Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2 Registration of Securities by a Small-Business 61 288K
Issuer
2: EX-1.1 Underwriting Agreement 28 130K
3: EX-2.1 Plan of Acquisition, Reorganization, Arrangement, 2 11K
Liquidation or Succession
4: EX-3.1 Articles of Incorporation/Organization or By-Laws 5 22K
5: EX-3.2 Articles of Incorporation/Organization or By-Laws 9 43K
6: EX-4.2 Instrument Defining the Rights of Security Holders 9 34K
7: EX-5.1 Opinion re: Legality 1 11K
8: EX-10.1 Material Contract 11 45K
9: EX-10.2 Material Contract 13 40K
10: EX-10.3 Material Contract 12 35K
11: EX-10.6 Material Contract 2 15K
12: EX-23.1 Consent of Experts or Counsel 1 7K
13: EX-27 Financial Data Schedule (Pre-XBRL) 2 9K
14: EX-99.1 Miscellaneous Exhibit 1 8K
15: EX-99.2 Miscellaneous Exhibit 1 8K
16: EX-99.3 Miscellaneous Exhibit 1 8K
SB-2 — Registration of Securities by a Small-Business Issuer
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DAG MEDIA, INC.
(Exact name of Registrant as specified in its charter)
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NEW YORK 2741 11-3474831
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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125-10 QUEENS BLVD.
KEW GARDENS, NY 11415
(718) 263-8454
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
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ASSAF RAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DAG MEDIA, INC.
125-10 QUEENS BOULEVARD
KEW GARDENS, NY 11415
(718) 263-8454
(Name, address, including zip code, and telephone number, including area code of
agent for service)
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COPIES TO:
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STEPHEN A. ZELNICK, ESQ. MARK A. VON BERGEN, ESQ.
MORSE, ZELNICK, ROSE & LANDER, LLP WEISS, JENSEN, ELLIS & HOWARD
450 PARK AVE. 2300 U.S. BANCORP TOWER
NEW YORK, NY 10022 111 S.W. FIFTH AVENUE
(212) 838-8040 PORTLAND, OR 97204
(212) 838-9190 (FACSIMILE) (503)243-2300
(503) 241-8014 (FACSIMILE)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE (1) REGISTRATION FEE
Common Shares, par value $.001 per share (2)...... 1,523,750 $6.50 $9,904,375.00 $2,921.79
Representative's Warrants(3)...................... 132,500 $-0- $-0- $-0-
Common Shares issuable upon exercise of
Representative's Warrants (4)................... 132,500 $7.80 $1,033,500.00 $304.88
Total Registration Fee............................ $3,217.67
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) Includes 198,750 shares issuable upon exercise of Underwriters'
over-allotment option.
(3) No registration fee required pursuant to Rule 457(g) under the Securities
Act.
(4) Pursuant to Rule 416 under the Securities Act, there are also being
registered hereby such additional indeterminate number of shares as may
become issuable pursuant to the antidilution provisions of the
Representative's Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK TO OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED MARCH 10, 1999
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
This is the initial public offering of DAG Media, Inc. We are offering
1,250,000 Common Shares, and Assaf Ran, our founder and principal shareholder,
is offering 75,000 Common Shares. Mr. Ran will repay a loan of $295,262 owed to
us out of the net proceeds from the sale of his Common Shares.
There has been no prior market for our Common Shares. We will apply to have
our Common Shares listed on the Nasdaq SmallCap Market under the symbol "DAGM."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN FACTORS YOU SHOULD
CONSIDER BEFORE BUYING COMMON SHARES.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or determined if this Prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
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DAG MEDIA SELLING SHAREHOLDER
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PER SHARE TOTAL PER SHARE TOTAL
----------- ------------ ----------- ----------
Initial Public Offering Price.................................. $ 6.50 $ 8,125,000 $ 6.50 $ 487,500
Underwriting discounts and commissions......................... $ 0.65 $ 812,500 $ 0.65 $ 48,750
Proceeds before expenses....................................... $ 5.85 $ 7,312,500 $ 5.85 $ 438,750
We have granted the underwriters a 45-day option to purchase up to an
additional 198,750 Common Shares from us at the initial public offering price
less the underwriting discounts and commissions to cover over-allotments.
The underwriters expect to deliver the Common Shares offered by this
Prospectus against payment on or about , 1999.
PAULSON INVESTMENT COMPANY, INC.
The date of this Prospectus is , 1999
The JEWISH ISRAELI YELLOW PAGES-Registered Trademark- and variants thereof,
and THE JEWISH REFERRAL SERVICE-Registered Trademark- are registered trademarks
or service marks of the Company. We also plan to seek federal trademark and
service mark protection for THE JEWISH MASTER GUIDE-TM- and for NEWYELLOW-TM-.
All other trademarks, service marks and trade names appearing in this Prospectus
are the property of their respective holders.
We maintain a web site at HTTP://WWW.PORTY.COM.
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION THAT WE PRESENT MORE FULLY IN THE OTHER
SECTIONS OF THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN
ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE BUYING COMMON SHARES IN
THIS OFFERING.
UNLESS STATED TO THE CONTRARY, REFERENCES TO "WE," "US," "OUR" OR "THE
COMPANY" REFER TO DAG MEDIA AND, WHERE APPROPRIATE, OUR PREDECESSORS AND
SUBSIDIARIES. IN ADDITION, UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS WILL NOT EXERCISE THE OPTION GRANTED BY
US TO PURCHASE ADDITIONAL COMMON SHARES IN THIS OFFERING.
DAG MEDIA
We publish and distribute yellow page directories in print and on the world
wide web. Our largest directory, THE JEWISH ISRAELI YELLOW PAGES (the "JI
Directory"), is published, bilingually, in English and Hebrew. The first edition
of the JI Directory was published in February 1990 and it has been published in
February and August of each year since 1991. The JI Directory covers the New
York metropolitan area, which includes New York City, the counties of Nassau,
Suffolk, Westchester and Rockland, and northern New Jersey. Our 18(th) edition,
distributed in February 1999, has 1,696 pages and more than 3,200 ads, and we
believe it is the largest yellow page directory in the New York metropolitan
area not published by Bell Atlantic. We also publish a smaller English-only
yellow page directory, THE JEWISH MASTER GUIDE (the "Master Guide"), which is
distributed to the Hasidic and ultra-Orthodox Jewish communities in the New York
metropolitan area. To give added value to advertisers in our directories, we
also operate THE JEWISH REFERRAL SERVICE (the "Referral Service"), which directs
potential customers and clients to businesses that advertise in the JI Directory
and the Master Guide.
In 1995 we began publishing an English-only version of the JI Directory on
the world wide web. As an added benefit to advertisers in the JI Directory,
text-only ads are carried on our web site without additional charge. Graphic ads
may also be displayed by these advertisers for an additional fee. In February
1999 we introduced a "portal" web site at WWW.PORTY.COM (the "Portal") which
allows users to link with web sites maintained by advertisers in the JI
Directory or the Master Guide. The Portal also allows users to access other web
sites containing programs, events and news of particular interest to the Jewish
and Israeli communities as well as general content on the web.
GROWTH STRATEGY
We plan to expand operations by introducing an English-only, general
interest yellow page directory, NEWYELLOW, in the New York metropolitan area.
NEWYELLOW will compete directly with yellow page directories published by Bell
Atlantic. Ads in NEWYELLOW will be priced significantly below prices currently
charged by Bell Atlantic for its yellow page directories. We believe that our
pricing policies will expand the market for yellow page advertising by making
such ads a cost-effective way for smaller businesses to reach potential
customers. We also believe our pricing policies will cause some advertisers in
the Bell Atlantic publications to place ads in NEWYELLOW either in addition to
or in substitution for their Bell Atlantic ads. Our experience in publishing
yellow page directories and selling ads through an effective sales force,
should, we believe, enable us to compete with Bell Atlantic. We plan to
introduce the first NEWYELLOW directory in Manhattan by June 2000. If the
Manhattan NEWYELLOW directory is successful, we plan to add additional NEWYELLOW
directories covering other boroughs in New York City and other counties in the
New York metropolitan area. We may also explore opportunities for offering
yellow page directories and referral services in other cities with large Jewish
and Israeli populations such as Miami, Florida and Los Angeles, California.
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HISTORY
We were incorporated in New York in February 1999 to serve as the parent of
Dapey Assaf-Dapey Zahav, Ltd., which was incorporated in New York in 1995, and
of Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd., which was
incorporated in New York in 1989. We have entered into an Exchange Agreement
with Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh and their respective
shareholders pursuant to which such shareholders will exchange all of their
common shares in those entities for 1,726,190 of our Common Shares and Dapey
Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh will become our wholly owned
subsidiaries. The transactions contemplated by this Exchange Agreement will be
consummated immediately prior to the effective date of this Offering.
Our executive offices are located at 125-10 Queens Boulevard, Kew Gardens,
New York 11415, and our telephone number is (718) 263-8454. Our address on the
world wide web is WWW.PORTY.COM.
THE OFFERING
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Common Shares Being Offered.................. 1,250,000 by us and 75,000 by our principal
shareholder
Offering Price............................... $6.50 per Common Share
Common Shares Outstanding:
Before the Offering........................ 1,726,190
After the Offering......................... 2,976,190
Use of Proceeds.............................. Printing, publishing and distribution costs
for NEWYELLOW; sales commission advances for
NEWYELLOW; marketing and promotional expenses
for NEWYELLOW and the Portal; and general
corporate purposes, including working
capital.
Risk Factors and Dilution.................... The purchase of the shares offered hereby
involves a high degree of risk and immediate
and substantial dilution.
Proposed Nasdaq SmallCap Market Symbol for
the Common Shares.......................... DAGM
Common Shares Outstanding excludes 124,000 Common Shares reserved for
issuance pursuant to our 1999 Stock Option Plan. We have granted options
covering 22,324 Common Shares under this plan as of the effective date of this
Offering at the initial public offering price per Common Share. See
"Management--Stock Option Plan" for a description of our 1999 Stock Option Plan
and the options that will be granted under that plan as of the effective date of
this Offering.
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SUMMARY FINANCIAL DATA
The summary financial data contained in this section of the Prospectus
should be read together with our audited Consolidated Financial Statements and
the notes thereto and the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of this Prospectus.
- Our historical financial data include all of the operations of Dapey
Assaf-Dapey Zahav and 50% of the net income of Dapey Assaf-Hamadrikh. See
notes 1 and 2 to our Consolidated Financial Statements.
- Pro forma data give effect to the transactions contemplated by the
Exchange Agreement. See "DAG Media-- History" in the "Summary" section of
this Prospectus, notes 1, 2 and 8 to our Consolidated Financial Statements
and "Management's Discussion and Analysis of Financial Condition and
Results of Operation" for more information about the Exchange Agreement
and its accounting treatment.
- Pro forma, as adjusted balance sheet data give effect to the transactions
contemplated by the Exchange Agreement, the sale of the Common Shares
offered by us pursuant to this Prospectus, after deducting $1,512,500, our
share of the underwriting discounts and commissions and other estimated
offering expenses, and the repayment of the principal shareholder's loan.
See "Certain Transactions" for more information about the principal
shareholder's loan.
STATEMENTS OF OPERATIONS DATA:
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YEARS ENDED DECEMBER 31
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1998
1997 1998 (PRO FORMA)
------------ ------------ ------------
Net advertising revenues................................................ $ 2,501,754 $ 2,759,092 $ 2,835,917
Publishing costs........................................................ 441,535 377,983 377,983
------------ ------------ ------------
Gross profit............................................................ 2,060,219 2,381,109 2,457,934
Operating costs and expenses:
Selling expenses...................................................... 922,124 946,315 957,227
Administrative and general expenses................................... 658,956 765,233 851,116
------------ ------------ ------------
Total operating costs and expenses.................................... 1,581,080 1,711,548 1,808,343
Earnings from operations before provision for income taxes and equity
income................................................................ 479,139 669,561 649,591
Provision for income taxes.............................................. 240,000 329,000 329,000
Equity in earnings of affiliate......................................... 16,012 17,035 --
------------ ------------ ------------
Net income.............................................................. $ 255,151 $ 357,596 $ 320,591
------------ ------------ ------------
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Basic and diluted net income per Common Share outstanding............... $ 0.20 $ 0.29 $ 0.19
------------ ------------ ------------
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Basic and diluted weighted average number of Common Shares
outstanding........................................................... 1,250,000 1,250,000 1,726,190
------------ ------------ ------------
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BALANCE SHEET DATA:
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DECEMBER 31, 1998
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ -------------
Cash.................................................................. $ 310,185 $ 385,325 $ 7,293,088
Working capital....................................................... 162,041 162,561 7,070,323
Total assets.......................................................... 2,970,190 4,363,046 10,975,546
Total liabilities..................................................... 2,445,451 2,445,451 2,445,451
Total shareholders' equity............................................ 524,739 1,917,595 8,530,095
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW, AS WELL AS
THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS, BEFORE PURCHASING ANY OF OUR
COMMON SHARES.
MANY COMPETITORS HAVE SIGNIFICANT ADVANTAGES. OUR BUSINESS IS NOT DEPENDENT ON
ANY PROPRIETARY TECHNOLOGY AND THE BARRIERS TO ENTRY ARE RELATIVELY LOW.
Currently, we publish yellow page directories that are used primarily by the
Jewish and Israeli communities in the New York metropolitan area. We plan to
introduce NEWYELLOW, an English-only, general interest yellow page directory,
which will compete directly with the Bell Atlantic Yellow Pages in Manhattan.
Bell Atlantic publishes yellow page directories for each of the five boroughs in
New York City, one or more yellow page directories for the counties of Nassau,
Suffolk, Westchester and Rockland, and various yellow page directories for
northern New Jersey. In addition, there are a number of independent companies
that publish yellow page directories for distinct neighborhoods. Any company
with access to a reasonable amount of capital, such as regional and local
telephone companies and publishing companies, can publish yellow page
directories that will compete with our existing directories and directories that
we may publish in the future. There are no significant technological barriers to
entry. In addition, the Internet is growing rapidly and is a current and
potential source of even greater competition. There are already a number of
online yellow page directories available on the Internet such as Bell Atlantic's
Big Yellow. Finally, strategic alliances could give rise to new or stronger
competitors.
Many competitors have significant operating and financial advantages. These
advantages include greater financial, personnel, technical and marketing
resources, superior systems, stronger relationships with advertisers, greater
productive capacity, better-developed distribution channels, and greater name
recognition. In addition, many of our competitors can subsidize competing
services with revenues from their other services. As competition increases, we
expect significant increases in general pricing pressures. For example, Bell
Atlantic could reduce its advertising rates, making advertising in NEWYELLOW
less attractive. In response to competitive pressures, we may have to increase
our sales and marketing expenses or reduce our advertising rates. Since we may
not capture a significant share of the markets where we operate, we cannot
assure you that we can compete effectively. See "Business--Competition" for a
further discussion of the competitive environment in which we operate.
WE ARE PLANNING TO INTRODUCE A NEW PRODUCT, THE SUCCESS OF WHICH WILL DEPEND ON
MANY FACTORS.
We intend to use the majority of the net proceeds of this Offering to
introduce NEWYELLOW. Since we have never published a general interest yellow
page directory, we have no relevant operating history upon which you can
evaluate whether we will be successful. Because we are entering into a different
business, we cannot forecast the scope, magnitude or timing of our future
revenues, if any. To date, we have not marketed or sold any ads for NEWYELLOW
nor have we entered into any strategic alliances with respect to NEWYELLOW. We
cannot assure you that we will be able to generate advertising revenue for, or
enter into any strategic alliances with respect to, NEWYELLOW. Therefore, you
should consider our prospects in light of the risks and uncertainties
encountered by companies trying to establish a new line of business,
particularly companies proposing to enter markets dominated by large and
well-known companies.
To successfully introduce NEWYELLOW into the New York market and sustain and
increase our profitability, we must do the following:
- convince advertisers that NEWYELLOW will be used by sufficient number of
their potential customers to make it worthwhile and cost effective for
them to advertise in NEWYELLOW;
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- manage the production (which includes selling ads, graphic design, layout,
editing and proofreading) of multiple directories addressing different
markets in varying stages of development;
- attract, retain and motivate qualified personnel and expand the number of
sales, operating and management personnel;
- provide high quality, easy to use and reliable directories;
- establish a brand identity for NEWYELLOW;
- develop new and maintain existing relationships with advertisers without
diverting revenues from our existing directories;
- develop and upgrade our management, technical, information and accounting
systems;
- respond to competitive developments promptly;
- introduce enhancements to our existing products and services to address
new technologies and standards and evolving customer demands;
- control costs and expenses and manage higher levels of capital
expenditures and operating expenses; and
- maintain effective quality control over all of our directories.
Our failure to achieve any of the above in an efficient manner and at a pace
consistent with the growth of our business could adversely affect our business,
financial condition, results of operations and the value of our securities. Our
operating results will also depend on external factors such as the development
of similar or superior services or products by competitors, general economic
conditions and economic conditions specific to publishers of yellow page
directories.
OUR SUCCESS DEPENDS ON OUR ABILITY TO HIRE AND RETAIN EFFECTIVE SALES
REPRESENTATIVES. OUR EXPANSION STRATEGY REQUIRES US TO EXPAND OUR SALES FORCE
SIGNIFICANTLY.
The success and growth of our business primarily depends on our ability to
field a highly effective, well-trained sales force. Currently, we hire about
one-half of our sales representatives directly. The remainder are hired by
independent sales agencies with whom we have agreements. Due to the demands of
the job, many sales representatives leave within one year. In addition, our
agreements with the independent sales agencies provide that they are terminable
upon 30 days notice by either party. Regularly replenishing our sales force
involves significant time and expense for recruiting and training. Introduction
of NEWYELLOW will require us to increase the size of the sales force
significantly. We cannot assure you that we will be able to hire and retain
qualified personnel to keep pace with our expansion strategy.
WE DO NOT HAVE ANY LONG-TERM COMMITMENTS FROM ADVERTISERS, UPON WHOM OUR SUCCESS
DEPENDS.
Our revenues are generated by selling ads. We do not, however, have
long-term contractual arrangements with advertisers. Thus, we must obtain new
advertisers and renewals from existing advertisers, for each directory that we
publish. There is no assurance that our current advertisers will continue to
purchase ads in future editions of our directories or that we will be able to
attract new advertisers. Any failure to achieve sufficient advertising revenues
would have a material adverse effect on our business, results of operations and
financial condition.
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IF WE FAIL TO PUBLISH A DIRECTORY, WE WOULD BE REQUIRED TO GIVE REFUNDS TO OUR
ADVERTISERS.
A significant portion of our revenues is collected prior to the publication
and distribution of our directories and is used to pay our employees,
contractors and suppliers. If we did not publish a directory, we would be
obligated to refund advances to our advertisers. We may not have sufficient cash
reserves to repay all these advances. In such event, we would have to generate
cash by borrowing money, selling securities or selling assets. We do not know
whether any of those alternatives will be possible. Further, any of these
alternatives, particularly the sale of our assets, would inhibit our ability to
conduct our business.
OUR ABILITY TO PRODUCE DIRECTORIES ON A COST EFFICIENT BASIS DEPENDS ON THE COST
OF PAPER AND PRINTING.
Aside from sales commissions, our two largest expenses are the cost of paper
and printing. We do not have any long-term contracts with paper suppliers or
with printers. We buy paper on the open market at prevailing prices. Paper costs
fluctuate according to supply and demand in the marketplace. In addition, paper
costs can be affected by events outside of our control such as fluctuations in
currency rates, political events, global economic conditions, environmental
issues and acts of God. A substantial increase in paper costs may materially
increase publication costs and will reduce our profitability.
The JI Directory and the Master Guide are printed in Israel by HaMakor
Printing. To date, we have secured favorable rates and high quality service from
HaMakor. However, we do not have any agreement with HaMakor and we cannot assure
you that we will continue to obtain favorable pricing from them or that they
will continue to provide us with high quality service. If we need to replace
HaMakor quickly for any reason, our business, results of operations and
financial condition may suffer.
WE DO NOT MEASURE THE EFFECTIVENESS OF ADVERTISEMENTS, BUT AS OUR BUSINESS
GROWS, OUR CUSTOMERS MAY REQUIRE US TO DO SO.
Our advertisers do not require us to measure the effectiveness of their
advertisements in the JI Directory or the Master Guide, and we believe our
competitors do not provide their advertisers with such information. However, we
may have to provide this type of information when we publish NEWYELLOW. The
effectiveness of advertising is usually based upon demographic and other
relevant statistical data. If we cannot provide our advertisers with this
information or if they perceive the information that we provide to be
unreliable, they may not advertise in NEWYELLOW or refuse to pay our standard
advertising rates. Accordingly, we will have to either develop the ability to
provide this information to our advertisers or contract with third parties to
provide this information on our behalf. Either alternative will result in
additional costs and may also cause interruptions in our business operations.
The costs involved to develop this capability internally include personnel costs
as well as capital costs.
WE REQUIRE SIGNIFICANT CAPITAL TO EXPAND OUR OPERATIONS.
The expansion of our operations to add NEWYELLOW and possibly other yellow
page directories requires substantial amounts of additional capital.
Accordingly, we need the proceeds of this Offering to launch NEWYELLOW. The
publication, printing, distribution and marketing of yellow page directories
involve significant expense which must be paid before generating advertising
revenues at a level sufficient to cover these expenses. We expect that the net
proceeds from this Offering, together with cash flow from operations, will be
sufficient to launch NEWYELLOW and fund our operations and capital requirements
for at least 12 months following the consummation of this Offering. We may be
required to seek additional sources of capital sooner than we expect if our
operating assumptions change or prove to be inaccurate or we accelerate our
plans to launch directories in addition to the Manhattan NEWYELLOW. Our ability
to obtain any such additional financing may be limited by our financial
8
condition, our operating results or the condition of the financial markets. We
cannot assure you that we will be able to obtain additional financing or what
will be the terms of such financing. See "Management's Discussion and Analysis
of Capital Resources" for a further discussion of our current and expected
future capital requirements and our belief regarding our ability to meet those
requirements
OUR QUARTERLY OPERATING RESULTS ARE NOT ALWAYS INDICATIVE OF OUR RESULTS OF
OPERATIONS FOR THE FULL YEAR OR OTHERWISE.
Our results of operations have been subject to quarterly fluctuations. Most
of our revenue has been recognized in the first and the third quarters when the
JI Directory is printed and distributed. Similarly, costs directly relating to
publishing the directories are also expensed in the first and third quarters.
All other costs are expensed as incurred. As a result, quarterly results have
not been indicative of annual results. Future quarterly operating results may
fluctuate as a result of these factors and the timing of publication of
NEWYELLOW and associated start-up costs.
OUR GROWTH DEPENDS ON THE CONTINUED SERVICES OF ASSAF RAN.
We depend on the continued services of Assaf Ran, our founder, President and
Chief Executive Officer. We intend to purchase a $3 million key man life person
insurance policy on Mr. Ran before this Offering. Mr. Ran has not been approved
for such a policy and we do not know whether such a policy will be available. If
Mr. Ran's employment terminates, our business may be adversely affected. Mr. Ran
has entered into an employment agreement, but that is no guarantee that his
employment will not terminate before its expiration on June 30, 2002. In
addition, we may need to hire additional management personnel as our business
grows. See "Management" for a further discussion regarding Mr. Ran's employment
contract and information concerning our current management.
AFTER THIS OFFERING, ONE SHAREHOLDER WILL CONTINUE TO CONTROL OUR AFFAIRS.
Upon completion of this Offering, Assaf Ran, our founder, President and
Chief Executive Officer, will beneficially own approximately 47.5% (47% if the
option we granted to the underwriters to purchase additional Common Shares from
us is exercised in full) of the outstanding Common Shares. As a result, he will
be able to control substantially all matters submitted to our shareholders for
approval (including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets) and to control
our management and affairs. This concentration of ownership may have the effect
of delaying, deferring or preventing a change in control of us, impeding a
merger, consolidation, takeover or other business combination involving us or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which in turn could adversely affect the
market price of the Common Shares. See "Principal and Selling Shareholders" for
further information concerning Mr. Ran's ownership of Common Shares.
COMPUTER PROGRAMS AND MICROPROCESSORS THAT HAVE TIME-SENSITIVE SOFTWARE MAY
RECOGNIZE A DATE USING "00" AS THE YEAR 1900 RATHER THAN THE YEAR 2000, OR NOT
RECOGNIZE THE DATE AT ALL, WHICH COULD RESULT IN MAJOR SYSTEM FAILURES OR
MISCALCULATIONS.
We have not investigated nor spent any significant amount of money to
determine if our operating, management and financial systems, or those of our
suppliers are "Y2K compliant." If these systems are not Y2K compliant, on
January 1, 2000 they may either malfunction or shut down completely. In either
case, historical data critical to our business, operations and financial
condition may be temporarily or permanently lost, forcing us to discontinue
operations for a significant amount of time until such data are retrieved or
recreated, if possible. We may also have to expend significant amounts of
capital to recreate such data and restore our computer systems to working order,
which could force us to delay or discontinue our expansion plans. See
"Management's Discussion and Analysis of Financial Condition
9
and Results of Operations--Year 2000 Compliance" for a further discussion of
Year 2000 compliance issues.
WE ARE SUBJECT TO FEDERAL AND STATE LAWS, RULES AND REGULATIONS WHICH COULD
CHANGE AT ANY TIME IN AN UNPREDICTABLE MANNER.
We are subject to various laws, rules and regulations that address issues
such as safety in the workplace and our relationships with employees such as
OSHA, fair employment practices and minimum wage requirement. Our failure to
comply with these laws, rules and regulations, which could change at any time in
an unpredictable manner, could, among other things, limit or prohibit certain of
our business activities, subject us to adverse publicity, increase the cost of
regulatory compliance, or subject us to monetary fines or other penalties. Any
of the foregoing could negatively impact our business, results of operations and
financial condition. See "Business--Government Regulation" for a further
discussion of the effect of government regulations on our operations.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never paid any dividends on our Common Shares, and we do not intend
to pay any dividends in the foreseeable future. We intend to retain our cash for
the continued expansion of our business.
WE WILL HAVE BROAD DISCRETION IN HOW WE APPLY PROCEEDS FROM THIS OFFERING.
We plan to apply a substantial portion of the estimated net proceeds from
this Offering to the development of NEWYELLOW. We plan to use the balance for
general corporate purposes, including working capital. The precise use of these
funds and the timing of expenditures will be at the discretion of management.
See "Use of Proceeds" for a further discussion of how we plan to apply the
proceeds of this Offering.
THE NET TANGIBLE BOOK VALUE PER COMMON SHARE AFTER THIS OFFERING WILL BE
SUBSTANTIALLY LESS THAN THE PRICE YOU PAID FOR THE SHARES.
This Offering will result in the immediate and substantial dilution of $4.09
per share, or 62.9% of the initial public offering price, representing the
difference between our net tangible book value per Common Share after giving
effect to this Offering and the assumed public offering price of $6.50 per
share. See "Dilution" for a more detailed description of the dilution which
investors in this Offering will experience.
THIS IS OUR INITIAL PUBLIC OFFERING. THE MARKET PRICE OF THE COMMON SHARES CAN
FLUCTUATE SIGNIFICANTLY, SOMETIMES IN A MANNER UNRELATED TO OUR PERFORMANCE.
Prior to the Offering, there has been no public market for the Common
Shares. We cannot predict the extent to which investor interest in the Company
will lead to the development of a trading market or the liquidity of that
market. The market price of our Common Shares could vary widely in response to
various factors and events, including:
- the number of Common Shares being sold and purchased in the marketplace;
- variations in our operating results;
- press reports;
- regulation and industry trends;
10
- rumors of significant events which can circulate quickly in the
marketplace, particularly over the Internet; and
- the difference between our actual results and the results expected by
investors and analysts.
The initial public offering price for the Common Shares offered by this
Prospectus was determined by negotiations between the Company and Paulson and
may not be indicative of prices that will prevail in the trading market. The
stock market has experienced significant price and volume fluctuations. You may
not be able to resell your Common Shares at or above the initial public offering
price. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. Such litigation could result in substantial
costs and a diversion of management's attention and resources. See
"Underwriting" for a further discussion of the factors that may influence the
price of our Common Shares.
SALES OF SHARES AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR SHARE PRICE.
After this Offering, there will be 2,976,190 Common Shares issued and
outstanding (3,174,940 if the option granted by us to the underwriters to
purchase additional Common Shares is exercised in full). In addition, we have
reserved 124,000 Common Shares for issuance under our 1999 Stock Option Plan. We
have granted options covering 22,324 Common Shares under this plan as of the
effective date of this Offering. The Common Shares sold in this Offering will be
freely tradeable except for any Common Shares purchased by our "affiliates" as
defined in Rule 144 under the Securities Act of 1933. The remaining Common
Shares will be "restricted securities" and will become eligible for sale no
later than the first anniversary of the effective date of this Offering, subject
to the volume limitations and other conditions of Rule 144. Sales of a large
number of Common Shares could adversely affect the market price for the Common
Shares. See "Management--1999 Stock Option Plan" and "Shares Eligible for Future
Sale" for a further discussion of our Stock Option Plan and the effects of Rule
144.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD HAVE
EFFECTS THAT CONFLICT WITH THE INTERESTS OF OUR SHAREHOLDERS.
Certain provisions of our Certificate of Incorporation and Bylaws could make
it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to our shareholders. For example, our
Certificate of Incorporation allows us to issue preferred stock without
shareholder approval. Any such issuances of preferred stock could make it more
difficult for a third party to acquire us. As another example, our Bylaws
provide that only the Board of Directors may call a special meeting of
shareholders and that shareholders must follow an advance notification procedure
for certain shareholder nominations of candidates and for certain other
shareholder business to be conducted at the annual meeting. This provision could
delay or frustrate the removal of incumbent directors or a change in control. It
also could discourage, impede or prevent a merger, tender offer or proxy
contest, even if such event would be favorable to the interests of shareholders.
See "Description of Capital Stock" for a more detailed discussion of the terms
of our Certificate of Incorporation that could hinder a third party's attempts
to acquire control.
OUR DIRECTORS HAVE LIMITED PERSONAL LIABILITY FOR THEIR ACTIONS.
Subject to limitations imposed by the New York Business Corporation Law, our
Certificate of Incorporation provides that our directors will not be personally
liable to us or to our shareholders for monetary damages if they breach their
fiduciary duty of care as a director, including breaches which constitute gross
negligence. Thus, under certain circumstances, neither we nor our shareholders
will be able to recover damages even if directors take actions which are harmful
to us. See "Management-- Limitation of Director Liability; Indemnification" for
a further discussion of director liability.
11
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS WILL DILUTE THE PERCENTAGE
OWNERSHIP OF OUR OTHER SHAREHOLDERS. THE SALE OF SUCH COMMON SHARES IN THE
OPEN MARKET COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON SHARES.
Simultaneously with this Offering, Paulson will receive five-year warrants
covering 132,500 Common Shares. In addition, we have granted options covering
22,324 Common Shares under our 1999 Stock Option Plan as of the effective date
of this Offering. More options may be granted in the future under our 1999 Stock
Option Plan. All of the Common Shares underlying Paulson's warrants and the
options granted under our 1999 Stock Option Plan will be registered for resale
under the Securities Act. The exercise of any of these warrants and options will
dilute the percentage ownership of our other shareholders. In addition, any
sales in the public market of Common Shares issuable upon the exercise of any of
these warrants or options or the perception that such sales could occur, may
adversely affect the prevailing market price of our Common Shares. See "Shares
Eligible For Future Sale" for a further discussion of the effect of the granting
of stock options, "Management--1999 Stock Option Plan" for a further description
of the stock options already granted and "Underwriting" for a description of the
warrants granted to Paulson.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believes," "expects,"
"future" and "intends" and similar expressions to identify forward-looking
statements. You should not unduly rely on these forward-looking statements,
which apply only as of the date of this Prospectus. Our actual results could
differ materially from those anticipated in these forward-looking statements for
many reasons, including the risks described above and elsewhere in this
Prospectus.
12
USE OF PROCEEDS
The net proceeds to us from (1) the sale of the Common Shares offered by us
pursuant to this Prospectus and (2) the repayment of Mr. Ran's loan are expected
to be approximately $6.9 million. Net proceeds from the sale of Common Shares
are computed by deducting our share of the underwriting discounts and
commissions and estimated offering expenses from the total public offering
price. We intend to use these net proceeds as follows:
[Enlarge/Download Table]
AMOUNT PERCENTAGE
------------ -----------
Printing, publishing and distribution costs for NEWYELLOW............................... $ 2,600,000 37.68%
Sales commissions for NEWYELLOW......................................................... 2,400,000 34.78%
Marketing and promotional expenses for NEWYELLOW and the Portal......................... 1,500,000 21.74%
General corporate purposes, including working capital................................... 400,000 5.80%
------------ -----------
$ 6,900,000 100.00%
------------ -----------
------------ -----------
- Printing, publishing and distribution costs represent the actual cost of
printing and distributing approximately 900,000 copies of Manhattan
NEWYELLOW, assuming 1,500 pages per copy.
- Sales commissions reflect commissions that will be paid to our sales force
prior to our actual receipt of advertising revenues.
- Marketing and promotional expenses include expenses related to the
development of strategic alliances and distribution relationships.
- General corporate purposes include hiring additional administrative,
management, financial, sales, marketing, technical and customer service
personnel; acquiring and enhancing our operating, support and management
systems; and capital expenditures for computers and other equipment.
Working capital may also be applied to acquisitions. We do not have current
plans, agreements or commitments with respect to any acquisition nor are we
currently engaged in any negotiations with respect to any such transaction. Any
proceeds from the exercise of the option we granted to the underwriters to
purchase additional Common Shares from us will be added to working capital.
We will retain broad discretion in the allocation of the net proceeds of
this Offering within the categories listed above. The amounts actually expended
for the purposes may vary significantly and will depend on a number of factors,
including the amount of our future revenues and the other factors described
under "Risk Factors." Pending such uses, the net proceeds of this Offering will
be invested in short-term, interest-bearing, investment grade securities.
We expect that the net proceeds from this Offering, together with cash flow
from operations, will be sufficient to fund our operations and capital
requirements for at least 12 months following the consummation of this Offering.
We may be required to seek additional sources of capital sooner if:
- operating assumptions change or prove to be inaccurate;
- we consummate any acquisitions of significant businesses or assets; or
- we further accelerate our expansion plans and enter new markets more
rapidly.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations-- Liquidity and Capital Resources" for a further discussion of our
current and expected future capital requirements and our belief regarding our
ability to meet those requirements.
13
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We may incur indebtedness in the future which may prohibit
or effectively restrict the payment of dividends, although we have no current
plans to do so.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
(1) on an actual basis, (2) pro forma giving effect to the consummation of the
transactions contemplated by the Exchange Agreement and (3) pro forma, as
adjusted to give effect to the consummation of the transactions contemplated by
the Exchange Agreement, the sale of the Common Shares offered by us pursuant to
this Prospectus after deducting $1,512,500, our share of the underwriting
discounts and commissions and other estimated offering expenses, and the
repayment of the principal shareholder's loan.
[Enlarge/Download Table]
DECEMBER 31, 1998
--------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ------------ ------------
Shareholders' equity:
Preferred shares, $0.01 par value; 5,000,000 shares authorized; no
shares issued and outstanding actual, pro forma or pro forma, as
adjusted.............................................................. $ -- $ -- $ --
Common Shares, $0.001 par value; 25,000,000 shares authorized; 1,250,000
shares issued and outstanding actual; 1,726,190 shares issued and
outstanding pro forma; 2,976,190 shares issued and outstanding as
adjusted.............................................................. 1,250 1,726 2,976
Additional paid-in capital.............................................. 150 1,351,655 7,962,905
Retained earnings....................................................... 523,339 564,214 564,214
---------- ------------ ------------
Total shareholders' equity............................................ 524,739 $ 1,917,595 8,530,095
---------- ------------ ------------
Total capitalization...................................................... $ 524,739 $ 1,917,595 $ 8,530,095
---------- ------------ ------------
---------- ------------ ------------
Common Shares outstanding, actual and as adjusted, exclude 124,000 Common
Shares reserved for issuance pursuant to our 1999 Stock Option Plan. We have
granted options covering 22,324 Common Shares under this plan as of the
effective date of this Offering at the initial public offering price per Common
Share. See "Management--Stock Option Plan" for a description of our 1999 Stock
Option Plan and the options that will be granted under that plan as of the
effective date of this Offering.
14
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
approximately $566,614, or $0.33 per Common Share. Pro forma net tangible book
value per Common Share represents the amount of total tangible assets less total
liabilities, divided by the pro forma Common Shares outstanding as of December
31, 1998 taking into account the transactions contemplated by the exchange
agreement. See notes 1 and 8 to our Consolidated Financial Statements and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" section of this Prospectus. Giving effect to the issuance and sale of
the Common Shares offered by us pursuant to this Prospectus, after deducting
$1,512,500, our share of the underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of
December 31, 1998 would have been $7,179,114, or $2.41 per Common Share. This
represents an immediate increase in pro forma net tangible book value of $2.08
per Common Share to existing shareholders and an immediate dilution of $4.09 per
Common Share to new investors. The following table illustrates this per share
dilution.
[Enlarge/Download Table]
Initial public offering price per Common Share.............................. $ 6.50
Net tangible book value per Common Share at December 31, 1998............... $ 0.33
Increase in pro forma net tangible book value per Common Share attributable
to new investors.......................................................... $ 2.08
Net tangible book value per Common Share after this Offering................ $ 2.41
-----
Dilution per Common Share to new investors.................................. $ 4.09
-----
-----
The following table summarizes, on a pro forma basis, as of December 31,
1998, the differences between the number of Common Shares we sold to, the total
consideration and the average price per Common Share paid by existing
shareholders and to be paid by new investors purchasing Common Shares from us in
this Offering, assuming an initial public offering price of $6.50 per share and
before deducting underwriting discounts and commissions and other offering
expenses:
[Enlarge/Download Table]
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------ --------- -----------
Existing shareholders................................ 1,726,190 58.00% $ 2,400 0.03% $ 0.00
New investors........................................ 1,250,000 42.00% $ 8,125,000 99.97% $ 6.50
---------- --------- ------------ ---------
Total.......................................... 2,976,190 100.00% $ 8,127,400 100.00%
---------- --------- ------------ ---------
---------- --------- ------------ ---------
15
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read together with, (1) our Consolidated Financial Statements for the
years ended December 31, 1997 and 1998 and the notes thereto which have been
audited by Arthur Andersen, LLP, independent public accountants, and (2)
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
INCOME STATEMENT DATA:
[Enlarge/Download Table]
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
------------ ------------
Net advertising revenues.............................................................. $ 2,501,754 $ 2,759,092
Publishing costs...................................................................... 441,535 377,983
Gross profit.......................................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses.................................................................... 922,124 946,315
Administrative and general expenses................................................. 658,956 765,233
------------ ------------
Total operating costs and expenses.................................................. 1,581,080 1,711,548
Earnings from operations before provision for income taxes and equity income.......... 479,139 669,561
Provision for income taxes............................................................ 240,000 329,000
------------ ------------
Equity in earnings of affiliate....................................................... 16,012 17,035
Net income............................................................................ $ 255,151 $ 357,596
------------ ------------
------------ ------------
Basic and diluted net income per Common Share......................................... $ 0.20 $ 0.29
------------ ------------
------------ ------------
Basic and diluted weighted average number of Common Shares outstanding................ 1,250,000 1,250,000
------------ ------------
------------ ------------
BALANCE SHEET DATA:
[Enlarge/Download Table]
AS OF DECEMBER 31,
1998
----------------------
Cash...................................................................................... $ 310,185
Working capital........................................................................... 162,041
Total assets.............................................................................. 2,970,190
Total liabilities......................................................................... 2,445,451
Total shareholders' equity................................................................ 524,739
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS SECTION OF THIS PROSPECTUS INCLUDES A NUMBER OF FORWARD-LOOKING
STATEMENTS THAT REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. WE USE WORDS SUCH AS "PLAN," "BELIEVES," "EXPECTS,"
"FUTURE" AND "INTENDS" AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD-LOOKING
STATEMENTS. YOU SHOULD NOT UNDULY RELY ON THESE FORWARD-LOOKING STATEMENTS,
WHICH APPLY ONLY AS OF THE DATE OF THIS PROSPECTUS. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR OUR PREDICTIONS.
FOR A DESCRIPTION OF THESE RISKS, SEE "RISK FACTORS."
We believe that the yellow page directories which we publish for the New
York metropolitan market have more advertisers than those of any publisher
except Bell Atlantic. We currently publish and distribute two yellow page
directories, the JI Directory and the Master Guide, in print and on the world
wide web. The JI Directory, a bilingual Hebrew-English publication, was first
published in February 1990 and it has been published in February and August of
each year since 1991. The Master Guide, an English-only directory serving the
Hasidic and ultra-Orthodox Jewish communities, was first published in September
1998. In addition to these directories, we also operate the Referral Service,
which directs potential customers and clients to businesses that advertise in
the JI Directory and the Master Guide. Finally, in February 1999 we launched the
Portal, a web site that links to web sites maintained by advertisers in our
directories, featuring programs, events and news of particular interest to the
Jewish and Israeli communities and general content on the world wide web.
The JI Directory has grown from 118 pages in its initial edition in February
1990 to 1,696 pages in the 18(th) edition published in February 1999. Similarly,
the number of ads has increased from 217 in the first edition to more than 3,200
in our most recent edition. Our advertising rates for new advertisers have
increased approximately 20% to 30% a year since 1990. However, we believe it is
unlikely that this trend will continue.
By June 2000, we plan to launch NEWYELLOW, an English-only, general interest
yellow page directory that will compete directly with the Bell Atlantic Yellow
Pages in the New York metropolitan market. Initially, our plan is to market and
distribute NEWYELLOW in Manhattan. Once we have established ourselves in the
Manhattan market we intend to expand into the remaining boroughs of New York
City and the surrounding suburbs that make up the New York metropolitan area. We
believe that NEWYELLOW will become a viable alternative to the Bell Atlantic
Yellow Pages because of our low cost structure, low overhead and ability to
hire, train and manage an effective sales force.
Our principal source of revenue derives from the sale of ads for our
directories. Advertising rates for the 18(th) edition of the JI Directory range
from $300 for a line listing to $4,206 for a full-page ad. These rates are for
two color ads (black and/or red on yellow paper) and include all, graphics,
design and production work, including creation of a Hebrew version of, or Hebrew
text for, the ad. We charge premium rates for extra colors and special positions
ranging from $6,250 to $22,000 for the front and back covers. Advertising rates
for the 2(nd) edition of the Master Guide, expected to be published in June
1999, range from $300 for a line listing to $1,975 for a full page with premium
rates for additional colors and special positioning. The principal operating
costs incurred in connection with publishing the directories are commissions
payable to sales representatives and costs for paper and printing.
Administrative and general expenses include expenditures for marketing,
insurance, rent, state and local franchise taxes, licensing fees, office
overhead and wages and fees paid to employees and contract workers.
Advertising fees, whether collected in cash or evidenced by a receivable,
generated in advance of publication dates is recorded as "Advanced billings for
unpublished directories" on our balance sheet. Many of our advertisers choose to
pay the fee over a period of time. In such case, the entire amount of the
deferred payment is booked as a receivable. Revenues are recognized at the time
the directory in
17
which the ad appears is published. 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. Generally, advertising commissions are paid as advertising revenue is
collected. However, we expect that for the initial edition of NEWYELLOW we will
have to pay commissions to our sales representatives even before we collect the
related advertising revenue. Accordingly, approximately $2.4 million of the net
proceeds of this Offering is earmarked for commissions payable with respect to
NEWYELLOW advertising.
Assaf Ran, our principal shareholder, owns 100% of Dapey Assaf-Dapey Zahav
and 50% of Dapey Assaf-Hamadrikh. Accordingly, our historical financial data
include all of the operations of Dapey Assaf-Dapey Zahav and 50% of the net
income of Dapey Assaf-Hamadrikh. Upon consummation of the transactions
contemplated by the Exchange Agreement, immediately prior to the effectiveness
of this Offering, Dapey Assaf-Dapey Zahav and Dapey Assaf-Hamadrikh will become
our wholly owned subsidiaries. The transactions contemplated by the Exchange
Agreement will be accounted for under the purchase method of accounting.
Accordingly, the value of the amount deemed to have been paid to the minority
shareholders of Dapey Assaf-Hamadrikh will be allocated among our assets,
including our trademarks, tradenames and other intellectual property, based on
their relative fair market values and to the extent of their fair market values.
The excess will be allocated to goodwill. The amounts allocated to our
intellectual property and goodwill, estimated at $1.35 million, will be
amortized on a straight-line basis over 25 years, or $54,000 per year, beginning
with our 1999 fiscal year.
RESULTS OF OPERATIONS
The following table sets forth for the periods presented statement of
operations data as a percentage of net advertising revenue. The trends suggested
by this table may not be indicative of future operating results.
[Enlarge/Download Table]
1997 1998
--------- ---------
Net advertising revenues................................................ 100.00% 100.00%
Publishing costs........................................................ 17.65% 13.70%
Gross profit............................................................ 82.35% 86.30%
Selling expenses........................................................ 36.86% 34.30%
Administrative and general expenses..................................... 26.34% 27.73%
Total operating costs and expenses...................................... 63.20% 62.03%
Earnings before provisions for income taxes and equity income........... 19.15% 24.27%
Provision for income taxes.............................................. 9.59% 11.92%
Equity in earnings of affilliate........................................ 0.64% 0.62%
Net income.............................................................. 10.20% 12.96%
YEARS ENDED DECEMBER 31, 1998 AND 1997
NET ADVERTISING REVENUES. Net advertising revenues for 1998 increased to
$2,759,092 from $2,501,754 in the prior year, an increase of 10.29%. The
increase reflected both increases in ad rates to new advertisers as well as an
increase in the number of advertisers. The 16(th) and 17(th)editions published
in February and August 1998, had 2,675 and 2,776 advertisers, respectively. The
14(th) and 15(th) editions published in February and August 1997, had 2,311 and
2,725 advertisers, respectively.
PUBLISHING COSTS. Publishing costs for 1998 decreased to $377,983 from
$441,535 in 1997, or 14.39%. As a result of the increase in net advertising
revenues and the decrease in publishing costs, gross profit for 1998 increased
to $2,381,109 from $2,060,219, or 15.58%.
18
SELLING EXPENSES. Selling expenses increased 2.62% to $946,315 in 1998 from
$922,124 in the prior year. However, as a percentage of net advertising
revenues, selling expenses declined to 34.30% in 1998 from 36.86% in the prior
year, reflecting lower commission rates and higher advertising rates.
ADMINISTRATIVE AND GENERAL EXPENSES. Administrative and general expenses in
1998 were $765,233 compared to $658,956 in 1997, an increase of 16.13%. This
increase was attributable to the hiring of additional clerical personnel
necessitated by the growth in the size of the JI Directory and the publication
of the 1(st) edition of the Master Guide.
EARNINGS BEFORE PROVISION FOR INCOME TAXES AND EQUITY INCOME. Earnings
before provision for income taxes and equity income in 1998 were $669,561
compared to $479,139 for the prior year, an increase of 39.74%. This increase is
attributable to a 10.29% increase in net advertising revenues and only a 3.31%
increase in total costs and expenses. More importantly, as a percentage of net
advertising revenues, total costs and expenses decreased from 80.85% in 1997 to
75.73% in 1998.
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of affiliate represents
50% of the net income of Dapey Assaf-Hamadrikh. For 1998 such amount was $17,035
compared to $16,012 for 1997, an increase of 6.39%. As a percentage of net
advertising revenues, equity in earnings of affiliate was virtually the same in
both years.
PROVISION FOR INCOME TAXES. Provision for income taxes in 1998 and 1997 was
$329,000 and $240,000, respectively. As a percentage of net advertising
revenues, provision for income taxes increased to 11.34% in 1998 from 9.59% in
1997.
NET INCOME. Net income for 1998 increased 40.15% to $357,596 from $255,151
in 1997. As a percentage of net advertising revenues, net income in 1998
increased 27.06% to 12.96% from 10.20% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
To date, our only source of funds has been cash flow from operations which
has funded both our working capital needs and capital expenditures. We have no
debt or credit facilities. Generally, advertising fees, whether collected in
cash or evidenced by a receivable, are generated before the publication of the
related directory and before many of the costs directly associated with
publishing the related directory are incurred.
At December 31, 1998 we had cash and cash equivalents of $310,185 and
working capital of $162,041 compared to cash and cash equivalents of $132,741
and working capital of $47,638 at December 31, 1997. For the year ended December
31, 1998, net cash provided by operating activities was $433,731, compared to
$133,253 for the prior year. Net cash used in investing activities in 1998 was
$34,940 of which $17,035 represented 50% of the net income of Dapey
Assaf-Hamadrikh and $17,905 was used to purchase new computer equipment. Net
cash used in financing activities in 1998 was $221,347, the amount of the loan
made to our principal shareholder, Assaf Ran.
At December 31, 1998, advance billings for unpublished directories and
directories in progress were $1,832,341 and $623,335, respectively. In
comparison, the corresponding amounts at December 31, 1997, were $1,226,343 and
$379,390, respectively. At December 31, 1998, we had income taxes payable of
$358,000 and deferred taxes payable of $171,000. Deferred taxes payable
represents the timing difference between reporting income on an accrual basis
for financial purposes and on a cash basis for tax purposes.
We expect our working capital requirements to increase significantly over
the next 12 months as we implement our plan to launch NEWYELLOW and expand the
Portal. Accordingly, we will depend primarily on the net proceeds of this
Offering to expand our operations. The net proceeds of this Offering will be
used to pay sales commissions to our sales representatives with respect to ad
sales for NEWYELLOW, for marketing expenses for NEWYELLOW and the Portal, for
the cost of printing and distributing NEWYELLOW and for other operating expenses
that are expected to increase as we expand our business.
19
We expect that the net proceeds of this Offering, together with our cash flow
from operations, will be sufficient to meet our working capital requirements for
at least the next 12 months. See "Use of Proceeds" for a further discussion as
to how we intend to use the net proceeds of this Offering.
YEAR 2000 COMPLIANCE
We are currently addressing the issue of whether or to what extent our
systems will be vulnerable to potential errors and failures as a result of the
"Year 2000" problem, which is the result of certain computer programs being
written using two digits, rather than four digits, to define the applicable
year. Computer programs and microprocessors that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000, or
not recognize the date at all, which could result in major system failures or
miscalculations. If we or our suppliers or vendors experience Year 2000
problems, these problems could adversely impact our ability to service our
customers or otherwise carry on our business, including causing interruptions in
the operation of the Portal, customer billing, and invoicing and data interfaces
to and from these systems. We are not currently aware of any material
operational issues or costs associated with preparing our internal systems for
the Year 2000 because substantially all of our existing systems have been
purchased or replaced since 1996 or are currently under development. We are,
however, working to identify and remedy potential Year 2000 problems in all of
our new and existing mission-critical and business-critical systems and
applications, including those supplied by third-party vendors. We may experience
material unexpected costs caused by undetected errors or defects in the
technology used in our systems or because of the failure of a material vendor to
be Year 2000 compliant. We are also subject to external Year 2000-related
failures or disruptions that might generally affect industry and commerce, such
as financial, utility or transportation industry Year 2000 compliance failures
and related service interruptions. All of these factors could materially
adversely affect our business, results of operations and financial condition. We
have not yet developed a contingency plan to address situations that may result
if we are unable to achieve Year 2000 compliance. The cost of developing and
implementing such a plan, if necessary, could be material.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This statement establishes the
fair market value based method of accounting for an employee stock option but
allows companies to continue to measure the compensation cost for those plans
using the intrinsic value-based method of accounting prescribed by APB Opinion
No. 25 "Accounting for Stock Issued to Employees." Companies electing to
continue using the accounting provided for under APB Opinion No. 25 must,
however, make pro forma disclosures of net income and earnings per share as if
the fair value-based method of accounting defined in SFAS No. 123 had been
applied. We have elected to account for stock-based compensation awards to
employees and directors under the accounting prescribed by APB Opinion No. 25
and will provide the disclosures required by SFAS No. 123.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." This statement requires the presentation of both
"basic earnings per share" and "diluted earnings per share" on the face of the
statement of operations. Basic earnings per share is computed on the weighted
average number of shares actually outstanding during the year and diluted
earnings per share takes into account the effect of potential dilution from the
exercise of outstanding dilutive stock options and warrants for common stock
using the treasury stock method. We have adopted SFAS No. 128 for the current
fiscal year.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131,
applicable to public companies, established new standards for reporting
information about operating segments in annual and periodic financial
statements. SFAS No. 131 is effective beginning with the year ended December 31,
1998. We believe that we operate in only one segment.
20
BUSINESS
We believe that the yellow page directories which we publish for the New
York metropolitan market have more advertisers than those of any publisher
except Bell Atlantic. We currently publish and distribute two yellow page
directories, the JI Directory and the Master Guide, in print and on the world
wide web. The JI Directory, a bilingual Hebrew-English publication, was first
published in February 1990 and it has been published in February and August of
each year since 1991. The Master Guide, an English-only directory serving the
Hasidic and ultra-Orthodox Jewish communities, was first published in September
1998. In addition to these directories, we also operate the Referral Service,
which directs potential customers and clients to businesses that advertise in
the JI Directory and the Master Guide. Finally, in February 1999 we launched the
Portal, a web site that links to web sites maintained by businesses that
advertise in our directories, featuring programs, events and news of particular
interest to the Jewish and Israeli communities and general content on the world
wide web.
The JI Directory has grown from 118 pages in its initial edition in February
1990 to 1,696 pages in the 18(th) edition published in February 1990. Similarly,
the number of ads has increased from 217 in the first edition to approximately
3,200 in our most recent edition. Our advertising rates for new advertisers have
increased approximately 20% to 30% a year since 1990, although we believe it is
unlikely that this trend will continue.
By June 2000, we plan to launch NEWYELLOW, an English-only, general interest
yellow page directory that will compete directly with the Bell Atlantic Yellow
Pages in the New York metropolitan market. Initially, our plan is to market, and
distribute NEWYELLOW in Manhattan. Once we have established ourselves in the
Manhattan market, we intend to expand into the remaining boroughs of New York
City and the surrounding suburbs that make up the New York metropolitan area. We
believe that NEWYELLOW will become a viable alternative to the Bell Atlantic
Yellow Pages because of our low cost structure, low overhead and ability to
hire, train and manage an effective sales force.
INDUSTRY BACKGROUND(*)
In 1998, yellow page advertising revenues in the United States were
estimated to be $12.07 billion, a 6.3% increase over 1997 yellow page
advertising revenues of $11.36 billion. The eight largest publishers of yellow
page directories in the United States--including the five regional bell
operating companies (RBOCs), GTE, SNET and Sprint--account for the overwhelming
majority of yellow page advertising revenues. Bell Atlantic and SBC Directory
Operations are the two largest publishers of yellow page directories in the
United States, each having annual yellow page advertising revenue in excess of
$2 billion.
There are many independent publishers of yellow page directories in the
United States. In 1997 United States publishers of yellow page directories not
affiliated with local telephone companies increased their market share to 6.4%
from 6.2% in 1996. Their yellow page advertising revenues were expected to grow
by 15.4% in 1998.
Further, in 1997 the total aggregate yellow page advertising revenues of
companies that publish yellow page directories on the Internet (excluding the
RBOCS, GTE, SNET and Sprint) were approximately $21.8 million. Simba estimates
that yellow page Internet advertising revenues will grow significantly, reaching
$164.9 million by 2000.
PRODUCTS AND SERVICES
THE JI DIRECTORY. The JI Directory is a bilingual, yellow page directory
that is distributed in the New York metropolitan area. All ads in the JI
Directory are in English and Hebrew unless the
------------------------
* Except as otherwise indicated, all industry data supplied by Simba
Information, Inc., a media consulting firm.
21
advertiser specifically requests that the ad be English only. The JI Directory
is organized according to the Hebrew alphabet, although it is indexed in both
Hebrew and English. We believe that the JI Directory is used principally by
persons whose native language is Hebrew although it is also used by members of
the Jewish community whether or not they speak Hebrew.
The JI Directory is published semi-annually and distributed free through
local commercial and retail establishments in the New York metropolitan area as
well as through travel agencies in Israel. Currently, approximately 350,000
copies of the JI Directory are printed and distributed annually. The JI
Directory has grown substantially since its initial edition. The 1(st)edition,
published in February 1990, had 118 pages and approximately 217 advertisers. The
18(th) edition, published in February 1999, has 1,696 pages and more than 3,200
advertisers. We believe that, based on the number of pages and advertisers, the
JI Directory is the largest yellow page directory in the New York metropolitan
area not published by Bell Atlantic.
The tables below illustrate the growth in the number of pages and
advertisers of the JI Directory. Data for the years 1991 through 1998 represent
an average of the two directories published in each of those years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[Download Table]
PAGES PER DIRECTORY
PAGES
1990 118
1991 174
1992 215
1993 272
1994 321
1995 430
1996 792
1997 1239
1998 1408
1999 1696
YEAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
[Download Table]
AVERAGE ADVERTISERS PER DIRECTORY
ADVERTISERS
1990 217
1991 505
1992 574
1993 646
1994 806
1995 1115
1996 1592
1997 2518
1998 2725
1999 3244
YEAR
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Advertisers in the JI Directory include large, well-known airlines,
telecommunications, insurance and travel companies, as well as local and
neighborhood businesses such as restaurants, car dealerships, retail
establishments, professionals (E.G., doctors, accountants and lawyers) and
travel agencies. Typically, the advertisers provide us with the copy of their ad
and our trained bilingual staff produces Hebrew text for the ad. Our editors
also design ads for our advertisers. The size of an ad can range from a single
line listing to a full page. Approximately 1% of the ads are line listings; the
balance are at lease one-sixth of a page. Prices range from $300 for a line
listing to $4,206 for a full page. Special rates apply for full color ads and
premium positioning. Full color ads are $6,250 and premium positioning ranges
from $8,250 to $22,000. Except for line listings, prices include all copy,
graphic and design work. Basic ads are printed in black and red while premium
ads are printed in four colors. Historically, our advertising rates for new
advertisers have increased at the rate of 20 to 30% annually. However, we
believe that this rate of increase cannot continue in the future.
All production, including layout, design, edit and most proofreading
functions, for the JI Directory are performed at the Company's headquarters in
Queens, New York by the Company's bilingual staff. The final version of the JI
Directory is shipped to Israel to be printed by HaMakor Printing. The printed
directories are shipped to the Company's main office in New York for
distribution. The Company believes that the cost of printing the JI Directory in
Israel, even after taking into account shipping costs, is less than the cost of
printing a JI Directory of comparable quality locally.
THE MASTER GUIDE. In October 1998 we published the first edition of the
Master Guide, a yellow page directory designed to meet the special needs of the
Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area.
The first edition of the Master Guide had 124 pages and 80 advertisers. A second
edition is scheduled for publication in June 1999. We produce the Master Guide
generally in the same manner as we do the JI Directory, including printing it in
Israel. The Master Guide differs from the JI Directory in that the Master Guide
is published in English only, does not advertise products or services that might
offend the Hasidic and ultra-Orthodox Jewish communities and is only published
once a year. Generally, advertising rates for the Master Guide are lower than
those for the JI Directory. The development of the Master Guide reflects our
strategy to expand by identifying and pursuing niche markets for yellow page
directories.
THE REFERRAL SERVICE. The Referral Service provides added value to
advertisers in our directories by referring to them potential customers, clients
and other users of their products and services. We have recently established a
program whereby certain of our advertisers have agreed to give discounts to
customers who produce the Jewish Referral Service Yellow Card. The Yellow Card
is distributed to customers with the JI Directory or the Master Guide or can be
ordered directly from the Company.
THE PORTAL. Our first web site, established in 1995, contained an
English-only version of the JI Directory. In 1999 we expanded our online
presence by launching Portal. Portal functions as a "portal" to the world wide
web, with links to a variety of sites on the web, particularly those that carry
information and news that may be of particular interest to the Israeli and
Jewish communities. It also provides a link to the JI Directory as well as the
web sites of advertisers in the JI Directory. We also develop web sites for our
advertisers for a fee. We plan to enhance the Portal by providing links to
NEWYELLOW and community-focused yellow page directories, by including news and
information and by creating strategic alliances with other Internet portals.
While we have not yet derived any revenue from the Portal, we plan to explore
ways in which the Portal can generate additional advertising revenue.
GROWTH STRATEGY
We plan to expand our operations by introducing NEWYELLOW, English-only,
general interest yellow page directories, in the New York metropolitan area. We
plan to introduce the first NEWYELLOW directory in Manhattan by June 2000. If
the Manhattan NEWYELLOW directory is successful, we plan to add
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additional NEWYELLOW directories covering the other boroughs in New York City,
the other counties in the New York metropolitan area and northern New Jersey.
NEWYELLOW will compete directly with yellow page directories published by
Bell Atlantic. We believe that our expertise in publishing yellow page
directories, particularly our ability to hire, train and manage an effective
sales force, our low advertising rates and low overhead, will enable us to
compete effectively with Bell Atlantic. We expect that advertising rates for
NEWYELLOW will be significantly lower than those for the Bell Atlantic Yellow
Pages. We believe that our pricing policies will expand the market for yellow
page directory advertising. NEWYELLOW will be positioned as a low-cost
alternative to the Bell Atlantic Yellow Pages, appealing to smaller businesses
that cannot afford to advertise in the Bell Atlantic Yellow Pages. Furthermore,
we also believe our pricing policies will result in some advertisers switching
from the Bell Atlantic Yellow Pages to NEWYELLOW or supplementing their Bell
Atlantic Yellow Page advertising with NEWYELLOW advertising.
We may also explore opportunities for adding JI Directories and Master
Guides in other cities with large Jewish and Israeli populations such as Miami,
Florida and Los Angeles, California.
SALES
Advertisements for the JI Directory and the Master Guide are sold through
our network of trained sales representatives, all of which are independent
contractors and are paid solely on a commission basis. Of the approximately 65
sales representatives in our network, 32 are hired directly by us and 33 are
hired by two independent sales agencies with which we have sales agency
agreements. The sales representatives hired by us work out of our offices in
Queens, New York and Fairlawn, New Jersey. Our two independent sales agencies
are located in Brooklyn and Manhattan, New York. Our selling force is based in
these locations because of the high concentration of Jewish and Israeli
consumers in these areas. We expect to open two new company-owned sales offices
in 1999, one in Long Island that will be dedicated to the JI Directory and the
Master Guide, and one in Manhattan dedicated to NEWYELLOW.
Pursuant to our agreements with the independent sales agencies, the agencies
may not sell advertising for any yellow page directories other than those we
publish. Generally, each sales agency is responsible for all fixed costs
relating to its operations. We pay sales commissions to the agencies, which, in
turn, pays commissions to the individual sales representatives who sell the ads.
The commissions payable to the individual sales representatives are prescribed
in our agreements with the agencies and are consistent with the commissions we
pay to the sales representatives that we hire directly.
We are responsible for training each sales representative, whether hired
directly by us or by one of our sales agencies. Generally, training consists of
one-day orientation, during which one of our sales managers educates the sales
representative about our business and operations, and a two-week period during
which the sales representative receives extensive supervision and support from a
sales manager or another experienced sales representative.
MARKETING STRATEGY
The JI Directory and Master Guide are marketed to the Jewish and Israeli
communities living in the New York metropolitan area. According to the American
Jewish Congress, there are approximately two million Jews living in this market,
representing approximately 10.6% of the total population. Furthermore, we
believe that the Jewish population has higher than average disposable income, is
well educated and possesses a strong sense of community. In addition, while
there is no precise data as to the number of Israeli immigrants living in the
New York metropolitan area, we believe the number is substantial. Moreover, a
significant number of Israeli tourists visit the area annually. Accordingly, we
believe that advertisers are attracted to the JI Directory as a way to advertise
directly to this market.
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Furthermore, we believe that the Jewish population in the New York metropolitan
area is likely use to the JI Directory because of the impression that businesses
that advertise in the JI Directory support or are affiliated with the Jewish
community. In the case of the Master Guide, users can be comfortable that none
of its advertisers will offend their religious beliefs. We also believe that our
advertising rates are attractive, particulalrly to small businesses who cannot
afford to advertise in the Bell Atlantic Yellow Pages. Generally, advertising
rates for the JI Directory and the Master Guide are approximately 33% of the
rates for the Bell Atlantic Yellow Pages.
NEWYELLOW will initially compete directly with the Bell Atlantic Yellow
Pages in Manhattan. Thereafter, it may also compete with the Bell Atlantic
Yellow Pages in the other boroughs of New York City and in the surrounding
suburbs. Initially, we will dedicate up to 10 sales representatives from our
existing network, spread out over the four sales offices, to selling ads for
NEWYELLOW. Before the end of 1999, we expect to open a new company-owned sales
office, which will be staffed by sales representatives that we will hire
directly and which will be dedicated to selling ads exclusively for NEWYELLOW.
Because NEWYELLOW is a new publication, which may make it more difficult to
sell, and because it will compete directly with Bell Atlantic, the commission
structure for NEWYELLOW sales representatives may have to be higher than it is
for our other directories.
We believe that advertisers will be attracted to NEWYELLOW for several
reasons. First, NEWYELLOW is likely to be smaller and less dense than the Bell
Atlantic Yellow Pages, so that each advertisement in NEWYELLOW will stand out
more prominently than it would in the Bell Atlantic Yellow Pages. Second,
advertising rates for NEWYELLOW will be significantly lower than the comparable
rates for advertising in the Bell Atlantic Yellow Pages. Accordingly, we believe
that NEWYELLOW will attract advertisers who do not currently advertise in the
Bell Atlantic Yellow Pages as well as existing Bell Atlantic Yellow Page
advertisers. The table below compares the proposed advertising rates for the
first edition of NEWYELLOW and the advertising rates generally offered by Bell
Atlantic for the 1999 edition of its Yellow Pages. All rates assume single color
ads (black print on yellow paper).
[Enlarge/Download Table]
BELL
ATLANTIC
YELLOW
NEWYELLOW PAGES
---------- -----------
Full Page........................................................... $ 21,120 $ 74,496
Half Page........................................................... $ 12,684 $ 37,248
Quarter Page........................................................ $ 6,802 $ 18,624
Sixth Page.......................................................... $ 4,864 $ 12,416
Eighth Page......................................................... $ 3,686 $ 9,312
Sixteenth Page...................................................... $ 1,824 $ 4,656
Inside Front Cover.................................................. $ 75,000 $ 300,000
Inside Back Cover................................................... $ 75,000 $ 300,000
Back Cover.......................................................... $ 150,000 $ 500,000
Page One............................................................ $ 75,000 ***
The Company plans to advertise NEWYELLOW primarily in local media outlets
where advertising rates are relatively low. In addition to marketing NEWYELLOW
independently, we will also seek to enter joint marketing agreements with local
and long distance telecommunications companies. We intend to spend approximately
$1.5 million from the net proceeds of this Offering on the marketing campaign
for NEWYELLOW. See "Use of Proceeds" for a more detailed discussion regarding
how we intend to use the net proceeds of this Offering.
GOVERNMENT REGULATION
We are subject to laws and regulations relating to business corporations
generally, such as OSHA, Fair Employment Practices and minimum wage standards.
We believe that we are in material compliance with all laws and regulations
affecting our business and we do not have any material
25
liabilities under such laws and regulations. In addition, compliance with all
such laws and regulations does not have a material adverse effect on our capital
expenditures, earnings, or competitive position.
COMPETITION
In New York, the market for yellow page advertising is dominated by Bell
Atlantic. In addition, there are a number of independent publishers of yellow
page directories, including bilingual directories for certain ethnic
communities. There are also independent publishers of yellow page directories
that publish community or neighborhood directories. However, we are not aware of
any other Hebrew-English yellow page directory or a yellow page directory that
is published specifically for the Hasidic and ultra-Orthodox Jewish communities
in the New York metropolitan area. By focusing on the special needs of the
Hebrew speaking and the Hasidic and ultra-Orthodox Jewish communities, we
believe that we have identified niche markets that allows us to compete
effectively with our larger rivals.
Unlike the JI Directory and the Master Guide, NEWYELLOW will compete
directly with the Bell Atlantic Yellow Pages and other smaller, English-only,
general interest yellow page directories published by companies other than Bell
Atlantic. In addition, since there are virtually no barriers to entry in this
market, any company with a reasonable amount of capital, such as the RBOCs or
publishers, are potential competitors. In addition, the Internet is growing
rapidly and is a current and potential source of even greater competition. There
are a number of online yellow page directories, including Big Yellow, owned by
Bell Atlantic. Finally, strategic alliances could give rise to new or stronger
competitors.
Many competitors have significant operating and financial advantages. These
advantages include greater financial, personnel, technical and marketing
resources, superior systems, stronger relationships with advertisers, greater
productive capacity, better developed distribution channels, and greater name
recognition. In addition, many of our competitors can subsidize competing
services with revenues from their other services. As competition increases, we
expect significant increases in general pricing pressures. For example, Bell
Atlantic could lower its advertising rates, reducing the attractiveness of
advertising in NEWYELLOW. In response to competitive pressures, we may have to
increase our sales and marketing expenses or reduce our advertising rates. Since
we may not capture a significant share of the markets where we operate, we
cannot assure you that we can compete effectively.
INTELLECTUAL PROPERTY
To protect our rights to our intellectual property, we rely on a combination
of federal, state and common law trademarks, service marks and trade names,
copyrights and trade secret protection. We have registered certain of our
trademarks and service marks on the supplemental register of the United States
and certain of our trade names in Queens, New York and New Jersey. In addition,
every directory we publish has been registered with the United States copyright
office. The protective steps we have taken may be inadequate to deter
misappropriation of our proprietary information. We may be unable to detect the
unauthorized use of, or take steps to enforce, our intellectual property rights.
In addition, although we believe that our proprietary rights do not infringe on
the intellectual property rights of others, other parties may assert
infringement claims against us or claims that we have violated a trademark,
trade name, service mark or copyright belonging to them. These claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources on our part.
EMPLOYEES
As of March 1, 1999, we employed three people (two full-time and one
part-time), all of whom were employed in executive, managerial or administrative
positions capacities. In addition, we retained the services of 10
administrative, accounting and production personnel, all of whom are independent
26
contractors. Finally, we had a network of 65 sales representatives, 32 hired by
us directly and 33 hired by the independent sales agencies that sell ads for our
directories. We believe that our relationship with our employees and contractors
is good. None of our employees is represented by a labor union.
FACILITIES
Our executive and principal operating office is located in Queens, New York
in 3,000 square feet. This space is occupied under a lease expiring October 30,
1999. The monthly rent is $4,552. Our New Jersey sales office is located in an
approximately 1,000 square foot facility in Fair Lawn, New Jersey. The space is
leased on a month-to-month basis for $1,100 per month.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages, as of March 1, 1999,
are as follows:
[Enlarge/Download Table]
NAME AGE POSITION
--------------------------------------- --- ----------------------------------------------
Assaf Ran.............................. 33 Chief Executive Officer, President and
Director
Dvir Langer(1)(2)...................... 30 Vice President--Sales and Corporate
Development and Director
Eyal Huberfeld......................... 24 Vice President--Sales and Director
Hanan Goldenthal....................... 48 Chief Financial and Accounting Officer,
Treasurer and Secretary
Yoram Evan............................. 32 Director
Phillip Michals(2)..................... 29 Director
Eran Goldshmid(2)...................... 32 Director
------------------------
(1) Mr. Langer will take office upon the closing of this Offering.
(2) Messrs. Langer, Michals and Goldshmid will become directors upon the closing
of this Offering.
All directors hold office until the next annual meeting of shareholders and
until their successors are duly elected and qualified. Officers are elected to
serve subject to the discretion of the Board of Directors.
Set forth below is a brief description of the background and business
experience of the executive officers and directors of the Company:
ASSAF RAN, our founder, has been our Chief Executive Officer and President
since our inception in 1989. In 1987 Mr. Ran founded Dapey Assaf Maagarei
Mechirim, Ltd., a publishing company in Israel and is a member of its Board of
Directors.
DVIR LANGER will become our Vice President--Sales and Corporate Development
and join our Board of Directors upon the closing of this Offering. Since August
1996, Mr. Langer has been employed by Prudential Securities as a Financial
Advisor. He has also been an employee of Cosmo Management Corporation, a real
estate management firm, since May 1994. Mr. Langer received a BA degree in
Philosophy from the University of British Columbia in June 1993 and a JD from
Brooklyn Law School in June 1996. He has been a member of the New York State Bar
since February 1997.
EYAL HUBERFELD has been our Vice President--Sales since June 1998 and a
Member of the Board of Directors since February 1999. From September 1997
through June 1998, he was an independent sales representative of the Company.
From August 1996 to January 1997, Mr. Huberfeld worked for Yedeot Aharonot, an
Israeli daily newspaper, as a marketing manager and consultant. Between March
1993 and March 1996, Mr. Huberfeld served in the Israeli Defense Force, in the
Bomb Disposal Unit.
HANAN GOLDENTHAL has been our Chief Financial Officer, Treasurer and
Secretary since February 1999. For more than five years prior thereto, he was
engaged in the practice of public accounting. Until December 1998, he was a
principal of Goldenthal & Pankowski, CPAs, and since January 1999, he has been a
principal of Goldenthal & Suss, CPAs, PC. From September 1995 to December 1998,
he was also a principal of GP Business Solutions, Inc., a management consulting
firm. Mr. Goldenthal has been our accountant since our inception. Mr. Goldenthal
is a part-time employee and continues to practice accounting with Goldenthal &
Suss, CPAs, PC. Mr. Goldenthal is a certified public accountant and received a
BBA from Baruch College in June 1976.
28
YORAM EVAN has been one of our Directors since October 1998. Since January
1999, he has been Vice President of Operations and Finance and, since July 1997,
a member of the Board of Directors of Netgrocer, an internet grocery company.
From December 1997 to December 1998, he was the Chief Financial Officer of
American Value Brands, Inc., a food marketing company. From April 1996 to
September 1997, Mr. Evan has acted as the Managing Partner of two investment
funds in Israel, which he founded. From March 1992 to April 1996, Mr. Evan
served in the Budget Department of the Israeli Ministry of Finance. Mr. Evan
received a BA in Economics in July 1991 and an MBA in February 1997 from the
University of Tel Aviv in Israel.
PHILLIP MICHALS will join our Board of Directors upon the closing of this
Offering. He is the founder and, since August 1996, the President of Up-Tick
Trading, a consulting company to investment banking firms. Since July 1994, he
has also been a principal and a Vice President of Michals and Stockmen
Consulting Inc., a management consulting firm. Mr. Michals received a BS degree
in Human Resources from the University of Delaware in May 1992.
ERAN GOLDSHMID will join our Board of Directors upon the closing of this
Offering. Since December 1998 he has been the general manager of the Carmiel
Shopping Center in Carmiel, Israel. From April 1995 through December 1998, he
was head of marketing at Environmental Engineering & Design Company, Ltd., Tel
Aviv, Israel. From February 1993 through April 1995, he was head of a sales
office for Yedioth Aharonath, an Israeli daily newspaper. Mr. Goldshmid received
certification as a financial consultant in February 1993 from the School for
Investment Consultants, Tel Aviv, Israel, and a BA in Business Administration
from the University of Humberside, England in December 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has established Compensation and Audit Committees.
Messrs. Evan, Michals and Goldshmid will be members of both committees, and Mr.
Ran will be a member of the Audit Committee. The Compensation Committee reviews
and recommends to the Board of Directors the compensation and benefits of our
all our officers, reviews general policy matters relating to compensation and
benefits of our employees and administers the issuance of stock options under
our 1999 Stock Option Plan and discretionary cash bonuses to our officers,
employees, directors and consultants. The Audit Committee will meet with
management and our independent public accountants to determine the adequacy of
internal controls and other financial reporting matters.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid during the year ended December 31, 1998 to our Chief Executive Officer. No
other employee received compensation in excess of $100,000 for such year.
[Enlarge/Download Table]
OTHER ANNUAL ALL OTHER
NAME SALARY BONUS COMPENSATION COMPENSATION
---------------------------------------------------------------- --------- ----------- ----------------- -----------------
Assaf Ran, Chief Executive Officer(1)........................... $ 25,000 -- -- --
------------------------
(1) In addition, we advanced $295,262, net of repayments, to Mr. Ran in 1998.
See "Certain Transactions" for the repayment terms of this loan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until after the consummation of this Offering, we will not have a
Compensation Committee or other Board committee performing equivalent functions.
Employment contracts with Messrs. Ran and Langer have been approved by the
entire Board of Directors, consisting of Messrs. Ran, Huberfeld and Evan.
29
EMPLOYMENT CONTRACTS
In March 1999, we entered into an employment agreement with Assaf Ran
providing for his employment as President and Chief Executive Officer until June
30, 2002 at an annual base salary of $75,000 and annual bonuses to be determined
by the Compensation Committee in its sole and absolute discretion. Under the
agreement, Mr. Ran is entitled to participate in all executive benefit plans and
has agreed to a one-year non-competition period following the termination of the
agreement except if his employment is terminated without cause or for good
reason as defined in the agreement. The agreement renews automatically for
successive one-year terms until either party gives 180 days notice of its or his
intention to terminate the agreement.
In March 1999, we entered into a one-year employment agreement with Dvir
Langer commencing simultaneously with the date of this Offering, providing for
his employment, as Vice President--Sales and Corporate Development. His
compensation consists of commissions based on advertising revenue generated by
him or other sales representatives whom he supervises. Mr. Langer is guaranteed
a minimum base salary of $60,000. Under the agreement, Mr. Langer has agreed to
a two-year non-competition period following the termination of the agreement.
The agreement renews automatically for successive one-year terms until either
party gives 14 days notice of its or his intention to terminate the agreement.
1999 STOCK OPTION PLAN
To attract and retain persons necessary for our success, in March 1999 the
Board of Directors approved the adoption of the DAG Media, Inc. 1999 Stock
Option Plan covering 124,000 Common Shares. Pursuant to our Stock Option Plan,
officers, directors and key employees and consultants are eligible to receive
incentive and/or non-qualified stock options. The Stock Option Plan, which has a
term of 10 years from the date of its adoption, will be administered by the
Compensation Committee. The selection of participants, allotment of shares,
determination of price and other conditions relating to the purchase of options
will be determined by the Compensation Committee in its sole discretion.
Incentive stock options granted under the Stock Option Plan are exercisable for
a period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Shares on the date of the
grant, except that the term of an incentive stock option granted under the Stock
Option Plan to a shareholder owning more than 10% of the outstanding Common
Shares may not exceed five years and its exercise price may not be less than
110% of the fair market value of the Common Shares on the date of the grant. We
have granted options covering 22,324 Common Shares under our Stock Option Plan
as of the effective date of this Offering. Options covering 14,884 Common Shares
were granted to two of our employees. These options have an exercise price of
$6.50 per share and a term of five years. The options granted to one employee
will be exercisable immediately and the options granted to the other will be
exercisable one year from the date of this Offering. Options covering the
remaining 7,440 Common Shares were granted to a person who is expected to become
an employee before this Offering, subject to her becoming an employee. They will
have an exercise price equal to the fair market value on the date her employment
commences or $6.50 if her employment commences before the effective date of this
Offering. Such options have a term of five years and are exercisable one year
from the date of this Offering. No other options have been granted under our
Stock Option Plan.
COMPENSATION OF DIRECTORS
Each director, other than employee directors, upon first taking office after
the consummation of this Offering will receive a one-time grant under the Stock
Option Plan of options to purchase 7,000 Common Shares at a price equal to the
fair market value on the date of grant. Such options will vest immediately upon
grant. In addition, each non-employee director will receive a $200 stipend for
each
30
Board meeting he or she attends in person and reimbursement for travel expenses
for attendance at meetings.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
Our Certificate of Incorporation limits the liability to the Company of
individual directors for certain breaches of their fiduciary duty to the
Company. The effect of this provision is to eliminate the liability of directors
for monetary damages arising out of their failure, through negligent or grossly
negligent conduct, to satisfy their duty of care, which requires them to
exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of the individual director's duty
of loyalty to the Company, a failure to act in good faith, intentional
misconduct, a knowing violation of the law, an improper personal benefit or an
illegal dividend or stock purchase.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents in which we are required or permitted to provide
indemnification. We are not aware of any threatened litigation or proceeding
that may result in a claim for such indemnification.
Our Certificate of Incorporation also provides that we will indemnify and
hold harmless each of our directors or officers to the fullest extent authorized
by the New York Business Corporation Law, against all expense, liability and
loss (including attorneys fees, judgments, fines, Employee Retirement Income
Security Act excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
During the year ended December 31, 1998, we advanced $295,262, net of
repayments, to Assaf Ran, our principal shareholder. This amount is evidenced by
a five-year promissory note bearing interest at 4.74% per annum and repayable in
quarterly installments with interest only payable during the first two years and
interest and principal payments payable over the last three years of the note.
Mr. Ran is selling 75,000 of his Common Shares in this Offering, the net
proceeds of which will be used to repay this loan upon completion of this
Offering.
We have adopted a policy that, in the future, all transactions between the
Company and any officer, director or 5% shareholder must be approved by a
majority of our disinterested directors.
31
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Shares as of the date of this Prospectus and as adjusted to
reflect the sale of the Common Shares offered by this Prospectus by (1) each
shareholder who we know owns beneficially more than 5% of our outstanding Common
Shares, (2) each of our directors, (3) our Chief Executive Officer and (4) all
of our directors and executive officers as a group. Each person listed below has
sole investment and voting power with respect to the Common Shares that he owns.
[Enlarge/Download Table]
BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------------------------------
NUMBER OF COMMON SHARES NUMBER OF
COMMON SHARES PERCENTAGE OF OFFERED BY COMMON SHARES PERCENTAGE OF
BENEFICIALLY COMMON SHARES SELLING BENEFICIALLY COMMON SHARES
NAME OF BENEFICIAL OWNER(1) OWNED (2) BENEFICIALLY OWNED SHAREHOLDER OWNED (2) BENEFICIALLY OWNED
------------------------------ --------------- ------------------- --------------- --------------- -------------------
Assaf Ran..................... 1,488,095 86.21% 75,000 1,413,095 47.48%
Dvir Langer................... 148,809 8.62% -- 148,809 5.00%
Eyal Huberfeld................ 29,762 1.72% -- 29,762 1.00%
Hanan Goldenthal(3)........... -- -- -- 7,444 *
Yoram Evan(3)................. -- -- -- 7,000 *
Phillip Michals(3)............ -- -- -- 7,000 *
Eran Goldshmid(3)............. -- -- -- 7,000 *
All officers and directors as
a group(4)(5)............... 1,666,666 96.55% 75,000 1,620,110 53.92%
------------------------
* Less than 1%
(1) All addresses are c/o DAG Media, Inc., 125-10 Queens Boulevard, Kew Gardens,
New York 11415.
(2) Pursuant to the rules and regulations of the Securities and Exchange
Commission, Common Shares that a person has a right to acquire within 60
days of the date of this Prospectus are deemed to be outstanding for the
purpose of computing the percentage ownership of such person but are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Number of Common Shares beneficially owned after this Offering represents
Common Shares issuable upon exercise of options that vest immediately upon
the completion of this Offering.
(4) Includes five persons before this Offering and seven persons after this
Offering.
(5) Includes 28,444 Common Shares issuable upon exercise of options that vest
immediately upon the completion of this Offering.
All of the Common Shares set forth in the above table are subject to
agreements prohibiting the sale, assignment or transfer for a period of one year
from the date of this Prospectus without the prior written consent of Paulson.
See "Underwriting" for more information about these lock-up agreements.
32
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 Common Shares, par value
$.001 per share and 5,000,000 Preferred Shares, par value of $.01 per share.
Upon completion of the Offering, there will be 2,976,190 Common Shares issued
and outstanding (3,174,940 if the option we granted to the underwriters to
purchase additional Common Shares from us in this Offering is exercised in full)
and no Preferred Shares outstanding. As of the date of this Prospectus (not
taking into account Common Shares issued in this Offering), there were 1,726,190
Common Shares outstanding held of record by five shareholders and no Preferred
Shares outstanding.
COMMON SHARES
Subject to preferences that may apply to Preferred Shares outstanding at the
time, the holders of outstanding Common Shares are entitled to receive dividends
out of assets legally available therefor at such times and in such amounts as
the Board of Directors may from time to time determine. Each shareholder is
entitled to one vote for each Common Share held on all matters submitted to a
vote of shareholders. The holders of a majority of the Common Shares voted can
elect all of the directors then standing for election. The Common Shares are not
entitled to preemptive rights and are not subject to conversion or redemption.
If we are liquidated or dissolved or our business is otherwise wound up, the
holders of Common Shares would be entitled to share ratably in the distribution
of all of our assets remaining available for distribution after satisfaction of
all our liabilities and the payment of the liquidation preference of any
outstanding Preferred Shares. Each outstanding Common Share is, and all Common
Shares to be outstanding upon completion of this Offering will be, fully paid
and nonassessable.
PREFERRED SHARES
The Board of Directors has the authority, within the limitations and
restrictions stated in our Certificate of Incorporation, to provide by
resolution for the issuance of Preferred Shares, in one or more classes or
series, and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Shares could
have the effect of decreasing the market price of the Common Shares and could
adversely affect the voting and other rights of the holders of Common Shares.
OPTIONS
We have reserved 124,000 Common Shares for issuance under our 1999 Stock
Option Plan. We have granted options covering 22,324 Common Shares at an
exercise price of $6.50 per share as of the effective date of this Offering. See
"Management--1999 Stock Option Plan" for a further description of our 1999 Stock
Option Plan and the terms of the options that we have granted.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued Common Shares and Preferred Shares are available
for future issuance without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued Common Shares and Preferred Shares
could render more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
The New York Business Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our Certificate of Incorporation does not impose
any supermajority vote requirements.
33
LISTING ON NASDAQ SMALLCAP MARKET
We will apply to list the Common Shares on the Nasdaq SmallCap Market under
the symbol "DAGM."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares will be American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
34
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Shares. We cannot predict the effect, if any, that sales of Common Shares or the
availability of such shares for sale will have on the market price of the Common
Shares prevailing from time to time. Future sales of substantial amounts of
Common Shares in the public market, including shares issued upon the exercise of
options to be granted pursuant to our 1999 Stock Option Plan, could adversely
affect the prevailing market price of the Common Shares.
Upon completion of this Offering, we will have 2,976,190 Common Shares
outstanding (3,174,940 if the option we granted to the underwriters to purchase
additional Common Shares from us in this Offering is exercised in full), of
which 1,325,000 Common Shares (1,523,750 if the option we granted to the
underwriters to purchase additional Common Shares from us in this Offering is
exercised in full) will be freely transferable without restriction under the
Securities Act of 1933, except for any shares held by an "affiliate" of the
Company (as that term is defined by the rules and regulations issued under the
Securities Act), which will be subject to the resale limitations of Rule 144
promulgated under the Securities Act. The remaining 1,651,190 Common Shares held
by existing shareholders are "restricted securities" as that term is defined in
Rule 144. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 144
summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. The shares could be available for resale immediately upon the expiration of
the one-year lock-up period imposed by the Lock-Up Agreements described below.
LOCK-UP AGREEMENTS
All of our officers, directors and shareholders will sign Lock-Up Agreements
under which they will agree not to transfer or dispose of, directly or
indirectly, any Common Shares or any securities convertible into or exercisable
or exchangeable for Common Shares, for a period of one year after the date of
this Prospectus. Transfers or dispositions can be made sooner with the prior
written consent Paulson. See "Underwriting" for a further discussion of the
terms of the Lock-Up Agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this Offering, a person (or persons whose shares are aggregated) who has
beneficially owned Common Shares for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of one percent of the then outstanding Common Shares or the average
weekly trading volume of the Common Shares on the Nasdaq SmallCap Market during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about us. Under Rule 144(k) any
person (or persons whose shares are aggregated) who is not deemed to have been
one of our affiliates at any time during the 90 days preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without regard to the volume limitations,
manner-of-sale provisions, public information requirements or notice
requirements of Rule 144.
STOCK OPTIONS
Following the completion of this Offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering 124,000 Common Shares
reserved for issuance under our 1999 Stock Option Plan. The registration
statement will become effective automatically upon filing. Under this plan, we
have granted options covering 22,364 Common Shares as of the effective date of
this Offering. See "Management--1999 Stock Option Plan" for a further
description of our 1999 Stock Option Plan and the terms of the options that we
have granted.
35
UNDERWRITING
The underwriters named below, for whom Paulson Investment Company, Inc. is
acting as representative, have severally agreed, subject to the terms and
conditions contained in an Underwriting Agreement with us, to purchase 1,250,000
Common Shares from us and 75,000 Common Shares from Assaf Ran, at the price set
forth on the cover page of this Prospectus, in accordance with the following
table.
[Enlarge/Download Table]
NUMBER OF
UNDERWRITER COMMON SHARES
------------------------------------------------------------------------------------------------- ---------------
Paulson Investment Company, Inc..................................................................
Total........................................................................................ 1,325,000
---------------
---------------
The Underwriting Agreement provides that the obligations of the named
underwriters to purchase Common Shares are subject to certain conditions. The
underwriters are committed to purchase all the Common Shares offered by this
Prospectus if any Common Shares are purchased, other than the 198,750 Common
Shares subject to the option granted by us to the underwriters to purchase
additional Common Shares in this Offering.
Paulson has advised us that it proposes to offer the Common Shares offered
by this Prospectus to the public at the initial public offering price set forth
on the cover page of this Prospectus, and to selected dealers at such price less
a concession within the discretion of Paulson and that the named underwriters
and such dealers may reallow a concession to other dealers, including the named
underwriters, within the discretion of Paulson. After the commencement of this
Offering, the public offering price, the concessions to selected dealers and the
reallowance to their dealers may be changed by Paulson.
We have granted Paulson an option, expiring at the close of business 45 days
after the date of this Prospectus, to purchase up to an aggregate of 198,750
additional Common Shares from us on the same terms as set forth in this
Prospectus. Paulson may exercise the option (in whole or in part) only to cover
over-allotments, if any, incurred in the sale of the Common Shares offered by
this Prospectus.
Paulson has informed us that it does not expect to confirm sales of Common
Shares offered by this Prospectus on a discretionary basis.
Until the distribution of the Common Shares offered by this Prospectus is
completed, rules of the Securities and Exchange Commission may limit the ability
of the underwriters and certain selling group members to bid for and purchase
Common Shares. As an exception to these rules, the underwriters are permitted to
engage in certain transactions that stabilize the price of the Common Shares.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Shares. If the underwriters create
a short position in connection with the Offering, I.E., if they sell more Common
Shares than are set forth on the cover page of this Prospectus, Paulson may
reduce that short position by purchasing Common Shares in the open market.
Paulson may also elect to reduce any short position by exercising all or part of
the option granted by us to purchase additional Common Shares described above.
Paulson may also impose a penalty bid on certain underwriters and selling
group members. This means that if Paulson purchases Common Shares in the open
market to reduce the underwriters' short position or to stabilize the price of
the Common Shares they may reclaim the amount of the selling concession from the
underwriters and selling group members who sold those securities as part of this
Offering.
In general, the purchase of a security to stabilize or to reduce a short
position could cause the price of the security to be higher than it might be in
the absence of such purchases. The imposition of
36
a penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security. Neither we nor the named
underwriters make any representation of predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Shares. In addition, neither we nor the named underwriters
represent that the named underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreement provides for indemnification between us and the
named underwriters against certain liabilities, including liabilities under the
Securities Act and for contribution by us and the named underwriters to payments
that may be required to be made in respect thereof. Insofar as indemnification
for liabilities under the Securities Act maybe permitted to our directors,
officers and controlling persons pursuant to the agreement between us and the
named underwriters, or otherwise, we have been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
We have agreed to pay Paulson a nonaccountable expense allowance equal to
three percent of the gross proceeds from the sale of the Common Shares offered
by this Prospectus, of which $35,000 has already been paid. If this Offering is
not consummated, any nonaccountable portion of the advanced payment will be
promptly returned to us.
We have agreed to issue warrants to Paulson to purchase from the Company up
to 132,500 Common Shares at an exercise price per share equal to $7.80 per
share. These warrants are not transferable for one year from the date of
issuance, except to individuals who are either a partner or an officer of a
named underwriter, by will or by the laws of descent and distribution and are
not redeemable. We have agreed to maintain an effective registration statement
with respect to the issuance of the Common Shares underlying these warrants, if
necessary, to allow their public resale without restriction, at all times during
the period in which they are exercisable, commencing one year after the date of
this Prospectus. These Common Shares are being registered on the Registration
Statement of which this Prospectus is a part.
We have agreed that, for a period of one year following the closing of this
Offering, we will not, subject to certain exceptions, offer, sell, contract to
sell, grant any option for the sale or otherwise dispose of any of our
securities without the consent of Paulson, other than with respect to option
grants under our 1999 Stock Option Plan. Our officers, directors and the
shareholders also have agreed that, for a period of one year following this
Offering, they will not offer, sell, contract to sell, grant any option for the
sale or otherwise dispose of any Common Shares (other than intra-family
transfers or transfers to trusts for estate planning purposes) without the
consent of Paulson, which consent will not be unreasonably withheld. They have
also agreed that for the five-year period beginning on the date of this
Prospectus that they will notify Paulson before they sell Common Shares under
Rule 144.
Prior to this Offering, there has been no public market for the Common
Shares. Accordingly, the initial public offering price of the Common Shares
offered by this Prospectus was determined by negotiations between us and
Paulson. Among the factors considered in determining the initial public offering
price of the Common Shares offered by this Prospectus were our history and our
prospects, the industry in which we operate, the status and development
prospects for our proposed products and services, our past and present operating
results and the trends of such results, the previous experience of our executive
officers and the general condition of the securities markets at the time of this
Offering. The offering price set forth on the cover page of this Prospectus
should not be considered an indication of the actual value of the Common Shares.
Such a price is subject to change as a result of market conditions and other
factors, and we cannot assure you that the Common Shares can be resold at or
above the initial public offering price.
37
The foregoing is a summary of the principal terms of the agreements
described above and is not complete. Reference is made to copies of each such
agreements, which are filed as exhibits to the registration statement filed in
connection with this Offering.
LEGAL MATTERS
The validity of the Common Shares offered by this Prospectus will be passed
upon for us and for Mr. Ran by Morse, Zelnick, Rose & Lander, LLP, New York, New
York. Weiss, Jensen, Ellis & Howard, Portland, Oregon, has acted as counsel to
the underwriters named in this Prospectus in connection with this Offering.
EXPERTS
Our Consolidated Financial Statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form SB-2 under the Securities Act
with respect to the Shares with the Securities and Exchange Commission. This
Prospectus does not contain all of the information included in the Registration
Statement and the accompanying exhibits and schedules. For further information
with respect to us and the Shares, you should refer to the Registration
Statement and the accompanying exhibits and schedules. Statements contained in
this Prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and in each instance you
should refer to the copy of such contract or other document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. You may inspect a copy of the Registration Statement
and the accompanying exhibits and schedules without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Securities and Exchange
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13(th) Floor, New York, New York 10048, and you may obtain copies of all
or any part of the Registration Statement from such offices upon the payment of
the fees prescribed by the Securities and Exchange Commission. You may obtain
information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. The address of the site is
HTTP://WWW.SEC.GOV.
We intend to furnish our shareholders with annual reports containing
financial statements audited by its independent certified public accountants.
38
DAG MEDIA, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
[Enlarge/Download Table]
PAGE
-----
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheet at December 31, 1998............................................................ F-3
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997....................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998 and 1997............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
After the consummation of the exchange discussed in notes 1 and 8 to the
consolidated financial statements, the undersigned would be able to render the
following audit report.
Arthur Andersen, LLP
New York, New York
March 10, 1999
To the Shareholders of DAG Media, Inc.:
We have audited the accompanying consolidated balance sheet of DAG Media,
Inc. (a New York corporation) and subsidiary as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DAG Media,
Inc. and subsidiary as of December 31, 1998, and the results of their operations
and their cash flows for the years ended December 31, 1998 and 1997, in
conformity with generally accepted accounting principles.
F-2
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
[Enlarge/Download Table]
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 310,185
Trade accounts receivable (less allowance of $451,378 for doubtful
accounts)................................................................... 1,652,972
Directories in progress....................................................... 623,335
Deferred tax asset............................................................ 21,000
---------
Total current assets........................................................ 2,607,492
---------
Fixed assets, net of accumulated depreciation of $18,041........................ 90,383
---------
Other noncurrent assets:
Shareholder loan receivable................................................... 221,347
Investment in affiliate....................................................... 41,875
Deposits...................................................................... 9,093
---------
Total assets................................................................ $2,970,190
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................................... $ 84,110
Advance billings for unpublished directories.................................. 1,832,341
Income taxes payable.......................................................... 358,000
Deferred taxes payable........................................................ 171,000
---------
Total current liabilities................................................... 2,445,451
---------
Shareholders' equity:
Common shares, $.001 par value; 1,250,000 shares issued and outstanding....... 1,250
Additional paid-in capital.................................................... 150
Retained earnings............................................................. 523,339
---------
Total shareholders' equity.................................................. 524,739
---------
Total liabilities and shareholders' equity.................................. $2,970,190
---------
---------
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
[Enlarge/Download Table]
1997 1998
------------ ------------
Net advertising revenues.............................................................. $ 2,501,754 $ 2,759,092
Publishing costs...................................................................... 441,535 377,983
------------ ------------
Gross profit.................................................................... 2,060,219 2,381,109
Operating costs and expenses:
Selling expenses.................................................................... 922,124 946,315
Administrative and general expenses................................................. 658,956 765,233
------------ ------------
Total operating costs and expenses.............................................. 1,581,080 1,711,548
Earnings from operations before provision for income taxes and equity income.... 479,139 669,561
Provision for income taxes............................................................ 240,000 329,000
Equity in earnings of affiliate....................................................... 16,012 17,035
------------ ------------
Net income...................................................................... $ 255,151 $ 357,596
------------ ------------
------------ ------------
Basic and diluted net income per common share outstanding........................... $ .20 $ .29
------------ ------------
------------ ------------
Basic and diluted weighted average number of common shares outstanding.............. 1,250,000 1,250,000
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
[Enlarge/Download Table]
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
SHARES CAPITAL (DEFICIT) TOTAL
----------- ------------- ---------- ----------
Balance, December 31, 1996......................................... $ 1,250 $ 150 $ (89,408) $ (88,008)
Net income for the year ended December 31, 1997.................. -- -- 255,151 255,151
----------- ----- ---------- ----------
Balance, December 31, 1997......................................... 1,250 150 165,743 167,143
Net income for the year ended December 31, 1998.................. -- -- 357,596 357,596
----------- ----- ---------- ----------
Balance, December 31, 1998......................................... $ 1,250 $ 150 $ 523,339 $ 524,739
----------- ----- ---------- ----------
----------- ----- ---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
DAG MEDIA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
[Enlarge/Download Table]
1997 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 255,151 $ 357,596
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization....................................................... 3,917 13,094
Provision for bad debts............................................................. 136,155 208,909
Changes in operating assets and liabilities--
Accounts receivable............................................................... (779,747) (837,513)
Directories in progress........................................................... (531) (243,945)
Deferred tax asset................................................................ 40,000 --
Other current and noncurrent assets............................................... (1,002) --
Accounts payable and accrued expenses............................................. (41,124) 592
Advance billing for unpublished directories....................................... 320,434 605,998
Income and deferred taxes payable................................................. 200,000 329,000
---------- ----------
Net cash provided by operating activities................................. 133,253 433,731
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliate, net............................................................ (16,012) (17,035)
Purchase of fixed assets................................................................ (80,219) (17,905)
---------- ----------
Net cash used in investing activities..................................... (96,231) (34,940)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans to shareholder, net............................................................... (11,819) (221,347)
---------- ----------
Net cash used in financing activities..................................... (11,819) (221,347)
---------- ----------
Net increase in cash...................................................... 25,203 177,444
Cash and cash equivalents, beginning of year.............................................. 107,538 132,741
---------- ----------
Cash and cash equivalents, end of year.................................................... $ 132,741 $ 310,185
---------- ----------
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. COMPANY BACKGROUND AND SUMMARY
EXCHANGE
DAG Media, Inc. (the "Company" or "DAG") was incorporated in the State of
New York in February 1999. Immediately prior to the initial public offering
("IPO") (see note 8), Assaf Ran, the sole shareholder of Dapey Assaf-Dapey
Zahav, Ltd. ("DAZ"), will exchange all of his shares in DAZ for 1,250,000 Common
Shares of the Company and all of his shares in Dapey Assaf-Hamadrikh Leassakim
Israelim Be New York, Ltd. ("DAH"), an entity in which he has a 50% interest,
for 238,095 Common Shares of the Company. In addition, the minority shareholders
of DAH who own the remaining 50% of DAH will exchange all of their shares in DAH
for 238,095 Common Shares of the Company. As a result, DAZ and DAH will become
wholly owned subsidiaries of the Company. DAH is reflected in the accompanying
consolidated financial statements as an investment in affiliate. (See notes 2
and 8.)
NATURE OF BUSINESS
The Company publishes and distributes yellow page directories in print and
online. DAG's primary product is a bilingual (English--Hebrew) yellow page
directory called The Jewish Israeli Yellow Pages (the "JI Directory"). It was
first published in February 1990 and has been published in February and August
of each year since February 1991 and covers the New York metropolitan area. In
May 1998, the Company published the initial edition of a smaller, English-only
yellow page directory called The Jewish Master Guide (the "Master Guide"), which
is distributed to certain orthodox Jewish communities in the New York
metropolitan area. The JI Directory and the Master Guide are published on DAG's
web site at the address WWW.PORTY.COM (the "Portal"). The Company also provides
its customers and users with a referral service.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of DAG include the accounts of DAG and
DAZ. Significant intercompany accounts and transactions have been eliminated in
consolidation. The Company's 50% investment in DAH, the operating and financial
policies of which the Company is able to influence significantly, is accounted
for using the equity method of accounting. Accordingly, the Company's share of
the net earnings in DAH is included in consolidated net income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-7
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DIRECTORIES IN PROGRESS/ADVANCE BILLINGS FOR UNPUBLISHED DIRECTORIES
Directories in progress include direct costs applicable to unpublished
directories. Advance billings for unpublished directories arise from prepayments
on advertising contracts. Upon publication, revenue and the related expense are
recognized.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis to distribute costs evenly over the useful economic lives of
the assets involved.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
REVENUE RECOGNITION
Advertising revenues are recognized under the point-of-publication method,
which is the method generally followed by publishing companies. Under this
method, revenues and expenses are recognized when the related directories are
published.
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Financial Accounting Standard Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." Under this standard, basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. diluted earnings per share includes the potential dilution from the
exercise of outstanding dilutive stock options and warrrants for common shares
using the treasury stock method. As of December 31, 1998, the stock option plan
(see note 7) was not in effect. Accordingly there is no difference between basic
and fully diluted earnings per share.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement establishes a fair market value based method of
accounting for an employee stock option but allows companies to continue to
measure compensation cost for those plans using the intrinsic value based method
prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees."
Companies electing to continue using the accounting under APB Opinion No. 25
must, however, make pro forma disclosure of net income and earnings per share as
if the fair value based method of accounting in SFAS No. 123 had been applied.
The Company has elected to account for its
F-8
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stock-based compensation awards to employees and directors under the accounting
prescribed by APB Opinion No. 25, under which no compensation cost has been
recognized. The Company will be required to make pro forma disclosures at
December 31, 1999.
SEGMENT DISCLOSURE
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS 131, applicable to public companies,
established new standards for reporting information about operating segments in
annual financial statements. The disclosure prescribed by SFAS 131 is effective
beginning with the year ended December 31, 1998. The Company does not believe
that it operates in more than one segment.
3. FIXED ASSETS
[Enlarge/Download Table]
DECEMBER 31, 1998
-----------------
Office equipment........................................................... $ 26,620
Automobile................................................................. 64,598
Leasehold improvement...................................................... 17,206
--------
Total fixed assets....................................................... 108,424
Less: accumulated depreciation............................................. (18,041)
--------
Fixed assets, net of accumulated depreciation............................ $ 90,383
--------
--------
4. SHAREHOLDER LOAN
During the year ended December 31, 1998, the Company advanced $221,347 to
Assaf Ran, its principal shareholder. In addition, Mr. Ran owes $73,915 to DAH.
The aggregate amount owed by Mr. Ran, $295,262, is evidenced by a five-year
promissory note bearing interest at 4.74% per annum and repayable in quarterly
installments with interest only payable during the first two years and interest
and principal payments payable over the last three years of the note.
F-9
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. INCOME TAXES
The provision for income taxes consists of the following:
[Enlarge/Download Table]
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1998
---------- ----------
Current taxes:
Federal............................................................. $ (13,000) $ 218,000
State............................................................... (8,000) 140,000
---------- ----------
Total current taxes............................................... (21,000) 358,000
---------- ----------
Deferred taxes:
Federal............................................................. 159,000 (18,000)
State............................................................... 102,000 (11,000)
---------- ----------
Total deferred taxes.............................................. 261,000 (29,000)
---------- ----------
Provision for income taxes........................................ $ 240,000 $ 329,000
---------- ----------
---------- ----------
Deferred tax assets (liabilities) are comprised of the following:
[Enlarge/Download Table]
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998
----------- -------------
Accounts receivable............................................... $ (469,000) $ (675,000)
Prepaid expenses.................................................. (174,000) (285,000)
Other deferred tax liabilities, net............................... -- (50,000)
----------- -------------
Gross deferred tax liability.................................. (643,000) (1,010,000)
----------- -------------
Advance billings for unpublished directories...................... 564,000 839,000
Other deferred tax asset, net..................................... 4,000 --
----------- -------------
Gross deferred tax asset...................................... 568,000 839,000
----------- -------------
Net deferred tax liability.................................... $ (75,000) $ (171,000)
----------- -------------
----------- -------------
The Company is on the cash method of accounting for tax purposes. The
deferred tax items indicated above are primarily a result of recognizing items
of income or expense under the cash method in a different period from when those
items are recognized for accrual basis financial purposes.
F-10
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. INCOME TAXES (CONTINUED)
The provision for income taxes on income differs from the amount computed by
applying the U.S. federal income tax rate (34%) because of the effect of the
following items:
[Enlarge/Download Table]
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1997 1998
---------- ----------
Tax at U.S. federal income tax rate................................... $ 163,000 $ 228,000
State income taxes, net of U.S. federal income tax benefit............ 62,000 85,000
Other................................................................. 15,000 16,000
---------- ----------
Provision for income taxes........................................ $ 240,000 $ 329,000
---------- ----------
---------- ----------
6. COMMITMENTS AND CONTINGENCIES
In March 1999 the Company entered into employment agreements with its two
principal officers. One agreement was entered into with Assaf Ran providing for
his employment as President and Chief Executive Officer through June 30, 2002.
The agreement renews automatically for successive one-year periods until either
party gives 180 days written notice of its intention to terminate the agreement.
Under the agreement, Mr. Ran will receive an annual base salary of $75,000,
annual bonuses as is determined by the Compensation Committee in its sole and
absolute discretion and participation in all executive benefit plans. Under the
agreement Mr. Ran has also agreed to a one-year non-competition period following
the termination of the agreement so long as the Company is not in breach of the
agreement. The other agreement is with Dvir Langer providing for his employment
as Vice President-Sales and Corporate Development. The employment term is for
one year commencing upon the closing of the IPO. This agreement is renewable for
additional one-year terms until either party gives 14 days written notice of its
intention to terminate the agreement. Under the agreement, Mr. Langer will
receive a minimum base salary of $60,000. Under the agreement, Mr. Langer has
agreed to a two-year non-competition period following the termination of his
agreement.
LITIGATION
From time to time in the normal course of business, the Company is party to
various claims and/or litigation. Management believes that the settlement of all
such claims and/or litigation, considered in the aggregate, will not have a
material adverse effect on the Company's financial position and results of
operations.
7. STOCK OPTION PLAN
To attract and retain persons necessary for the success of the Company, in
March 1999, the Board of Directors approved the adoption of DAG Media, Inc. 1999
Stock Option Plan ("the Stock Option Plan") covering 124,000 Common Shares.
Pursuant to this Stock Option Plan, officers, directors and key employees and
consultants are eligible to receive incentive and/or non-qualified stock
options. The Stock Option Plan, which has a term of ten years from the date of
its adoption, will be administered by the Compensation Committee. The selection
of participants, allotment of shares, determination of price and other
conditions relating to the purchase of options will be determined by the
Compensation Committee, in its sole discretion. Incentive stock options granted
under the Stock Option Plan are
F-11
DAG MEDIA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
7. STOCK OPTION PLAN (CONTINUED)
exercisable for a period of up to ten years from the date of grant at an
exercise price which is not less than the fair market value of the Common Shares
on the date of grant, except that the term of an incentive stock option granted
under the Stock Option Plan to a shareholder owning more than 10% of the
outstanding Common Shares may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the Common Shares on the date
of grant. The Company will grant options covering 22,324 Common Shares as of the
effective date of the IPO. These options will have an exercise price equal to
the initial public offering price per Common Share in the IPO (see note 8) and
will have a five-year term. The Options granted to the employees are intended to
qualify as incentive stock options. Options granted to one employee will vest
immediately and the options granted to the other two persons will vest one year
from the date of the IPO.
8. SUBSEQUENT EVENTS: INITIAL PUBLIC OFFERING
On March 10, 1999, the Company filed a registration statement with the
Securities and Exchange Commission to register 1,325,000 Common Shares at an
expected IPO price of $6.50 per share. Of the 1,325,000 Common Shares offered,
1,250,000 are being offered by the Company and 75,000 are being offered by the
Assaf Ran, the Company's principal shareholder. Mr. Ran will use the net
proceeds from the sale of his shares to repay his loan from the Company. (See
note 4.) The Company expects to realize proceeds of approximately $6,900,000
from the sale of its Common Shares, net of commissions and offering expenses,
and the repayment of Mr. Ran's loan.
In connection with the IPO, the Company entered into an Exchange Agreement
with Dapey Assaf-Dapey Zahav Ltd. ("DAZ"), Dapey Assaf-Hamadrikh Le Assakim Be
New York Ltd. ("DAH") and the shareholders of DAZ and DAH. Pursuant to the
Exchange Agreement, the shareholders of DAZ and DAH will transfer all of their
common shares in DAZ and DAH, as the case may be, for Common Shares of the
Company and DAZ and DAH will become wholly owned subsidiaries of the Company.
The exchange will be accounted for under the purchase method of accounting,
resulting in a "step up" in the basis of the Company's assets to the extent of
the interests of the minority shareholders. The value of the minority interest
is estimated to be $1,393,000 (assuming a 10% discount from the anticipated IPO
price) and is allocated among the assets of the Company based on their relative
fair market values. Of this amount, approximately $42,000 will be allocated to
the Company's tangible assets, $350,000 will be allocated to the Company's
trademarks, trade names and other intellectual property and $1.0 million will be
allocated to goodwill. The amounts allocated to the Company's intellectual
property and goodwill will be amortized on a straight-line basis over 25 years,
or approximately $54,000 per year, after the IPO.
F-12
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YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION THAT IS DIFFERENT. THIS DOCUMENT
MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN
THIS PROSPECTUS MAY ONLY BE ACCURATE ON ITS DATE.
------------------------
TABLE OF CONTENTS
[Download Table]
PAGE
---------
Prospectus Summary.............................. 3
Risk Factors.................................... 6
Use of Proceeds................................. 13
Dividend Policy................................. 14
Capitalization.................................. 14
Dilution........................................ 15
Selected Financial Data......................... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 21
Management...................................... 28
Certain Transactions............................ 31
Principal and Selling Shareholders.............. 32
Description of Capital Stock.................... 33
Shares Eligible for Future Sale................. 35
Underwriting.................................... 36
Legal Matters................................... 38
Experts......................................... 38
Where You Can Find Additional Information....... 38
Index to Financial Statements................... F-1
THROUGH AND INCLUDING , 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL BROKER-DEALERS THAT BUY, SELL OR TRADE THESE COMMON SHARES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THEIR OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
1,325,000 COMMON SHARES
[LOGO]
DAG MEDIA, INC.
---------------------
PROSPECTUS
---------------------
PAULSON INVESTMENT COMPANY, INC.
, 1999
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 and 723 of the New York Business Corporation Law grant to the
Company the power to indemnify the officers and directors of the Company as
follows:
(a) A corporation may indemnify any person made, or threatened to be made, a
party to an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such director or
officer did not act, in good faith, for a purpose which he reasonably believed
to be in, or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation or that he had reasonable
cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or threatened to be made, a
party to an action by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or settlement of such action, or
in connection with an appeal therein if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best interest of
the corporation, except that no indemnification under this paragraph shall be
made in respect of (1) a threatened action, or a pending action which is settled
or otherwise disposed of, or (2) any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation, unless and only
to the extent that the court on which the action was brought, or, if no action
was brought, any court of competent jurisdiction, determines upon application
that, in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
(d) For the purpose of this section, a corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance by
such person of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person with respect to an
employee benefit plan pursuant to applicable law shall be considered fines; and
action taken or omitted by a person with
II-1
respect to an employee benefit plan in the performance of such person's duties
for a purpose reasonably believed by such person to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the corporation.
Payment of indemnification other than by court award is as follows:
(a) A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in section 722 shall be entitled to indemnification as authorized in such
section.
(b) Except as provided in paragraph (a), any indemnification under section
722 or otherwise permitted by section 721, unless ordered by a court under
section 724 (Indemnification of directors and officers by a court), shall be
made by the corporation, only if authorized in the specific case:
(1) By the board acting by a quorum consisting of directors who are not
parties to such action or proceeding upon a finding that the director or
officer has met the standard of conduct set forth in section 722 or
established pursuant to section 721, as the case may be, or,
(2) If a quorum under subparagraph (1) is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
(A) By the board upon the opinion in writing of independent legal
counsel that indemnification is proper in the circumstances because the
applicable standard of conduct set forth in such sections has been met by
such director or officer, or
(B) By the shareholders upon a finding that the director or officer
has met the applicable standard of conduct set forth in such sections.
(C) Expenses incurred in defending a civil or criminal action or
proceeding may be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amounts as, and
to the extent, required by paragraph (a) of section 725.
The Company's Certificate of Incorporation provides as follows:
"TENTH: (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigation
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Business Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights that
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall incur to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid
II-2
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Business
Corporation Law requires, the payment of such
expenses incurred by a director or officer (in his or her capacity as a director
or officer and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it shall ultimately be determined that such director or officer
is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
"(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Business Corporation Law for the corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Business Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
"(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
"(d) INSURANCE. The Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Company or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Company would
have the power to indemnify such person against such expense, liability or loss
under the Business Corporation Law.
"ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for any breach of duty in such
capacity, except for the liability of any director if a judgment or other final
adjudication adverse to him establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
he personally gained in fact a financial profit or other advantage to which he
was not legally entitled or that his acts violated Section 719 of the New York
Business Corporation Law."
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the Underwriters
and their respective controlling persons, on the other hand, against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended.
II-3
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by the Company. Other than the SEC registration fee
and the NASD filing fees all of such expenses are estimated.
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Registration fee............................................................... $ 3,217.67
NASD fee....................................................................... $ 1,593.79
Nasdaq SmallCap Market listing fee............................................. $ 6,523.75*
Printing expenses.............................................................. $62,500.00*
Accounting fees and expenses................................................... $180,000.00*
Legal fees and expenses........................................................ $165,000.00*
State securities law fees and expenses......................................... $30,000.00*
Transfer agent and registrar fees and expenses................................. $ 3,500.00*
Underwriter's nonaccountable expenses.......................................... $258,375.00
Miscellaneous.................................................................. $ 3,914.79*
----------
Total...................................................................... $714,625.00
----------
----------
------------------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Neither the Company nor Dapey Assaf-Dapey Zahav, Ltd. and Dapey
Assaf-Hamadrikh Leaasakim Israelim Be, New York, Ltd. have issued any
unregistered securities in the last three years. Immediately prior to the
effective date of this Registration Statement, pursuant to the Exchange
Agreement, the existing shareholders of Dapey Assaf-Dapey Zahav, Ltd and Dapey
Assaf-Hamadrikh Leaasakim Israelim Be, New York, Ltd will exchange all of their
shares in those two companies for 1,726,190 Common Shares of the Company.
Consequently, Dapey Assaf-Dapey Zahav, Ltd and Dapey Assaf-Hamadrikh Leaasakim
Israelim Be, New York, Ltd. will become wholly owned subsidiaries of the
Company. Those shares are being acquired without a view toward distribution in a
transaction exempt from registration under Section 4(2) of the Securities Act.
Each certificate will bear an appropriate restrictive legend.
II-4
ITEM 27. EXHIBITS
(A) EXHIBITS:
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EXHIBIT
NO. DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
2.1 Form of Exchange Agreement
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Representative's Warrant
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan
10.2 Form of Employment Agreement between the Company and Assaf Ran
10.3 Form of Employment Agreement between the Company and Dvir Langer
10.4 Form of Agreement between the Company and B.I.Y., Inc.*
10.5 Form of Agreement between the Company and M.I.Y., Inc.*
10.6 Form of Promissory Note of Assaf Ran
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1)
24 Power of Attorney (included in signature page)
27 Financial data schedule
99.1 Officer and Director Nominee Consent (Dvir Langer)
99.2 Director Nominee Consent (Phillip Michals)
99.3 Director Nominee Consent (Eran Goldshmid)
------------------------
* To be filed by amendment.
ITEM 28. CERTAIN UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
II-5
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the Securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remain unsold at the termination of the
Offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the Securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York on March 10, 1999.
DAG MEDIA, INC.
BY: /S/ ASSAF RAN
-----------------------------------------
ASSAF RAN, PRESIDENT
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Assaf Ran and Stephen A. Zelnick, or any one of them,
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all pre- or post-effective amendments to this
Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any one of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities indicated on March 10, 1999.
SIGNATURE TITLE
------------------------------ ---------------------------
/s/ ASSAF RAN President, Chief Executive
------------------------------ Officer and Director
Assaf Ran
/s/ HANAN GOLDENTHAL Chief Financial and
------------------------------ Accounting Officer
Hanan Goldenthal
/s/ EYAL HUBERFELD Director
------------------------------
Eyal Huberfeld
/s/ YORAM EVAN Director
------------------------------
Yoram Evan
II-7
[Enlarge/Download Table]
EXHIBIT
NO. DESCRIPTION
----------- ---------------------------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
2.1 Form of Exchange Agreement
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Representative's Warrant
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Form of DAG Media, Inc. 1999 Stock Option Plan
10.2 Form of Employment Agreement between the Company and Assaf Ran
10.3 Form of Employment Agreement between the Company and Dvir Langer
10.4 Form of Agreement between the Company and B.I.Y., Inc.*
10.5 Form of Agreement between the Company and M.I.Y., Inc.*
10.6 Form of Promissory Note of Assaf Ran
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit 5.1).
24 Power of Attorney (included in signature page).
27 Financial data schedule
99.1 Officer and Director Nominee Consent (Dvir Langer)
99.2 Director Nominee Consent (Phillip Michals)
99.3 Director Nominee Consent (Eran Goldshmid)
------------------------
* To be filed by amendment.
Dates Referenced Herein and Documents Incorporated by Reference
3 Subsequent Filings that Reference this Filing
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