-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WlM7HXkI7QjnsqAv5IMqXvW8JNr34Yr2x3QzGcS3515uzBQaABFvJbewqb0aGf0M QOsP9k6CwHZJX/whnux65A== 0001169232-04-005307.txt : 20041025 0001169232-04-005307.hdr.sgml : 20041025 20041025163346 ACCESSION NUMBER: 0001169232-04-005307 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041025 DATE AS OF CHANGE: 20041025 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAG MEDIA INC CENTRAL INDEX KEY: 0001080340 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 113474831 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25991 FILM NUMBER: 041094279 BUSINESS ADDRESS: STREET 1: 125 QUEENS BLVD STE 14 CITY: KEW GARDENS STATE: NY ZIP: 11415 MAIL ADDRESS: STREET 1: 125 QUEENS BLVD STE 14 CITY: KEW GARDENS STATE: NY ZIP: 11415 10QSB 1 d60995_10qsb.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2004 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) 520-1000 (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 |_| State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of October 25, 2004, there were outstanding 3,152,190 shares of the issuer's common shares, $.001 par value. Transitional Small Business Disclosure Format Yes |_| No |X| DAG MEDIA, INC. QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 TABLE OF CONTENTS Part I - FINANCIAL INFORMATION
Page Number Item 1. Financial Statements (unaudited) Balance Sheet at September 30, 2004 3 Statements of Operations for the Three and Nine Months Periods Ended 4 September 30, 2004 and 2003 Statements of Cash Flows for the Nine Months Periods Ended September 30, 2004 and 2003 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis or Plan of Operation 8 Item 3. Controls and Procedures 13 Part II - OTHER INFORMATION Item 6. Exhibits 13 SIGNATURES 14 EXHIBITS 15
2 Item 1. FINANCIAL STATEMENTS DAG MEDIA, INC. BALANCE SHEET (unaudited)
September 30, 2004 ------------------ Assets Current assets: Cash and cash equivalents $ 4,347,203 Marketable securities 4,590,734 Short term investment - insurance annuity contract - at fair value 1,044,202 ------------ Total cash and cash equivalents, marketable securities and short terms investments 9,982,139 Trade accounts receivable, net of allowance for doubtful accounts of $ 450,000 1,620,193 Directories in progress 1,328,918 Other current assets 257,304 ------------ Total current assets 13,188,554 Property and equipment, net 217,226 Trademarks and other intangibles, net 275,518 Other assets 118,863 ------------ Total assets $ 13,800,161 ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $ 265,928 Accrued commissions and commissions payable 605,000 Advanced billing for unpublished directories 2,793,983 Income tax payable 670,248 ------------ Total current liabilities 4,355,159 Commitments and contingencies -- Shareholders' equity: Preferred shares - $ .01 par value; 5,000,000 shares authorized; no shares issued -- Common shares - $ .001 par value; 25,000,000 authorized; 3,152,190 issued and 3,083,460 outstanding 3,152 Additional paid-in capital 8,374,913 Treasury stock, at cost- 68,730 shares (231,113) Deferred compensation (31,478) Accumulated other comprehensive income 35,284 Retained earnings 1,314,244 ------------ Total shareholders' equity 9,465,002 ------------ Total liabilities and shareholders' equity $ 13,800,161 ============
The accompanying notes are an integral part of these financial statements. 3 DAG MEDIA, INC. STATEMENTS OF OPERATIONS (unaudited)
- ------------------------------------------------------------------------------------------------------------------ Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- - ------------------------------------------------------------------------------------------------------------------ 2004 2003 2004 2003 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Advertising revenues $1,986,744 $ 2,043,232 $ 5,027,356 $ 5,580,216 - ----------------------------------------------------------------------------------------------------------------- Publishing costs 225,496 225,892 772,837 928,910 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Gross Profit 1,761,248 1,817,340 4,254,519 4,651,306 - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Operating costs and expenses: - ----------------------------------------------------------------------------------------------------------------- Selling expenses 963,068 922,110 2,280,664 2,372,402 - ----------------------------------------------------------------------------------------------------------------- Administrative and general costs 745,178 730,794 2,015,866 1,899,490 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Total operating costs and expenses 1,708,246 1,652,904 4,296,530 4,271,892 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Gain (loss) from operations 53,002 164,436 (42,011) 379,414 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Other income 84,735 95,546 328,520 200,747 - ----------------------------------------------------------------------------------------------------------------- Gain from sale of the New Yellow Directory -- 1,207,997 -- 1,207,997 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Total other income 84,735 1,303,543 328,520 1,408,744 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations before 137,737 1,467,979 286,509 1,788,158 provision for income taxes ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Provision for income taxes 134,340 189,764 134,340 205,601 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations $ 3,397 $ 1,278,215 $ 152,169 $ 1,582,557 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Discontinued operations: - ----------------------------------------------------------------------------------------------------------------- Gain on the sale of Blackbook, net of tax 1,169,213 -- 1,169,213 -- effect of $770,000 - ----------------------------------------------------------------------------------------------------------------- Income (loss) from discontinued operations 16,480 (139,786) (183,352) (431,561) net of tax benefit of $120,000 ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Income (loss) from discontinued operations 1,185,693 (139,786) 985,861 (431,561) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Net income $1,189,090 $ 1,138,429 $ 1,138,030 $ 1,150,996 ========== =========== =========== =========== - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Net income (loss) per common share - Basic - ----------------------------------------------------------------------------------------------------------------- Continuing operations 0.00 0.44 0.05 0.54 - ----------------------------------------------------------------------------------------------------------------- Discontinuing operations 0.38 (0.05) 0.31 (0.15) ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Total net income per common share - Basic $ 0.38 $ 0.39 $ 0.36 $ 0.39 ========== =========== =========== =========== - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Net income (loss) per common share - Diluted - ----------------------------------------------------------------------------------------------------------------- Continuing operations 0.00 0.43 0.04 0.51 - ----------------------------------------------------------------------------------------------------------------- Discontinuing operations 0.37 (0.05) 0.31 (0.14) ---------- ----------- ----------- ----------- - ----------------------------------------------------------------------------------------------------------------- Total net income per common share - $ 0.37 $ 0.38 $ 0.35 $ 0.37 Diluted ========== =========== =========== =========== - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding - ----------------------------------------------------------------------------------------------------------------- - --Basic 3,152,190 2,929,895 3,125,455 2,928,281 ========== =========== =========== =========== - ----------------------------------------------------------------------------------------------------------------- - --Diluted 3,237,608 3,011,636 3,230,197 3,102,791 ========== =========== =========== =========== - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 4 DAG MEDIA, INC. STATEMENTS OF CASH FLOWS (unaudited)
Nine Months ended September 30, 2004 September 30, 2003 ------------------ ------------------ Cash flows from operating activities: Net income $ 1,138,030 $ 1,150,996 Adjustment to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 102,403 85,464 Gain on sale of New Yellow Directory -- (1,207,997) Gain on sale of Blackbook Photography Inc. (1,939,213) -- Amortization of deferred compensation 49,522 11,198 Bad debt expense 524,926 667,261 Realized gain on sale of marketable securities (191,989) -- Non cash option expense 16,092 -- Tax benefit of stock options exercised 137,680 -- Deferred taxes (63,571) (192,635) Changes in operating assets and liabilities net of disposition of Blackbook Photography, Inc. Accounts receivable (486,514) (604,892) Directories in progress 322,070 396,023 Other current assets 85,814 (29,938) Other assets (4,412) -- Accounts payable and accrued expenses (342,968) 31,947 Accrued commissions and commissions payable (61,817) (19,000) Advance billing for unpublished directories 11,006 (673,305) Income taxes payable 581,248 201,213 Assets and liabilities from discontinued operation -- 416,139 ----------- ----------- Net cash (used in) provided by operating activities (121,693) 232,474 ----------- ----------- Cash flows from investing activities: Proceeds from sale of marketable securities 7,328,008 4,460,453 Purchase of fixed assets (24,969) (126,933) Investment in marketable securities move (5,258,515) (5,727,209) Proceeds from sale of fixed assets -- 46,200 Cash received on sale of New Yellow Directory, net of expenses -- 1,207,997 Cash received on sale of Blackbook Photography Inc., net of expenses and amounts in escrow and cash surrendered on sale 1,800,245 -- Investment in Dune Medical Devises Ltd. -- (100,000) ----------- ----------- Net cash provided by (used in) investing activities 3,844,769 (239,492) ----------- ----------- Cash flows from financing activities: Dividend paid (744,113) -- Proceeds from forfeit of gain on sale of restricted stocks 10,279 -- Proceeds from exercise of stock options 156,142 10,640 ----------- ----------- Net cash (used in) provided by financing activities (577,692) 10,640 ----------- ----------- Net increase in cash $ 3,145,384 $ 3,622 Cash and cash equivalents, beginning of period 1,201,819 131,611 ----------- ----------- Cash and cash equivalents, end of period $ 4,347,203 $ 135,233 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 DAG MEDIA, INC. NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2004 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 year ended December 31, 2003 and the notes thereto included in the Company's 10-KSB. Results of operations for the interim period are not necessarily indicative of the operating results to be attained in the entire fiscal year. 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 amount of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. 2. RECENT TECHNICAL ACCOUNTING PRONOUNCEMENTS Management does not believe that any recently issued, but not yet effected, accounting standards if currently adopted would have a material effect on the Company's financial statements. 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 are 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. 6 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:
- ------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, - ------------------------------------------------------------------------------------------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- - ------------------------------------------------------------------------------------------------------------- Basic 3,152,190 2,929,895 3,125,455 2,928,281 - ------------------------------------------------------------------------------------------------------------- Incremental shares for assumed 85,418 81,741 104,742 174,510 conversion of options - ------------------------------------------------------------------------------------------------------------- Diluted 3,237,608 3,011,636 3,230,197 3,102,791 - -------------------------------------------------------------------------------------------------------------
There were 267,440 and 162,440 stock options and warrants not included in the diluted earnings per share calculation for the three and nine months period ended September 30, 2004, respectively. For the respective three months and nine months period ended September 30, 2003 there were 106,440 and 21,440, respectively, stock options and warrants not included in the diluted earning per share calculation. 4. STOCK - BASED COMPENSATION As permitted by the SFAS No. 123, "Accounting for Stock Based Compensation", the Company accounts for stock-based compensation arrangements with employees in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees". Compensation expense for stock options issued to employees is based on the difference on the date of grant, between the fair value of the Company's stock and the exercise price of the option. No stock based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant. The Company accounts for equity instruments issued to non employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, or in Conjunction With Selling Goods or Services". All transactions with non employees, in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based compensation to employees: 7
- ---------------------------------------------------------------------------------------------------------------- Three Months Three Months Nine Months Nine Months ------------ ------------ ----------- ----------- Ended Ended Ended Ended ----- ----- ----- ----- September 30, September 30, September 30, September 30, ------------- ------------- ------------- ------------- 2004 2003 2004 2003 ---- ---- ---- ---- - ---------------------------------------------------------------------------------------------------------------- Net income, as reported $ 1,189,090 $ 1,138,429 $ 1,138,030 $ 1,150,996 - ---------------------------------------------------------------------------------------------------------------- Less: Total stock based (32,738) (28,240) (66,322) (39,098) employee compensation expenses determined under fair value based method for all awards - ---------------------------------------------------------------------------------------------------------------- Net income, pro forma $ 1,156,352 $ 1,110,189 $ 1,071,708 $ 1,111,898 - ---------------------------------------------------------------------------------------------------------------- Basic earnings per share, $ 0.38 $ 0.39 $ 0.36 $ 0.39 as reported - ---------------------------------------------------------------------------------------------------------------- Pro forma $ 0.37 $ 0.38 $ 0.34 $ 0.38 - ---------------------------------------------------------------------------------------------------------------- Diluted earnings per $ 0.37 $ 0.38 $ 0.35 $ 0.37 share, as reported - ---------------------------------------------------------------------------------------------------------------- Pro forma diluted $ 0.36 $ 0.38 $ 0.33 $ 0.36 earnings per share - ----------------------------------------------------------------------------------------------------------------
5. SIGNIFICANT EVENTS On August 24, 2004, the company sold its wholly owned subsidiary, Blackbook Photography Inc. to Modern Holdings Incorporated, for $2.25 million. Under the stock purchase agreement, - $2.125 million was paid in cash at the closing and the additional $125,000 will be held in escrow for the next twelve months pending the resolution of certain open matters. The Company recorded a gain on the sale of the Blackbook amounting to $1,289,213 which is net of $650,000 for income taxes and $316,311 for finder's fee, compensation to sales franchisees, bonuses to employees and legal expenses. Accordingly, the company has reflected the sale of the Blackbook as a discontinued operation in the accompanying financial statements. As a result, revenues, publishing costs, and related expenses have been reclassified in the statement of operations and shown separately as a net amount under the caption loss from discontinued operation for all periods presented. Accordingly the company recorded a loss from discontinued operation totaling $103,520 and $139,785 for the three-month periods ended September 30, 2004 and 2003, respectively, and a loss from discontinued operation totaling $303,352 and $431,561 for the nine-month periods ended September 30, 2004 and 2003, respectively. Net revenue from the discontinued operations was $234,740 and $135,006 for the three month periods ended September 30, 2004 and 2003, and net revenue from the discontinued operation was $799,619 and $285,644 for the nine month periods ended September 30, 2004 and 2003. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion and analysis of our result of operations should be read in conjunction with our unaudited 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 publish and distribute print and online business directories for domestic niche markets. Our principal source of revenue comes from the sale of ads in these directories. As a sales incentive we also provide our advertisers with added values, such as referral services and consumer discount club. We also operate Internet portals, JewishYellow.com targeting worldwide Jewish communities and JewishMasterguide.com, targeting the ultra-orthodox and Hasidic communities as well as Newyellow.com. 8 Our principal directories are: the Jewish Israeli Yellow Pages, a bilingual, English and Hebrew, yellow page directory distributed free through local commercial and retail establishments in the New York metropolitan area and Florida. The Jewish Master Guide also known as The Kosher Yellow Pages, a yellow page directory designed to meet the special needs of the Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area and Florida. Blackbook Photography Inc., Dag Media's wholly owned subsidiary was sold on August 24, 2004 to Modern Holdings Incorporated for $2.25 million. 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 ad 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. Thus, 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. 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). Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003 Advertising revenues Advertising revenues for the three months ended September 30, 2004 were $1,987,000 compared to $2,043,000 for the three months ended September 30, 2003, a decrease of $56,000. The decrease was primarily attributable to the slight decrease in recognized revenue related to the Jewish Yellow Pages Directory, recognized in the third quarter. Publishing costs Publishing costs for the three months ended September 30, 2004 were $225,000 compared to $226,000, for the corresponding period in 2003, a decrease of $1,000. As a percentage of advertising revenues, publishing costs were 11.32% in the three month period ending September 30, 2004 compared to 11.06%, in the corresponding period in 2003. The publishing costs for the quarter ended September 30, 2004 and the corresponding period in 2003 primarily reflect the printing and distribution costs of the Jewish Yellow Pages Directory. 9 Selling expenses Selling expenses for the three months ended September 30, 2004 were $ 963,000 compared to $922,000 for the corresponding period in 2003, an increase of $41,000. This increase in selling expenses was primarily attributable to more sales made by agencies with higher commission rates versus sales made by representatives who work directly for the company. Administrative and general costs General and administrative expenses for the three months period ended September 30, 2004 were $745,000 compared to $731,000 for the same period in 2003, an increase of 1.92%. This increase is primarily attributable to increased legal fees. Other income For the three month period ended September 30, 2004, we had other income consisting of dividends, interest and realized gains of $85,000 compared to other income of $96,000 and gain from sale of the New Yellow Manhattan Directory of $1,208,000 for the three month period ended September 30, 2003. Discontinued Activity On August 24, 2004, the company sold its wholly owned subsidiary, Blackbook Photography Inc. to Modern Holdings Incorporated, for $2.25 million. The Company's net profit from the sale, after direct related costs of finder's fee, compensation to sales franchisees, bonuses to employees and payments to legal advisors, before provision for income taxes, totaled $1.169 million in addition to a gain from operation of $16,000. Net gain from discontinued operations totaled $1.186 million. Provision for income taxes The provision for income taxes for the three months ended September 30, 2004 was $134,000 compared to a provision of $190,000 for the three months ended September 30, 2003. The Company used its deferred tax asset incurred during the second quarter of 2004 to decrease its income tax liabilities. Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003 Advertising revenues Advertising revenues for nine months ended September 30, 2004 were $5,027,000 compared to $5,580,000 for the nine months ended September 30, 2003, a decrease of $553,000. The decrease was primarily attributable to the deduction of recognized revenues related to the New Yellow Manhattan Directory ninth edition (sold) partly offset by the increase in recognized revenues of the tenth edition of the Jewish Master Guide Directory. 10 Publishing costs Publishing costs for the nine months ended September 30, 2004 were $773,000 compared to $929,000, for the corresponding period in 2003, a decrease of $156,000. As a percentage of advertising revenues, publishing costs were 15.37% in the nine month period ending September 30, 2004, compared to 16.65% in the corresponding period in 2003. The decrease in publishing costs primarily reflects the decrease in the printing and distribution costs of the ninth edition of the New Yellow Manhattan Directory. Selling expenses Selling expenses for the nine months ended September 30, 2004 were $2,281,000 compared to $2,372,000 for the corresponding period in 2003, a decrease of $91,000. This decrease in selling expenses was primarily the result of the general decreased in sales offset by higher commission rates paid for revenue generated by the Jewish Master Guide Directory compared to commission rates paid for revenues generated by the New Yellow Manhattan Directory, previously published. Administrative and general costs General and administrative expenses for the nine month period ended September 30, 2004 were $2,016,000 compared to $1,899,000 for the same period in 2003, an increase of 6.16%. This increase is primarily attributable to increased salaries, advertising costs and legal fees Other income For the nine month period ended September 30, 2004, we had other income consisting of dividend, interest and realized gains of $329,000 compared to other income of $201,000 and gain from sale of the New Yellow Manhattan Directory of $1,208,000 for the nine month period ended September 30, 2003. Discontinued Activity On August 24, 2004, the company sold its wholly owned subsidiary, Blackbook Photography Inc. to Modern Holdings Incorporated, for $2.25 million. The Company's net profit from the sale, after direct related costs of finder's fee, compensation to sales franchisees, bonuses to employees and payments to legal advisors, before provision for income taxes, totaled $1.169 million in addition to a loss from operation of $183,000. Net gain from discontinued operation totaled $986,000. Provision for income taxes The provision for income taxes for the nine months ended September 30, 2004 was $134,000 compared to $206,000 for the nine months ended September 30, 2003. The Company used its deferred tax asset incurred during the second quarter of 2004 to decrease its income tax liabilities for the period. 11 Liquidity and Capital Resources At September 30, 2004, we had cash and cash equivalents, marketable securities and short term investments of $9,982,000 and working capital of $8,853,000 as compared to cash and cash equivalents, marketable securities and short term investments of $8,320,000 and working capital of $6,901,000 at September 30, 2003. The increase in cash and cash equivalents and marketable securities also reflects the $2.125 million cash provided by the sale of Blackbook Photography Inc. received in August of 2004. The increase in working capital primarily reflects the increase in cash offset by decrease in accounts receivable and $744,000 dividend payments to shareholders made on January 5, 2004. Net cash used in operating activities was $122,000 for the nine months ended September 30, 2004. For the comparable period in 2003, net cash provided by operating activities was $232,000. The decrease in net cash provided by operating activities reflects the cost of converting the New Yellow sales force to a sale force for Jewish Master Guide and increased legal fees. Net cash provided by investing activities was $3,845,000 for the nine months ended September 30, 2004 compared to net cash used in investing activities of $239,000 for the comparable period in 2003. Net cash provided by investing activities was primarily the result of our sales of marketable securities and a change in our investment strategy as well as the net cash received from the sale of the Blackbook Photography Inc. Net cash used in financing activities for the nine months ended September 30, 2004 was $599,000 compared to net cash provided by financing activity in the corresponding period in 2003 of $11,000. The net cash used in financing activities for the nine months ended September 30, 2004 was accounted for by the dividend paid to the Company's shareholders on January 5, 2004, offset by the proceeds received from the exercise of stock options and the issuance of common shares, respectively. 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 sites as well as increases in our marketing and promotional activities for the next 12 months. However, we expect our working capital requirements to increase over the next 12 months as we continue to market our directories and expand our on-line services. 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 12 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. Item 3. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-15(e) and 15-d-15(e)) as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis. (b) Changes in Internal Control Over Financial Reporting. There was no change in the Company's internal controls over financial reporting, known to the chief executive officer or the chief financial officer, that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II-OTHER INFORMATION Item 6. EXHIBITS (a) Exhibits: Exhibit No. Description ----------- ----------- 31.1 Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Chief Executive Officer Certification as required under section 302 of the Sarbanes-Oxley Act of 2002. 32.2 Chief Financial Officer Certification as required under section 302 of the Sarbanes-Oxley Act of 2002. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAG Media, Inc. (Registrant) Date: October 25, 2004 By: /s/ Assaf Ran ----------------------------- Assaf Ran, President and Chief Executive Date: October 25, 2004 By: /s/ Yael Shimor-Golan --------------------------------- Yael Shimor-Golan, Chief Financial Officer 14 EX-31.1 2 d60995_ex31-1.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATION I, Assaf Ran, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of DAG Media, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 25, 2004 /s/ Assaf Ran ------------- Assaf Ran President and Chief Executive Officer 15 EX-31.2 3 d60995_ex31-2.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, Yael Shimor-Golan, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of DAG Media, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 25, 2004 /s/ Yael Shimor-Golan --------------------- Yael Shimor-Golan Chief Financial Officer 16 EX-32.1 4 d60995_ex32-1.txt CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DAG Media, Inc. (the "Company") on Form 10-QSB for the period ending September30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Assaf Ran, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Assaf Ran - ------------- Assaf Ran President and Chief Executive Officer October 25, 2004 17 EX-32.2 5 d60995_ex32-2.txt CERTIFICATION Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DAG Media, Inc. (the "Company") on Form 10-QSB for the period ending September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Yael Shimor-Golan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Yael Shimor-Golan - --------------------- Yael Shimor-Golan Chief Financial Officer October 25, 2004 18 -----END PRIVACY-ENHANCED MESSAGE-----