAGE>
Publishing costs
Publishing costs for 1999 and 1998 were $438,000 and $378,000 respectively,
representing an increase of $60,000, or 15.9% in 1999. As a percentage of net
advertising revenues, publishing costs were 10.0% in 1999 compared to 13.7% in
1998. The decrease in publishing costs as a percentage of net advertising
revenues primarily reflects that in the year ended December 31, 1999 we
recognized Internet revenues that incur significantly lower publication costs
than our print directories as opposed to the publication cost in 1998 in which
there was no related Internet revenue recognized.
Selling expenses
Selling expenses for the year ended December 31, 1999 and 1998 were $1,661,000
and $946,000, respectively, representing an increase of $715,000, or 75.6% in
1999. As a percentage of net advertising revenues, selling expenses increased to
38.1% from 34.3%. 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.
Administrative and general costs
Administrative and general expenses for 1999 and 1998 were $1,657,000 and
$765,000, respectively, representing an increase of $892,000, or 116.6%, in
1999. This increase is primarily attributable to (1) increased write-offs of
uncollectible accounts and an increase in the allowances for doubtful accounts
of approximately $481,0000 related to the increased sales of the Company (2)
increased consulting and professional service and insurance costs of $188,000
related to our status as a public company and (2) increased officer expenses and
payroll expenses of $174,000.
Other income, net
For the year ended December 31, 1999 we had other income of $226,000 while for
the year ended December 31, 1998 we had nominal other income income. This
increase of $226,000 was primarily attributable to $226,000 of interest and
dividends earned from the investment of the net proceeds from our initial public
offering in May 1999.
Earnings before provision for income taxes and equity income
Earnings before provision for income taxes and equity income for the year ended
December 31, 1999 were $827,000 as compared to $670,000 for the year ended
December 31, 1998. The increase was attributable to the increased revenues.
Provision for income taxes
Provision for income taxes in 1999 and 1998 was $391,000 and $329,000,
respectively. Provision for income taxes is attributable to the increase in
advertising income. As a percentage of net advertising revenues, provision for
income taxes decreased to 9.0% in 1999 from 11.9% in 1998.
Equity in earnings (loss) of affiliate
Equity in earnings (loss) of affiliate in 1999 and 1998 were $(3,000) and
$17,000, respectively, a decrease of $20,000. This decrease resulted from losses
incurred in the first quarter of 1999 by our subsidiary, DAH which has since
been consolidated pursuant to its acquisition by us that became effective with
our initial public offering, in May 1999.
14
<PAGE>
Net income
Net income for 1999 was $433,000 compared to $358,000 in 1998. This increase was
primarily the result of increased revenues from the publications printed as well
as increased revenues earned from Internet sales which had previously not
existed.
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 to third parties 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.
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 $221,000 out
of the proceeds from the sale of his common shares in the offering. These funds,
$6.7 million in the aggregate that were deposited in an interest bearing money
market account, increased our working capital and are available to pay operating
expenses including marketing expenses for NewYellow.
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 December 31, 1999 we had cash and cash equivalents of $7,201,000 and working
capital of $6,997,000 compared to cash and cash equivalents of $310,000 and
working capital of $162,000 at December 31, 1998. These increases reflect the
net proceeds of our initial public offering.
Net cash provided by operating activities was $500,000 for the year ended
December 31, 1999 compared to $417,000 for the year ended December 31, 1998. The
increase in net cash provided by operating activities reflects increased
advertising sales in 1999.
Net cash used in investing activities was $9,000 for the year ended December 31,
1999 compared to net cash used in investing activities of $18,000 for the year
ended December 31, 1998. Net cash used in investing activities in 1999 is
primarily the result of various fixed asset purchases offset by cash provided by
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 in 1999 was $6,399,000. These proceeds
consists 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
year ending December 31,1998 net cash used in financing activities was $221,000.
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.
15
<PAGE>
Recent accounting pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to certain revenue recognition issues.
The Company has concluded that this SAB did not have a material impact on its
financial position or its results of operations.
Item 7. Financial Statements
The financial statements of the Company required by this item are set forth
beginning on page F-1.
Item 8. Change in and Disagreements with Accountants on Accounting Financial
Disclosure.
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
Executive officers and directors
Our executive officers and directors and their respective ages are as
follows:
Name Age Position
- ---- --- --------
Assaf Ran (2)............ 34 Chief executive officer, president and director
Orna Kirsh............... 28 Chief financial officer, treasurer and secretary
Eyal Huberfeld........... 25 Vice president of sales and director
Yoram Evan (1)(2)........ 34 Director
Phillip Michals (1)(2)... 30 Director
Eran Goldshmid (1)(2).... 33 Director
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
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.
Orna Kirsh, our chief financial officer joined DAG Media in July 1999. Ms.
Kirsh is a New York State licensed CPA and formerly worked for Arthur Andersen
LLP, the Company's auditors. Ms. Kirsh's work experience was with public
reporting companies. Ms. Kirsh received her BS in accounting in May 1992 from
the NYU Stern School of Business.
16
<PAGE>
Eyal Huberfeld has been our vice president of 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, 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.
Yoram Evan has been a member of our board of directors since October 1998.
Since January 1999, he has been chief financial officer and 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 has been a member of our board of directors since March
1999. 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 has been a member of our board of directors since March
1999. 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.
The Company's Board of Directors has established compensation and audit
committees. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all the officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company, and administers the stock option plan and authorizes
the issuance of stock options to the Company's officers, employees, directors
and consultants. The Audit Committee meets with management and the Company's
independent auditors to determine the adequacy of internal controls and other
financial reporting matters.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent
(10%) of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent (10%)
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
To the best of the Company's knowledge, based solely on review of the
copies of such forms furnished to the Company, or written representations that
no other forms were required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
(10%) shareholders were complied with during 1999, except with regard to Orna
Kirsh, whose Form 5 was filed late.
Item 10. Executive Compensation.
The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 1999 and
1998 by (i) the Company's Chief Executive Officer
17
<PAGE>
and (ii) the most highly compensated executive officers, other than the CEO, who
were serving as executive officers at the end of the 1999 fiscal year and whose
salary as determined by Regulation S-B, Item 402, exceeded $100,000 (the
individuals falling within categories (i) and (ii) are collectively referred to
as the "Named Executives").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------
Annual
Compensation Awards Payouts
---------------- ---------------- ------------
Common Stock
Name and Underlying All Other
Principal Salary Options Compensation
Position Year ($) (#) ($)
- ---------------- ------ ---------------- ---------------- ------------
<S> <C> <C>
Assaf Ran 1999 $62,500 -- --
Chief Executive 1998 $25,000 -- --
Officer and
President
</TABLE>
Compensation of Directors
Non-employee directors are granted, upon becoming a director, five-year
options to purchase 7,000 shares of Common Stock at an exercise price equal to
the fair market value of a share of Common Stock on the date of grant. They
receive no cash compensation.
Employment Contracts
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 receives 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 agreed to a one-year non-competition
period following the termination of his employment.
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.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table, together with the accompanying footnotes, sets forth
information, as of March 21, 2000, regarding stock ownership of all persons
known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, certain executive officers, all directors, and all
directors and officers of the Company as a group:
18
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially Percentage of
Name of Beneficial Owner (1) Owned (2) Ownership
- ------------------------------------------------ --------- ---------
<S> <C> <C>
Executive Officers and Directors
Assaf Ran ...................................... 1,413,095 48.60%
Orna Kirsh ..................................... 12,500 *
Eyal Huberfeld ................................. 29,762 1.02%
Yoram Evan ..................................... 7,000 *
Phillip Michals ................................ 7,000 *
Eran Goldshmid ................................. 7,000 *
---------
All officers and directors as a group .......... 1,476,357 50.47%
---------
5% and Greater Stockholders
Dvir Langer .................................... 148,809 5.12%
=======
</TABLE>
* Less than 1%
(1) The address of each person listed except Dvir Langer is c/o DAG Media Inc,
125-10 Queens Boulevard, Kew Gardens, NY 11415.
The address of Dvir Langer is:
Dvir Langer
66 Overlook Terrace
New York NY 10090
(2) A person is deemed to be a beneficial owner of securities that can be
acquired by such person within 60 days from the filing of this report upon
the exercise of options and warrants or conversion of convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants and convertible securities that are held
by such person (but not held by any other person) and that are exercisable
or convertible within 60 days from. the filing of this report have been
exercised or converted. Except as otherwise indicated, and subject to
applicable community property and similar laws, each of the persons named
has sole voting and investment power with respect to the shares shown as
beneficially owned. All percentages are determined based on 2,907,460
shares outstanding on March 21, 2000.
Item 12. Certain Relationships and Related Transactions
NONE.
Item 13. Exhibits and Reports on Form 8-K.
(a) Certain of the following exhibits were filed as Exhibits to the
registration statement on form SB-2, Registration No. 333-74203 and
amendments thereto (the "Registration Statement") filed by the Registrant
under the Securities Act of 1933, as amended, or the reports filed under
the Securities and Exchange Act of 1934, as amended, and are hereby
incorporated by reference.
19
<PAGE>
Exhibit
No. Description
------- -----------
3.1 Certificate of Incorporation of the Company. (1)
3.2 By-laws of the Company. (1)
4.1 Specimen Stock Certificate (2)
4.2 Form of Underwriter's Warrant(1)
10.1 Employment Agreement dated March 1, 1999 between Assaf Ran and the
Company (1).
10.3 Employment Agreement dated June 14, 1999 between Orna Kirsh and the
Company.
10.6 Form of the Company's 1999 Stock Option Plan(1)
27. Financial Data Schedule.
(1) Previously filed as exhibit to Form SB-2 on March 10, 1999.
(2) Previously filed as exhibit to Form SB-2/A on April 23, 1999.
(b) Reports on Form 8-K - none.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DAG Media, Inc.
By: /s/ Assaf Ran
-------------------------------------
Assaf Ran,
President and Chief Executive Officer
Date: March 21, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on March
21, 2000.
<TABLE>
<CAPTION>
Signature Date Title
--------- ---- -----
<S> <C> <C>
/s/ Assaf Ran March 21, 2000 President and Chief Executive Officer
- -----------------------------------
Assaf Ran
/s/ Orna Kirsh March 21, 2000 Chief Financial Officer
- -----------------------------------
Orna Kirsh
/s/ Yoram Evan March 21, 2000 Director
- -----------------------------------
Yoram Evan..
/s/ Phillip Michals March 21, 2000 Director
- -----------------------------------
Phillip Michals
/s/ Eyal Huberfeld March 21, 2000 Director
- -----------------------------------
Eyal Huberfeld
/s/ Eran Goldshmid March 21, 2000 Director
- -----------------------------------
Eran Goldshmid
</TABLE>
21
<PAGE>
DAG MEDIA, INC.
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements
Report of Independent Public Accountants.................. F-2
Balance Sheet at December 31, 1999........................ F-3
Statements of Income for the years
ended December 31, 1999 and 1998.......................... F-4
Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999 and 1998............ F-5
Statements of Cash Flows for the
years ended December 31, 1999 and 1998.................... F-6
Notes to Financial Statements............................. F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DAG Media, Inc.:
We have audited the accompanying balance sheet of DAG Media, Inc. (a New
York corporation) as of December 31, 1999, and the related statements of income,
changes in shareholders' equity and cash flows for the years ended December 31,
1999 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 auditing standards generally
accepted in the United States. 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 DAG Media, Inc. as of
December 31, 1999 and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998, in conformity with accounting standards
generally accepted in the United States.
Arthur Andersen LLP
New York, New York
February 11, 2000
F-2
<PAGE>
DAG MEDIA, INC.
BALANCE SHEET
DECEMBER 31, 1999
Assets
Current assets:
Cash and cash equivalents ................................... $ 7,200,857
Trade accounts receivable, net of allowance for doubtful
accounts of $550,000 ........................................ 2,465,557
Directories in progress ..................................... 913,269
Other current assets ........................................ 52,742
------------
Total current assets .................................... 10,632,425
------------
Fixed assets, net of accumulated depreciation $28,224 ......... 144,057
Goodwill and trademarks, net of accumulated
amortization of $33,775 ....................................... 1,317,206
Other assets .................................................. 70,328
------------
Total assets ............................................ $ 12,164,016
============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses ................... $ 29,955
Commissions payable .............................. 570,305
Advanced billing for unpublished directories ............ 2,525,354
Income tax payable ...................................... 394,000
Deferred tax payable .................................... 116,000
------------
Total current liabilities ............................... 3,635,614
Commitments and contingencies (Note 11)
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 2,907,460
outstanding ............................................. 2,976
Additional paid-in capital .............................. 7,799,789
Treasury stock, at cost- 68,730 shares .................. (231,113)
Retained earnings ....................................... 956,750
------------
Total shareholders' equity ........................ 8,528,402
------------
Total liabilities and shareholders' equity ......... $ 12,164,016
============
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE>
DAG MEDIA, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- -----------
Net advertising revenues ...................... $ 4,365,107 $ 2,759,092
Publishing costs .............................. 438,350 377,983
----------- -----------
Gross profit .............................. 3,926,757 2,381,109
Operating costs and expenses:
Selling expenses .......................... 1,661,090 946,315
Administrative and general ................ 1,656,928 765,233
----------- -----------
Total operating costs and expenses ........ 3,318,018 1,711,548
Interest income ............................... 225,830 --
Other expense ................................. (7,504) --
----------- -----------
Other income, net ............................. 218,326 --
----------- -----------
Earnings from operations before provision
for income taxes and equity (loss)
earnings of affiliate ......................... 827,065 669,561
Provision for income taxes .................... 391,000 329,000
Equity in (loss) earnings of affiliate ........ (2,654) 17,035
----------- -----------
Net income available to common shareholders ... $ 433,411 $ 357,596
=========== ===========
Net income per common share
--Basic .................................. $ 0.19 $ 0.29
=========== ===========
--Diluted ................................ $ 0.19 $ 0.29
=========== ===========
Weighted average number of common shares
outstanding
--Basic .................................. 2,285,639 1,250,000
=========== ===========
--Diluted ................................ 2,286,153 1,250,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DAG MEDIA, INC.
STATEMENTS OF CHANGES SHARHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Treasury Stock Retained
Shares Amount Capital Shares Cost Earnings Total
------ ------ ------- ------ ---- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 .................... 1,250,000 $1,250 $ 150 -- $ -- $165,743 $ 167,143
Net income for the year ended December 31, 1998 -- -- -- -- -- 357,596 357,596
--------- ------ ---------- ------ --------- -------- -----------
Balance, December 31, 1998 .................... 1,250,000 1,250 150 -- -- 523,339 524,739
Acquisition of affiliate ...................... 476,190 476 1,392,379 -- -- -- 1,392,855
Sale of common stock in public offering, net of
offering expenses ............................. 1,250,000 1,250 6,407,260 -- -- -- 6,408,510
Treasury shares purchased ..................... -- -- -- 68,730 (231,113) -- (231,113)
Net income for the year ended December 31, 1999 -- -- -- -- -- 433,411 433,411
--------- ------ ---------- ------ --------- -------- -----------
Balance, December 31, 1999 .................... 2,976,190 $2,976 $7,799,789 68,730 $(231,113) $956,750 $ 8,528,402
========= ====== ========== ====== ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DAG MEDIA, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- ---------
Cash flows from operating activities: ..........
Net income ................................... $ 433,411 $357,596
Adjustment to reconcile net income to
net cash provided by operating activities -
Loss on disposal of fixed assets ........ 7,504 --
Depreciation and amortization ............... 62,253 13,094
Equity in loss of affiliate ................. 2,654 (17,035)
Change in allowance for possible losses
on accounts receivable ...................... 98,622 208,909
Changes in operating assets and
liabilities - Accounts receivable ......... (911,207) (837,513)
Directories in progress ................... (289,934) (243,945)
Deferred tax asset ........................ 21,000 --
Advances to employees ..................... (61,235) --
Other current and non current assets ...... (52,742) --
Accounts payable and accrued expenses ..... (54,155) 592
Commissions payable ....................... 570,305 --
Advanced billing for unpublished
directories ............................. 693,013 605,998
Income taxes payable ...................... 36,000 329,000
Deferred taxes payable .................... (55,000) --
----------- ---------
Net cash provided by operating
activities ..................... 500,489 416,696
----------- ---------
Cash flows from investing activities:
Investment in affiliate ..................... 39,221 --
Acquisition of business ..................... 43,125 --
Sale of fixed assets ........................ 22,500 (17,905)
Purchase of fixed assets .................... (113,407) --
----------- ---------
Net cash used in investing
activities ..................... (8,561) (17,905)
Cash flows from financing activities:
Proceeds from IPO, net of expenses .......... 6,408,510 --
Purchase of treasury shares ................. (231,113) --
Repayment of loans to shareholders, net ..... 221,347 (221,347)
----------- ---------
Net cash provided by (used in)
financing activities ........... 6,398,744 (221,347)
Net increase in cash and cash
equivalents ............................ 6,890,672 177,444
----------- ---------
Cash and cash equivalents, beginning of
period ....................................... 310,185 132,741
----------- ---------
Cash and cash equivalents, end of period ....... $ 7,200,857 $ 310,185
=========== =========
Supplemental Cash Flow Information:
Taxes paid during the years ................ $ 394,438 $ 1,360
Non-cash transactions --
Goodwill and trademark acquired in connection
with acquisition of affiliate ................ $ 1,350,981 --
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DAG MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 AND 1998
1. THE COMPANY
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. 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. In May 1999, New Yellow, an English-only, general
interest yellow page directory was launched. By April 2000, we plan to
distribute NewYellow which will compete directly with the Bell Atlantic Yellow
Pages in the New York metropolitan market.
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. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual 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/Advanced Billings for Unpublished Directories
Directories in progress include direct costs incurred applicable to
unpublished directories. Advanced billings for unpublished directories arise
from billings on advertising contracts. Upon publication, revenue and the
related expense are recognized.
F-7
<PAGE>
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.
Trademarks and Goodwill
Trademarks and Goodwill are amortized using the straight-line method over
twenty-five years.
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 liabilites 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 rate 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 generally followed by publishing companies. Under this method, revenues
and expenses are recognized when the related directories are published. In the
case of NewYellow, a portion of the advertising fee is allocated to Internet
advertising and to the graphic design of the ad, and is 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.
In December 1999, the Securities and Exchange Commission (SEC) issues
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements. SAB No. 101" expresses the views of the SEC staff in applying
generally accepted accounting principles to certain revenue recognition issues.
The Company has concluded that this SAB did not have a material impact on its
financial position or its result of operations.
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 include the potential
F-8
<PAGE>
dilution from the exercise of stock options and warrants for common shares using
the treasury stock method. For the 1999 calculation of Diluted EPS see Note 10.
No incremental shares were used in the 1998 calculation of diluted earnings per
common share since the stock option plan was not in effect. Accordingly, in
1998, there was no difference between basic and diluted earnings per share.
Accounting for Long-Lived Assets
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS"). This statement
establishes financial accounting and reporting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 requires, among other
things, that an entity review its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The Company does not
believe that any such changes have taken place.
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 continue to account for its stock-based compensation
awards to employees and directors under the accounting prescribed by APB Opinion
No. 25, and to provide the necessary pro forma disclosures as if the fair value
method had been applied. (Note 7).
3. FIXED ASSETS
December 31, 1999
-----------------
Office equipment .............................................. $ 46,279
Automobiles ................................................... 108,796
Leasehold improvements ........................................ 17,206
---------
Total fixed assets ...................................... 172,281
Less: accumulated depreciation and amortization .............. (28,224)
---------
Fixed assets .................................................. $ 144,057
=========
Depreciation and amortization expense was approximately $62,000 and $13,000 for
the years ended December 31, 1999 and 1998, respectively.
F-9
<PAGE>
4. INCOME TAXES
The provision for income taxes consists of the following:
For the Years Ended
December 31,
-----------------------
1999 1998
---- ----
Current taxes:
Federal.......................................... $ 273,000 $ 218,000
State ........................................... 173,000 140,000
--------- ---------
Total current taxes ......................... $ 446,000 $ 358,000
--------- ---------
Deferred taxes:
Federal.......................................... (33,000) (18,000)
State ........................................... (22,000) (11,000)
--------- ---------
Total deferred taxes ....................... (55,000) (29,000)
--------- ---------
Provision for income taxes ...................... $ 391,000 $ 329,000
========= =========
Deferred tax assets (liabilities) are comprised of the following:
For the Years Ended
December 31,
--------------------------
1999 1998
---- ----
Accounts receivable .............................. $(1,129,000) $ (675,000)
Prepaid expenses ................................. -- (285,000)
Directories-in-progress .......................... (418,000) --
Other deferred tax liabilities, net .............. -- (50,000)
----------- -----------
Gross deferred tax liability .................. (1,547,000) (1,010,000)
----------- -----------
Advanced billings for unpublished directories .... 1,156,000 839,000
Commissions payable .............................. 275,000 --
----------- -----------
Gross deferred tax asset ......................... 1,431,000 839,000
----------- -----------
Net deferred tax liability .................... $ (116,000) $ (171,000)
=========== ===========
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 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:
F-10
<PAGE>
For the Years Ended
December 31,
---------------------
1999 1998
---- ----
Tax at U.S. federal income tax rate .................. $281,000 $228,000
State income taxes, net of U.S. federal income
tax benefit ...................................... 100,000 85,000
Other ................................................ 10,000 16,000
-------- --------
Provision for income taxes ..................... $391,000 $329,000
======== ========
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 $1,716,490, were $6,408,510. In addition, Mr. Ran repaid a loan of
$221,000 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.
In connection with the Company's initial public offering the Company
issued warrants to the underwriters of the initial public offering. There were
132,500 warrants issued which are convertible into the same number of common
shares at an exercise price of $7.80 per warrant. The warrants are exercisable
over the four year period beginning on the first anniversary of the offering.
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 stock issued for the purchase of the 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.
F-11
<PAGE>
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.
The Company accounts for the plan under APB Opinion No. 25, under which no
compensation cost has been recognized as all options granted during 1999 have
been granted at the fair market value of the Company's common stock. Had
compensation cost for this plan been determined in accordance with SFAS No. 123,
the Company's net income and EPS would have been reduced as follows:
Year ended December 31, 1999
----------------------------
Net income As reported $ 433,411
Pro-forma $ 179,982
Basic EPS As reported $ 0.19
Pro-forma $ 0.08
Diluted EPS As reported $ 0.19
Pro-forma $ 0.08
Under SFAS No. 123, the fair value of each option is estimated on the date
of grant using Black-Scholes option-pricing model with the following
weighted-average share assumptions used for grants in 1999: (1) expected life of
the option 7 years; (2) no dividend yield; (3) expected volatility 209%; (4)
risk free interest rate 6%.
The following summarizes stock options activity for 1999:
Weighted
Average
Exercise
Shares Price
------- --------
Outstanding at December 31, 1998 ......................... -- --
Granted .................................................. 101,824 $4.82
------- -----
Outstanding at December 31, 1999 ......................... 101,824 $4.82
------- -----
Number of shares exercisable at December 31, 1999 ........ 64,324 $5.48
------- -----
Weighted average fair value of options granted
during period ............................................ $4.81
-----
F-12
<PAGE>
8. SHAREHOLDERS' 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 68,730 common shares at an aggregate cost of approximately
$231,000. 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.
10. EARNINGS PER SHARE OF COMMON STOCK
The Company has applied SFAS No. 128, "Earnings Per Share" in its
calculation and presentation of earnings per share - "basic" and "diluted".
Basic earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted average number of common shares
(the denominator) for the period. The computation of diluted earnings per share
is similar to basic earnings per share, except that the denominator is increased
to include the number of additional common shares that would have been
outstanding if the potentially dilutive common shares had been issued.
The numerator in calculating both basic and diluted earnings per common
share for each year is the reported net income. The denominator is based on the
following weighted average number of common shares:
1999 1998
--------- ---------
Basic .............................................. 2,285,639 1,125,000
Incremental shares for assumed conversion of
options ............................................ 514 --
--------- ---------
Diluted ............................................ 2,286,153 1,125,000
========= =========
The difference between basic and diluted weighted average common shares
resulted from the assumption that the dilutive stock options outstanding were
exercised. There were 175,824 convertible securities that options were not
included in the diluted earnings per share calculation for the 1999 fiscal year
as their effect would have been anti-dilutive.
11. 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
F-13
<PAGE>
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 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.
In November 1999, the Company entered into a printing contract with
Quebecor Printing Directory Sales Corporation located in Pennsylvania. This
contract is for the printing of the first edition of NewYellow.
F-14
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") made as of the 14th day of June,
1999, between DAG Media, Inc, a New York corporation (the "Company"), having its
principal place of business at 125-10 Queens Boulevard, Kew Gardens, New York,
11415, and Orna Kirsh (the "Executive"), residing at 347 West 57th Street, Apt.
31B, New York, New York 10019
WITNESSETH:
WHEREAS, the Company wishes to employ the Executive as its Chief Financial
Officer ("CFO") and Executive wishes to accept such position; and
WHEREAS, the parties desire by this Agreement to set forth the terms and
conditions of the employment relationship between the Company and the Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
in this Agreement, the Company and the Executive agree as follows:
1. Employment and Duties. The Company hereby employs the Executive as CFO
and the Executive agrees to accept such employment on the terms and conditions
provided in this Agreement. The Executive shall perform such duties and
responsibilities as are customary for a CFO and such other duties and
responsibilities as are reasonably determined from time to time by the Board of
Directors of the Company (the "Board"). The Executive shall report to and be
supervised by the Chief Executive Officer and the Board. The Executive shall be
based at the Company's offices in Kew Gardens, New York or such other place that
shall constitute the Company's headquarters and, except for business travel
incident to her employment under this Agreement, the Company agrees the
Executive shall not be required to relocate.
2. Term. The term of this Agreement shall commence on July 19, 1999 (the
"Commencement Date"), and shall terminate on the second anniversary thereof,
unless earlier
1
<PAGE>
terminated in accordance with the terms of this Agreement (the "Termination
Date"). Such term of employment is herein sometimes referred to as the
"Employment Term".
3. Compensation. As compensation for performing the services required by
this Agreement, and during the term of this Agreement, the Executive shall be
compensated as follows:
a. Base Compensation. The Company shall pay to the Executive an
annual salary of $100,000 ("Base Compensation"), payable in equal installments
pursuant to the Company's customary payroll procedures in effect for its
executive personnel at the time of payment, but in no event less frequently than
monthly, subject to withholding for applicable federal, state, and local taxes.
The Executive may be entitled to such increases in Base Compensation with
respect to each calendar year during the term of this Agreement, as shall be
determined by the Board, in its sole and absolute discretion, based on periodic
reviews of the Executive's performance .
b. Stock Options. The Executive shall be granted an incentive stock
option to purchase 50,000 shares of Common Stock of the Company, $.001 par value
per share (the "Common Stock"), at a per share price equal to the closing price
of the Common Stock on the Commencement Date, which option shall vest and first
become exercisable for 1/4 of the shares on the commencement date and an
additional 1/4 of the shares on the first three anniversaries thereof. The other
terms and conditions of such option grant will be governed by a separate option
agreement in form and substance similar to those for other executives of the
Company.
c. Signing Bonus: The Executive shall receive a signing bonus of
$10,000, payable whether or not Executive is still employed, on January 3, 2000.
d. Bonus on Change of Control. In the event that a Change of
Control, as defined below, occurs during the employment term the Company shall
promptly pay Employee a
2
<PAGE>
Change of Control Bonus in the amount of $150,000. A "Change in Control" will be
deemed to have occurred if following (i) a tender or exchange offer for voting
securities of the Company, (ii) a proxy contest for the election of directors of
the Company (iii) a merger or consolidation or sale of all or substantially all
of the business or assets of the Company the persons constituting the Board of
Directors of the Company immediately prior to the initiation of such event cease
to constitute a majority of the Board of Directors of the Company upon the
occurrence of such event or within one year after such event.
4. Employee Benefits. During the Employment Term and subject to the
limitations set forth in this Section 4, the Executive, and to the extent
applicable her eligible dependents, shall have the right to participate in any
retirement plans (qualified and non-qualified), pension, insurance (including
but not limited to Director and Officer Liability coverage), health, disability
or other benefit plan or program that has been or is hereafter adopted by the
Company (or in which the Company participates), according to the terms of such
plan or program, on terms no less favorable than the most favorable terms
granted to senior executives of the Company. The Company agrees that it will
maintain director and officer liability insurance coverage throughout the
employment term.
5. Vacation and Leaves of Absence. The Executive shall be entitled to 20
days of paid vacation including local and national holidays, plus days of
religious observance during each 12 month period this agreement is in effect, in
accordance with the Company's usual policies. In addition, the Executive is
entitled to the same number of sick leave days provided to other senior
Executive Officers of the Company.
6. Business Expenses. The Executive shall be promptly reimbursed against
presentation of vouchers or receipts for all reasonable and necessary expenses
incurred by her in connection with the performance of her business-related
duties.
7. Termination.
(a) Termination Upon Notice. The Company shall be entitled to
terminate unilaterally this agreement for cause by giving the Executive two
weeks prior written notice. For purposes hereof "cause shall mean a
determination by the Chief Executive Officer of the Company, in his reasonable
business judgement, that the Executive has failed to properly and adequately
carry out her duties and responsibilities. Once the two week notice period has
elapsed, the parties shall have no further obligations to each other, excepting
only that the Company will pay the Executive for any accrued, unused and
unexpired paid vacation days prior to the date of termination in a lump sum in
accordance with applicable law and, in the case of termination by the Company
prior to January 3, 2000, the Company will pay the signing bonus due on that
date.
(b) Disability. If due to illness, physical or mental disability, or
other incapacity, the Executive shall fail, for a total of any three (3)
consecutive months ("Disability"), to substantially perform the principal duties
required by this Agreement, the Company may terminate this Agreement upon 30
days' written notice to the Executive. In such event, the Executive shall be (1)
paid her Base Compensation until the Termination Date, and (2) provided with
employee benefits pursuant to Section 4, to the extent available, for the
remainder of the Employment Term; provided, however, that any compensation to be
paid to the Executive
3
<PAGE>
pursuant to this subsection 7(b) shall be offset against any payments received
by the Executive pursuant to any policy of disability insurance.
8. Company Property. All advertising, promotional, sales, supplies,
manufacturers and other materials or articles or information, including without
limitation data processing reports, customer lists, customer sales analyses,
invoices, product lists, price lists or information, samples, or any other
materials or data of any kind furnished to the Executive by the Company or
developed by the Executive on behalf of the Company or at the Company's
direction or for the Company's use or otherwise in connection with the
Executive's employment hereunder, are and shall remain the sole and confidential
property of the Company; if the Company requests the return of such materials at
any time during or at or after the termination of the Executive's employment,
the Executive shall immediately deliver the same to the Company.
9. Covenant Not To Compete.
(a) No Solicitation or Competition. The Non-Compete Period shall be
the greater of [3] three years from the Commencement Date or [2] a period of two
(2) years after the termination of this Agreement. The Executive further agrees
that during the Non-Compete Period, she will not, directly or indirectly, in any
manner: (i) engage in the Business (the "Business" is defined as the
publication, distribution, marketing and sale of yellow page directories in
print and on the world wide web in which the Company or any Affiliate of the
Company is engaged on the Date of Termination, and will not, directly or
indirectly, own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with any corporation, firm, entity, or business that is so engaged unless
duly authorized by written consent of the Company; provided, however, that
nothing herein shall prohibit the Executive from owning not more than three (3%)
percent of the outstanding stock of any publicly
4
<PAGE>
held corporation, (ii) persuade or attempt to persuade any employee of the
Company or of any Affiliate of the Company to leave the employ of the Company or
of such Affiliate or to become employed by any other entity, (iii) persuade or
attempt to persuade any current client or former client to reduce the amount of
business it does or intends or anticipates doing with the Company or with any
Affiliate of the Company or (iv) take any action which might divert from the
Company or any Affiliate of the Company any opportunity of which he became aware
during his employment with the Company or with any Affiliate of the Company
which would be within the scope of any of the businesses then engaged in or
planned to be engaged in by the Company or any Affiliate of the Company. As used
throughout the Agreement, the term "Affiliate" shall mean any corporation or
other entity of which the Company owns, directly or indirectly, at least 40% of
the equity interest thereof.
(b) Confidentiality of Company Property. The Executive agrees that
during the term hereof, or at any time thereafter, she will not, directly or
indirectly, use for her own benefit or for the benefit of any third party, or
reveal or cause to be revealed to any person, firm, entity or corporation, any
Confidential Information (as defined herein) which relates to the Company or any
Affiliate of the Company or any of their customers and that upon termination of
her employment she will deliver all lists of customers, notes, records and all
other property belonging to the Company or any Affiliate of the Company or
relating to its or their business or customers. "Confidential Information" shall
include, but not be limited to, trade secrets, supplier lists, customer lists,
intellectual property and any other information, whether or not proprietary,
which relates to the business of the Company or any Affiliate of the Company and
which otherwise is not considered to be public information. Confidential
Information shall not include general information regarding the
5
<PAGE>
yellow page industry which is generally known to those involved in the operation
of an automotive dealership.
(c) Saving Clause. If the period of time or the area specified in
subsection (a) above should be adjudged unreasonable in any proceeding, then the
period of time shall be reduced by such number of months or the area shall be
reduced by the elimination of such portion thereof or both so that such
restrictions may be enforced in such area and for such time as is adjudged to be
reasonable. If the Executive violates any of the restrictions contained in the
foregoing subsection (a), the restrictive period shall not run in favor of the
Executive from the time of the commencement of any such violation until such
time as such violation shall be cured by the Executive to the satisfaction of
Company.
10. Executive's Representation and Warranties. Executive represents and
warrants that she has the full right and authority to enter into this Agreement
and fully perform her obligations hereunder, that she is not subject to any
non-competition agreement other than with the Company, and that her past,
present and anticipated future activities have not and will not infringe on the
proprietary rights of others. Executive further represents and warrants that she
is not obligated under any contract (including, but not limited to, licenses,
covenants or commitments of any nature) or other agreement or subject to any
judgment, decree or order of any court or administrative agency which would
conflict with her obligation to use her best efforts to perform her duties
hereunder or which would conflict with the Company's business and operations as
presently conducted or proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business as
officer and employee by Executive will conflict with or result in a breach of
the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument to which Executive is currently a party.
6
<PAGE>
11. Miscellaneous.
(a) Integration; Amendment. This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters set forth
herein and supersedes and renders of no force and effect all prior
understandings and agreements between the parties with respect to the matters
set forth herein. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties.
(b) Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable law or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited, or invalid, but the remainder of this Agreement shall not be invalid
and shall be given full force and effect so far as possible.
(c) Waivers. The failure or delay of any party at any time to
require performance by the other party of any provision of this Agreement, even
if known, shall not affect the right of such party to require performance of
that provision or to exercise any right, power, or remedy hereunder, and any
waiver by any party of any breach of any provision of this Agreement shall not
be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right, power, or
remedy under this Agreement. No notice to or demand on any party in any case
shall, of itself, entitle such party to other or further notice or demand in
similar or other circumstances.
(d) Power and Authority. The Company represents and warrants to the
Executive that it has the requisite corporate power to enter into this Agreement
and perform the terms hereof; that the execution, delivery and performance of
this Agreement by it has been duly authorized by all appropriate corporate
action; and that this Agreement represents the valid and
7
<PAGE>
legally binding obligation of the Company and is enforceable against it in
accordance with its terms.
(e) Burden and Benefit; Survival. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and assigns.
(f) Governing Law; Headings. This Agreement and its construction,
performance, and enforceability shall be governed by, and construed in
accordance with, the laws of the State of New York, without consideration of its
choice of law rules. Headings and titles herein are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
(g) Notices. All notices called for under this Agreement shall be in
writing and shall be deemed given [1] upon receipt if delivered personally or
[2] upon mailing if sent by registered or certified mail, return receipt
requested, postage prepaid, to the parties at their respective addresses as set
forth in the preamble to this Agreement. Addresses for notice purposes may be
changed by any party entitled to receive notice under this Agreement as they
shall designate, from time to time. The notice provisions of this agreement must
be complied with when informing the other party of a change of address for
notice purposes.
(h) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
DAG MEDIA, INC.,
By: /s/ Assaf Ran
-------------------------------------
Assaf Ran, President & CEO
By: /s/ Orna Kirsh
-------------------------------------
Orna Kirsh
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN THE DECEMBER 31, 1999 YEAR END REPORT FILED ON THE FORM
10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,200,857
<SECURITIES> 0
<RECEIVABLES> 3,015,557
<ALLOWANCES> 550,000
<INVENTORY> 913,269
<CURRENT-ASSETS> 10,632,425
<PP&E> 172,281
<DEPRECIATION> 28,224
<TOTAL-ASSETS> 12,164,016
<CURRENT-LIABILITIES> 3,635,614
<BONDS> 0
0
0
<COMMON> 2,976
<OTHER-SE> 8,525,426
<TOTAL-LIABILITY-AND-EQUITY> 12,164,016
<SALES> 4,365,107
<TOTAL-REVENUES> 4,365,107
<CGS> 438,350
<TOTAL-COSTS> 3,318,018
<OTHER-EXPENSES> 7,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218,326
<INCOME-PRETAX> 827,065
<INCOME-TAX> 391,000
<INCOME-CONTINUING> 827,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433,411
<EPS-BASIC> 0.19
<EPS-DILUTED> 0.19
</TABLE>
