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 June 30, 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 August 4, 2000, there were outstanding 2,907,460 shares of the
issuer's common shares, $.001 par value.
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DAG MEDIA, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION
Page Number
-----------
Item 1. Financial Statements (unaudited)
Balance Sheet at June 30, 2000 (unaudited).............. 2
Statement of Operations for the Three and Six
Month Periods Ended June 30, 2000 and 1999.............. 3
Statements of Cash Flows for the Six
Month Periods Ended June 30, 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............... 11
Item 6. Exhibits and Reports.................................... 12
SIGNATURES ....................................................... 13
<PAGE>
DAG MEDIA, INC.
BALANCE SHEET
JUNE 30, 2000
(unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,055,694
Trade accounts receivable, net of allowance for doubtful
accounts of $447,750 2,660,014
Directories in progress 744,765
Other current assets 261,850
------------
Total current assets 10,722,323
------------
Fixed assets, net of accumulated depreciation of $46,578 228,515
Goodwill and trademarks, net of accumulated amortization of $60,795 1,290,186
Other assets 12,501
------------
Total assets $ 12,253,525
============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 53,506
Accrued commissions and commissions payable 598,234
Advanced billing for unpublished directories 1,998,265
Income tax payable 424,819
Deferred tax payable 352,710
------------
Total current liabilities 3,427,534
------------
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 1,254,339
------------
Total shareholders' equity 8,825,991
------------
Total liabilities and shareholders' equity $ 12,253,525
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
2
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DAG MEDIA, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net advertising revenues $ 413,172 $ 282,909 $ 3,483,445 $ 2,268,781
Publishing costs 57,179 35,970 852,812 330,769
----------- ----------- ----------- -----------
Gross profit 355,993 246,939 2,630,633 1,938,012
Operating costs and expenses:
Selling expenses 118,380 45,697 1,006,085 619,782
Administrative and general 564,016 183,212 1,242,696 501,999
----------- ----------- ----------- -----------
Total operating costs and expenses 682,396 228,909 2,248,781 1,121,781
Interest income 106,263 40,959 186,262 43,062
(Loss) earnings from operations before provision
(benefits) for income taxes and equity in loss of
affiliate (220,140) 58,989 568,114 859,293
Provision (benefit) for income taxes (96,075) 12,913 270,525 405,913
Equity in loss of affiliate -- -- -- (2,654)
----------- ----------- ----------- -----------
Net (loss) income available to common shareholders $ (124,065) $ 46,076 $ 297,589 $ 450,726
=========== =========== =========== ===========
Net (loss) income per common share
--Basic $ (.04) $ .02 $ .10 $ .28
=========== =========== =========== ===========
--Diluted $ (.04) $ .02 $ .10 $ .28
=========== =========== =========== ===========
Weighted average number of common shares
outstanding
--Basic 2,907,460 2,101,452 2,907,460 1,615,923
=========== =========== =========== ===========
--Diluted 2,907,460 2,101,452 2,908,133 1,615,923
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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DAG MEDIA, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 297,589 $ 450,726
Adjustment to reconcile net income to net cash provided by
by operating activities--
Depreciation and amortization 45,374 17,580
Bad debt expense 526,933 (68,903)
Equity in loss of affiliate -- 2,654
Changes in operating assets and liabilities--
Accounts receivable (721,390) (68,523)
Directories in progress 168,504 (38,134)
Deferred tax asset 21,000
Advances to employees (90,841) --
Other current and noncurrent assets (60,440) (64,657)
Dividend receivable -- (14,050)
Accounts payable and accrued expenses 23,551 (54,097)
Commissions payable 27,929 --
Advance billing for unpublished directories (527,089) (94,921)
Income taxes payable 267,529 56,906
----------- -----------
Net cash (used) provided by operating activities (42,351) 145,581
----------- -----------
Cash flows from investing activities:
Investments in affiliates -- 39,221
Acquisition of business -- 41,875
Net purchase (sale) of fixed assets (102,812) 179
----------- -----------
Net cash (used) provided by investing activities (102,812) 81,275
Cash flows from financing activities:
Proceeds from IPO, net of expenses -- 6,431,790
Repayment of loans to shareholders, net -- 205,223
----------- -----------
Net cash provided by financing activities -- 6,637,013
----------- -----------
Net (decrease) increase in cash (145,163) 6,863,869
----------- -----------
Cash and cash equivalents, beginning of period 7,200,857 310,185
----------- -----------
Cash and cash equivalents, end of period $ 7,055,694 $ 7,174,054
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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DAG MEDIA, INC.
Item 1. NOTES TO FINANCIAL STATEMENTS
June 30, 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 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.
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 period is the reported net income. The denominator is based on the
following weighted average number of common shares:
Six Months Ended June 30,
2000 1999
--------------------------------------------------------------------------------
Basic 2,907,460 1,615,923
Incremental shares for assumed conversion of options 673 --
--------------------------------------------------------------------------------
Diluted 2,908,133 1,615,923
--------------------------------------------------------------------------------
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The difference between basic and diluted weighted average common shares resulted
from the assumption that the dilutive stock options outstanding were exercised.
There were 74,384 and 86,884 convertible securities that options were not
included in the diluted earnings per share calculation for the year 2000 three
months period-ended and six months period-ended, respectively, as their effect
would have been anti-dilutive.
4. SUBSEQUENT EVENTS
At the Company's annual shareholder meeting held on July 18, 2000, an amendment
to the Company's Stock Option Plan to increase by 145,000 options the maximum
number of options issuable there under was proposed and passed.
6
<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.newyellow.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 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,
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licensing fees, office overhead and wages and fees paid to employees and
contract workers (other than sales representatives).
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net advertising revenues
Net advertising revenues for three months ended June 30, 2000 were $413,000
compared to $283,000 for the three months ended June 30, 1999, an increase of
45.9%. The increase was primarily attributable to increased sales resulting from
entire quarter's Internet sales relating to the NewYellow.com for the first time
in the second quarter of 2000 as well as increased sales for The Jewish Master
Guide directory.
Publication costs
Publication costs for the three months ended June 30, 2000 were $57,000 compared
to $36,000, for the corresponding period in 1999, an increase of 58.3 %. As a
percentage of net advertising revenues, publication costs were 13.8% in the
period ending June 30, 2000 compared to 12.7%, in the corresponding 1999 period.
The increase in publication costs primarily reflects that in the three month
period ending June 30, 2000, we published a larger directory as well as there
was an increase in the market price of paper.
Selling expenses
Selling expenses for the three months ended June 30, 2000 were $118,000 compared
to $46,000 for the corresponding period in 1999, an increase of 156.5%. As a
percentage of net advertising revenues, selling expenses increased to 28.6% in
the period ending June 30, 2000 from 16.3% in the corresponding 1999 period.
This increase is primarily a result of increased New Yellow Internet related
sales for which higher commission rates are being paid.
Administrative and general costs
Administrative and general expenses for the quarter ended June 30, 2000 were
$564,000 compared to $183,000 for the same period in 1999, an increase of
208.2%. This increase is primarily attributable to (1) increased bad debt
expense related to the Company's reassessment of its allowance for doubtful
accounts (2) increased officer and administrative salaries related to the
Company's expansion (3) increased consulting, investor relations and
professional service costs of related to our status as a public company and (4)
increased advertising costs for the promotion of New Yellow.
Interest income
For the quarter ended June 30, 2000, we had interest income of $106,000 compared
to interest income of $41,000 for the quarter ended June 30, 1999. This increase
was attributable to the interest earned, for the complete second quarter of
2000, on the investment of the net proceeds from our initial public offering in
May 1999 whereas in the 1999 period interest was earned on the net IPO proceeds
for only a partial quarter.
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Provision (benefit) for income taxes
Provision (refund) for income taxes for the three months ended June 30, 2000 and
June 30, 1999 were $(96,000) and $13,000, respectively. In the second quarter of
2000, we used a 46% rate to calculate taxes on the expected annual income
thereby yielding an expected tax benefit.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net advertising revenues
Net advertising revenues for the six months ended June 30, 2000 was $3,483,000
compared to $2,269,000 for the six months ended June 30, 1999, an increase of
53.5%. The increase was primarily attributable to increased advertising revenue
with respect to the publication of (1) the February 1999 issue of the The Jewish
Israeli Yellow Pages, (2) the third edition of the Master Guide directory in
June 2000 and (3) the first edition of the New Yellow Manhattan directory .
Also, in the prior comparable period, we did not have any Internet advertising
sales for the full period.
Publication costs
Publication costs for the six months ended June 30, 2000 were $853,000 compared
to $331,000, for the corresponding period in 1999, an increase of 157.7%.
However, as a percentage of net advertising revenues, publication costs were
24.5% in the 2000 period compared to 14.6%, in the 1999 period. The increase in
publication costs reflects the fact that we published three directories in the
first half of 2000 compared to two directories in the first half of 1999. The
increase of publication costs as a percentage of net advertising revenues
reflect the costs related to additional directories as well as a general
increase in the current year for the cost of paper thereby affecting the
printing costs of the directories
Selling expenses
Selling expenses for the six months ended June 30, 2000 were $1,006,000 compared
to $620,000 for the corresponding period in 1999, an increase of 62.3%. As a
percentage of net advertising revenues, selling expenses increased to 28.9% from
27.3%. The increase in selling expenses was attributable to the increases in net
advertising revenues as well as an increase in the commission rates and bonus
payments made, particularly associated with New Yellow sales.
Administrative and general costs
Administrative and general costs for the six months ended June 30, 2000 were
$1,243,000 compared to $502,000 for the same period in 1999, an increase of
147.6%. The increase was primarily attributable to (1) an increase in the
expense for uncollectible receivables (2) increased officer and administrative
salaries related to the company's expansion (3) increased consulting, investor
relations and professional service costs related to our status as a public
company and (4) increased advertising costs for the promotion of New Yellow.
Interest income, net
For the six months ended June 30, 2000 we had net interest income of $186,000
compared to net interest income of $43,000 for the six months ended June 30,
1999. This increase was attributable
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to the investment of the net proceeds of our initial public offering for the
full six month period ending June 30, 2000.
Provision for income taxes
Provision for income taxes for the six months ended June 30, 2000 and June 30,
1999 were $271,000 and $406,000, respectively. The decrease in the provision for
income taxes was directly attributable to the decrease in operating income.
Liquidity and Capital Resources
At June 30, 2000 we had cash and cash equivalents of $7,056,000 and working
capital of $7,295,000 as compared to cash and cash equivalents of $7,174,000 and
working capital of $7,367,000 at June 30, 1999. These decreases primarily
reflect the use of proceeds for the Company's expansion.
Net cash used by operating activities was $42,000 for the six months ended June
30, 2000. For the comparable 1999 period, net cash provided by operating
activities was $146,000. The decrease in net cash provided by operating
activities reflects increased costs related to the expansion of the company and
the first time publication of the New Yellow Manhattan directory in the six
month period ending June 30, 2000 compared to the same period in 1999.
Net cash used by investing activities was $ 103,000 for the three months ended
June 30, 2000. Net cash used by investing activities in the quarter ended June
30, 2000 was primarily used for the purchase of improved accounting and data
information systems. For the comparable 1999 period net cash provided by
investing activities was $81,000.
There was no cash used for financing activities for the six months ended June
30, 2000. For the comparable 1999 period, net cash provided by financing
activities was $6,637,000 consisting primarily of the net proceeds of our
initial public offering in May 1999 and the proceeds from the repayment of Mr.
Ran's loans.
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 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
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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.
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<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.
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(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: $5,585,089
==========
New Yellow printing and distribution cost $ 569,674
==========
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K - none
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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: August 4, 2000 By /s/ Assaf Ran
-----------------------------------------
Assaf Ran, President
Date: August 4, 2000 By: /s/ Orna Kirsh
-----------------------------------------
Orna Kirsh, Chief Financial Officer
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