SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number 000-25991
DAG MEDIA, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3474831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
125-10 Queens Boulevard
Kew Gardens, NY 11415
(Address of principal executive offices) (Zip Code)
(718) 263-8454
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes |X|
No |_|
As of May 12, 2000, there were outstanding 2,907,460 shares of the
issuer's common shares, $.001 par value.
<PAGE>
DAG MEDIA, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements (unaudited)
Balance Sheet at March 31, 2000 (unaudited)................ 2
Statement of Income for the Three
Months Ended March 31, 2000 and 1999...................... 3
Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999................. 4
Notes to Financial Statements.............................. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 7
Part II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................. 12
Item 6. Exhibits and Reports....................................... 13
SIGNATURES......................................................... 14
<PAGE>
DAG MEDIA, INC.
BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,317,926
Trade accounts receivable, net of allowance for doubtful accounts of $500,000 2,622,298
Directories in progress 403,035
Other current assets 143,394
------------
Total current assets 10,486,653
------------
Fixed assets, net of accumulated depreciation of $36,739 215,814
Goodwill and trademarks, net off accumulated amortization of $47,285 1,303,696
Other assets 9,093
------------
Total assets $ 12,015,256
============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 618,867
Accrued commissions and commissions payable 555,280
Advanced billing for unpublished directories 1,015,873
Income tax payable 469,545
Deferred tax payable 405,635
------------
Total current liabilities 3,065,200
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 1,378,404
------------
Total shareholders' equity 8,950,056
------------
Total liabilities and shareholders' equity $ 12,015,256
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
2
<PAGE>
DAG MEDIA, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Net advertising revenues $3,070,273 $ 1,985,872
Publishing costs 795,633 294,799
---------- -----------
Gross profit 2,274,640 1,691,073
Operating costs and expenses:
Selling expenses 887,705 574,085
Administrative and general 678,680 318,787
---------- -----------
Total operating costs and expenses 1,566,385 892,872
---------- -----------
Interest income 79,999 2,103
---------- -----------
Earnings from operations before provision for income taxes
and equity in loss of affiliate 788,254 800,304
Provision for income taxes 366,600 393,000
Equity in loss of affiliate -- (2,654)
---------- -----------
Net income available to common shareholders $ 421,654 $ 404,650
========== ===========
Net income per common share
- Basic $ .15 $ .32
========== ===========
- Diluted $ .14 $ .32
========== ===========
Weighted average number of common shares outstanding
- Basic 2,907,460 1,250,000
========== ===========
- Diluted 2,912,621 1,250,000
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
DAG MEDIA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 421,654 $ 404,650
Adjustment to reconcile net income to net cash provided by
by operating activities--
Depreciation and amortization 22,025 5,591
Bad debt expense 318,652 150,000
Equity in loss of affiliate -- 2,654
Changes in operating assets and liabilities--
Accounts receivable (475,393) (9,074)
Directories in progress 510,234 308,847
Other current and non current assets (29,417) (6,805)
Accounts payable and accrued expenses 588,912 (64,635)
Commissions payable (15,025) --
Advance billing for unpublished directories (1,509,481) (1,031,168)
Income taxes payable 365,180 378,344
----------- -----------
Net cash provided by operating activities 197,341 138,404
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (80,272) --
----------- -----------
Net cash (provided by) used in investing activities (80,272) --
Cash flows from financing activities:
Deferred registration costs -- (244,675)
Loans to shareholders, net -- (13,683)
----------- -----------
Net cash used in financing activities -- (258,358)
----------- -----------
Net increase (decrease) in cash 117,069 (119,954)
----------- -----------
Cash and cash equivalents, beginning of period 7,200,857 310,185
----------- -----------
Cash and cash equivalents, end of period $ 7,317,926 $ 190,231
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
DAG MEDIA, INC.
Item 1. NOTES TO FINANCIAL STATEMENTS
March 31, 2000
1. THE COMPANY
The accompanying unaudited financial statements of DAG Media, Inc. ("DAG" or the
"Company") included herein have been prepared by the Company in accordance with
generally accepted accounting principles for interim financial information and
with instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. However, in the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The accompanying unaudited financial
statements should be read in conjunction with the Company's audited financial
statements for the years ended December 31, 1999 and 1998 and the notes thereto
included in the Company's 10KSB and Registration Statement on Form SB-2,
respectively. Results of operations for the interim period are not necessarily
indicative of the operating results to be attained in the entire fiscal year.
2. NEW ACCOUNTING PRONOUNCEMENTS
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.
5
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3. 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:
2000 1999
- --------------------------------------------------------------------------------
Basic 2,907,460 1,250,000
Incremental shares for assumed conversion of options 5,161 --
- --------------------------------------------------------------------------------
Diluted 2,912,621 1,250,000
- --------------------------------------------------------------------------------
The difference between basic and diluted weighted average common shares resulted
from the assumption that the dilutive stock options outstanding were exercised.
There were 65,324 convertible securities that options were not included in the
diluted earnings per share calculation for the year 2000 three month period-end
as their effect would have been anti-dilutive.
4. SUBSEQUENT EVENTS
On April 24, 2000, a Decision from the National Arbitration Forum was signed
granting the company it's domain name "dagmedia.com" which was previously held
by Cybermultimedia Inc.
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<PAGE>
DAG MEDIA, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with our unaudited
consolidated financial statements and notes thereto contained elsewhere in this
report. This discussion contains forward-looking statements based on current
expectations that involve risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in such
forward-looking statements.
We currently publish and distribute three yellow page directories, NewYellow,
the Jewish Israeli Yellow Pages and the Master Guide, in print and on the
worldwide web. The Jewish Israeli Yellow Pages and the Master Guide directories
are targeted at niche markets and are primarily distributed to the Israeli and
Jewish communities throughout the greater New York metropolitan area and
northern New Jersey. NewYellow is a general interest, English only yellow page
directory that is currently being distributed throughout Manhattan. In addition,
to give added value to users and advertisers in our directories, we also operate
the Referral Service and a "portal" web site, www.porty.com.
NewYellow was launched on May 12, 1999 as the Company's first general interest,
English only yellow page directory. The first NewYellow publication was printed
and distributed in March 2000. NewYellow competes directly with the Bell
Atlantic Yellow Pages in New York City. NewYellow is available online at our web
site www.porty.com.
Our principal source of revenue derives from the sale of ads for our NewYellow
and Jewish Israeli Yellow Pages directories. Our NewYellow rates are
significantly less than those of the Bell Atlantic Yellow Pages and must remain
so in order to maintain our competitive sales advantage with our advertisers.
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, advertising commissions are paid as advertising revenue
is collected. However, in connection with NewYellow we pay commissions to our
sales
7
<PAGE>
representatives even before we collect the related advertising revenue. We do
not have any long term agreements with paper suppliers or printers. Since ads
are sold before we purchase paper and print a particular directory, a
substantial increase in the cost of paper or printing costs would reduce our
profitability. Administrative and general expenses include expenditures for
marketing, insurance, rent, sales and local franchise taxes, licensing fees,
office overhead and wages and fees paid to employees and contract workers (other
than sales representatives).
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Net advertising revenues
Net advertising revenues for three months ended March 31, 2000 were $ 3,070,000
compared to $1,986,000 for the three months ended March 31, 1999, an increase of
54.6 %. The increase was primarily attributable to increased sales resulting
from the first time publication of the NewYellow directory in March 2000.
Publication costs
Publication costs for the three months ended March 31, 2000 were $796,000
compared to $295,000, for the corresponding period in 1999, an increase of 169.8
%. As a percentage of net advertising revenues, publication costs were 25.9 % in
the period ending March 31, 2000 compared to 14.9 %, in the corresponding 1999
period. The increase in publication costs primarily reflects that in the three
month period ending March 31, 2000, we published two directories, NewYellow and
the Jewish Israeli Yellow Pages, whereas during the comparable period in 1999 we
published only one directory, the Jewish Israeli Yellow Pages. Furthermore, in
publishing NewYellow for the first time, we incurred start-up expenses plus some
initial typesetting and graphics expenses for the new directory.
Selling expenses
Selling expenses for the three months ended March 31, 2000 were $888,000
compared to $574,000 for the corresponding period in 1999, an increase of 54.7
%. As a percentage of net advertising revenues, selling expenses remained
consistent at 28.9%.
Administrative and general costs
Administrative and general expenses for the quarter ended March 31, 2000 were
$679,000 compared to $319,000 for the same period in 1999, an increase of 112.9
%. This increase is primarily attributable to (1) increased bad debt expense of
approximately $169,000 related to the Company's reassessment of its allowance
for doubtful accounts (2) increased officer and administrative salaries of
$74,000 related to the Company's expansion (3) increased consulting, investor
relations and
8
<PAGE>
professional service costs of $57,000 related to our status as a public company
and (4) increased advertising costs of $24,000.
Interest income
For the quarter ended March 31, 2000, we had interest income of $80,000 compared
to interest income of $2,100 for the quarter ended March 31, 1999. This increase
was attributable to the interest earned on the investment of the net proceeds
from our initial public offering in May 1999.
Provision for income taxes
Provision for income taxes for the three months ended March 31, 2000 and March
31, 1999 were $ 367,000 and $393,000, respectively. In the first quarter of
2000, we used a 47 % rate to calculate taxes on the expected annual income,
whereas we used a 49 % rate to calculate taxes for the comparable 1999 period.
Net income
Net income for the quarter ended March 31, 2000 was $ 422,000 compared to
$405,000 for the corresponding period in 1999. This increase was primarily the
result of increased revenues related to NewYellow sales. As a percentage of net
advertising revenues, net income for the three month period ended March 31,
2000, decreased to 13.7% from 20.4 % in the corresponding period in 1999. This
decrease is attributable to significant increases in initial publication and
expansion cost as well as increased overhead costs related to the Company's new
status as public corporation.
Liquidity and Capital Resources
9
<PAGE>
At March 31, 2000 we had cash and cash equivalents of $ 7,318,000 and working
capital of $ 7,421,000 as compared to cash and cash equivalents of $190,000 and
working capital of $317,000 at March 31,1999. These increases primarily reflect
the net proceeds of our initial public offering completed in May 1999.
Net cash provided by operating activities was $ 197,000 for the three months
ended March 31, 2000. For the comparable 1999 period, net cash operating
activities was $138,000. The increase in net cash provided by operating
activities reflects increased advertising sales in the three month period ending
March 31, 2000 compared to the same period in 1999.
Net cash used by investing activities was $ 80,000 for the three months ended
March 31, 2000. Net cash used by investing activities in the quarter ended March
31, 2000 was primarily used for the purchase of improved accounting and data
information systems. For the comparable 1999 period there was no net cash used
by investing activities. Net cash used by investing activities in the three
month period ended March 31, 2000 is primarily the result of losses incurred by
our 50% interest in DAH.
There was no cash provided by financing activities for the three months ended
March 31, 2000. For the comparable 1999 period, net cash used by financing
activities was $ 258,000 and was primarily used to pay for registration costs as
they related to the Company's initial public offering in May 1999.
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 our directories and expand our on-line services, in
particular for NewYellow.
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements are
10
<PAGE>
typically identified by the words "believe", "expect", "intend", "estimate" and
similar expressions. Those statements appear in a number of places in this
report and include statements regarding our intent, belief or current
expectations or those of our directors or officers with respect to, among other
things, trends affecting our financial conditions and results of operations and
our business and growth strategies. These forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those projected, expressed or implied in the
forward-looking statements as a result of various factors (such factors are
referred to herein as "Cautionary Statements"), including but not limited to the
following: (i) our limited operating history, (ii) potential fluctuations in our
quarterly operating results, (iii) challenges facing us relating to our rapid
growth 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.
11
<PAGE>
DAG MEDIA, INC.
PART II-OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In May 1999, we completed an initial public offering of 1,325,000 common shares
(the "IPO"), of which we sold 1,250,000 common shares and Assaf Ran, our
president, chief executive officer and principal shareholder, sold 75,000 common
shares. The common shares were sold for $6.50 each. Net proceeds, after expenses
of the IPO, were $6,423,763.
We have not previously filed an initial report of sales of securities and use of
proceeds. We will report the following information in our quarterly and annual
filings until the proceeds have been fully used.
(a) Effective date of Registration Statement: May 13, 1999 (File No.
333-74203).
(b) The offering was declared effective May 13, 1999 and was consummated on
May 18, 1999.
(c) The managing underwriters were Paulson Investment Company, Inc. and
Redwine & Company, Inc.
(d) Securities Sold:
(i) Common shares - common shares par value $.001 per share
(ii) Representatives' warrants - warrants convertible into 132,500 common
shares at a price of $7.80 per share. The representatives' warrants
are exercisable over the four year period beginning on the first
anniversary of the offering. These warrants were issued to the
underwriters in connection with the offering.
(e) Amount registered and sold:
(i) Common shares - 1,523,750 common shares were registered; 1,250,000
common shares were sold for the account of the issuer and 75,000
common shares were sold for the account of Assaf Ran, our president,
chief executive officer and principal shareholder.
(ii) Representatives' warrants - 132,500 warrants registered and issued
to the underwriters in connection with the IPO.
(iii) Common shares issuable upon exercise of representatives' warrants -
132,500 common shares registered.
12
<PAGE>
(f) Gross proceeds to issuer: $8,125,000.
(g) Expenses incurred in connection with issuance of securities:
Underwriting discounts and commissions $ 731,250
Expenses paid to the underwriters $ 252,455
Other expenses $ 717,532
----------
$1,701,237
(h) Net proceeds: $6,423,763.
(i) Amount of net offering proceeds used for the purposes listed below:
Temporary investments with maturities of
three months or less: $6,423,763
==========
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K - none
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAG Media, Inc. (Registrant)
Date: May 12, 2000 By /s/ Assaf Ran
---------------------------------------
Assaf Ran, President
Date: May 12, 2000 By: /s/ Orna Kirsh
---------------------------------------
Orna Kirsh, Chief Financial and
Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN THE MARCH 31, 2000 PERIOD END REPORT FILED ON THE
FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,317,926
<SECURITIES> 0
<RECEIVABLES> 3,122,298
<ALLOWANCES> 500,000
<INVENTORY> 403,035
<CURRENT-ASSETS> 10,486,653
<PP&E> 252,553
<DEPRECIATION> 36,739
<TOTAL-ASSETS> 12,015,256
<CURRENT-LIABILITIES> 3,065,200
<BONDS> 0
0
0
<COMMON> 2,976
<OTHER-SE> 8,947,080
<TOTAL-LIABILITY-AND-EQUITY> 12,015,256
<SALES> 3,070,273
<TOTAL-REVENUES> 3,070,273
<CGS> 795,633
<TOTAL-COSTS> 1,566,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 788,254
<INCOME-TAX> 366,600
<INCOME-CONTINUING> 421,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 421,654
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.14
</TABLE>
