With
Nextyellow
, businesses will pay a low monthly fee for each zip code/category combination in which they wish to market their goods or services. In return they receive qualified leads specific to their locality. Consumers, for whom the use of the website is free of charge, enjoy a friendly application that shortens the process of locating,
selecting and contacting a business, which then provides an instant match between their needs and businesses’ capabilities.
Our roll-out and full scale marketing of
Nextyellow
awaits new funding for this operation, preferably at the subsidiary level, or our reaching agreement with a marketing partner.
In July 2007 we discontinued operations of our 80% owned subsidiary Shopila Corporation (“Shopila”), which was dissolved in December 2007.
We have reflected Shopila’s operations as discontinued operations in the accompanying financial statements for the three month period ended March 31, 2007. As a result, sales, cost of goods sold, and related expenses have been reclassified in the statement of operations and are shown separately as a net amount under the caption income (loss) from
discontinued operations for the three month period ended March 31, 2007.
Results of Operations
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
Total revenue
Total revenues for the three month period ended March 31, 2008 were approximately $165,000 compared to approximately $1,000 for the three month period ended March 31, 2007. Revenue of $147,000 represents interest income on the short term notes made through DAG Funding, and approximately $18,000 represents origination fees (DAG Funding was formed on May
15, 2007). DAG Funding offers short-term secured commercial loans to small businesses. Loans are secured by collateral such as real estate, receivables, and marketable securities and generally are accompanied by personal guarantees from the principals of the businesses. Subscription revenues of $1,000 in the same period of 2007, were attributable to
Nextyellow
operations. Our roll-out and full scale marketing of
Nextyellow
awaits new funding for this operation,
preferably at the subsidiary level, or our reaching agreement with a marketing partner.
Web Development costs
Web development costs for each of the three month periods ended March 31, 2008 and 2007 were $12,336. These costs are attributable to amortization of nextyellow.com web development expenses.
General and administrative costs
General and administrative expenses for the three month period ended March 31, 2008 were $160,422 compared to $201,647 for the three month period ended March 31, 2007, representing a decrease of $41,225, or 20.4%. This decrease is primarily attributable to a decrease in payroll expenses of approximately $22,000, mainly due to the decrease in our
president-Assaf Ran’s salary, a decrease in share based compensation expenses of approximately $8,000, due to a decline in the share price and a decrease in public relations expenses of approximately $6,000, mainly due to fewer filings
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made by the Company in the first quarter of 2008. We expect general and administrative expenses to increase as a result of ongoing expenses related to reporting obligations and compliance, such as those mandated by the Sarbanes-Oxley Act.
Other income
For the three month period ended March 31, 2008 we had other income in the amount of approximately $64,000 which consisted mainly of dividends and interest income of approximately $25,000, a referral fee of $29,000 and $10,000 in connection with sale of a listing of potential customers of next yellow website, compared to other income of approximately
$28,000 for the three month period ended March 31, 2007 which consisted mainly of dividends and interest of approximately $55,000, offset by realized losses of approximately $27,000.
Income tax benefit
For the three month period ended March 31, 2008 we had an income tax benefit of approximately $10,000.
The difference between applying the effective income tax rate and the statutory rate for the three month period ended March 31, 2008, is the result of the reversal of the overaccrual of the recording of income tax expense related to prior years’ amended income tax returns, which were accepted by the respective taxing authorities.
Discontinued operations
We recorded a gain on the sale of the Jewish Directories in the amount of $72,917 and $48,611 for the periods ended March 31, 2008 and 2007, respectively, which represents installment payments received from the sale of the Jewish Directories.
In July, 2007, we discontinued operations of our 80% owned subsidiary Shopila Corporation (“Shopila”), which was dissolved in December 2007. Accordingly, the Company has reflected Shopila’s operations as a discontinued operation in the accompanying financial statements. As a result, sales, cost of goods sold, and related expenses have been reclassified in the statement of operations and are shown
separately as a net amount under the caption loss from discontinued operations for the three month period ended March 31, 2007, in the amount of $19,992.
Liquidity and Capital Resources
At March 31, 2008, we had cash and cash equivalents, marketable securities, auction rate securities and a short-term investment (insurance annuity contract) of approximately $3,129,000 and working capital of approximately $6,596,000 as compared to cash and cash equivalents, marketable securities and a short term investment of approximately $2,356,000 and
working capital of approximately $6,682,000 at December 31, 2007. The increase in cash and cash equivalents and marketable securities primarily reflects the proceeds of collection of short term commercial notes in the aggregate amount of $1,330,000 by DAG Funding, offset by making of these notes in the aggregate amount of $957,000. Cash was also provided by the proceeds from a line of credit in the amount of approximately $314,000. The decrease in working capital is primarily
attributable to a decrease in the fair value of marketable securities.
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Net cash provided by operating activities was approximately $73,000 for the three months ended March 31, 2008, as compared to net cash used in operating activities of approximately $264,000 for the period ended March 31, 2007. The increase in net cash provided by operating activities primarily reflects the net income of $140,000 for the three months
ended March 31, 2008 compared to a net loss of $156,000 in the same period in 2007 and assets and liabilities from discontinued operations of Shopila in 2007, offset by an increase in account payable and accrued expenses.
Net cash used in investing activities was approximately $729,000 for the three months ended March 31, 2008, compared to net cash provided by investing activities of approximately $102,000 for the period ended March 31, 2007. The increase in net cash used in investing activities was primarily the result of issuance of short term and long term commercial
notes in the aggregate amount of approximately $957,000 issued by DAG Funding and investment in auction rate securities in the amount of $1,175,000, offset by proceeds from the collection of short term commercial notes in the aggregate amount of $1,330,000 and proceeds of $73,000 from the sale of Jewish Directories.
Net cash provided by financing activities for the three months ended March 31, 2008 was approximately $314,000 as compared to $0 for the period ended March 31, 2007. This increase in net cash provided by financing activities reflects the use of the Company’s credit line.
We have not entered into any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of or requirements for capital resources.
We anticipate that our current cash balances will be sufficient to fund our operations and the maintenance of our web sites for the next 12 months. However, we expect our working capital requirements to increase over the next 12 months as we continue to strive for growth.
Changes to Critical Accounting Policies and Estimates
Our critical accounting polices and estimates are set forth in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007.
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) the successful integration of new businesses that we may acquire; (ii) the success of new operations which we have commenced and of our new business strategy; (iii) our limited operating history in our new business; (iv) potential fluctuations in our quarterly operating results; and (v)
challenges facing us relating to our growth. 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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Item 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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A smaller reporting company is not required to provide the information required by this Item.
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Item 4.
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CONTROLS AND PROCEDURES
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(a) Evaluation and Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2008. Based on this evaluation, our chief executive officer and chief financial officer concluded
that, as of March 31, 2008, our disclosure controls and procedures were (1) effective in that they were designed to ensure that material information relating to us is made known to our chief executive officer and chief financial officer by others within our organization, as appropriate to allow timely decisions regarding required disclosures, and (2) effective in that they ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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PART II-OTHER INFORMATION
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I
tem 1.
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Legal Proceedings.
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In January 2001, Flexible Business Systems, Inc. commenced an action against DAG Media, Inc. and Dapey Assaf, Ltd., in the Supreme Court of the State of New York, County of Suffolk for breach of contract, seeking compensation for unpaid invoices pursuant to a written agreement for computer software. We defended the complaint claiming there was no valid
contract between the parties as the software program did not comport to our needs. Following a trial, on January 26, 2006, we received a Notice of Entry, finding in favor of Flexible Business Systems and awarding them the sum of $38,553 plus interest from January 19, 2001. In April 2006, the plaintiff levied our bank account for the sum of $58,926, which was ultimately drawn from our bank account in satisfaction of the judgment. We filed an appeal and the appeal was argued in
January 2007 and we await the court’s decision. This amount is to be paid to us by the purchasers and therefore is showing on the balance sheet as due from purchasers at March 31, 2008.
In 2004, Neopost Leasing, Inc. commenced a collection action against Black Book Photography, Inc. (“BBP”), a former subsidiary of DAG Media, in the Civil Court of the State of New York, County of Queens, to recover $15,987 on an equipment lease for a certain postage meter or similar equipment sold to Brandera.com (USA) Inc., which in turn
sold certain assets to BBP. The equipment was apparently in the office in Manhattan when BBP purchased the assets of the business from Brandera.com (USA) Inc. on August 2, 2002. The agreement governing that purchase provided, inter alia, that BBP would take title to any equipment and would assume “any contracts”. In connection with the later sale of DAG’s interest in BBP to Modern Holdings, Inc. it appears that DAG agreed to indemnify Modern as to this claim, and
it remains a contingent liability of DAG’s accordingly. In light of the terms of the contract between Brandera.com (USA) Inc., there may be full liability on this claim. We have opposed the motion. We made an additional provision in the amount of $10,000 for the three months ended March 31, 2008, which remains included in accounts payable and accrued expenses as of March 31, 2008 in total amount of $25,987. The motion for summary judgment was withdrawn by the plaintiff and
thus there was no decision on the motion. We expect that plaintiff will, at some point, place the case on the trial calendar.
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ITEM 6. EXHIBITS
* Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-K.
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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.
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DAG Media, Inc. (Registrant)
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Date: May 12, 2008
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By: /s/ Assaf Ran
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Assaf Ran, President and Chief Executive Officer
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(Principal Executive Officer)
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Date: May 12, 2008
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By: /s/ Inbar Evron-Yogev
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Inbar Evron-Yogev, Chief Financial Officer
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(Principal Financial and Accounting Officer)
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