MEDIA INC (DAGM) - Quarterly
Report (SEC form 10QSB)
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
13, 2000- The following management's discussion and analysis of financial
condition and results of operations should be read in conjunction with
our unaudited consolidated financial statements and notes thereto contained
elsewhere in this report. This discussion contains forward-looking statements
based on current expectations that involve risks and uncertainties. Actual
results and the timing of certain events may differ significantly from
those projected in such forward-looking statements.
publish and distribute yellow page directories in print and on the worldwide
web. Our directories are target niche markets as well as challenge the
dominance of Verizon directories in the mainstream yellow page industry
in the New York metropolitan area. We sell yellow page advertisements
as part of an overall media package that includes print advertising, on-line
advertising and other added value services such as our referral service
and consumer discount club.
three internet portals, a mainstream general portal NewYellow.com, targeting
the general population, JewishYellow.com, targeting worldwide Jewish communities
and JewishMasterguide.com, targeting the ultra-orthodox Hasidic communities.
Our principal source of revenue derives from the sale of ads in our print
and on-line directories.
fees, whether collected in cash or evidenced by a receivable, generated
in advance of publication dates, are recorded as "Advanced billings for
unpublished directories" on our balance sheet. Many of our advertisers
pay the fee over a period of time. In that case, the entire amount of
the deferred payment is booked as a receivable. Revenues are recognized
at the time the directory in which the ad appears is published. In the
case of NewYellow, a portion of the advertising fee is allocated to internet
advertising, and is, therefore, recognized when the ad is published in
the online version of NewYellow. Similarly, costs directly related to
the publication of a directory in advance of publication are recorded
as "Directories in progress" on our balance sheet and are recognized when
the directory to which they relate is published. All other costs are expensed
operating costs incurred in connection with publishing the directories
are commissions payable to sales representatives and costs for paper and
printing. Generally, advertising commissions are paid as advertising revenue
is collected. However, in connection with NewYellow we pay commissions
to our sales representatives even before we collect the related advertising
revenue. We do not have any long term agreements with paper suppliers
or printers. Since ads are sold before we purchase paper and print a particular
directory, a substantial increase in the cost of paper or printing costs
would reduce our profitability. Administrative and general expenses include
expenditures for marketing, insurance, rent, sales and local franchise
taxes, licensing fees, office overhead and wages and fees paid to employees
and contract workers (other than sales representatives).
Ended September 30, 2000 Compared to Three Months Ended September 30,
revenues for three months ended September 30, 2000 were $ 1,812,000 compared
to $1,594,000 for the three months ended September 30, 1999, an increase
of 13.7 %. The increase was primarily attributable to increased sales
resulting primarily from Internet sales relating to the NewYellow.com.
costs for the three months ended September 30, 2000 were $188,000 compared
to $68,000, for the corresponding period in 1999, an increase of 176.5
%. As a percentage of net advertising revenues, publication costs were
10.4 % in the period ending September 30, 2000 compared to 4.3 %, in the
corresponding 1999 period. The increase in publication costs primarily
reflects that in the three month period ending September 30, 2000, we
published a larger directory and distribution costs for our print directories
increased. Also, there was an increase in the graphic department costs
as they relate to the on-line publication of NewYellow.com, which is growing
for the three months ended September 30, 2000 were $773,000 compared to
$949,000 for the corresponding period in 1999, a decrease of 18.5 %. As
a percentage of net advertising revenues, selling expenses decreased to
42.7 % in the period ending September 30, 2000 from 59.5 % in the corresponding
1999 period. This decrease primarily results from the sales breakout between
DAG direct sales representatives versus agency sales representatives whom
receive higher commission rates.
and general costs
and general expenses for the quarter ended September 30, 2000 were $686,000
compared to $409,000 for the same period in 1999, an increase of 67.7
%. This increase is primarily attributable to (1) increased bad debt (2)
increased officer and administrative salaries related to the Company's
expansion (3) increased consulting, investor relations and professional
service costs and (4) increased advertising costs for the promotion of
New Yellow and the Company itself.
For the quarter
ended September 30, 2000, we had interest income of $111,000 compared
to interest income of $87,000 for the quarter ended September 30, 1999.
This increase was primarily attributable to increased interest rates resulting
in increased interest income in the third quarter of 2000.
for income taxes
for income taxes for the three months ended September 30, 2000 and September
30, 1999 was $134,000 and $109,000 respectively. In the third quarter
of 2000, we used a 46 % rate to calculate taxes.
Ended September 30, 2000 Compared to Nine Months Ended September 30,
revenues for the nine months ended September 30, 2000 was $ 5,295,000
compared to $3,863,000 for the nine months ended September 30, 1999, an
increase of 37.1 %. The increase was primarily attributable to increased
advertising revenue with respect to the publication of (1) the year 2000
issues of the The Jewish Israeli Yellow Pages, (2) the third edition of
the Master Guide directory in September 2000 and (3) the first printed
edition of the New Yellow Manhattan directory as well as its internet
version on-line. Also, in the prior comparable period, we did not have
Internet advertising sales for the full period.
costs for the nine months ended September 30, 2000 were $1,041,000 compared
to $399,000 for the corresponding period in 1999, an increase of 160.9
%. However, as a percentage of net advertising revenues, publication costs
were 19.7 % in the 2000 period compared to 10.3 %, in the 1999 period.
The increase in publication costs reflects the fact that we published
four directories in the nine month period ended of 2000 compared to three
directories in the nine month period ended 1999. The increase of publication
costs as a percentage of net advertising revenues reflect the costs related
to additional directories, both in print and on-line as well as a general
increase in the current year for the cost of paper thereby affecting the
printing costs of the directories.
for the nine months ended September 30, 2000 were $1,779,000 compared
to $1,569,000 for the corresponding period in 1999, an increase of 13.4
%. As a percentage of net advertising revenues, selling expenses decreased
to 33.6 % from 40.6 %. The increase in selling expenses was attributable
to the increases in net advertising revenues as well as an increase in
the commission rates and bonus payments made, particularly associated
with New Yellow sales. The decrease in selling expenses as a percentage
of revenues is related to the combined effect of which directory is published
in the given period and thereby its revenues recognized, as well as which
office is generating the sale thereby giving effect to a different selling
commission rate structure.
and general costs
and general costs for the nine months ended September 30, 2000 were $1,929,000
compared to $911,000 for the same period in 1999, an increase of 111.7
%. The increase was primarily attributable to (1) an increase in the expense
for uncollectible receivables (2) increased officer and administrative
salaries related to the company's expansion (3) increased consulting,
relations and professional service costs related to our status as a public
company and (4) increased advertising costs for the promotion of New Yellow.
For the nine
months ended September 30, 2000 we had net interest income of $ 298,000
compared to net interest income of $130,000 for the nine months ended
September 30, 1999. This increase was attributable to the investment of
the net proceeds of our initial public offering for the full nine month
period ending September 30, 2000 as well as an overall increase in interest
rates during fiscal year 2000.
for income taxes
for income taxes for the nine months ended September 30, 2000 and September
30, 1999 were $404,000 and $515,000 respectively. The decrease in the
provision for income taxes was directly attributable to the decrease in
and Capital Resources
30, 2000 we had cash and cash equivalents of $6,111,000 and working capital
of $6,366,000 as compared to cash and cash equivalents of $ 7,169,000
and working capital of $7,374,000 at September 30, 1999. This decrease
primarily reflects the use of proceeds for the Company's decision to place
$1,000,000 in restricted cash as explained note 2 to the Company's financial
provided by operating activities was $17,000 for the nine months ended
September 30, 2000. For the comparable 1999 period, net cash provided
by operating activities was $279,000. The decrease in net cash provided
by operating activities reflects increased costs related to the expansion
of the company and the first time publication of the New Yellow Manhattan
directory in the nine month period ending September 30, 2000 compared
to the same period in 1999.
used by investing activities was $1,107,000 for the nine months ended
September 30, 2000. Net cash used by investing activities in the nine
months ended September 30, 2000 was primarily used for providing security
for a promissory note signed by the CEO as explained in note 2 to the
Company's financial statements. For the comparable 1999 period net cash
provided by investing activities was $82,000.
no financing activities during the nine months ended September 30, 2000.
For the comparable 1999 period, net cash provided by financing activities
was $6,497,000 consisting primarily of the net proceeds of our initial
public offering in May 1999 and the proceeds from the repayment of Mr.
that our current cash balances together with our cash flows from operations
will be sufficient to fund the production of our directories and the maintenance
of our web site as well as increases in our marketing and promotional
activities for the next 12 months. However, we expect our working capital
requirements to increase significantly over the next 12 months as we continue
to market our directories and expand our on-line services, in particular
contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements are typically identified by the words "believe", "expect",
"intend", "estimate" and similar expressions. Those statements appear
in a number of places in this report and include statements regarding
our intent, belief or current expectations or those of our directors or
officers with respect to, among other things, trends affecting our financial
conditions and results of operations and our business and growth strategies.
These forward-looking statements are not guarantees of future performance
and involve risks and uncertainties. Actual results may differ materially
from those projected, expressed or implied in the forward-looking statements
as a result of various factors (such factors are referred to herein as
"Cautionary Statements"), including but not limited to the following:
(i) our limited operating history, (ii) potential fluctuations in our
quarterly operating results, (iii) challenges facing us relating to our
rapid growth and (iv) our dependence on a limited number of suppliers.
The accompanying information contained in this report, including the information
set forth under "Management's Discussion and Analysis of Financial Condition
and Results of Operations", identifies important factors that could cause
such differences. These forward-looking statements speak only as of the
date of this report, and we caution potential investors not to place undue
reliance on such statements. We undertake no obligation to update or revise
any forward-looking statements. All subsequent written or oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the Cautionary Statements.
DAG MEDIA, INC.