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**SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM 10-KSB**

**(Mark One)**
|   |                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------|
| x      | **Annual Report Pursuant to Section 13 or 15(d) of the                        Securities Exchange Act of 1934** |
|   |                                                                                                            |
|   | **For the Fiscal Year ended December 31,                        2007**                                          |
|   |                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------|
| o      | **Transition Report Pursuant to Section 13 or 15(d) of                        the Securities Exchange Act of 1934** |
|   |                                                                                                                |
|   | **For the transition period from _______________ to                        _______________**                        |
|   |                                                                                                                |
|   | **Commission File Number 000-25991                        _____________**                                           |

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|                                                         |                    |
|--------------------------------------------------------------|-------------------------|
| **New York**                                                 | **11-3474831**          |
|                                                              |                         |
| **(State or other                        jurisdiction**      | **(I.R.S. Employer**    |
| **of incorporation or                        organization)** | **Identification No.)** |

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**Issuer’s telephone number (212)            489-6800**

**Securities registered under Section 12(b) of the            Exchange Act:**
|                                                           |                                                                 |
|----------------------------------------------------------------|----------------------------------------------------------------------|
| **Title of Each Class**                                        | **Name of Each Exchange                        on Which Registered** |
|                                                                |                                                                      |
| Common Stock, par value $.001 per                        share | The NASDAQ Stock Market, LLC                                         |

**Securities Registered under Section 12(g) of the            Exchange Act:**

None.**(Title of class)**

**Check whether issuer is not required to file            reports pursuant to Section 13 or 15(d) of the            Exchange Act:** o 

          **Check            whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d)            of the Exchange Act during the past 12 months (or for such shorter period that the            registrant was required to file such reports) and (2) has been subject to such filing            requirements for the past 90 days:****Yes**x **No**o 

          **Check if            there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B            is not contained in this form, and no disclosure will be contained, to the best of the            registrant’s knowledge, in definitive proxy of information statements            incorporated by reference in Part III of this Form 10-KSB or any amendment to this            Form 10-KSB:**x 

          **Indicate            by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of            the Exchange Act): Yes**o **No**x 

          **For            the year ended December 31, 2007, the revenues of the registrant were            $221,000.**

          **The            aggregate market value of the voting and non-voting common equity stock of the            registrant held by non-affiliates of the registrant, based on the closing price on the            NASDAQ Capital Market on March 13, 2008 of $0.92, was approximately            $1,735,667.**

          **As of            March 14, 2008 the registrant has a total of 3,305,190 shares of Common Stock issued            outstanding.**

**DOCUMENTS INCORPORATED BY REFERENCE**

**None.**

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**DAG MEDIA, INC.            FORM 10-KSB ANNUAL REPORT            TABLE OF CONTENTS**

|           |     |                                                                                                                                                                                        |    |   |
|----------------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|
|           |     |                                                                                                                                                                                        | Page    |
|           |     |                                                                                                                                                                                        |         |
| **PART I**     |     |                                                                                                                                                                                        |    |
|           | Item 1.  | Description of Business                                                                                                                                                                     |  4 |   |
|           | Item 1A. | Risk Factors                                                                                                                                                                                | 9       |   |
|           | Item 2.  | Description of Property                                                                                                                                                                     | 15      |   |
|           | Item 3.  | Legal Proceedings                                                                                                                                                                           | 15      |   |
|           | Item 4.  | Submission of Matters to a Vote of                        Security Holders                                                                                                                  | 15      |   |
| **PART II**    |     |                                                                                                                                                                                        |    |
|           | Item 5.  | Market for Common Equity, Related                        Stockholder Matters and Small Business Issuer Purchases of Equity                        Securities                                | 16      |   |
|           | Item 6.  | Management’s Discussion and                        Analysis or Plan of Operation                                                                                                      | 17      |   |
|           | Item 7.  | Financial Statements                                                                                                                                                                        | 26      |   |
|           | Item 8.  | Changes in and Disagreements with                        Accountants on Accounting and Financial Disclosure                                                                                 | 26      |   |
|           | Item 8A. | Controls and Procedures                                                                                                                                                                     | 26      |   |
|           | Item 8B. | Other Information                                                                                                                                                                           | 28      |   |
| **PART III**   |     |                                                                                                                                                                                        |    |
|           | Item 9.  | Directors, Executive Officers, Promoters                        and Control Persons and Corporate Governance; Compliance with                        Section 16(a) of the Exchange Act | 29      |   |
|           | Item 10. | Executive Compensation                                                                                                                                                                      | 32      |   |
|           | Item 11. | Security Ownership of Certain Beneficial                        Owners and Management and Related Stockholders Matters                                                                      | 35      |   |
|           | Item 12. | Certain Relationships and Related                        Transactions and Director Independence                                                                                             | 36      |   |
|           | Item 13. | Exhibits List                                                                                                                                                                               | 38      |   |
|           | Item 14. | Principal Accountant Fees and                        Services                                                                                                                               | 40      |   |
| **SIGNATURES** |     | 42                                                                                                                                                                                          |    |
| **EXHIBITS**   |     |                                                                                                                                                                                        |    |

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**FORWARD-LOOKING STATEMENTS**

*This report contains forward-looking statements            within the meaning section 21E of the Securities Exchange Act of 1934, as amended (the            “Exchange Act”). Forward-looking statements are typically identified by the            words “believe,” “expect,” “intend,”            “estimate” and similar expressions. Those statements appear in a number of            places in this report and include statements regarding our intent, belief or current            expectations or those of our directors or officers with respect to, among other things,            trends affecting our financial conditions and results of operations and our business            and growth strategies. These forward-looking statements are not guarantees of future            performance and involve risks and uncertainties. Actual results may differ materially            from those projected, expressed or implied in the forward-looking statements as a            result of various factors (such factors are referred to herein as “Cautionary            Statements”), including but not limited to the following: (i) the successful            integration of new businesses that we may acquire; (ii) the success of new operations            which we have commenced and of our new business strategy; (iii) our limited operating            history in our new business; (iv) potential fluctuations in our quarterly operating            results; and (v) challenges facing us relating to our growth. The accompanying            information contained in this report, including the information set forth under            “Management’s Discussion and Analysis of Financial Condition and Results of            Operations”, identifies important factors that could cause such differences.            These forward-looking statements speak only as of the date of this report, and we            caution potential investors not to place undue reliance on such statements. We            undertake no obligation to update or revise any forward-looking statements. All            subsequent written or oral forward-looking statements attributable to us or persons            acting on our behalf are expressly qualified in their entirety by the Cautionary            Statements.*

*_____________________*

All references in this Annual Report to “Dag            Media,” “the Company,” “we,” “us” and            “our” refer to DAG Media, Inc. a New York corporation founded in 1989 and            its consolidated subsidiaries DAG Funding Solutions, Inc. (“DAG Funding”),            formed under the laws of the State of New York and DAG Interactive, Inc. (“DAG            Interactive”) formed under the laws of Delaware in May 2007 and December 2005,            respectively, unless the context otherwise requires. 

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**PART I**

**Item 1. Description of Business**

**General**

          We provide            short term, secured, non–banking, commercial loans, to small businesses. In            addition, we have developed innovative software and a related web site that allows            retail businesses and other service providers to reach prospective customers and            clients for their goods and services in a more effective way than traditional on-line            and print yellow pages. We have marketed this innovative software solution under the            name Nextyellow on a limited basis to establish “proof of            concept.” 

          In July            2007 we discontinued operations of our 80% owned subsidiary Shopila Corporation            (“Shopila”), which was dissolved in December 2007. 

**Products and services**

***          ▪ DAG            Funding.***

          The Company,            through its subsidiary DAG Funding, offers short-term secured commercial loans to small            businesses. Loans are secured by collateral such as real estate, receivables, and            marketable securities and, generally, accompanied by personal guarantees from the            principals of the businesses. Lending activities commenced on May 15, 2007. As of            December 31, 2007 the aggregate amount of $4,927,250 has been lent, offset by short            term notes paid in the amount of $614,039. Notes range in size from $50,000 to            $1,020,000 were concluded at stated interest rates of 13% to 16%, but often at higher            effective rates based upon points or other up-front fees. The Company uses its own            employees, outside lawyers and other independent professionals to verify titles and            ownership, to file liens and to consummate the transactions. Outside appraisers are            also employed to assist the Company’s officials in evaluating the worth of            collateral. To date, the Company has not experienced any defaults and none of the loans            previously made have been non-collectable, although no assurances can be given that            existing or future loans may not go into default or prove to be non-collectible in the            future. 

***          ▪ Nextyellow.com***

          We, together            with our development partner, have developed innovative software that allows retail            businesses and other service providers to reach prospective customers and clients for            their goods and services in a more effective way than that provided by traditional            on-line and print yellow pages. We have named this innovative software solution and the            internet site on which it appears “*Nextyellow”* and have marketed it,            through our subsidiary, DAG Interactive, on a limited basis to establish “proof            of concept”. *Nextyellow* facilitates highly accurate, automated matching of            consumers’ needs to businesses’ capabilities within targeted local service            areas. We have applied for patent and service mark protection for *Nextyellow* in            the United States*.*

*          Nextyellow*            represents a paradigm shift in the yellow page business. The old-fashioned world of            “let the fingers do the walking” is going to be replaced by our new            “*let the businesses do the walking*” model. It is a complete reversal            of roles. Now, through *Nextyellow*, businesses will contact consumers in response            to their inquiries. 

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*          Nextyellow*            was developed by us and our development partner, Ocean-7 Development, Inc., a company            experienced in Internet and software development, pursuant to a web-site development            and services agreement dated December 5, 2005. The objective of *Nextyellow* is to            facilitate the accurate, instant and automated matching of consumers’ needs to            the capabilities of businesses’ serving their local area. To utilize this            application, a customer will visit our website and describe the need that the customer            has for goods or services. Upon completing this description, our application will            characterize the consumers’ requests by geographic location as well as by a DAG            Interactive-developed category index which locates businesses or vendors which provide            the sought after services or goods. The software then automatically matches those            businesses or vendors with the customer’s request. Upon completing the match, an            automated message will be sent from our system to those matching businesses or vendors            who are then responsible for following up on the lead and contacting the customer. In            simple terms, businesses, service providers and retailers can register and receive            leads for prospective customers in their geographic coverage area and categories for a            monthly fee and generate business in response to inquiries submitted by customers who            visit our website. 

          With            *Nextyellow*, businesses will pay a low monthly fee for each zip code/category            combination in which they wish to market their goods or services. In return they            receive qualified leads specific to their locality. Consumers, for whom the use of the            website is free of charge, enjoy a friendly application that shortens the process of            locating, selecting and contacting a business, which then provides an instant match            between their needs and businesses’ capabilities. 

          Our roll-out            and full scale marketing of *Nextyellow* awaits new funding for this operation,            preferably at the subsidiary level, or our reaching agreement with a marketing            partner. 

***          ▪ Discontinued            and Divested Operations***

          In July 2007            we discontinued our e-commerce operations conducted through our subsidiary, Shopila,            since it was struggling financially and facing insufficient operating cash flow. In            December 2007 Shopila was dissolved. During the second quarter of 2007, the Company            wrote-off its goodwill and other intangible assets relating to the acquisition of            Shopila. 

          Accordingly,            the Company has reflected Shopila’s operations as a discontinued operation in the            accompanying financial statements. As a result, sales, cost of goods sold, and related            expenses have been reclassified in the statement of operations and are shown separately            as a net amount under the caption income (loss) from discontinued operations for all            periods presented. Accordingly, the Company recorded a loss of discontinued operations            of $260,240 and $55,239 for the years ended December 31, 2007 and 2006, respectively.            The loss from discontinued operations for the year ended December 31, 2007 includes            income from minority interest in the amount of $66,724 and the write-off of liabilities            in the amount of $114,664 which Shopila does not have the financial ability to pay. Net            sales from the discontinued operations of Shopila were $71,001 and $222,307, for the            years ended December 31, 2007 and 2006, respectively. The write-off of goodwill and            other intangible assets had previously been recognized as an impairment loss in            connection with the filing of the Company’s Form 10QSB for the six month period            ended June 30, 2007. In addition, a previously recorded deferred tax liability related            to other intangible assets in the amount of $67,600, previously recorded as an income            tax benefit in the six month period ended June 30, 2007, has been reclassified in            connection with the discontinued operations. 

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          Shopila had            been an e-commerce company that bought products from wholesale suppliers and sold them            to online shoppers. On October 11, 2006, we had purchased 80% of the issued and            outstanding common shares of Shopila for approximately $318,000, consisting of $100,000            in cash; the issuance of 50,000 restricted shares of our common stock and an option to            purchase an additional 50,000 shares of our common stock at an exercise price equal to            the fair market value at date of grant and the assumption of certain            liabilities. 

          Until April            20, 2006, our principal business was the publication of bilingual, English, and Hebrew            yellow page directories distributed free through local commercial and retail            establishments in the New York metropolitan area, New Jersey and Florida including a            yellow page directory designed to meet the special needs of the Hasidic and            ultra-Orthodox Jewish communities. On April 20, 2006, we sold our two remaining yellow            page directories to DAG-Jewish Directories, Inc., a buying entity that was established            by a group of sales agency owners and a few of our employees for (i) $291,667 paid in            cash at closing; (ii) a promissory note in the amount of $613,333 payable in 24            consecutive monthly installments of $25,556 each bearing interest, at 5% per annum; and            (iii) the Buyer’s assumption of liabilities relating to the Jewish directories            business in the amount of $3,197,000. 

          We have            reflected our former directories businesses as discontinued operations in the            accompanying financial statements for all periods presented. As a result, sales, cost            of goods sold, and related expenses have been reclassified in the statement of            operations and are shown separately as a net amount under the caption income (loss)            from discontinued operations for all periods presented. Accordingly, we recorded a net            loss from discontinued operations of the Jewish Directories totaling $75,129 for the            year ended December 31, 2006. Net revenue from the discontinued operations was            $1,370,242, for the year ended December 31, 2006. 

**Growth strategy**

          The            immediate focus of our expansion plans is to increase the volume of our short-term,            secured commercial loans to small businesses. As we gain experience in these operations            we believe we will be able to do so. If we develop a successful track record in our            lending operations, we will seek a warehouse line of credit from a commercial bank            which, if obtained, will enable us to maintain higher outstanding loan balances to our            customers. 

          We will also            continue to seek funding, preferably on the subsidiary level, or a marketing partner,            to rollout and commercially develop our innovative and proprietary *Nextyellow*            technology and related web site for accurate, instant and automated matching of            consumers’ needs to the capabilities of businesses’ serving their local            areas. 

**Sales and Marketing**

          DAG Funding            offers its loans primarily through the Company’s officers and independent loan            brokers. Leads have been generated through a limited amount of newspaper advertising            and direct mail. A principal source of new transactions has been repeat business from            prior customers and their referral of new business. 

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*          Nextyellow*,            offers a low cost monthly subscription to businesses that want to participate in its            matching process and receive qualified leads specific to their locality. Fees are based            on the number of zip code/category combinations covered by the subscription. 

**Government regulation**

          We are            subject to laws and regulations relating to business corporations generally, such as            the Occupational Safety and Health Act, Fair Employment Practices and minimum wage            standards. In addition, we are subject to laws and regulations imposing various            requirements and restrictions, which among other things establish maximum interest            rates, finance charges and charges we can impose for credit and our right to repossess            and sell collateral. We believe that we are in compliance with all laws and regulations            affecting our business and we do not have any material liabilities under these laws and            regulations. In addition, compliance with all of these laws and regulations does not            have a material adverse effect on our capital expenditures, earnings, or competitive            position. 

**Competition**

          As a            commercial lender, we face intense competition in our business from numerous bank and            non-bank providers of commercial loans. Our competitors include bank and institutional            commercial lenders in the mortgage lending businesses, such as lending institutions and            non-depository institutions that are able to offer the same products and services. Some            of these companies are substantially larger and have more resources than we do. In            addition, such larger competitors may have a larger customer base, operational            efficiencies and more versatile technology platforms than we do. Competitors will            continue to increase pressures on both us and other companies in our industry. Industry            Competitors have continuously solicited our customers with varied loan programs and            interest rate strategies. Management believes the competition has put, and will            continue to put pressure on our pricing. 

          Our            subsidiary, DAG Interactive, was formed to launch an innovative web site            NextYellow.com, for matching consumers needs with businesses capabilities. We believe            that our extensive and comprehensive knowledge and experience in the yellow pages            advertising market and referral service will facilitate the success of our new business            initiative. Currently, we are not aware of any direct competitors in the marketplace            and we believe that we have identified a novel business opportunity that will allow us            to compete with any future rivals. Our technology is currently pending patent            approval. 

          New            technologies and the expansion of existing technologies may also increase competitive            pressures on us. Some of our competitors may devote substantially greater resources to            their websites and systems development than we do. 

          We            believe that we are able to compete effectively in our current markets. There can be no            assurance, however, that our ability to market products and services successfully or to            obtain adequate returns on our products and services will not be impacted by the nature            of the competition that now exists or may later develop. 

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**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 some of our trademarks and service marks in the United            States Patent and Trademark Office (USPTO) including the following marks relating to            our current business: 

                      Nextyellow 

          Let the            business do the walking 

          Where the            business does the walking 

          Where the            business calls you 

and some of our trade names in 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. These claims, if meritorious, could            require us to license other rights or subject us to damages and, even if not            meritorious, could result in the expenditure of significant financial and managerial            resources on our part. 

          On December            31, 2005, DAG Interactive, our subsidiary, filed a patent application with the USPTO to            secure rights to its software, which matches vendors with consumers using various            networked medias. We cannot anticipate the length or the result of the patent            application process and we cannot assure that a patent will be issued. 

**Employees**

           As of            December 31, 2007, we employed a total of 3 people, including full-time and            executive employees. All of them are filling executive, managerial and administrative            positions in the accounting departments. We believe that our relationships with our            employees and contractors are good. None of our employees are represented by a labor            union. 

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**Item 1A. CERTAIN RISK FACTORS            THAT MAY AFFECT GROWTH AND            PROFITABILITY**

          The            following factors may affect our growth and profitability and should be considered by            any prospective investors. 

***     Risks Related to            our Business***

**We have generated minimal revenues from our            current operations and incur losses.**

          We have            generated minimal revenues since we commenced our new lending operations. We may            continue to incur losses for the next few years because marketing and administrative            activities might exceed our revenues during that period. 

**If we are unable to provide a level of customer            service that is viewed by our customers as exceptional, we could lose existing            customers or fail to attract new customers.**

          Our ability            to provide a level of customer service that, our customers view as exceptional depends,            to a large degree, on the efficient and uninterrupted operation of our customer service            operations. Any material disruption or slowdown in our order processing systems            resulting from, for example, inadequacies in our present system capacity, labor            disputes, telephone or Internet failures, power or service outages or natural            disasters, could make it difficult or impossible, at least temporarily, to provide that            level of customer service and support. Further, we may be unable to attract and retain            adequate numbers of competent customer service representatives, who are essential in            creating positive interactive customer experiences that frequently translate into            favorable merchant ratings, an important measurement of our reputation. If we are            unable to maintain the quality of our customer service operations, we could lose            customers and experience decreased revenues. 

**We may be liable for misappropriation of our            customers’ personal information and the integrity of our network may be            compromised.**

          If we give            third parties improper access to, or if third parties are able to penetrate our network            security or otherwise misappropriate our customers’ personal information or            credit card information, we could be subject to liability. This liability could include            claims for unauthorized purchases with credit card information, impersonation or other            similar fraud claims. This liability could also include claims for other misuses of            personal information, including unauthorized marketing purposes. Any loss of            information or the delivery of inaccurate information due to human error,            miscommunication or otherwise, or a breach or failure of our security mechanisms that            leads to unauthorized disclosure of sensitive information, could lead to customer            dissatisfaction and possible claims against us for damages. We could incur additional            expenses if new regulations regarding the use of personal information are introduced or            if government agencies investigate our privacy practices and identify deficiencies in            such practices. 

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**Existing or future government regulation impacting            the use of the Internet could decrease our revenues and increase our            costs.**

          Because of            the Internet’s popularity and increasing use, new laws and regulations with            respect to the Internet are becoming more prevalent. These laws and regulations have            covered, or may in the future cover, issues such as: 

|   |   |                                                                         |
|--------|--------|------------------------------------------------------------------------------|
|   | • | user privacy;                                                                |
|   |   |                                                                         |
|   | • | pricing;                                                                     |
|   |   |                                                                         |
|   | • | intellectual property;                                                       |
|   |   |                                                                         |
|   | • | federal, state and local                        taxation;                    |
|   |   |                                                                         |
|   | • | distribution; and                                                            |
|   |   |                                                                         |
|   | • | characteristics and quality of products                        and services. |

          Legislation            in these areas could slow the growth in the use of the Internet generally and decrease            the acceptance of the Internet as a communications and commercial medium. It may take            years to determine how existing laws such as those governing intellectual property,            unfair or deceptive trade practices, privacy, libel and taxation apply to the Internet.            Compliance with any new legislation or regulation regarding the Internet, or the            application of existing laws and regulations to the Internet, could be burdensome or            otherwise negatively affect our business. 

**We may not be able to maintain or obtain trademark            protection for our trademarks, service marks and domain names, which could impede our            efforts to build brand identity.**

          We regard            our intellectual property, particularly our trademarks, service marks and domain names,            as critical to our success. As a result, we rely on a combination of contractual            restrictions and trade secrets to protect our proprietary rights, know-how, information            and technology. Despite these precautions, it may be possible for a third party to copy            or otherwise obtain and use our intellectual property without authorization or            independently develop similar intellectual property. 

          We have            registered various trademarks relating to DAG Interactive, Inc. as well as filed a            patent application with the USPTO for DAG Interactive. 

**Our facilities and systems are located in or near            New York City, an area that has been and may again be the target of terrorist acts or            other catastrophic events.**

          Our            headquarters, customer service center and the majority of our computer infrastructure,            including computer servers, are located in or near New York City, an area that has been            and may again be the target of terrorist acts or other catastrophic events. A terrorist            attack or other catastrophic event could cause interruptions or delays in our business            and loss of data or render us unable to accept and fulfill customer orders in a timely            manner, or at all. Our systems are not fully redundant, and we do not have backup            operating facilities. We currently have no formal disaster recovery plan or physical            space to relocate in an emergency and our business interruption insurance may not            adequately compensate us for losses that may occur. 

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**We face intense competition in our            market**

          We operate            in a highly competitive environment, and we expect competitive conditions to continue            to intensify as merger activity in the financial services industry continues to produce            larger, better capitalized and more geographically diverse companies that are capable            of offering a wider array of financial products and services at better prices. In such            a competitive environment, we may lose entire accounts, or may lose account balances,            to competing financial institutions, or find it more costly to maintain our existing            customer base. Customer attrition from any or all of our lending products, together            with any lowering of interest rates or fees that we might implement to retain            customers, could reduce our revenues and therefore our earnings. We expect that            competition will continue to grow more intensely with respect to our products. Some of            our competitors may be substantially larger than we are, which may give those            competitors advantages, including a more diversified product and customer base, the            ability to reach out to more customers and potential customers, operational            efficiencies, lower-cost funding, and larger existing branch networks. These            competitors may also consolidate with other financial institutions in ways that enhance            these advantages and intensify our competitive environment. 

**We may experience increased delinquencies and            credit losses**

          Like other            lenders, we face the risk that our customers will not repay their loans. Rising losses            or leading indicators of rising losses (higher delinquencies, non-performing loans, or            bankruptcy rates; lower collateral values) may require us to increase our allowance for            loan losses and may degrade our profitability if we are unable to raise revenue or            reduce costs to compensate for higher losses. The favorable credit environment we have            experienced may not continue. In particular, we face the following risks in this            area: 

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | **Missed Payments.** We face the risk                        that customers will miss payments. Loan charge-offs are generally preceded                        by missed payments or other indications of worsening financial condition.                        Our reported delinquency levels measure these trends. Customers may be more                        likely to miss payments in the event of an economic downturn. In addition,                        we face the risk that consumer and commercial customer behavior may change,                        causing a long-term rise in delinquencies and charge-offs;                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | • | **Collateral.** We face the risk that                        collateral, when we have it, will be insufficient to compensate us for loan                        losses. When customers default on their loans and we have collateral, we                        attempt to seize it. However, the value of the collateral may not be                        sufficient to compensate us for the amount of the unpaid loan and we may be                        unsuccessful in recovering the remaining balance from our customers.                        Particularly with respect to our commercial lending and mortgage                        activities, decreases in real estate values could adversely affect the                        value of property used as collateral for our loans and investments. Thus,                        the recovery of such property could be insufficient to compensate us for                        the value of these loans; |

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | **Estimates of future losses.** We                        face the risk that we may underestimate our future losses and fail to hold                        a loan loss allowance sufficient to account for these losses. Incorrect                        assumptions could lead to material underestimates of future losses and                        inadequate allowance for loan losses. In addition, our estimate of future                        losses impacts the amount of reserves we build to account for those losses.                        The build or release of reserves impacts our current financial                        results; |

**We face risk from economic            downturns**

          Delinquencies            and credit losses in the consumer finance industry generally increase during economic            downturns or recessions. Likewise, consumer demand may decline during an economic            downturn or recession. In the United States, we face the risk that the effects of            higher interest rates, higher energy costs and pressure on housing prices may place            added strain on consumers’ ability to make purchases and repay their loans.            Accordingly, an economic downturn in the United States (either local or national), can            hurt our financial performance as accountholders default on their loans. Furthermore,            because our business model is to lend across the credit spectrum, we make loans to            lower credit quality customers. These customers generally have higher rates of            charge-offs and delinquencies than do higher credit quality customers. 

Finally, the credit environment in certain geographic            areas may continue to worsen, which also could hurt our financial performance. Although            we are geographically diversified, we have concentrations of our commercial loans in            the New York metropolitan area. The regional economic conditions in these areas affect            the demand for our products and services as well as the ability of our customers to            repay loans and the value of the collateral securing these loans. A significant decline            in the general economic conditions in these regional economies could have a material            adverse effect on our financial condition and results of operations. 

**We Face Risk Related to the Strength and Growth of            our Operations**  

Our ability to grow and compete is dependent on our            ability to leverage and to manage the cost of that infrastructure while we expand our            business. 

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**Reputational Risk and Social Factors May Impact            our Results**   

Our ability to originate and maintain accounts is highly            dependent upon the perceptions of commercial borrowers and other external perceptions            of our business. Adverse perceptions regarding our reputation in the consumer,            commercial and funding markets could lead to difficulties in generating and maintaining            accounts as well as in financing them. Particularly, negative perceptions regarding our            reputation could lead to decreases in the levels of deposits that commercial customers            and potential customers choose to maintain with us. In addition, adverse developments            or perceptions regarding the practices of our competitors, may also negatively impact            our reputation. Finally, negative perceptions regarding the reputations of third            parties with whom we have important relationships, such as our independent auditors,            also may adversely impact our reputation. 

**We May Face Limited Availability of Financing,            Variation in Our Funding Costs and Uncertainty in Our Securitization Financing**              

In general, the amount, type and cost of our funding,            including financing from other financial institutions, the capital markets and            deposits, directly impact our expenses in operating our business and growing our assets            and therefore, can positively or negatively affect our financial results. 

A number of factors could make such financing more            difficult, more expensive or unavailable on any terms both domestically and            internationally (where funding transactions may be on terms more or less favorable than            in the United States), including, but not limited to, financial results and losses,            specific events that adversely impact our reputation, disruptions in the capital            markets, specific events that adversely impact the financial services industry,            counter-party availability, interest rate fluctuations, rating agencies’ actions,            and the general state of the U.S. and world economies. Also, because we depend on the            capital markets for funding and capital, we could experience reduced availability and            increased cost of funding if our debt ratings were lowered. Also, we compete for            funding with other banks, savings banks and similar companies, some of which are            publicly traded. Many of these institutions are substantially larger, may have more            capital and other resources and may have better debt ratings than we do. In addition,            as some of these competitors consolidate with other financial institutions, these            advantages may increase. Competition from these institutions may increase our cost of            funds. 

**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. Mr. Ran supervises all aspects of our business, including our sales force and            production staff. Mr. Ran has the personal relationships with the principals of            our key service provider. If Mr. Ran’s employment terminates, our            relationships with our key suppliers and vendors may be jeopardized. Mr. Ran has            entered into an employment agreement that is subject to automatic one-year renewals on            June 30th of every year, unless either party gives a termination notice at            least 180 days prior to this date. In addition, we have purchased a $500,000 key man            life insurance policy on Mr. Ran. 

13 

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**We cannot predict the future costs of Sarbanes            Oxley section 404 implementation.**

**The operation of our new application,            NextYellow.com, depends on the skills of Ocean-7.**

          The            technology of the new application of NextYellow.com depends on the skills of Ocean-7.            We do not have a backup plan in the event Ocean-7 does not fulfill its            obligations. 

*     **Risks Related to            Our Common Stock***

**Our management and****other affiliates have            significant control of our common stock and could significantly influence our actions            in a manner that conflicts with our interests and the interests of other            shareholders.**

          As of            December 31, 2007, our executive officers, directors and affiliated entities together            beneficially own approximately 58.65% of the outstanding shares of our common stock,            assuming the exercise of options which are currently exercisable or will become            exercisable within 60 days of December 31, 2007, held by these shareholders. As a            result, these shareholders, acting together, will be able to exercise significant            influence over matters requiring approval by our shareholders, including the election            of directors. Such a concentration of ownership may have the effect of delaying or            preventing a change in control of us, including transactions in which our shareholders            might otherwise receive a premium for their shares over then current market            prices. 

**     Our shareholders may            experience substantial dilution as a result of the exercise of outstanding options and            warrants to purchase our common stock.**

          As of            December 31, 2007, we had outstanding options for 610,000 shares, with exercise prices            range from $1.77 to $4.47 per share. The exercise of these options could result in            dilution to our existing shareholders and could have a material adverse effect on our            stock price. 

**A significant portion of our total outstanding            shares of common stock may be sold in the market in the near future, which could cause            the market price of our common stock to drop significantly.**

**Our common stock has a limited trading market,            which could limit your ability to resell your shares of common stock at or above your            purchase price.**

          Our common            stock is quoted on the Nasdaq Capital Market and currently has a limited trading            market. We cannot assure you that an active trading market will develop or, if            developed, will be maintained. As a result, our shareholders may find it difficult to            dispose of shares of our common stock and, as a result, may suffer a loss of all or a            substantial portion of their investment. 

14 

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**Item 2. Description of            Property**

          Our            executive and principal operating office is located in New York, New York. We use this            space for all of our operations. This space is occupied under a lease that expires June            30, 2011. The current monthly rent is $5,389 including electricity. We believe this            facility is adequate to meet our requirements at our current level of business            activity. 

**Item 3. Legal            Proceedings**

**          ** In            January 2001, Flexible Business Systems, Inc. (“Flexible”) commenced an            action against us and Dapey Assaf, Ltd., in the Supreme Court of the State of New York,            County of Suffolk for breach of contract, seeking compensation for unpaid invoices            pursuant to a written agreement for computer software. We defended the complaint            claiming that there was no valid contract between the parties, as the software program            did not comport to our needs. Following a trial, on January 26, 2006, we received a            Notice of Entry, finding in favor of Flexible and awarding them the sum of $38,553 plus            interest from January 19, 2001. In April 2006, the plaintiff levied our bank account            for the sum of $58,926, which was ultimately drawn from our bank account in            satisfaction of the judgment. We filed an appeal and the appeal was argued in January            2007 and we await the court’s decision. This amount is to be paid to us by the            purchasers and therefore is showing on the balance sheet as due from purchasers at            December 31, 2007 and 2006. 

          In 2004,            Neopost Leasing, Inc. commenced a collection action against Black Book Photography,            Inc., also referred to herein as Black Book, one of our former subsidiaries, in the            Civil Court of the State of New York, County of Queens, to recover $15,987 on an            equipment lease for a certain postage meter or similar equipment sold to Brandera.com            (USA) Inc., which in turn sold certain assents to BBP. The equipment was apparently in            the office in Manhattan when BBP purchased the assets of the business from Brandera.com            (USA) Inc. on August 2, 2002. The agreement governing that purchase provided, inter            alia, that BBP would take title to any equipment and would assume “any            contracts”. In connection with the later sale of DAG’s interest in BBP to            Modern Holdings, Inc. it appears that DAG agreed to indemnify Modern as to this claim,            and it remains a contingent liability of DAG’s accordingly. . In light of the            terms of the contract between Brandera.com (USA) Inc., there may be full liability on            this claim. We have opposed the motion. We made a provision in the amount of $15,987 as            of December 31, 2006, included in accounts payable and accrued expenses as of December            31, 2007. The motion for summary judgment was withdrawn by the plaintiff and thus there            was no decision on the motion. We expect that plaintiff will, at some point, place the            case on the trial calendar. 

**Item 4. Submission of Matters            to a Vote of Security Holders**

          Not            applicable. 

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**PART II**

**Item 5. Market for Common Equity,            Related Stockholder Matters and Small Business Issuer Purchases of Equity            Securities**

|   |   |               |
|--------|--------|--------------------|
|   | (a)    | Market Information |

          Our Common            Stock is traded on The NASDAQ SmallCap Market under the symbol            “DAGM”. 

          The            following table sets forth the high and low bid prices as quoted by The NASDAQ SmallCap            Market in the years 2007 and 2006. Such quotations reflect inter-dealer prices, without            retail mark-up, markdown or commission and may not necessarily represent actual            transactions. 

|           |   |      |   |   |   |   |   |
|----------------|--------|-----------|--------|--------|--------|--------|--------|
|           |   | Bid Price |   |
|           |   |           |   |
|           |   | High      |   | Low    |   |
|           |   |           |   |        |   |
| **2006**       |   |      |   |   |   |   |   |
| First Quarter  |   | $         | 2.35   |   | $      | 1.90   |   |
| Second Quarter |   | $         | 2.33   |   | $      | 1.70   |   |
| Third Quarter  |   | $         | 2.00   |   | $      | 1.33   |   |
| Fourth Quarter |   | $         | 2.79   |   | $      | 1.30   |   |
| **2007**       |   |      |   |   |   |   |   |
| First Quarter  |   | $         | 1.77   |   | $      | 1.43   |   |
| Second Quarter |   | $         | 1.69   |   | $      | 1.45   |   |
| Third Quarter  |   | $         | 2.44   |   | $      | 1.18   |   |
| Fourth Quarter |   | $         | 1.44   |   | $      | 0.96   |   |

|   |   |    |
|--------|--------|---------|
|   | (b)    | Holders |

          As of March            13, 2008, the approximate number of record holders of our Common Stock was 16, we            estimate that we have more than 700 beneficial owners of the common stock. 

|   |   |      |
|--------|--------|-----------|
|   | (c)    | Dividends |

           In 2006 we            didn’t declare any dividend. 

           In 2007, we            did not declare a dividend. At this point, we have no plans to pay additional            dividends. 

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**Item 6. Management’s            Discussion****and Analysis or Plan of Operations**

*          The            following management’s discussion and analysis of financial condition and results            of operations should be read in conjunction with our audited 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.*

**Overview**

          The Company,            through its subsidiary DAG Funding, offers short-term secured commercial loans to small            businesses. Notes are secured by collateral such as real estate, receivables, and            marketable securities and, generally, accompanied by personal guarantees from the            principals of the businesses. Lending activities commenced on May 15, 2007, generally            for a term of one year. Most of the notes provide for receipt of interest only during            the term of the note and a balloon payment at the end of the term. As of December 31,            2007 the aggregate amount of $4,927,250 has been lent, offset by short term commercial            notes collected in the amount of $614,039. Notes ranging in size from $50,000 to            $1,020,000 were concluded at stated interest rates of 13% to 16%, but often at higher            effective rates based upon points or other up-front fees. The Company uses its own            employees, outside lawyers and other independent professionals to verify titles and            ownership, to file liens and to consummate the transactions. Outside appraisers are            also employed to assist the Company’s officials in evaluating the worth of            collateral. To date, the Company has not experienced any defaults and none of the loans            previously made have been non-collectable, although no assurances can be given that            existing or future loans may not go into default or prove to be non-collectible in the            future. 

          We, together            with our development partner, have developed innovative software that allows retail            businesses and other service providers to reach prospective customers and clients for            their goods and services in a more effective way than that provided by traditional            on-line and print yellow pages. We have named this innovative software solution and the            internet site on which it appears “*Nextyellow”* and have marketedit,            through our subsidiary, DAG Interactive,on a limited basis to establish “proof of            concept”. *Nextyellow* facilitates highly accurate, automated matching of            consumers’ needs to businesses’ capabilities within targeted local service            areas. We have applied for patent and service mark protection for *Nextyellow* in            the United States. 

*          Nextyellow*            represents a paradigm shift in the yellow page business. The old-fashioned world of            “let your fingers do the walking” is going to be replaced by our new            “*let the businesses do the walking*” model. It is a complete reversal            of roles. Now, through *Nextyellow*, businesses will contact consumers in response            to their inquiries. 

*          Nextyellow*            was developed by us and our development partner, Ocean-7 Development, Inc., a company            experienced in Internet and software development, pursuant to a web-site development            and services agreement dated December 5, 2005. The objective of *Nextyellow* is to            facilitate the accurate, instant and automated matching of consumers’ needs to            the capabilities of businesses serving their local area. To utilize this application, a            customer will visit our website and describe the need that the customer has for goods            or services. Upon completing this description, our application will characterize the            consumers’ requests by geographic location as well as by a DAG            Interactive-developed category index which locates businesses or vendors which provide            the sought after services or goods. The software then automatically matches those            businesses or vendors with the customer’s request. Upon completing the match, an            automated message will be sent from our system to those matching businesses or vendors            who are then responsible for following up on the lead and contacting the customer. In            simple terms, businesses, service providers and retailers can register and receive            leads for prospective customers in their geographic coverage area and categories for a            monthly fee and generate business in response to inquiries submitted by customers who            visit our website. 

17 

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          With            *Nextyellow*, businesses will pay a low monthly fee for each zip code/category            combination in which they wish to market their goods or services. In return they            receive qualified leads specific to their locality. Consumers, for whom the use of the            website is free of charge, enjoy a friendly application that shortens the process of            locating, selecting and contacting a business, which then provides an instant match            between their needs and businesses’ capabilities. 

          Our roll-out            and full scale marketing of *Nextyellow* awaits new funding for this operation,            preferably at the subsidiary level, or our reaching agreement with a marketing            partner. 

          In July 2007            we discontinued our e-commerce operations conducted through our subsidiary, Shopila,            since it was struggling financially and facing insufficient operating cash flow. In            December 2007 Shopila was dissolved. Shopila had been an e-commerce company that bought            products from wholesale suppliers and sold them to online shoppers. On October 11,            2006, we had purchased 80% of the issued and outstanding common shares of Shopila for            approximately $318,000, consisting of $100,000 in cash; the issuance of 50,000            restricted shares of our common stock and an option to purchase an additional 50,000            shares of our common stock at an exercise price equal to the fair market value at date            of grant and the assumption of certain liabilities. During the second quarter of 2007,            the Company wrote-off its goodwill and other intangible assets relating to the            acquisition of Shopila. 

          Until April            20, 2006, our principal business was the publication of bilingual, English, and Hebrew            yellow page directories distributed free through local commercial and retail            establishments in the New York metropolitan area, New Jersey and Florida including a            yellow page directory designed to meet the special needs of the Hasidic and            ultra-Orthodox Jewish communities. On April 20, 2006,we sold our two remaining yellow            page directories to DAG-Jewish Directories, Inc., a buying entity that was established            by a group of sales agency owners and a few of our employees for (i) $291,667 paid in            cash at closing; (ii) a promissory note in the amount of $613,333 payable in 24            consecutive monthly installments of $25,556 each bearing interest, at 5% per annum; and            (iii) the Buyer’s assumption of liabilities relating to the Jewish directories            business in the amount of $3,197,000. 

          We have            reflected Shopila’s operations and those of our former directories businesses as            discontinued operations in the accompanying financial statements for all periods            presented. As a result, sales, cost of goods sold, and related expenses have been            reclassified in the statement of operations and are shown separately as a net amount            under the caption income (loss) from discontinued operations for all periods            presented. 

18 

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**Critical Accounting Policies and Use of****Estimates**

          The            preparation of the consolidated 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. 

          The Company            applies the provisions of the Securities and Exchange Commission (“SEC”)            Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition in Financial            Statements, which provides guidance on the recognition, presentation and disclosure of            revenue in financial statements filed with the SEC. SAB No. 104 outlines the basic            criteria that must be met to recognize revenue and provides guidance for disclosure            related to revenue recognition policies. In general, the Company recognizes revenue            when (i) persuasive evidence of an exchange arrangement exists, (ii) delivery of the            product has occurred, (iii) the sales price charged is fixed or determinable, and (iv)            collectability is reasonably assured. 

          Interest            income from short term notes are recognized, as earned, over the note            period. 

          Origination            fee revenue on short term commercial notes is amortized over the term of the respected            note. 

          The Company            continually monitors events and changes in circumstances that could indicate that the            carrying amounts of long lived assets, including intangible assets and goodwill, may            not be recoverable. When such events or changes in circumstances occur, the Company            assesses the recoverability of long-lived assets by determining whether the carrying            value of such assets will be recovered through undiscounted expected future cash flows.            If the total of the undiscounted cash flows is less than the carrying amount of these            assets, the Company recognizes an impairment loss based on the excess of the carring            amount over the fair value of the assets. During the year ended December 31, 2007, the            Company wrote-off its goodwill and other intangible assets related to the acquisition            of Shopila. 

          There are            also areas in which management’s judgment in selecting any available alternative            would not produce a materially different result. *See our audited consolidated            financial statements and notes thereto which begin on page F-1 of this Annual Report on            Form 10-KSB, which contain accounting policies and other disclosures required by            generally accepted accounting principles in the United States of            America.*

19 

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**Results of operations**

**          Years            ended December 31, 2007 and 2006**

*          Total            revenue*

          Total            revenue for the year ended December 31, 2007 were $221,000 compared to $10,000 for the            year ended December 31, 2006. Revenue of $210,000 represents interest income on the            short term notes made through DAG Funding, since the formation of DAG Funding (on May            15, 2007). DAG Funding, offers short-term secured commercial loans to small businesses.            Loans are secured by collateral such as real estate, receivables, and marketable            securities and generally are accompanied by personal guarantees from the principals of            the businesses. Subscription revenues of $4,000 were attributable to *Nextyellow*            operations. Our roll-out and full scale marketing of *Nextyellow* awaits new            funding for this operation, preferably at the subsidiary level, or our reaching            agreement with a marketing partner. 

*          Web            Development costs*

          Web            development costs for the years ended December 31, 2007 were $49,000 compared to            $138,000 for the same period in 2006. In 2007 these costs are attributable to the            amortization of nextyellow.com web development expenses while, in 2006 these costs were            attributable to nextyellow.com web development expenses which includes issuance of            shares and options and the amortization of nextyellow.com web development            expenses. 

*          Marketing            Expenses*

          Marketing            expenses for the year ended December 31, 2007 were $9,000 and marketing expense for the            year ended December 31, 2006 were $88,000. This decrease is primarily attributable to            our decision to await new funding for the Next Yellow operations, preferably at the            subsidiary level, or our reaching agreement with a marketing partner. 

*          General            and administrative costs*

          General and            administrative expenses for the year ended December 31, 2007 were $757,000 compared to            $825,000 for the year ended December 31, 2006, a decrease of $68,000 or 8.3%. This            decrease in general and administrative expenses is primarily attributable to a decrease            in share based compensation expenses of approximately $38,000, due to fewer of options            granted in 2007 and decline in the share price, decrease in payroll expenses of            approximately $31,000, mainly due to the decrease in our president-Assaf Ran’s            salary, decrease in professional fees of approximately $22,000, due to decrease in            legal expenses and accounting expenses, and a decrease in public relations expenses of            approximately $20,000, mainly due to fewer filings made by the Company in 2007, offset            by an increase in rental expenses of approximately $17,000, due to the new lease            agreement in July, 2006, and an increase in hosting and maintenance expenses of the            nextyellow.com website of approximately $17,000, which started operation in June of            2006. We expect general and administrative expenses to increase as a result of ongoing            expenses related to reporting obligations and compliance, such as those mandated by the            Sarbanes-Oxley Act. 

20 

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*          Other            income*

          For the year            ended December 31, 2007 we had other income of $372,000 consisting mainly of dividends,            interest and realized gains, compared to other income of $229,000 for the year ended            December 31, 2006. The increase in other income is primarily attributable to realized            gains on marketable securities in 2007 in the amount of $149,000 compare to realized            losses on marketable securities in 2006 in the amount of $46,000. The realized gains in            2007 were primarily the result of the redemption of $215,000 of the insurance annuity            contract resulting in a gain of $143,000. 

*          Loss from            continuing operations before income tax benefit*

          Loss from            continuing operations before income tax benefit for the year ended December 31, 2007            was $221,000 compared to a loss of $812,000 for the year ended December 31, 2006. The            decrease in loss of $591,000 or 72.8% resulted mainly from interest income from short            term notes generated through DAG Funding and the other factors noted above. 

*          Income            tax benefit*

          During the            year ended December 31, 2007, management determined to amend its previously filed            federal, state and local income tax returns for the years 2003, 2004 and 2005. In            addition the Company recorded an income tax benefit of approximately $183,000 in its            statement of operations during the fourth quarter of 2007 to reflect a change in            estimate resulting from changes in prior years’ tax positions. 

*          Discontinued            Operations*

          In July of            2007 the Company decided to discontinue Shopila’s operations since Shopila was            struggling financially and facing insufficient operating cash flow. Consequently,            Shopila can not repay its liabilities, including a promissory note and a line of            credit, and thus the Company wrote-off Shopila’s liabilities. 

          During the            second quarter of 2007, the Company wrote-off its goodwill and other intangible assets            relating to the acquisition of Shopila. 

          Accordingly,            the Company has reflected Shopila’s operations as a discontinued operation in the            accompanying financial statements. As a result, sales, cost of goods sold, and related            expenses have been reclassified in the statement of operations and are shown separately            as a net amount under the caption income (loss) from discontinued operations for all            periods presented. Accordingly, the Company recorded a loss of discontinued operations            of $260,240 and $55,239 for the years ended December 31, 2007 and 2006, respectively.            The loss from discontinued operations for the year ended December 31, 2007 includes            income from minority interest in the amount of $66,724 and the write-off of liabilities            in the amount of $114,664 which Shopila does not have the financial ability to pay. Net            sales from the discontinued operations of Shopila were $71,001 and $222,307, for the            years ended December 31, 2007 and 2006, respectively. The write-off of goodwill and            other intangible assets had previously been recognized as an impairment loss in            connection with the filing of the Company’s Form 10QSB for the six month period            ended June 30, 2007. In addition, a previously recorded deferred tax liability related            to other intangible assets in the amount of $67,600, previously recorded as an income            tax benefit in the six month period ended June 30, 2007, has been reclassified in            connection with the discontinued operations. 

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          The Company            on October 11, 2006, had purchased 80% of the issued and outstanding common shares of            Shopila for approximately $318,000, consisting of $100,000 in cash; the issuance of            50,000 restricted shares of the Company’s common stock and an option to purchase            an additional 50,000 shares of common stock at an exercise price equal to the fair            market value at date of grant and the assumption of certain liabilities. 

          Until April            20, 2006, our principal business was the publication of bilingual, English, and Hebrew            yellow page directories distributed free through local commercial and retail            establishments in the New York metropolitan area, New Jersey and Florida including a            yellow page directory designed to meet the special needs of the Hasidic and            ultra-Orthodox Jewish communities. On April 20, 2006, we sold our two remaining yellow            page directories to DAG-Jewish Directories, Inc., a buying entity that was established            by a group of sales agency owners and a few of our employees for (i) $291,667 paid in            cash at closing; (ii) a promissory note in the amount of $613,333 payable in 24            consecutive monthly installments of $25,556 each bearing interest, at 5% per annum; and            (iii) the Buyer’s assumption of liabilities relating to the Jewish directories            business in the amount of $3,197,000. 

          The Company            has reflected its directories businesses as discontinued operations in the accompanying            financial statements for all periods presented. As a result, sales, cost of goods sold,            and related expenses have been reclassified in the statement of operations and are            shown separately as a net amount under the caption income (loss) from discontinued            operations for all periods presented. Accordingly, we recorded a net loss from            discontinued operations of the Jewish Directories totaling $75,129 for the year ended            December 31, 2006. Net revenue from the discontinued operations was $1,370,242, for the            year ended December 31, 2006 

          We also            recorded a gain on the sale of the Jewish Directories in the amount of $267,360 for the            year ended December 31, 2007, which represents installment payments from the sale of            the directories, compared to a gain on the sale of the Jewish directories business            amounting to $767,939 for the year ended December 31, 2006, which includes net            liabilities assumed and payments received, net of professional fees. 

          The gain            from the sale of the Jewish directories business, on April 20, 2006, was calculated as            follows: 

|                                                            |   |                      |    |   |
|-----------------------------------------------------------------|--------|---------------------------|---------|--------|
|                                                            |   | **Gain from the Sale of** |    |
|                                                            |   | **Jewish Directories.**   |    |
|                                                            |   |                           |    |
| Cash Proceeds                                                   |   | $                         | 534,000 |   |
| Net liabilities assumed by the                        buyers    |   |                      | 396,000 |   |
|                                                            |   |                           |         |   |
|                                                            |   |                      | 930,000 |   |
| Direct related Costs:                                           |   |                      |    |   |
| Professional fees                                               |   |                      | 162,000 |   |
|                                                            |   |                           |         |   |
| Gain from the sale of Jewish                        Directories |   |                      | 768,000 |   |
|                                                            |   |                           |         |   |

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*          Net            loss*

          For the year            ended December 31, 2007, there was a net loss of $32,000 compared to a net loss of            $174,000 for the same period in 2006. This decrease in net loss is primarily            attributable to interest income on the short term notes made through DAG Funding,            decrease in operating expenses and increase in other income, offset by a decrease in            the gain from the sale of Jewish directories business and increase in loss from            discontinued operations of Shopila. 

*          Liquidity            and Capital Resources*

          At December            31, 2007, we had cash, cash equivalents, marketable securities and short-term            investment (insurance annuity) of $2,356,000 and working capital of $6,682,000 compared            to cash and cash equivalents of $7,014,000 and working capital of $6,529,000 at            December 31, 2006. The decrease in cash and cash equivalents primarily reflects the            making of short term commercial notes in the aggregate amount of $4,927,000 by DAG            Funding, offset by proceeds of collection of these notes in the amount $614,000,            proceeds from the sale of Marketable securities in the amount of $2,814,000, and            current cash received on the sale of the Jewish directories business. The increase in            working capital is primarily attributable to decrease in short term liabilities mainly            due to payments made by the Company, offset by a decrease in the fair value of            marketable securities. 

          Net cash            used in operating activities was $486,000 for the year ended December 31, 2007 compared            to $453,000 for the year ended December 31, 2006. The increase in net cash used in            operating activities primarily results from a decrease in accounts payable and accrued            expenses including income tax payable and a decrease in non cash compensation expenses,            offset by the gain on the sale of the Jewish directories business and loss from            discontinued operations of Shopila. 

          Net cash            used in investing activities was $2,522,000 for the year ended December 31, 2007,            compared to net cash provided by investing activities of $182,000 for the year ended            December 31, 2006. Net cash used in investing activities was primarily the result of            the making of short term commercial notes in the aggregate amount of $4,927,000 by DAG            Funding, offset by proceeds of collection of these notes in the amount $614,000, also            proceeds from sale of Marketable securities in the amount of $2,814,000 and current            cash received on the sale of the Jewish directories business in the amount of            $309,000. 

          Net cash            used in financing activities was $0 for the year ended December 31, 2007 compared to            $308,726 for the same period in 2006. Net cash used in financing activities for 2006            mainly reflects dividend payments of $314,000 in 2006. 

          Until our            initial public offering in 1999, our only source of funds was cash flow from            operations, which funded both our working capital needs and capital expenditures. As a            result of our initial public offering in May 1999, we received proceeds of            approximately $6.4 million, which has increased our ability to pay operating expenses.            We have no credit facilities. As of December 31, 2007, our funds were invested in money            markets fund, an annuity, marketable securities and short term notes. 

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          ***Contractual            Obligations***

|                        |   |   |    |                                    |   |                             |   |                             |    |                                     |   |    |   |   |    |   |
|-----------------------------|--------|--------|---------|-----------------------------------------|--------|----------------------------------|--------|----------------------------------|---------|------------------------------------------|--------|---------|--------|--------|---------|--------|
| Contractual Obligations     |   | Total  |    | Less than                        1 Year |   | 1-3                        Years |   | 3-5                        Years |    | More than                        5 years |   |
|                             |   |        |    |                                         |   |                                  |   |                                  |    |                                          |   |
| Long-Term Debt Obligations  |   | $      | – |                                    | $      | –                          |   | $                                | – |                                     | $      | – |   | $      | – |   |
| Operating Lease Obligations |   |   | 237,019 |                                    |   | 65,543                           |   |                             | 171,476 |                                     |   | – |   |   | – |   |
| Total                       |   | $      | 237,019 |                                    | $      | 65,543                           |   | $                                | 171,476 |                                     | $      | – |   | $      | – |   |

          In addition,            we have an employment agreement with Assaf Ran. The agreement called for an annual            salary of $75,000. Mr. Ran’s employment term renews automatically on July            1st of every year for successive one-year periods unless either party gives            180 days written notice of its intention to terminate the agreement. As of March 2003,            the compensation committee approved an increase in Mr. Ran’s compensation to an            annual base salary of $225,000. On March 15, 2006 the compensation committee approved            Mr. Ran’s reduction of his annual salary by 50% for one year following the            closing of the sale of the Jewish directories business. On March 22, 2007 the            compensation committee approved Mr. Ran’s reduction of his annual salary by 75%            to $56,000 for one year or until the Company has more significant operations (as            defined by the Committee), whichever is earlier. Mr. Ran’s annual compensation            was $69,000 and $148,000 during fiscal years 2007 and 2006, respectively. 

          We            anticipate that our current cash balances together with our cash flows from operations            will be sufficient to fund the operations for the next 12 months. 

**Recent Technical Accounting****Pronouncements**

          In September            2006, the Financial Accounting Standards Board (“FASB”) issued FASB            Statement No. 157, Fair Value Measurements, which defines fair value, establishes            a framework for measuring fair value under GAAP, and expands disclosures about fair            value measurements. FASB Statement No. 157 applies to other accounting            pronouncements that require or permit fair value measurements. The new guidance is            effective for financial statements issued for fiscal years beginning after            November 15, 2007, and for interim periods within those fiscal years. On            November 15, 2007, the FASB partially deferred the effective date of FAS 157            to fiscal years (and interim periods within those fiscal years) beginning after            November 15, 2008 for certain non financial assets and non financial            liabilities. We are currently evaluating the potential impact, if any, of the adoption            of FASB Statement No. 157 on our consolidated financial position, results of            operations and cash flows. 

          In September            2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.            158, “Employers’ Accounting for Defined Benefit Pension and Other            Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and            132(R)” (“SFAS No. 158”). SFAS No. 158 requires companies to report            the funded status of their defined benefit pension and other postretirement benefit            plans on their balance sheets as a net liability or asset as of December 31, 2006. The            new standard does not address the accounting treatment for pension and postretirement            benefits in the income statement. This will have no impact on the Company’s            results of operations or financial position. 

24 

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          In February            2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.159,            “The Fair Value Option for Financial Assets and Financial Liabilities –            Including an amendment of FASB Statement No.115”. SFAS No.159 permits entities to            choose to measure eligible financial instruments and other items at fair value at            specified election dates. A business entity shall report unrealized gains and losses on            items for which the fair value option has been elected in earnings at each subsequent            reporting date. The fair value option may be applied instrument by instrument but only            upon the entire instrument – not portions of the instrument. SFAS No.159 is            effective as of the beginning of an entity’s first fiscal year that begins after            November 15, 2007. The Company does not anticipate that the adoption of SFAS No. 159            will have an impact on the Company’s overall results of operations or financial            position. 

          In December            2007, the Financial Accounting Standards Board (“FASB”) simultaneously            issued SFAS No. 141R, “Business Combinations (2007 Amendment),” and SFAS            160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment            of ARB 51.” Both standards update United States guidance on accounting for            “noncontrolling interests,” sometimes referred to as minority interests,            which interests represent a portion of a subsidiary not attributable, directly or            indirectly, to a parent. FASB and the International Accounting Standards Board            (“IASB”) have been working together to promote international convergence of            accounting standards. Prior to promulgation of these new standards there were specific            areas in accounting for business acqusitions in which conversion was not achieved. The            objective of both standards is to improve the relevance, comparability, and            transparency of the financial information that a reporting entity provides in            “business combinations” and consolidated financial statements by            establishing accounting and reporting standards. In business combinations it is            accomplished by establishing principles and requirements concerning how an            “acquirer” recognizes and measures identifiable assets acquired,            liabilities assumed, and noncontrolling interest in the acquiree, as well as goodwill            acquired in the combination or gain from a bargain purchase; and determines information            to be disclosed to enable users to evaluate the nature and effects of business            combinations. In consolidated financial statements the standards require:            identification of ownership interests held in subsidiaries by parties other than the            parent be clearly identified, labeled and presented in consolidated financial position            within equity (rather than “mezzanine” between liabilities and equity)            separately from amounts attributed to the parent, with net income attributable to the            parent and to the minority interest clearly identified and presented on the face of            consolidated statements of income. The standards also provide guidance in situations            where the parent’s ownership interest in a subsidiary changes while the parent            retains its controlling financial interest. The standard also provides guidance on            recording a gain or loss based on fair value in situations involving deconsolidation of            a subsidiary. Entities must provide sufficient disclosures that distinguish between            interests of the parent and that of the noncontrolling interest. Both standards are            effective for fiscal years and interims beginning on or after December 15, 2008 (that            is January 1, 2009) for entities with calendar years. Earlier adoption is prohibited.            The standards shall be applied prospectively as of the beginning of the fiscal year in            which initially applied, except for the presentation and disclosure requirements, which            shall be applied retrospectively for all periods presented. We are evaluating the            impact these standards will have on the Company’s financial position and results            of operations. 

          Management            does not believe that any other recently issued, but not yet effected, accounting            standards if currently adopted would have a material effect on the Company’s            consolidated financial statements. 

25 

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**Item 7. Financial****Statements**

          The            consolidated financial statements of the company required by this item are set forth            beginning on page F-1. 

**Item 8. Change in and            Disagreements with Accountants on Accounting and Financial Disclosure.**

                    As            previously reported, on June 4, 2007, we dismissed Amper Politziner & Mattia, PC            (“Amper”) as our independent registered public accounting firm and engaged            Hoberman, Miller, Goldstein & Lesser, P.C. (“Hoberman”) as our new            independent registered public accounting firm. The change in independent registered            public accounting firms is not the result of any disagreement with Amper, but, rather            reflects the Company’s desire to reduce its expenses by lowering professional            fees. The report of Amper on the Consolidated financial statements as of and for the            year ended December 31, 2006 did not contain an adverse opinion or disclaimer of            opinion and was not qualified or modified as to uncertainty, audit scope or accounting            principles. During our fiscal year ended December 31, 2006, and during the period from            January 1, 2007 to June 4, 2007, there were (i) no disagreements with Amper on any            matter of accounting principles, or practices, financial statement disclosures,            auditing scope or procedures, which if not resolved to Amper’s satisfaction,            would have caused Amper to make reference to the subject matter of such disagreements            in connection with its report; and (ii) no reportable event (as described in Item 304            (a)(1)(iv)(B) of Regulation S-B), except as previously disclosed by the Company in its            Annual Report on Form 10-KSB for the year ended December 31, 2006, Amper advised the            Company that the Company did not maintain effective internal control over financial            reporting as of December 31, 2006 because the Company lacked technical expertise            necessary to prepare, report and disclose its tax position in its financial statements,            which could restrict its ability to gather, analyze and report information relative to            its tax related financial statements assertions in a timely matter, including            insufficient documentation. 

          The decision            to dismiss Amper and engage Hoberman was approved by the Audit Committee of the            Company’s Board of Directors. The Company had previously consulted Hoberman in            the first quarter of fiscal 2007 with respect to the application of FIN 48. 

**Item 8A. Controls and            Procedures**

**     1.  Disclosure Controls and            Procedures**

Our management, with the participation of our chief            executive officer and chief financial officer, evaluated the effectiveness of our            disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under            the Exchange Act) as of December 31, 2007 (the “Evaluation Date”). Based            upon that evaluation, the chief executive officer and the chief financial officer            concluded that, as of the Evaluation Date, our disclosure controls and procedures are            effective to ensure that information required to be disclosed by us in the reports that            we file or submit under the Exchange Act (i) is recorded, processed, summarized            and reported, within the time periods specified in the SEC’s rules and forms and            (ii) is accumulated and communicated to our management, including its chief            executive and chief financial officers, as appropriate to allow timely decisions            regarding required disclosure. 

26 

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          Our previous            auditors, Amper, Politziner & Mattia, P.C., in connection with their audit and in            the issuance of their report on our financial statements for the year ended December            31, 2006, included in their report to the Audit Committee of our Board of Directors a            communication that identified certain items that they considered to be material            weaknesses in the effectiveness of our internal controls pursuant to standards            established by the Public Company Accounting Oversight Board. A “material            weakness” is a reportable condition in which the design or operation of one or            more of the specific control components has a defect or defects that could have a            material adverse effect on an organization’s ability to record, process,            summarize and report financial data in the financial statements in a timely            manner. 

          This            material weakness related to our lack of technical expertise necessary to prepare,            report and disclose our tax position in our financial statements, which may have            restricted our ability to gather, analyze and report information relative to our tax            related financial statement assertions in a timely matter, including insufficient            documentation. 

          We believe            that we have remediated this material weakness, which related to our ability to            prepare, report and disclose our tax position in our financial statements as of            December 31, 2006. 

          In April            2007, we hired an accounting firm to assist us in our tax preparation and analysis. We            believe this remediation effort cured any material weakness in our ability to report            our tax position in our financial statements, and that the aforementioned material            weakness has been remediated as of December 31, 2007. 

**     2.  Internal Control over            Financial Reporting**

|   |   |    |                                                                                                     |
|--------|--------|---------|----------------------------------------------------------------------------------------------------------|
|   |   | **(a)** | **Management’s Annual Report on                        Internal Control Over Financial Reporting** |

          The            management of the Company is responsible for establishing and maintaining adequate            internal control over financial reporting and for the assessment of the effectiveness            of internal control over financial reporting. As defined by the SEC, internal control            over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated            under the Exchange Act as a process designed by, or under the supervision of, the            Company’s principal executive and principal financial officers and effected by            the Company’s board of directors, management and other personnel, to provide            reasonable assurance regarding the reliability of financial reporting and the            preparation of financial statement for external purposes in accordance with generally            accepted accounting principles. The Company’s internal control over financial            reporting is supported by written policies and procedures that: (1) pertain to the            maintenance of records that, in reasonable detail, accurately and fairly reflect the            transactions and dispositions of the Company’s assets; (2) provide reasonable            assurance that transactions are recorded as necessary to permit preparation of            financial statements in accordance with generally accepted accounting principles and            that receipts and expenditures of the Company are being made only in accordance with            authorizations of the Company’s management and directors; and (3) provide            reasonable assurance regarding prevention or timely detection of unauthorized            acquisition, use or disposition of the Company’s assets that could have a            material effect on the financial statements. 

27 

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          The            Company’s internal control system was designed to provide reasonable assurance to            the Company’s management and Board of Directors regarding the preparation and            fair presentation of published financial statements. All internal control systems, no            matter how well designed, have inherent limitations which may not prevent or detect            misstatements. Therefore, even those systems determined to be effective can provide            only reasonable assurance with respect to financial statement preparation and            presentation. Projections of any evaluation of effectiveness to future periods are            subject to the risk that controls may become inadequate because of changes in            conditions, or that the degree of compliance with the policies or procedures may            deteriorate. 

          Management            conducted an evaluation of the effectiveness of the Company’s internal control            over financial reporting as of December 31, 2007. In making this assessment, management            used the framework set forth in the report entitled *Internal            Control–Integrated Framework* issued by the Committee of Sponsoring            Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each            of the components of a company’s internal control system, including (i) the            control environment, (ii) risk assessment, (iii) control activities,            (iv) information and communication, and (v) monitoring. Based on this            evaluation, management concluded that the Company’s internal control over            financial reporting was effective as of December 31, 2007. 

          This annual            report does not include an attestation report of our registered public accounting firm            regarding internal control over financial reporting. Management’s report was not            subject to attestation by our registered public accounting firm pursuant to temporary            rules of the Securities and Exchange Commission that permits us to provide only            management’s report in this annual report. 

|   |   |    |                                                                            |
|--------|--------|---------|---------------------------------------------------------------------------------|
|   |   | **(b)** | **Changes in Internal Control Over                        Financial Reporting** |

          There was no            change in our internal control over financial reporting (as defined in Rules            13a-15(f) or 15d-15(f) under the Exchange Act) identified in connection with the            evaluation required by Rules 13a-15(d) or 15d-15(d) that occurred during the fiscal            quarter ended December 31, 2007 that has materially affected, or is reasonably likely            to materially affect, our internal control over financial reporting. 

**ITEM 8B. Other            Information.**

    None. 

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**PART III**

**Item 9.****Directors, Executive Officers,            Promoters and Control Persons and Corporate Governance; Compliance With Section 16(a)            of the Exchange Act.**

|   |                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------|
|   | **Executive Officers and                        Directors**                                           |
|   |                                                                                                  |
|   | Our executive officers and directors and                        their respective ages are as follows: |

|   |                    |   |    |   |                                                                                          |
|--------|-------------------------|--------|---------|--------|-----------------------------------------------------------------------------------------------|
|   | **Name**                |   | **Age** |   | **Position**                                                                                  |
|   |
|   | Assaf Ran               |   | 42      |   | Chairman of the Board, Chief Executive                        Officer, President and Director |
|   |                    |   |    |   |                                                                                          |
|   | Inbar Evron-Yogev       |   | 35      |   | Chief Financial Officer, Treasurer and                        Secretary                       |
|   |                    |   |    |   |                                                                                          |
|   | Phillip Michals (1,2,3) |   | 38      |   | Director                                                                                      |
|   |                    |   |    |   |                                                                                          |
|   | Eran Goldshmid (1,2,3)  |   | 41      |   | Director                                                                                      |
|   |                    |   |    |   |                                                                                          |
|   | Michael Jackson (1,2,3) |   | 43      |   | Director                                                                                      |
|   |                    |   |    |   |                                                                                          |
|   | Mark Alhadeff           |   | 44      |   | Director                                                                                      |

----

|   |                                                            |
|--------|-----------------------------------------------------------------|
|   | (1) Member of the Compensation                        Committee |
|   | (2) Member of the Audit                        Committee        |
|   | (3) Member of the Nominating                        Committee   |

          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 our executive            officers and directors: 

          Assaf Ran,            our founder, has been our Chief Executive Officer and President since our inception in            1989. 

          Mrs.            Evron-Yogev joined DAG Media in March 2006, as our Chief Financial Officer, Mrs.            Evron-Yogev is an Israeli licensed CPA and has professional experience in financial            accounting. From 2003 until accepting her position with us, Mrs. Evron-Yogev worked at            PriceWaterhouseCoopers (“PWC”) in New York City, as an experienced senior            associate on an audit team. From 2000 to 2003 Mrs. Evron-Yogev worked at the Luboshitz            Kasierer office of Arthur Andersen, in Tel-Aviv, Israel as a senior associate in an            audit team. 

          Phillip            Michals has been a member of our board of directors since March 1999. Since            November 2000, he has also been a principal and a vice president of RG Michals, a            management-consulting firm for a broker dealer. As of August 2006 Mr.            Michals has been Registered as an Investment Advisor for GunnAllen            Financial. Mr. Michals received a BS degree in human resources from the            University of Delaware in May 1992. 

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          Eran            Goldshmid has been a member of our board of directors since March 1999.            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. From            December 1998 until July 2001, he had been the general manager of the Carmiel Shopping            Center in Carmiel, Israel. Since August 2001, he has been president of the New York            Diamond Center, New York, NY. 

          Michael J.            Jackson has been a member of our board since July 2000. Since April 2007, he has been            the Chief Financial Officer and the Executive Vice President of iCrossing, Inc., a            digital marketing agency committed to people’s desire to find. From September            1999 to April 2007, he was the corporate controller of AGENCY.COM, a global Internet            professional services company, since May 2000 until September 2001 the Chief Accounting            Officer and from October 2001 the Chief Financial Officer of the company. From October            1994 until August 1999, Mr. Jackson was a manager at Arthur Andersen, LLP and Ernst and            Young. Mr. Jackson also served on the New York State Society Auditing Standards and            Procedures Committee from 1998 to 1999 and served on the New York State Society’s            SEC Committee from 1999 to 2001. 

          Mark            Alhadeff has been a member of our board of directors since December 2005. Mr. Alhadeff            is the co-founder of Ocean-7 Development, Inc., a technology corporation in the            business of providing programming services as well as web development services and            database solutions. Mr. Alhadeff has been Ocean-7’s president since its            formation, nine years ago. Prior to founding Ocean-7, Mr. Alhadeff served as a            consultant to various publishers, worked as an art director and was actively involved            in creating and implementing the transition to digital production methodologies before            they became common industry practice. Mr. Alhadeff is a Stony Brook University            graduate. Mr. Alhadeff is serving as the Chief Technology Officer of DAG            Interactive, 

          Our Board of            Directors has established Compensation, Audit and Nominating Committees. The            Compensation Committee reviews and recommends to the Board of Directors the            compensation and benefits of all of our officers, reviews general policy matters            relating to compensation and benefits of our employees, administers the stock option            plan and authorizes the issuance of stock options to our officers, employees, directors            and consultants. The Audit Committee meets with management and our independent auditors            to determine the adequacy of internal controls and other financial reporting matters.            In addition, the committee provides an avenue for communication between the independent            accountants, financial management and the Board. Subject to the prior approval of the            Board, the committee is granted the authority to investigate any matter or activity            involving financial accounting and financial reporting, as well as our internal            controls. The Nominating committee is responsible for nominating director candidates            for the Annual Meeting of Stockholders each year and will consider director candidates            recommended by shareholders. In considering candidates submitted by shareholders, the            Nominating Committee will take into consideration the needs of the Board and the            qualification of the candidate. 

30 

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**Section 16(a) Beneficial Ownership****Reporting Compliance**

          Section            16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and            persons who own more than ten percent (10%) of a registered class of our equity            securities to file reports of ownership and changes in ownership with the Securities            and Exchange Commission. Officers, directors and greater than ten percent (10%)            shareholders are required by SEC regulations to furnish us with copies of all Section            16(a) forms they file. 

          To the best            of our knowledge, based solely on review of the copies of such forms furnished to us,            or written representations that no other forms were required, we believe that all            Section 16(a) filing requirements applicable to our officers, directors and greater            than ten percent (10%) shareholders were complied with during 2007. 

**Code of****Ethics**

          We have            adopted a code of ethics that applies to our principal executive officer, principal            financial officer and other persons performing similar functions. This code of ethics            is posted on our web site at www.dagmedia.com. 

**Audit****Committee**

          We currently            have a separately- designated standing Audit Committee of the Board of Directors which            was established in compliance with Section 3(a)(58)(A) of the *Securities            Exchange Act of 1934*. The members of our Audit Committee are Michael J. Jackson,            Phillip Michals and Eran Goldshmid. The Board of Directors has determined that Michael            Jackson, the chairman of the Audit Committee, is qualified as an Audit Committee            Financial Expert pursuant to Item 401(e) of regulations S-B. Each of the Audit            Committee members is independent, as that term is used in Item 7(d)(3)(iv) of Schedule            14A under the Exchange Act, and their relevant experience is more fully described            above. 

**Stockholder Communications**

          The board            has established a process to receive communications from stockholders. Stockholders and            other interested parties may contact any member (or all members) of the board, or the            non-management directors as a group, any board committee or any chair of any such            committee by mail or electronically. To communicate with the board of directors, any            individual director or any group or committee of directors, correspondence should be            addressed to the board of directors or any such individual directors or group or            committee of directors by either name or title. All such correspondence should be sent            “c/o Corporate Secretary” at 192 Lexington Avenue New York, New York            10016. 

          All            communications received as set forth in the preceding paragraph will be opened by the            Secretary of the Company for the sole purpose of determining whether the contents            represent a message to our directors. Any contents that are not in the nature of            advertising, promotions of a product or service, patently offensive material or matters            deemed inappropriate for the board of directors will be forwarded promptly to the            addressee. In the case of communications to the board or any group or committee of            directors, the Company Secretary will make sufficient copies of the contents to send to            each director who is a member of the group or committee to which the envelope or e-mail            is addressed. 

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**Item 10. Executive Compensation.**

The following Summary Compensation Table sets forth            all compensation earned, in all capacities, during the years ended December 31, 2007            and 2006 by our (i) principal executive officer, and (ii) executive officers,            other than the principal executive officer, whose salaries for the 2007 and 2006 year            as determined by Regulation S-B, Item 402, exceeded $100,000. These            individuals are referred to as the ‘‘named executive            officers.’’ 

**Summary Compensation Table**

|                                                                          |   |   |     |   |              |    |             |   |                                           |    |                                                                       |    |                                                                                                                                          |   |                                                                                                                       |    |                                                                                                       |   |             |   |   |   |    |   |   |   |   |   |    |   |
|-------------------------------------------------------------------------------|--------|--------|----------|--------|-------------------|---------|------------------|--------|------------------------------------------------|--------------|----------------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|---------|------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|
| **Name and                        Principal                        Position** |   |   | **Year** |   | **Salary****($)** |    | **Bonus****($)** |   | **Stock                        Awards****($)** |         | **Option                        Awards****($)                        (1)** |    | **Non                        Equity                        Incentive                        plan                        Compensation****($)** |   | **Nonqualified                        Deferred                        Compensation                        Earning****($)** |    | **All                        Other                        Compensation****($)                        (2)** |   | **Total****($)** |   |
|                                                                               |   |   |          |   |                   |    |                  |   |                                                |         |                                                                            |    |                                                                                                                                               |   |                                                                                                                            |    |                                                                                                            |   |                  |   |
| Assaf Ran                                                                     |   |   |     |   |              |    |             |   |                                           |         |                                                                       |    |                                                                                                                                          |   |                                                                                                                       |    |                                                                                                       |   |             |   |   |   |    |   |   |   |   |   |    |   |
| Chief                                                                         |   |   | 2007     |   | $                 | 69,231  |             |   | –                                        |         |                                                                       | – |                                                                                                                                          |   | $                                                                                                                          | 64,021  | (4)                                                                                                        |   | $                | 2,077  |   |   | – |   | $      | 2,077  |   | $      | 135,329 |   |
| Executive                                                                     |   |   | 2006     |   | $                 | 147,615 |             |   | –                                        |         |                                                                       | – |                                                                                                                                          |   | $                                                                                                                          | 170,897 | (5)                                                                                                        |   | $                | 4,248  |   |   | – |   | $      | 4,248  |   | $      | 322,760 |   |
| Officer                        and                                            |   |   |     |   |              |    |             |   |                                           |         |                                                                       |    |                                                                                                                                          |   |                                                                                                                       |    |                                                                                                       |   |             |   |   |   |    |   |   |   |   |   |    |   |
| President                                                                     |   |   |     |   |              |    |             |   |                                           |         |                                                                       |    |                                                                                                                                          |   |                                                                                                                       |    |                                                                                                       |   |             |   |   |   |    |   |   |   |   |   |    |   |

(1) Consists of stock options. valued in accordance            with FAS 123(R). (2) Company’s matching contributions are made pursuant to a simple            master IRA plan. 

**Employment****Contracts**

          In March            1999, we entered into an employment agreement with Assaf Ran, our President and Chief            Executive Officer. Mr. Ran’s employment term renews automatically on July 1st of            each year for successive one-year periods unless either party gives 180 days written            notice of its intention to terminate the agreement. Under the agreement, Mr. Ran            receives an annual base salary of $75,000 and annual bonuses as determined by the            compensation committee of the Board of Directors in its sole and absolute discretion            and is eligible to participate in all executive benefit plans established and            maintained by us. Under the agreement, Mr. Ran agreed to a one-year non-competition            period following the termination of his employment. As of March 2003, the compensation            committee approved an increase in Mr. Ran’s compensation to an annual base salary            of $225,000. On March 15, 2006 the compensation committee approved Mr. Ran’s            reduction of his annual salary by 50% for one year following the closing of the sale of            the Jewish directories business. On March 22, 2007 the compensation committee approved            Mr. Ran’s reduction of his annual salary by 75% for one year following the date            of the filing of 2006 10-KSB. Mr. Ran’s annual compensation was $69,000, $148,000            and $225,000 during fiscal years 2007, 2006 and 2005, respectively. 

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**Outstanding Equity Awards at Fiscal            Year-End**

          The            following table sets forth information concerning outstanding options to purchase our            common stock by the named executive officers as of December 31, 2007. 

|                            |   |   |    |                                                                                                                             |   |                                                                                                                               |   |                                                                                                                                     |   |                                             |   |                       |   |                                                                                                  |   |                                                                                                        |   |                                                                                                                                              |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
|---------------------------------|--------|--------|---------|----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|----------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                            |   |   |    | **Option Awards**                                                                                                                |   | **Stock Awards**                                                                                                                   |   |
|                            |   |   |    |                                                                                                                                  |   |                                                                                                                                    |   |
| **Name                    (a)** |   |   |    | **Number of Securities Underlying Unexercised                    Options                    (#)                    Exercisable** |   | **Number of Securities Underlying Unexercised                    Options                    (#)                    Unexercisable** |   | **Equity Incentive Plan Awards: Number of                    Securities Underlying Unexercised Unearned Options                    (#)** |   | **Option Exercise Price                    ($)** |   | **Option Expiration Date** |   | **Number of Shares or Units of Stock That                    Have Not Vested                    (#)** |   | **Market Value of Shares or Units of Stock                    That Have Not Vested                    ($)** |   | **Equity Incentive Plan Awards: Number of                    Unearned Shares, Units or Other Rights That Have Not Vested                    (#)** |   | **Equity Incentive Plan Awards: Market or                    Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested                    ($)** |    |
|                                 |   |        |    |                                                                                                                                  |   |                                                                                                                                    |   |                                                                                                                                          |   |                                                  |   |                            |   |                                                                                                       |   |                                                                                                             |   |                                                                                                                                                   |   |                                                                                                                                                                   |         |
| Assaf Ran                       |   |   | 2003(1) |                                                                                                                             | 70,000 |                                                                                                                               |   | –                                                                                                                                  |   |                                             |   | –                    |   | $                                                                                                     | 1.77   |                                                                                                        |   | 8/4/2008                                                                                                                                          |   |                                                                                                                                                              | – |   |   | – |   |   | – |   |   | – |   |
| Chief Executive                 |   |   | 2004(2) |                                                                                                                             | 70,000 |                                                                                                                               |   | –                                                                                                                                  |   |                                             |   | –                    |   | $                                                                                                     | 3.75   |                                                                                                        |   | 7/12/2009                                                                                                                                         |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
| Officer and                     |   |   | 2005(3) |                                                                                                                             | 70,000 |                                                                                                                               |   | –                                                                                                                                  |   |                                             |   | –                    |   | $                                                                                                     | 4.47   |                                                                                                        |   | 3/3/2010                                                                                                                                          |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
| President                       |   |   | 2006(4) |                                                                                                                             | 93,334 |                                                                                                                               |   | 46,666                                                                                                                                   |   |                                             |   | –                    |   | $                                                                                                     | 2.26   |                                                                                                        |   | 3/15/2011                                                                                                                                         |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
|                            |   |   | 2007(5) |                                                                                                                             | 23,333 |                                                                                                                               |   | 46,667                                                                                                                                   |   |                                             |   | –                    |   | $                                                                                                     | 1.69   |                                                                                                        |   | 3/22/2012                                                                                                                                         |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
|                            |
| Inbar Evron-                    |   |   | 2006(6) |                                                                                                                             | 1,000  |                                                                                                                               |   | 4,000                                                                                                                                    |   |                                             |   | –                    |   | $                                                                                                     | 2.05   |                                                                                                        |   | 3/15/2011                                                                                                                                         |   |                                                                                                                                                              | – |   |   | – |   |   | – |   |   | – |   |
| Yogev                           |   |   | 2007(7) |                                                                                                                             | 1,000  |                                                                                                                               |   | 4,000                                                                                                                                    |   |                                             |   | –                    |   | $                                                                                                     | 1.54   |                                                                                                        |   | 3/22/2012                                                                                                                                         |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
| Chief                           |   |   |
| Financial                       |   |
| Officer,                        |   |   |    |                                                                                                                             |   |                                                                                                                               |   |                                                                                                                                     |   |                                             |   |                       |   |                                                                                                  |   |                                                                                                        |   |                                                                                                                                              |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
| Treasurer                       |   |   |    |                                                                                                                             |   |                                                                                                                               |   |                                                                                                                                     |   |                                             |   |                       |   |                                                                                                  |   |                                                                                                        |   |                                                                                                                                              |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
| and Secretary                   |   |   |    |                                                                                                                             |   |                                                                                                                               |   |                                                                                                                                     |   |                                             |   |                       |   |                                                                                                  |   |                                                                                                        |   |                                                                                                                                              |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |
|                            |   |   |    |                                                                                                                             |   |                                                                                                                               |   |                                                                                                                                     |   |                                             |   |                       |   |                                                                                                  |   |                                                                                                        |   |                                                                                                                                              |   |                                                                                                                                                              |    |   |   |    |   |   |    |   |   |    |   |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (1)    | The options were granted on August 4,                        2003. One third of such options vested immediately and the balance vest in                        equal annual installments on each anniversary of the grant date. The                        exercise price represents 110% of the fair market price on the date of                        grant.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (2)    | The options were granted on July 12,                        2004. One third of such options vested immediately and the balance vest in                        equal annual installments on each anniversary of the grant date. The                        exercise price represents 110% of the fair market price on the date of                        grant.                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (3)    | The options were granted on March 3,                        2005. One third of such options vested immediately and the balance vest in                        equal annual installments on each anniversary of the grant date. The                        exercise price represents 110% of the fair market price on the date of                        grant.                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (4)    | The options were granted on March 15,                        2006. One third of such options vested immediately and the balance vest in                        equal annual installments on each anniversary of the grant date. The                        exercise price represents 110% of the fair market price on the date of                        grant.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (5)    | The options were granted on March 22,                        2007. One third of such options vested immediately and the balance vest in                        equal annual installments on each anniversary of the grant date. The                        exercise price represents 110% of the fair market price on the date of                        grant.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (6)    | 5,000 shares of our common stock were                        granted to Inbar Evron-Yogev, our current Chief Financial Officer on March                        15, 2006, the date she commenced employment with our company. One fifth of                        such options vested immediately and the balance vest in equal annual                        installments on each anniversary of the grant date. The shares were granted                        with an exercise price of $2.05 which was the fair market price on the date                        of grant. |

33 

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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (7)    | 5,000 shares of our common stock were                        granted to Inbar Evron-Yogev, our current Chief Financial Officer on March                        22, 2007. One fifth of such options vested immediately and the balance vest                        in equal annual installments on each anniversary of the grant date. The                        shares were granted with an exercise price of $1.54 which was the fair                        market price on the date of grant. |

**Compensation of            Directors**

Non-employee directors are            granted, upon becoming a director, and renewal of director term, five-year options to            purchase 7,000 shares of common stock at an exercise price equal to the fair market            value of a share of common stock on the date of grant. They also receive cash            compensation of $600 per board meeting attended and $300 for any other committee            participation. Assaf Ran and Mark Alhadeff do not receive compensation in connection            with their position on our board. 

**Director Compensation**

|                                |   |                                           |    |                            |   |                                                        |   |                                                                         |    |                                                                                                          |   |                                      |   |              |    |   |   |    |   |   |    |   |
|-------------------------------------|--------|------------------------------------------------|---------|---------------------------------|--------|-------------------------------------------------------------|--------|------------------------------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|-------------------|---------|--------|--------|---------|--------|--------|---------|--------|
| **Name                        (a)** |   | ******Fees Earned or Paid in Cash********($)** |    | ******Stock Awards********($)** |   | ******Option Awards********($)                        (1)** |   | **Non-Equity Incentive Plan                        Compensation********($)** |    | **Change in Pension Value and                        Nonqualified Deferred Compensation Earnings********($)** |   | ******All Other Compensation********($)** |   | ******Total ($)** |    |
|                                     |   |                                                |    |                                 |   |                                                             |   |                                                                              |    |                                                                                                               |   |                                           |   |                   |    |
| Michael Jackson (2)                 |   | $                                              | 3,000   |                            |   | –                                                     |   | $                                                                            | 7,154   |                                                                                                          |   | –                                   |   |              | – |   |   | – |   | $      | 10,154  |   |
| Phillip Michals(3)                  |   | $                                              | 3,000   |                            |   | –                                                     |   | $                                                                            | 7,154   |                                                                                                          |   | –                                   |   |              | – |   |   | – |   | $      | 10,154  |   |
| Eran Goldshmid (4)                  |   | $                                              | 3,000   |                            |   | –                                                     |   | $                                                                            | 7,154   |                                                                                                          |   | –                                   |   |              | – |   |   | – |   | $      | 10,154  |   |
| Mark Alhadeff                       |   |                                           | – |                            |   | –                                                     |   |                                                                         | – |                                                                                                          |   | –                                   |   |              | – |   |   | – |   |   | – |   |

|   |   |                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------|
|   | (1)    | Consists of stock options. Valuation is                        based on FAS 123(R).                    |
|   |   |                                                                                                   |
|   | (2)    | The aggregate number of option awards                        outstanding at fiscal year end is 35,000. |
|   |   |                                                                                                   |
|   | (3)    | The aggregate number of option awards                        outstanding at fiscal year end is 35,000. |
|   |   |                                                                                                   |
|   | (4)    | The aggregate number of option awards                        outstanding at fiscal year end is 35,000. |

34 

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**Item 11.****Security Ownership            of Certain Beneficial Owners and Management and Related Stockholder            Matters**

          The            following table, together with the accompanying footnotes, sets forth information, as            of March 14, 2008, regarding stock ownership of all persons known by us to own            beneficially more than 5% of our outstanding common stock, certain of our executive            officers, all directors, and all of our directors and officers as a group: 

|                                                           |   |                                      |   |                                                                                                                   |   |                                           |   |   |   |   |   |
|----------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|--------|--------|--------|--------|
| **Name of Beneficial Owner                        (1)**        |   | **Title of                        Class** |   | **Amount and                        Nature of                        Beneficial                        Ownership (2)** |   | **Percentage of                        Class** |
|                                                                |   |                                           |   |                                                                                                                        |   |                                                |
|                                                           |   |                                      |   |                                                                                                                   |   |                                           |   |   |   |   |   |
| *Executive Officers and Directors*                             |   |                                      |   |                                                                                                                   |   |                                           |   |   |   |   |   |
| Assaf                        Ran (3)                           |   |                                      | Common |                                                                                                                   |   | 1,670,262                                      |   |   |   | 51.61  | %      |
| Inbar                        Evron-Yogev (4)                   |   |                                      | Common |                                                                                                                   |   | 3,000                                          |   |   |   | *      |   |
| Michael                        Jackson (4)                     |   |                                      | Common |                                                                                                                   |   | 35,000                                         |   |   |   | 1.08   | %      |
| Phillip                        Michals (5)                     |   |                                      | Common |                                                                                                                   |   | 50,000                                         |   |   |   | 1.54   | %      |
| Eran                        Goldshmid (4)                      |   |                                      | Common |                                                                                                                   |   | 35,000                                         |   |   |   | 1.08   | %      |
| Mark                        Alhadeff (6)                       |   |                                      | Common |                                                                                                                   |   | 110,000                                        |   |   |   | 3.40   | %      |
|                                                           |   |                                      |   |                                                                                                                   |   |                                                |   |   |   |   |   |
|                                                           |   |                                      |   |                                                                                                                   |   |                                           |   |   |   |   |   |
| *All                        officers and directors as a group* |   |                                      | Common |                                                                                                                   |   | 1,903,262                                      |   |   |   | 58.81  | %      |
|                                                           |   |                                      |   |                                                                                                                   |   |                                                |   |   |   |   |   |

* Less than 1% 

          (1)     The            addresses of the persons named in this table are as follows: 

|   |                                                                              |
|--------|-----------------------------------------------------------------------------------|
|   | Assaf Ran and Inbar Evron-Yogev –                                           |
|   | c/o DAG Media Inc, 192 Lexington Avenue, New York NY                        10016 |
|   |                                                                              |
|   | Michael Jackson –                                                           |
|   | 260 Madison Avenue, New York, NY 10016                                       |
|   |                                                                              |
|   | Phillip Michals –                                                           |
|   | 67 Wall Street, New York, NY 10005                                                |
|   |                                                                              |
|   | Eran Goldshmid –                                                            |
|   | 65 Broadway, New York, NY 10006                                                   |

          (2)     A            person is deemed to be a beneficial owner of securities that can be acquired by such            person within 60 days from the filing of this report upon the exercise of options and            warrants or conversion of convertible securities. Each beneficial owner’s            percentage ownership is determined by assuming that options, warrants and convertible            securities that are held by such person (but not held by any other person) and that are            exercisable or convertible within 60 days from the filing of this report have been            exercised or converted. Except as otherwise indicated, and subject to applicable            community property and similar laws, each of the persons named has sole voting and            investment power with respect to the shares shown as beneficially owned. All            percentages are determined based on 3,236,460 outstanding on March 14, 2008. 

          (3)     Includes            326,667 shares that are vested options as of December 31, 2007. 

35 

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          (4)     All            of the shares beneficially owned by Inbar Evron-Yogev, Michael Jackson and Eran            Goldshmid are vested options as of December 31, 2007. 

          (5)     Includes            35,000 shares that are vested options as of December 31, 2007. 

          (6)     Includes            50,000 shares that are vested options as of December 31, 2007. 

**Equity Compensation****Plan Information**

          The            following table summarizes the (i) options granted under the DAG Media 1999 Stock            Option Plan, and (ii) options and warrants granted outside the DAG Media Option Plan,            as of December 31, 2007. The shares covered by outstanding options and warrants are            subject to adjustment for changes in capitalization stock splits, stock dividends and            similar events. No other equity compensation has been issued. 

|                                                                                            |   |                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                                                            |   |     |                                                                                                                                                                                                                                      |   |   |           |   |   |
|-------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------|--------|--------|
|                                                                                            |   | Equity Compensation Plan Table                                                                                                                                                                                                                                                         |   |
|                                                                                            |   |                                                                                                                                                                                                                                                                                        |   |
|                                                                                            |   | Number of                        securities(1)                        to be issued                        upon exercise                        of                        outstanding                        options,                        warrants and                        rights |   | Weighted-                        average exercise                        price of                        outstanding                        options, warrants                        and rights |   |     | Number of                        securities(1)                        remaining                        available for                        future issuance                        under equity compensation                        plans |   |
|                                                                                            |   |                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                 |   |     |                                                                                                                                                                                                                                           |   |
| **Equity Compensation Plans Approved By Security                        Holders**               |   |                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                                                            |   |     |                                                                                                                                                                                                                                      |   |   |           |   |   |
| Grants                        under the DAG Media, Inc. 1999 Stock Option Plan                  |   | 610,000                                                                                                                                                                                                                                                                                |   |                                                                                                                                                                                            | $      | 2.64     |                                                                                                                                                                                                                                      |   |   | 345,000        |   |   |
| **Equity Compensation Plans Not Requiring Approval By                        Security Holders** |   |                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                                                            |   |     |                                                                                                                                                                                                                                      |   |   |           |   |   |
| Aggregate Individual Option Grants                                                              |   | 0                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                                                            |   | 0        |                                                                                                                                                                                                                                      |   |   | Not applicable |   |   |
| **Total**                                                                                       |   | **610,000**                                                                                                                                                                                                                                                                            |   |                                                                                                                                                                                            | **$**  | **2.64** |                                                                                                                                                                                                                                      |   |   | 345,000        |   |   |

(1) Reflect shares of DAG Media common stock. 

          The            aggregate individual option grants outside the Stock Option Plan referred to in the            table above include options granted to consultants and providers of certain services to            us. 

**Item 12. Certain            Relationships****and Related Transactions and Director            Independence**

          Ocean-7            currently holds a 20% interest in DAG Interactive, our subsidiary. Mark Alhadeff is the            controlling shareholder of Ocean-7. Effective December, 2005 Mr. Alhadeff became a            member of our Board of Directors. 

          As provided            by the Asset Purchase Agreement some transition services agreements were signed by and            between our company, Assaf Ran, our President and Chief Executive Officer, and            DAG-Jewish Directories, Inc. in order to assist in the transition for both companies.            Under the various transition services agreements, our company and Mr. Ran have already            provided legal, accounting as well as consulting services to executive management, and            DAG-Jewish Directories, Inc. has provided referral services to us as well as a two            month sublease of their offices to us. 

36 

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**Director Independence**

          Our Board of            Directors is comprised of Assaf Ran, Michael J. Jackson, Mark Alhadeff, Phillip Michal            and Eran Goldshmid. 

          The Board            has determined, in accordance with Nasdaq’s listing standards, that:            (i) Messrs. Michals, Goldschmid and Jackson (the “Independent            Directors”) are independent and represent a majority of its members;            (ii) Messrs. Jackson, Goldschmid and Michals, as the sole members of the            Audit Committee, are independent for such purposes; and            (iii) Messrs. Jackson, Goldschmid and Michals, members of Compensation            Committee, as the sole members of the Compensation Committee, are independent for such            purposes. 

          In            determining director independence, our Board applies the independence standards set by            Nasdaq. In its application of such standards the Board takes into consideration all            transactions with Independent Directors and the impact of such transactions, if any, on            any of the Independent Directors’ ability to continue to serve on our Board. To            that end, for the fiscal year ended 2007, our Board considered the options awarded to            the Independent Directors disclosed above in “Item 10 – Executive            Compensation – Director Compensation” and determined that those            transactions were within the limits of the independence standards set by Nasdaq and did            not impact their ability to continue to serve as Independent Directors. 

37 

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                      **Item 13. Exhibits**

          (a)     Certain            of the following exhibits were filed as Exhibits to the registration statement on form            SB-2, Registration No. 333-74203 and amendments thereto (the “Registration            Statement”) filed by the Registrant under the Securities Act of 1933, as amended,            or the reports filed under the Securities and Exchange Act of 1934, as amended, and are            hereby incorporated by reference. 

|   |            |   |                                                                                                                                                                                                     |
|--------|-----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **Exhibit No.** |   | **Description**                                                                                                                                                                                          |
|   |            |   |                                                                                                                                                                                                     |
|   | 3.1             |   | Certificate of Incorporation of the Company                        (1)                                                                                                                                   |
|   |            |   |                                                                                                                                                                                                     |
|   | 3.2             |   | By-laws of the Company (1)                                                                                                                                                                               |
|   |            |   |                                                                                                                                                                                                     |
|   | 4.1             |   | Specimen Stock Certificate (2)                                                                                                                                                                           |
|   |            |   |                                                                                                                                                                                                     |
|   | 4.2             |   | Form of Underwriter’s Warrant (1)                                                                                                                                                                  |
|   |            |   |                                                                                                                                                                                                     |
|   | 10.1*           |   | Employment Agreement dated March 1, 1999 by and between                        Assaf Ran and the Company (1)                                                                                             |
|   |            |   |                                                                                                                                                                                                     |
|   | 10.2*           |   | Form of the Company’s 1999 Stock Option Plan As                        Amended (3)                                                                                                                 |
|   |            |   |                                                                                                                                                                                                     |
|   | 10.3            |   | Web Site Company Formation, Development and Services                        Agreement dated December 5, 2005 by and between DAG Media, Inc. and Ocean-7                        Development, Inc. (4)     |
|   |            |   |                                                                                                                                                                                                     |
|   | 10.4            |   | Asset Purchase Agreement by and between DAG Media, Inc.                        and DAG-Jewish Directories, Inc. (5)                                                                                      |
|   |            |   |                                                                                                                                                                                                     |
|   | 10.5            |   | Lease Agreement by and between DAG Media, Inc. and Cres,                        Inc. for the premises located at 192 Lexington Avenue, New York, New York                        10016. (6)              |
|   |            |   |                                                                                                                                                                                                     |
|   | 10.6            |   | Stock Purchase Agreement by and between DAG Media, Inc.                        and Guy Mushkat dated October 11, 2006. (7)                                                                               |
|   |            |   |                                                                                                                                                                                                     |
|   | 16.1            |   | Letter from Amper, Politziner & Mattia, P.C., dated                        June 6, 2007 to the Securities and Exchange Commission. (8)                                                               |
|   |            |   |                                                                                                                                                                                                     |
|   | 23.1            |   | Consent of Amper, Politziner                        & Mattia, P.C., dated March 13, 2008. (filed herewith)                                                                                           |
|   |            |   |                                                                                                                                                                                                     |
|   | 23.2            |   | Consent of Hoberman, Miller,                        Goldstein & Lesser, P.C., dated March 13, 2008. (filed                        herewith)                                                          |
|   |            |   |                                                                                                                                                                                                     |
|   | 31.1            |   | Chief Executive Officer                        Certification as required under section 302 of the Sarbanes Oxley Act                        (filed herewith)                                             |
|   |            |   |                                                                                                                                                                                                     |
|   | 31.2**          |   | Chief Financial Officer                        Certification as required under section 302 of the Sarbanes Oxley Act                        (filed herewith)                                             |
|   |            |   |                                                                                                                                                                                                     |
|   | 32.1            |   | Chief Executive Officer                        Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to                        section 906 of the Sarbanes Oxley Act (furnished herewith) |
|   |            |   |                                                                                                                                                                                                     |
|   | 32.2**          |   | Chief Financial Officer                        Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to                        section 906 of the Sarbanes Oxley Act (furnished herewith) |

            *            Compensation plan or arrangement for current or former executive officers and            directors. 

            **            Furnished, not filed, in accordance with item 601(32)(ii) of Regulation S-B. 

38 

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|   |            |   |                                                                                     |
|--------|-----------------|--------|------------------------------------------------------------------------------------------|
|   | **Exhibit No.** |   | **Description**                                                                          |
|   |            |   |                                                                                     |
|   | (1)             |   | Previously filed as exhibit to Form SB-2 on March 10,                        1999.       |
|   |            |   |                                                                                     |
|   | (2)             |   | Previously filed as exhibit to Form SB-2/A on April 23,                        1999.     |
|   |            |   |                                                                                     |
|   | (3)             |   | Previously filed as exhibit to Form S-8 on February 8,                        2002.      |
|   |            |   |                                                                                     |
|   | (4)             |   | Previously filed as exhibit to Form 8-K on December 12,                        2005.     |
|   |            |   |                                                                                     |
|   | (5)             |   | Previously filed as exhibit to Form 8-K on February 10,                        2006.     |
|   |            |   |                                                                                     |
|   | (6)             |   | Previously filed as an exhibit to Form 10-KSB on August                        14, 2006. |
|   |            |   |                                                                                     |
|   | (7)             |   | Previously filed as an exhibit to Form 8-K on October 17,                        2006.   |
|   |            |   |                                                                                     |
|   | (8)             |   | Previously filed as exhibit to Form 8-K on June 8,                        2007.          |

39 

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          **Item 14. Principal Accountant Fees and Services**

          On June 4,            2007, the Company’s Audit Committee engaged Hoberman, Miller, Goldstein &            Lesser, P.C as its new independent registered public accounting firm effective            immediately. Prior to appointment as its independent registered public accounting firm,            the Company had previously consulted Hoberman in the first quarter of fiscal 2007 with            respect to the application of FIN 48. 

          *(a)     Audit            Fees*

          *2007*

          The            aggregate fees incurred during 2007 for Hoberman, Miller, Goldstein & Lesser, P.C,            our principal accountant, were $40,000, covering the audit of our annual financial            statements and the review of our financial statements for the second and third quarters            of 2007, consist of $10,000 paid and $30,000 accrued. 

          The            aggregate fees billed during 2007 by Amper, Politziner & Mattia, P.C., our former            principal accountant were $14,500, covering the remaining audit fee for 2006 and the            review for the first quarter of 2007. 

*          2006*

          No audit            fees were billed by Hoberman, Miller, Goldstein & Lesser, P.C, our current            principal accountant in 2006. 

          The            aggregate fees billed during 2006 by Amper, Politziner & Mattia, P.C., our former            principal accountant were $66,000, covering the audit of our annual financial            statements and the review of our financial statements for the second and third quarters            of 2006. 

          The            aggregate fees billed during 2006 by Goldstein Golub Kessler LLP, our former principal            accountant, were $5,500, covering the review for the first quarter of 2006 

*          (b)     Audit-Related            Fees*

          There were            no audit-related fees billed by Amper, Politziner & Mattia, P.C., our former            principal accountant during 2006. 

          There were            no audit-related fees billed by Hoberman, Miller, Goldstein & Lesser, P.C, our            principal accountant during 2006. 

*          (c)     Tax            Fees*

          Tax fees of            $20,000 were billed by our principal accountants in 2007 for amending previously filled            2003-2005 tax returns and preparing the 2006 tax return. 

          No fees for            services related to tax compliance, tax advice and tax planning were billed by our            principal accountants in 2006. 

40 

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*          (d)                 All Other Fees*

          Our            principal accountants billed no other fees, beyond those disclosed in this Item 14, in            2007 and 2006. 

*          Audit            Committee Pre-Approval, Policies and Procedures*

          Our Audit            Committee approved the engagement with Hoberman, Miller, Goldstein & Lesser, P.C,            our principal accountant, in advance. In addition the Audit Committee approved tax            services (as described in c above) provided by our independed auditors. These services            were pre-approved by our Audit Committee to assure that such services do not impair the            auditor’s independence from us. 

*          The            percentage of hours expended on audit by persons other than our principal            accountant’s full time, permanent employees, did not exceed 50%.*

41 

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**SIGNATURES**

          Pursuant to            the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the            Registrant has duly caused this Report to be signed on its behalf by the undersigned,            thereunto duly authorized. 

|                 |            |                                                                                                        |
|----------------------|-----------------|-------------------------------------------------------------------------------------------------------------|
|                 | DAG Media, Inc. |
|                 |            |                                                                                                        |
|                 | By:        | /s/ Assaf Ran                                                                                               |
|                 |            |                                                                                                             |
|                 |            | Assaf Ran, President, Chief Executive                        Officer and Chairman of the Board of Directors |
|                 |            |                                                                                                        |
| Date: March 14, 2008 |            |                                                                                                        |

          In            accordance with the Exchange Act, this report has been signed below by the following            persons on behalf of the Registrant and in the capacities and on March 14,            2008: 

|                  |   |           |   |                                                                                                                           |
|-----------------------|--------|----------------|--------|--------------------------------------------------------------------------------------------------------------------------------|
| Signature             |   | Date           |   | Title                                                                                                                          |
|                       |   |                |   |                                                                                                                                |
|                  |   |           |   |                                                                                                                           |
| /s/ Assaf Ran         |   | March 14, 2008 |   | President, Chief Executive Officer and Chairman of the                        Board of Directors (principal executive officer) |
|                       |   |           |   |
| Assaf Ran             |   |           |   |
|                  |   |           |   |                                                                                                                           |
| /s/ Inbar Evron-Yogev |   | March 14, 2008 |   | Chief Financial Officer (principal financial and                        accounting officer)                                    |
|                       |   |           |   |
| Inbar Evron-Yogev     |   |           |   |                                                                                                                           |
|                  |   |           |   |                                                                                                                           |
| /s/ Phillip Michals   |   | March 14, 2008 |   | Director                                                                                                                       |
|                       |   |           |   |                                                                                                                           |
| Phillip Michals       |   |           |   |                                                                                                                           |
|                  |   |           |   |                                                                                                                           |
| /s/ Eran Goldshmid    |   | March 14, 2008 |   | Director                                                                                                                       |
|                       |   |           |   |                                                                                                                           |
| Eran Goldshmid        |   |           |   |                                                                                                                           |
|                  |   |           |   |                                                                                                                           |
| /s/ Michael Jackson   |   | March 14, 2008 |   | Director                                                                                                                       |
|                       |   |           |   |                                                                                                                           |
| Michael Jackson       |   |           |   |                                                                                                                           |
|                  |   |           |   |                                                                                                                           |
| /s/ Mark Alhadeff     |   | March 14, 2008 |   | Director                                                                                                                       |
|                       |   |           |   |                                                                                                                           |
| Mark Alhadeff         |   |           |   |                                                                                                                           |

42 

----

----

**DAG MEDIA, INC.**

**Index to Consolidated Financial            Statements**

|                                                                                                                                             |   |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|
|                                                                                                                                             |   | Page Number |
|                                                                                                                                             |   |             |
|                                                                                                                                             |   |        |
| Reports of Independent Registered Public                        Accounting Firms                                                                 |   | F-2 - F-3   |
|                                                                                                                                             |   |        |
| Consolidated Financial Statements:                                                                                                               |   |        |
|                                                                                                                                             |   |        |
| Balance Sheet at December 31,                        2007                                                                                        |   | F-4         |
|                                                                                                                                             |   |        |
| Statements of Operations for the years ended                        December 31, 2007 and 2006                                                   |   | F-5         |
|                                                                                                                                             |   |        |
| Statements of Changes in Shareholders’                        Equity for the years ended                        December 31, 2007 and 2006 |   | F-6         |
|                                                                                                                                             |   |        |
| Statements of Cash Flows for the years ended                        December 31, 2007 and 2006                                                   |   | F-7         |
|                                                                                                                                             |   |        |
| Notes to Consolidated Financial                        Statements                                                                                |   | F-8         |

----

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC            ACCOUNTING FIRM**

The Board of Directors and Shareholders            Dag Media, Inc. 

We have audited the accompanying consolidated balance sheet of Dag            Media, Inc. and Subsidiaries of December 31, 2007, and the related consolidated            statements of operations, shareholders’ equity and cash flows for the year then            ended. These financial statements are the responsibility of the Company’s            management. Our responsibility is to express an opinion on these financial statements            based on our audit. 

We conducted our audit in accordance with the standards of the Public            Company Accounting Oversight Board (United States). Those standards require that we            plan and perform the audit to obtain reasonable assurance about whether the financial            statements are free of material misstatement. The Company is not required to have, nor            were we engaged to perform, an audit of its internal control over financial reporting.            Our audit included consideration of internal control over financial reporting as a            basis for designing audit procedures that are appropriate in the circumstances, but not            for the purpose of expressing an opinion on the effectiveness of the Company’s            internal control over financial reporting. Accordingly, we express no such opinion. An            audit also includes examining, on a test basis, evidence supporting the amounts and            disclosures in the financial statements, assessing the accounting principles used and            significant estimates made by management, as well as evaluating the overall financial            statement presentation. We believe that our audit provides a reasonable basis for our            opinion. 

In our opinion, the consolidated financial statements referred to            above present fairly, in all material respects, the consolidated financial position of            Dag Media, Inc. and Subsidiaries as of December 31, 2007, and the results of their            operations and their cash flows for the year then ended, in conformity with accounting            principles generally accepted in the United States of America. 

We have also audited the adjustments to the 2006 financial statements            to retrospectively apply the change in accounting for discontinued operations of            Shopila Corporation, as described in Note 10. In our opinion, such adjustments are            appropriate and have been properly applied. We were not engaged to audit, review, or            apply any procedures to the 2006 financial statements of the Company other than with            respect to the adjustments and, accordingly, we do not express an opinion or any form            of assurance on the 2006 financial statements taken as a whole. 

By: /s/ Hoberman Miller Steven & Lesser P.C. 

Hoberman Miller Steven & Lesser P.C. 

March 13, 2008            New York, New York 

F - 2 

----

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING            FIRM**

The Board of Directors and Shareholders            Dag Media, Inc. 

We have audited the accompanying consolidated statements of            operations, shareholders’ equity and cash flows of Dag Media, Inc. and            Subsidiaries for the year ended December 31, 2006. These financial statements are the            responsibility of the Company’s management. Our responsibility is to express an            opinion on these financial statements based on our audit. 

We conducted our audit in accordance with the standards of the Public            Company Accounting Oversight Board (United States). Those standards require that we            plan and perform the audit to obtain reasonable assurance about whether the financial            statements are free of material misstatement. The Company is not required to have, nor            were we engaged to perform, an audit of its internal control over financial reporting.            Our audit included consideration of internal control over financial reporting as a            basis for designing audit procedures that are appropriate in the circumstances, but not            for the purpose of expressing an opinion on the effectiveness of the Company’s            internal control over financial reporting. Accordingly, we express no such opinion. An            audit also includes examining, on a test basis, evidence supporting the amounts and            disclosures in the financial statements, assessing the accounting principles used and            significant estimates made by management, as well as evaluating the overall financial            statement presentation. We believe that our audit provides a reasonable basis for our            opinion. 

In our opinion, the consolidated financial statements referred to            above present fairly, in all material respects, the results of Dag Media, Inc. and            Subsidiaries’ operations and their cash flows for the year then ended, in            conformity with accounting principles generally accepted in the United States of            America. 

We were not engaged to audit, review, or apply any procedures to the            adjustments to retrospectively apply the change in presentation for the discontinued            operations of Shopila Corporation described in Note 10 and, accordingly, we do not            express an opinion or any other form of assurance about whether such adjustments are            appropriate and have been properly applied. Those adjustments were audited by Hoberman,            Miller, Goldstein & Lesser, P.C. 

During the year ended December 31, 2006, and as discussed in Note 2,            the Company changed its method of accounting for stock-based compensation. 

By: /s/ Amper, Politziner & Mattia, P.C. 

Amper, Politziner & Mattia, P.C. 

March 23, 2007            New York, New York 

F - 3 

----

----

**DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEET            DECEMBER 31, 2007**

|                                                                                                                                             |   |   |       |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|
| **Assets**                                                                                                                                       |   |   |       |   |
| Current                        assets:                                                                                                           |   |   |       |   |
| Cash                        and cash equivalents                                                                                                 |   | $      | 621,724    |   |
| Marketable securities                                                                                                                            |   |   | 802,811    |   |
| Short                        term investment – insurance annuity contract – at fair                        value                     |   |   | 931,555    |   |
|                                                                                                                                             |   |        |            |   |
| Total cash and cash equivalents, marketable securities and                        short term investment                                          |   |   | 2,356,090  |   |
|                                                                                                                                             |   |   |       |   |
| Short                        term commercial notes                                                                                               |   |   | 4,313,211  |   |
| Interest receivable on short term commercial                        notes                                                                        |   |   | 41,184     |   |
| Due                        from purchaser                                                                                                        |   |   | 156,103    |   |
| Other                        current assets                                                                                                      |   |   | 17,083     |   |
|                                                                                                                                             |   |        |            |   |
| Total current assets                                                                                                                             |   |   | 6,883,671  |   |
|                                                                                                                                             |   |        |            |   |
|                                                                                                                                             |   |   |       |   |
| Property and equipment, net                                                                                                                      |   |   | 14,261     |   |
| Capitalized web development costs, net                                                                                                           |   |   | 74,015     |   |
| Security deposit                                                                                                                                 |   |   | 17,515     |   |
| Investment in privately held company, at cost                                                                                                    |   |   | 100,000    |   |
|                                                                                                                                             |   |        |            |   |
|                                                                                                                                             |   |   |       |   |
| Total assets                                                                                                                                     |   | $      | 7,089,462  |   |
|                                                                                                                                             |   |        |            |   |
|                                                                                                                                             |   |   |       |   |
| **Liabilities and Shareholders’ Equity**                                                                                                   |   |   |       |   |
| Current                        liabilities:                                                                                                      |   |   |       |   |
| Accounts payable and accrued expenses                                                                                                            |   | $      | 123,886    |   |
| Deferred gain from the sale of Jewish Directories                                                                                                |   |   | 72,917     |   |
| Deferred origination fee                                                                                                                         |   |   | 4,597      |   |
|                                                                                                                                             |   |        |            |   |
| Total current liabilities                                                                                                                        |   |   | 201,400    |   |
|                                                                                                                                             |   |        |            |   |
|                                                                                                                                             |   |   |       |   |
| Commitments and contingencies (Note 11)                                                                                                          |   |   |       |   |
| Shareholders’ equity:                                                                                                                      |   |   |       |   |
|                                                                                                                                             |   |   |       |   |
| Preferred shares - $.01 par value; 5,000,000 shares                        authorized; no shares issued                                          |   |   | –    |   |
|                                                                                                                                             |   |   |       |   |
| Common                        shares - $.001 par value; 25,000,000 authorized; 3,305,190 issued and                        3,236,460 outstanding |   |   | 3,305      |   |
| Additional paid-in capital                                                                                                                       |   |   | 9,180,235  |   |
| Treasury stock, at cost- 68,730 shares                                                                                                           |   |   | (231,113   | )      |
| Accumulated other comprehensive loss                                                                                                             |   |   | (441,272   | )      |
| Accumulated deficit                                                                                                                              |   |   | (1,623,093 | )      |
|                                                                                                                                             |   |        |            |   |
| Total shareholders’ equity                                                                                                                 |   |   | 6,888,062  |   |
|                                                                                                                                             |   |        |            |   |
|                                                                                                                                             |   |   |       |   |
| Total                        liabilities and shareholders’ equity                                                                          |   | $      | 7,089,462  |   |
|                                                                                                                                             |   |        |            |   |

The accompanying notes are an integral part of these            consolidated financial statements. 

F - 4 

----

----

**DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS            FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006**

|                                                                                                                               |   |     |      |     |   |       |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------|--------|------------|--------|
|                                                                                                                               |   | **2007** |      | **2006** |   |
|                                                                                                                               |   |          |      |          |   |
|                                                                                                                               |   |     |      |     |   |       |   |
| Interest income from short term commercial notes                                                                                   |   | $        | 209,898   |     | $      | –    |   |
| Origination fees                                                                                                                   |   |     | 6,913     |     |   | –    |   |
| Subscription revenues, net                                                                                                         |   |     | 4,351     |     |   | 9,885      |   |
|                                                                                                                               |   |          |           |     |        |            |   |
| Total                        Revenue                                                                                               |   |     | 221,162   |     |   | 9,885      |   |
|                                                                                                                               |   |          |           |     |        |            |   |
|                                                                                                                               |   |     |      |     |   |       |   |
| Operating costs and expenses:                                                                                                      |   |     |      |     |   |       |   |
| Web                        development expenses                                                                                    |   |     | 49,344    |     |   | 137,666    |   |
| Marketing expenses                                                                                                                 |   |     | 8,788     |     |   | 87,955     |   |
| General                        and administrative expenses                                                                         |   |     | 756,753   |     |   | 824,963    |   |
|                                                                                                                               |   |          |           |     |        |            |   |
| Total operating costs and expenses                                                                                                 |   |     | 814,885   |     |   | 1,050,584  |   |
|                                                                                                                               |   |          |           |     |        |            |   |
|                                                                                                                               |   |     |      |     |   |       |   |
| Loss                        from operations                                                                                        |   |     | (593,723  | )        |   | (1,040,699 | )      |
|                                                                                                                               |   |          |           |     |        |            |   |
|                                                                                                                               |   |     |      |     |   |       |   |
| Interest and dividend income                                                                                                       |   |     | 249,053   |     |   | 260,394    |   |
| Realized gain (loss) on marketable securities                                                                                      |   |     | 148,777   |     |   | (45,611    | )      |
| Write-off of investment in convertible loan                                                                                        |   |     | (25,000   | )        |   | –    |   |
| Other                        (loss) income                                                                                         |   |     | (400      | )        |   | 14,232     |   |
|                                                                                                                               |   |          |           |     |        |            |   |
| Total other income                                                                                                                 |   |     | 372,430   |     |   | 229,015    |   |
|                                                                                                                               |   |          |           |     |        |            |   |
| Loss                        from continuing operations before income tax benefit                                                   |   |     | (221,293  | )        |   | (811,684   | )      |
| Income                        tax benefit                                                                                          |   |     | 182,469   |     |   | –    |   |
|                                                                                                                               |   |          |           |     |        |            |   |
| Loss                        from continuing operations                                                                             |   |     | (38,824   | )        |   | (811,684   | )      |
|                                                                                                                               |   |          |           |     |        |            |   |
|                                                                                                                               |   |     |      |     |   |       |   |
| Discontinued Operations:                                                                                                           |   |     |      |     |   |       |   |
| Gain on                        the sale of the Jewish Directories (net of tax effect of 0 in 2007 and                        2006) |   |     | 267,360   |     |   | 767,939    |   |
| Loss                        from operations of Jewish Directories                                                                  |   |     | –   |     |   | (75,129    | )      |
| Loss                        from operations of Shopila (net of tax effect of 0 in 2007 and                        2006)            |   |     | (260,240  | )        |   | (55,239    | )      |
|                                                                                                                               |   |          |           |     |        |            |   |
| Income                        from discontinued operations                                                                         |   |     | 7,120     |     |   | 637,571    |   |
|                                                                                                                               |   |          |           |     |        |            |   |
| Net                        loss                                                                                                    |   | $        | (31,704   | )        | $      | (174,113   | )      |
|                                                                                                                               |   |          |           |          |        |            |   |
|                                                                                                                               |   |     |      |     |   |       |   |
| Basic                        and diluted net income (loss) per common share outstanding                                            |   |     |      |     |   |       |   |
| Continuing operations                                                                                                              |   | $        | (0.01     | )        | $      | (0.25      | )      |
| Discontinued operations                                                                                                            |   |     | *         |     | $      | 0.20       |   |
|                                                                                                                               |   |          |           |     |        |            |   |
| Net                        loss per common share                                                                                   |   | $        | (0.01     | )        | $      | (0.05      | )      |
|                                                                                                                               |   |          |           |     |        |            |   |
|                                                                                                                               |   |     |      |     |   |       |   |
| Weighted average number of common shares                        outstanding                                                        |   |     |      |     |   |       |   |
| - Basic                        and diluted                                                                                         |   |     | 3,236,460 |     |   | 3,177,765  |   |

* Less than $0.01 per share 

The accompanying notes are an integral part of these            consolidated financial statements 

F - 5 

----

----

**DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY            FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006**

|                                                                                   |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   |          |   |
|----------------------------------------------------------------------------------------|--------|--------------|---------------|-----------------------------------------------|----------------|-----------|--------|--------------------------------------------------|---------------|------------------------------------------|--------|------------------------------------------------------------------|--------|--------|--------------|--------|--------|-------------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------------|--------|--------|---------------|--------|
|                                                                                   |   |         |          |                                          |           |      |   |                                             |          |                                     |   | Accumulated other comprehensive                    income (loss) |   |   |         |   |   |
|                                                                                   |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |
|                                                                                   |   |         |          | Additional Paid-in                    Capital |           |      |   | Stock Subscription                    Receivable |          | Deferred                    Compensation |   |                                                             |   |   |         |   |
|                                                                                   |   | Common Stock |          |                                          | Treasury Stock |      |   |                                             |          | Accumulated Deficit                      |   |                                                             |   |
|                                                                                   |   |              |          |                                          |                |      |   |                                             |          |                                     |   |                                                             |
|                                                                                   |   | Shares       |          | Amount                                        |           |      | Shares |                                             | Cost          |                                     |   |                                                             |   |   | Totals       |   |
|                                                                                   |   |              |          |                                               |           |           |   |                                                  |          |                                          |   |                                                                  |   |        |         |        |   |             |   |        |        |
| Balance,                    January 1, 2006                                            |   |         | **3,211,190** |                                          | **$**          | **3,211** |   | **$**                                            | **8,590,174** |                                     |   | **68,730**                                                       |   | **$**  | **(231,113** | **)**  | **$**  | **(47,400** | **)**  | **$**  | **(26,841** | **)**  | **$**  | **(403,512** | **)**  | **$**  | **(1,417,276** | **)**  | **$**  | **6,467,243** |   |
| Issuance of                    common stock from exercise of options                   |   |         | 4,000         |                                          |           | 4         |   |                                             | 5,516         |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   | 5,520         |   |
| Services                    performed for shares issued previous year                  |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   | 47,400      |   |   |        |   |   |         |   |   |           |   |   | 47,400        |   |
| Non cash                    compensation                                               |   |         |          |                                          |           |      |   |                                             | 183,012       |                                     |   |                                                             |   |   |         |   |   |        |   |   | 11,592      |   |   |         |   |   |           |   |   | 194,604       |   |
| Non cash                    compensation to related party for service performed        |   |         |          |                                          |           |      |   |                                             | 108,846       |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   | 108,846       |   |
| Issuance of                    common stock to related parties                         |   |         | 40,000        |                                          |           | 40        |   |                                             | 80,560        |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   | 80,600        |   |
| Issuance of                    common stock to Guy Mushkat for Shopila acquisition     |   |         | 50,000        |                                          |           | 50        |   |                                             | 70,450        |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   | 70,500        |   |
| Options                    forfeited                                                   |   |         |          |                                          |           |      |   |                                             | (15,249       | )                                        |   |                                                             |   |   |         |   |   |        |   |   | 15,249      |   |   |         |   |   |           |   |   | –       |   |
| Unrealized                    gain on preferred stocks and other marketable securities |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   | 275,917      |   |   |           |   |   | 275,917       |   |
| Net loss                    for the year ended December 31, 2006                       |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   | (174,113       | )      |   | (174,113      | )      |
|                                                                                   |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |        |               |   |
| Total                    comprehensive income                                          |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   | 101,804       |   |
|                                                                                   |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |        |               |   |
| Balance,                    December 31, 2006                                          |   |         | **3,305,190** |                                          |           | **3,305** |   |                                             | **9,023,309** |                                     |   | **68,730**                                                       |   |   | **(231,113** | **)**  |   | **–** |   |   | **–** |   |   | **(127,595** | **)**  |   | **(1,591,389** | **)**  |   | **7,076,517** |   |
| Non cash                    compensation                                               |   |         |          |                                          |           |      |   |                                             | 156,926       |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   | 156,926       |   |
| Unrealized                    loss on preferred stocks and other marketable securities |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   | (313,677     | **)**  |   |           |   |   | (313,677      | )      |
| Net loss                    for the year ended December 31, 2007                       |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   | (31,704        | )      |   | (31,704       | )      |
|                                                                                   |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |        |               |   |
| Total                    comprehensive loss                                            |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |   | (345,381      | )      |
|                                                                                   |   |         |          |                                          |           |      |   |                                             |          |                                     |   |                                                             |   |   |         |   |   |        |   |   |        |   |   |         |   |   |           |   |        |               |   |
| Balance,                    December 31, 2007                                          |   |         | **3,305,190** |                                          | **$**          | **3,305** |   | **$**                                            | **9,180,235** |                                     |   | **68,730**                                                       |   | **$**  | **(231,113** | **)**  |   | **–** |   |   | **–** |   | **$**  | **(441,272** | **)**  | **$**  | **(1,623,093** | **)**  | **$**  | **6,888,062** |   |
|                                                                                   |   |              |          |                                               |           |           |   |                                                  |          |                                          |   |                                                                  |   |        |         |        |   |             |   |        |        |

The accompanying notes are an integral part of these            consolidated financial statements. 

F - 6 

----

----

**DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS            FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006**

|                                                                                                |   |     |       |     |   |       |   |
|-----------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|------------|--------|
|                                                                                                |   | **2007** |       | **2006** |   |
|                                                                                                |   |          |       |          |   |
|                                                                                                |   |     |       |     |   |       |   |
| Cash                        flows from operating activities:                                        |   |     |       |     |   |       |   |
| Net loss                                                                                            |   | $        | (31,704    | )        | $      | (174,113   | )      |
| Adjustments to reconcile net loss to net cash used in                        operating activities - |   |     |       |     |   |       |   |
| Gain on sale of Jewish Directories                                                                  |   |     | (267,360   | )        |   | (481,468   | )      |
| Loss from discontinued operations of Shopila                                                        |   |     | 260,240    |     |   | 55,239     |   |
| Depreciation and amortization                                                                       |   |     | 53,881     |     |   | 33,520     |   |
| Non cash compensation expense                                                                       |   |     | 156,926    |     |   | 305,848    |   |
| Write-off of investment in convertible loan                                                         |   |     | 25,000     |     |   | –    |   |
| Realized (gain) loss on sale of marketable                        securities                        |   |     | (148,777   | )        |   | 45,611     |   |
| Loss (gain) on the sale of fixed assets                                                             |   |     | 400        |     |   | (14,232    | )      |
| Changes in operating assets and liabilities net of effects                        of disposition -  |   |     |       |     |   |       |   |
| Interest receivable on short term commercial                        notes                           |   |     | (41,184    | )        |   | –    |   |
| Other current and non current assets                                                                |   |     | 21,507     |     |   | (9,638     | )      |
| Accounts payable and accrued expenses                                                               |   |     | (65,818    | )        |   | 108,424    |   |
| Deferred origination fees                                                                           |   |     | 4,597      |     |   | –    |   |
| Due from purchasers                                                                                 |   |     | –    |     |   | (125,047   | )      |
| Income taxes payable                                                                                |   |     | (341,681   | )        |   | (25,652    | )      |
| Assets and liabilities from discontinued                        operations                          |   |     | (112,755   | )        |   | (171,625   | )      |
|                                                                                                |   |          |            |     |        |            |   |
| Net cash used in operating activities                                                               |   |     | (486,728   | )        |   | (453,133   | )      |
|                                                                                                |   |          |            |     |        |            |   |
|                                                                                                |   |     |       |     |   |       |   |
| Cash                        flows from investing activities:                                        |   |     |       |     |   |       |   |
| Investment in marketable securities and annuity                        contract                     |   |     | (1,544,637 | )        |   | (2,591,432 | )      |
| Partial redemption of insurance annuity contract                                                    |   |     | 214,360    |     |   | –    |   |
| Proceeds from sale of marketable securities                                                         |   |     | 2,814,495  |     |   | 2,628,275  |   |
| Short term commercial notes made                                                                    |   |     | (4,927,250 | )        |   | –    |   |
| Collection received from short term commercial                        notes                         |   |     | 614,039    |     |   | –    |   |
| Investment in convertible loan                                                                      |   |     | –    |     |   | (25,000    | )      |
| Acquisition of Shopila                                                                              |   |     | –    |     |   | (107,500   | )      |
| Purchase of fixed assets                                                                            |   |     | (3,215     | )        |   | (18,729    | )      |
| Proceeds from sale of fixed assets                                                                  |   |     | 500        |     |   | 9,213      |   |
| Capitalized web development costs                                                                   |   |     | –    |     |   | (22,429    | )      |
| Cash received on sale of Jewish Directories, net of                        expenses                 |   |     | 309,223    |     |   | 309,971    |   |
|                                                                                                |   |          |            |     |        |            |   |
| Net cash (used in) provided by investing                        activities                          |   |     | (2,522,485 | )        |   | 182,369    |   |
|                                                                                                |   |          |            |     |        |            |   |
|                                                                                                |   |     |       |     |   |       |   |
| Cash                        flows from financing activities:                                        |   |     |       |     |   |       |   |
| Proceeds from exercise of options                                                                   |   |     | –    |     |   | 5,520      |   |
| Dividends paid                                                                                      |   |     | –    |     |   | (314,246   | )      |
|                                                                                                |   |          |            |     |        |            |   |
| Net cash used in financing activities                                                               |   |     | –    |     |   | (308,726   | )      |
|                                                                                                |   |          |            |     |        |            |   |
|                                                                                                |   |     |       |     |   |       |   |
| Net                        decrease in cash and cash equivalents                                    |   |     | (3,009,213 | )        |   | (579,490   | )      |
|                                                                                                |   |     |       |     |   |       |   |
| Cash                        and cash equivalents, beginning of year                                 |   |     | 3,630,937  |     |   | 4,210,427  |   |
|                                                                                                |   |          |            |     |        |            |   |
|                                                                                                |   |     |       |     |   |       |   |
| Cash                        and cash equivalents, end of year                                       |   | $        | 621,724    |     | $      | 3,630,937  |   |
|                                                                                                |   |          |            |     |        |            |   |
|                                                                                                |   |     |       |     |   |       |   |
| Supplemental Cash Flow Information:                                                                 |   |     |       |     |   |       |   |
| Taxes                        paid during the year                                                   |   | $        | 212,430    |     | $      | 25,535     |   |
|                                                                                                |   |          |            |     |        |            |   |
| Common                        stock issued to Ocean 7 and in regards to Shopila acquisition         |   | $        | –    |     | $      | 151,100    |   |
|                                                                                                |   |          |            |     |        |            |   |
| Capitalized software acquired through issuance of stock and                        grant of options |   | $        | –    |     | $      | 47,400     |   |
|                                                                                                |   |          |            |     |        |            |   |
| Acquisition of company :                                                                            |   |     |       |     |   |       |   |
| Liabilities assumed                                                                                 |   |     | –    |     | $      | (140,000   | )      |
| Goodwill and other intangibles                                                                      |   |     | –    |     |   | 465,100    |   |
| Deferred tax liability                                                                              |   |     | –    |     |   | (67,600    | )      |
| Minority interest                                                                                   |   |     | –    |     |   | (79,500    | )      |
| Less – Stock issued                                                                           |   |     | –    |     |   | (70,500    | )      |
|                                                                                                |   |          |            |     |        |            |   |
| Net cash paid                                                                                       |   | $        | –    |     | $      | 107,500    |   |
|                                                                                                |   |          |            |     |        |            |   |

The accompanying notes are an integral part of these            consolidated financial statements. 

F - 7 

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**DAG MEDIA, INC. AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS            DECEMBER 31, 2007 AND 2006**

**1.      The            Company**

          Dag Media,            Inc. and subsidiaries (the “Company”), was incorporated in New York in            1989. The Company through its subsidiary, DAG Funding Solutions, Inc. (“DAG            Funding”) provides short term, secured, non–banking, commercial loans, to            small businesses. In addition, another subsidiary DAG Interactive, Inc. (“DAG            Interactive”) has developed innovative software and a related web site that            allows retail businesses and other service providers to reach prospective customers and            clients for their goods and services in a more effective way than traditional on-line            and print yellow pages. 

          DAG            Interactive together with its development partner, have developed innovative software            that allows retail businesses and other service providers to reach prospective            customers and clients for their goods and services in a more effective way than that            provided by traditional on-line and print yellow pages. DAG Interactive has named this            innovative software solution and the internet site on which it appears            *“Nextyellow”* and has marketed it on a limited basis to establish            “proof of concept”. *Nextyellow* facilitates highly accurate,            automated matching of consumers’ needs to businesses’ capabilities within            targeted local service areas. DAG Interactive has applied for patent and service mark            protection for *Nextyellow* in the United States*.*

          DAG            Interactive’s roll-out and full scale marketing of *Nextyellow* awaits new            funding for this operation, preferably at the subsidiary level, or reaching agreement            with a marketing partner. 

          In July            2007, the Company discontinued operations of its 80% owned subsidiary, Shopila            Corporation (“Shopila”), which was dissolved in December, 2007, and in            April of 2006 the Company sold its two remaining Yellow pages directories (See note            10). 

          Until April            20, 2006, our principal business was the publication of bilingual, English, and Hebrew            yellow page directories distributed free through local commercial and retail            establishments in the New York metropolitan area, New Jersey and Florida including a            yellow page directory designed to meet the special needs of the Hasidic and            ultra-Orthodox Jewish communities. On April 20, 2006, we sold our two remaining yellow            page directories to DAG-Jewish Directories, Inc., a buying entity that was established            by a group of sales agency owners and a few of our employees for (i) $291,667 paid in            cash at closing; (ii) a promissory note in the amount of $613,333 payable in 24            consecutive monthly installments of $25,556 each bearing interest, at 5% per annum; and            (iii) the Buyer’s assumption of liabilities relating to the Jewish directories            business in the amount of $3,197,000. 

          The Company            has reflected its directories businesses as discontinued operations in the accompanying            financial statements for all periods presented. As a result, sales, cost of goods sold,            and related expenses have been reclassified in the statement of operations and are            shown separately as a net amount under the caption income (loss) from discontinued            operations for all periods presented. Accordingly, we recorded a net loss from            discontinued operations of the Jewish Directories totaling $75,129 for the year ended            December 31, 2006. Net revenue from the discontinued operations was $1,370,242, for the            year ended December 31, 2006. 

          The Company            also recorded a gain on the sale of the Jewish Directories in the amount of $267,360            for the year ended December 31, 2007, which represents installment payments from the            sale of the directories, compared to a gain on the sale of the Jewish directories            business amounting to $692,810 for the year ended December 31, 2006, which includes net            liabilities assumed and payments received, net of professional fees. (See note            10) 

F - 8 

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**2.      Significant            Accounting Policies**

*          Principles            of Consolidation*

          The            consolidated financial statements include the accounts of DAG Media, Inc., its            wholly-owned subsidiary DAG Funding, its 80% owned subsidiary, DAG Interactive            (incorporated December 5, 2005) and its 80% owned subsidiary Shopila Corporation, which            was discontinued in July 2007. All significant intercompany balances and transactions            have been eliminated in consolidation. 

*          Use of            Estimates*

          The            preparation of financial statements in conformity with generally accepted accounting            principles in the United States of America 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. Management will            base the use of estimates on (a) a preset number of assumptions that consider past            experience, (b) future projections, and (c) general financial market condition. Actual            amounts could differ from those estimates. 

*          Cash and            Cash Equivalents*

          For the            purposes of the statements of cash flows, the Company considers all highly liquid            investments purchased with an original maturity of three months or less to be cash            equivalents. 

*          Marketable            Securities and**Short Term Investment –Insurance Annuity            Contract*

           Marketable            securities and the investment in an insurance annuity contract are reported at fair            value and are classified as available-for-sale. Unrealized gains and losses from those            securities are reported as a separate component of shareholders’ equity, net of            the related tax effect. Realized gains and losses are determined on a specific            identification basis. None of the assets classified as marketable securities constitute            investments in debt securities. Accordingly, no additional disclosure is needed under            paragraph 20 of SFAS 115, Accounting for Certain Investments in Debt and Equity            Securities. 

*           Property            and Equipment*

          Property and            equipment are recorded at cost. Depreciation is provided on a straight-line basis over            the estimated useful economic lives of the assets, ranging from three to five years.            Leasehold improvements are amortized over the shorter of the lease agreement or the            useful life of the assets. 

*           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 rate is recognized in income in the            period that includes the enactment date. 

          Effective            January 1, 2007, the Company adopted Financial Accounting Standards Board            Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES (“FIN            48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized            in an enterprise’s financial statements in accordance with SFAS Statement No.            109, ACCOUNTING FOR INCOME TAXES. FIN 48 prescribes a recognition threshold and            measurement attribute for the financial statement recognition and measurement of a tax            position taken or expected to be taken in a tax return. FIN 48 also provides guidance            on derecognition, classification, interest and penalties, accounting in interim            periods, disclosure and transition. There were no adjustments required upon adoption of            FIN 48. 

F - 9 

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*          Revenue            Recognition*

          The Company            applies the provisions of the Securities and Exchange Commission (“SEC”)            Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition in Financial            Statements, which provides guidance on the recognition, presentation and disclosure of            revenue in financial statements filed with the SEC. SAB No. 104 outlines the basic            criteria that must be met to recognize revenue and provides guidance for disclosure            related to revenue recognition policies. In general, the Company recognizes revenue            when (i) persuasive evidence of an exchange arrangement exists, (ii) delivery of the            product has occurred, (iii) the sales price charged is fixed or determinable, and (iv)            collectibility is reasonably assured. 

          Interest            income from short term commercial notes is recognized, as earned, over the note            period. 

          Origination            fee revenue on short term commercial notes is amortized over the term of the respected            note. 

*          Web            Development Costs*

          Costs            incurred to develop software for internal use are required to be capitalized and            amortized over the estimated useful life of the software in accordance with Statement            of Position (SOP) 98-1, Accounting for the Costs of Computer Software Developed or            Obtained for Internal Use. Costs related to design or maintenance of internal-use            software are expensed as incurred. For the year ended 2006, we capitalized            approximately $148,000 (including $126,000 of stock-based compensation) and $22,000 of            costs associated with website development. We are amortizing the capitalized web            development costs, over an estimated useful life of 3 years. Amortization expenses for            the years ended December 31, 2007 and 2006 were $49,000 and $25,000,            respectively. 

*           Earnings            Per Share (“EPS”)*

          Basic and            diluted earnings per share are calculated in accordance with 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 include the potential dilution from the exercise            of stock options and warrants for common shares using the treasury stock            method. 

          610,000 and            578,000 stock options were not included in the diluted earnings per share calculation            for the 2007 and 2006 fiscal year, respectively, as their effect would have been            anti-dilutive. 

*          Impairment            of long- lived assets including goodwill*

          The Company            continually monitors events or changes in circumstances that could indicate carrying            amounts of long lived assets, including intangible assets and goodwill, may not be            recoverable. When such events or changes in circumstances occur, the Company assesses            the recoverability of long-lived assets by determining whether the carrying value of            such assets will be recovered through undiscounted expected future cash flows. If the            total of the undiscounted cash flows is less than the carrying amount of these assets,            the Company recognizes an impairment loss based on the excess of the carrying amount            over the fair value of the assets. During the year ended December 31, 2007, the Company            wrote-off its goodwill and other intangible assets related to the acquisition of            Shopila (see note 10). In addition the Company Wrote-off the investment in Dapey Aviv            in the amount of $25,000. 

F - 10 

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*          Stock-Based            Compensation*

          Effective            January 1, 2006, the company adopted Statement of Financial Accounting Standards No.            123 (revised 2004), “Share-Based Payment”, (“SFAS 123(R)”)            which establishes standards for the accounting for transactions in which an entity            exchanges its equity instruments for goods or services. A key provision of this            statement is to measure the cost of employee services received in exchange for an award            of equity instruments (including stock options) based on the grant-date fair value of            the award. The cost will be recognized over the service period during which an employee            is required to provide service in exchange for the award (i.e., the requisite service            period or vesting period). SFAS 123(R) supersedes the Company’s previous            accounting under Accounting Principles Board (“APB”) Opinion No. 25            “Accounting for Stock Issued to Employees” for periods which began in            fiscal 2006. We account for equity instruments issued to non employees in accordance            with the provisions of SFAS No. 123(R) and Emerging Issues Task Force            (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are            Issued to Other Than Employees for Acquiring, or in Conjunction With Selling Goods or            Services”. All transactions with non employees, in which goods or services are            the consideration received for the issuance of equity instruments are accounted for            based on the fair value of the consideration received or the fair value of the equity            instrument issued, whichever is more appropriately measurable. 

          We adopted            SFAS 123(R) using the modified prospective transition method. Under this transition            method, compensation cost in 2007 and 2006 includes cost for options granted prior to            but not vested as of December 31, 2005, or vested in 2007 and 2006. Therefore results            for prior periods have not been restated. Share based compensation expense recognized            under SFAS 123(R) for the years ended December 31, 2007 and 2006 were $156,926 and            $173,420, respectively. 

          The fair            value of each option is estimated on the date of grant using Black-Scholes            option-pricing model with the following weighted-average share assumptions used for            grants in 2007 and 2006, respectively: (1) expected life of 5 years; (2) No annual            dividend yield; (3) expected volatility 70%; (4) risk free interest rate of 4.5% to            5.1%. 

*          Concentrations            of Credit Risk*

          Financial            instruments that potentially subject the Company to concentrations of credit risk            consist primarily of cash and cash equivalents and marketable securities. The Company            maintains cash and cash equivalents with various major financial institutions, which            invest primarily in marketable securities and high quality corporate            obligations. 

          Credit risks            associated with short term commercial notes, and related interest receivable, the            Company makes to small businesses are described in Note 4 entitled Short Term            Commercial Notes. 

*           Fair            Value of Financial Instruments*

          For cash and            cash equivalents and account payable as well as short term interest bearing commercial            notes held by the Company, the carrying amount approximates fair value due to the            short-term nature of such instruments. 

*          Advertising            Expenses*

          Advertising            expenses are expensed as occurred. There were advertising expenses of $8,788 and            $47,250 for the years ended December 31, 2007 and 2006, respectively. 

F - 11 

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*          Other            Comprehensive Income (Loss)*

          Other            comprehensive income (loss) consists of unrealized gains (losses) on marketable            securities. The Company’s comprehensive loss for the year ended December 31, 2007            totaled $345,381 and for the year ended December 31, 2006 comprehensive income totaled            $101,804. 

*          Recent            Accounting Pronouncements*

          In September            2006, the Financial Accounting Standards Board (“FASB”) issued FASB            Statement No. 157, Fair Value Measurements, which defines fair value, establishes            a framework for measuring fair value under GAAP, and expands disclosures about fair            value measurements. FASB Statement No. 157 applies to other accounting            pronouncements that require or permit fair value measurements. The new guidance is            effective for financial statements issued for fiscal years beginning after            November 15, 2007, and for interim periods within those fiscal years. On            November 15, 2007, the FASB partially deferred the effective date of FAS 157            to fiscal years (and interim periods within those fiscal years) beginning after            November 15, 2008 for certain non financial assets and non financial            liabilities. We are currently evaluating the potential impact, if any, of the adoption            of FASB Statement No. 157 on our consolidated financial position, results of            operations and cash flows. 

          In September            2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.            158, “Employers’ Accounting for Defined Benefit Pension and Other            Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and            132(R)” (“SFAS No. 158”). SFAS No. 158 requires companies to report            the funded status of their defined benefit pension and other postretirement benefit            plans on their balance sheets as a net liability or asset as of December 31, 2006. The            new standard does not address the accounting treatment for pension and postretirement            benefits in the income statement. This will have no impact on the Company’s            results of operations or financial position. 

          In February            2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.159,            “The Fair Value Option for Financial Assets and Financial Liabilities –            Including an amendment of FASB Statement No.115”. SFAS No.159 permits entities to            choose to measure eligible financial instruments and other items at fair value at            specified election dates. A business entity shall report unrealized gains and losses on            items for which the fair value option has been elected in earnings at each subsequent            reporting date. The fair value option may be applied instrument by instrument but only            upon the entire instrument – not portions of the instrument. SFAS No.159 is            effective as of the beginning of an entity’s first fiscal year that begins after            November 15, 2007. The Company does not anticipate that the adoption of SFAS No. 159            will have an impact on the Company’s overall results of operations or financial            position. 

          In December            2007, the Financial Accounting Standards Board (“FASB”) simultaneously            issued SFAS No. 141R, “Business Combinations (2007 Amendment),” and SFAS            160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment            of ARB 51.” Both standards update United States guidance on accounting for            “noncontrolling interests,” sometimes referred to as minority interests,            which interests represent a portion of a subsidiary not attributable, directly or            indirectly, to a parent. FASB and the International Accounting Standards Board            (“IASB”) have been working together to promote international convergence of            accounting standards. Prior to promulgation of these new standards there were specific            areas in accounting for business acqusitions in which conversion was not achieved. The            objective of both standards is to improve the relevance, comparability, and            transparency of the financial information that a reporting entity provides in            “business combinations” and consolidated financial statements by            establishing accounting and reporting standards. In business combinations it is            accomplished by establishing principles and requirements concerning how an            “acquirer” recognizes and measures identifiable assets acquired,            liabilities assumed, and noncontrolling interest in the acquiree, as well as goodwill            acquired in the combination or gain from a bargain purchase; and determines information            to be disclosed to enable users to evaluate the nature and effects of business            combinations. In consolidated financial statements the standards require:            identification of ownership interests held in subsidiaries by parties other than the            parent be clearly identified, labeled and presented in consolidated financial position            within equity (rather than “mezzanine” between liabilities and equity)            separately from amounts attributed to the parent, with net income attributable to the            parent and to the minority interest clearly identified and presented on the face of            consolidated statements of income. The standards also provide guidance in situations            where the parent’s ownership interest in a subsidiary changes while the parent            retains its controlling financial interest. The standard also provides guidance on            recording a gain or loss based on fair value in situations involving deconsolidation of            a subsidiary. Entities must provide sufficient disclosures that distinguish between            interests of the parent and that of the noncontrolling interest. Both standards are            effective for fiscal years and interims beginning on or after December 15, 2008 (that            is January 1, 2009) for entities with calendar years. Earlier adoption is prohibited.            The standards shall be applied prospectively as of the beginning of the fiscal year in            which initially applied, except for the presentation and disclosure requirements, which            shall be applied retrospectively for all periods presented. We are evaluating the            impact these standards will have on the Company’s financial position and results            of operations. 

F - 12 

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          Management            does not believe that any other recently issued, but not yet effected, accounting            standards if currently adopted would have a material effect on the Company’s            consolidated financial statements. 

**3.      Marketable            Securities and Insurance Annuity Contract**

          The            Company’s securities and insurance annuity contract consist of the            following: 

|                              |   |   |       |   |   |      |   |   |                          |   |
|-----------------------------------|--------|--------|------------|--------|--------|-----------|--------|--------|-------------------------------|--------|
| As of 12/31/2007                  |   |   | Fair Value |   |   | Cost      |   |   | Holding Gains        (Losses) |   |
|                                   |   |        |            |   |        |           |   |        |                               |   |
| Insurance        Annuity Contract |   | $      | 931,555    |   | $      | 927,265   |   | $      | 4,290                         |   |
| Marketable Securities             |   |   | 802,811    |   |   | 1,248,373 |   |   | (445,562                      | )      |
|                              |   |        |            |   |        |           |   |        |                               |   |
| Total                             |   | $      | 1,734,366  |   | $      | 2,175,638 |   | $      | (441,272                      | )      |
|                              |   |        |            |   |        |           |   |        |                               |   |

|                              |   |   |       |   |   |      |   |   |                          |   |
|-----------------------------------|--------|--------|------------|--------|--------|-----------|--------|--------|-------------------------------|--------|
| As of 12/31/2006                  |   |   | Fair Value |   |   | Cost      |   |   | Holding Gains        (Losses) |   |
|                                   |   |        |            |   |        |           |   |        |                               |   |
| Insurance        Annuity Contract |   | $      | 1,116,350  |   | $      | 1,000,000 |   | $      | 116,350                       |   |
| Marketable Securities             |   |   | 2,267,134  |   |   | 2,511,079 |   |   | (243,945                      | )      |
|                              |   |        |            |   |        |           |   |        |                               |   |
| Total                             |   | $      | 3,383,484  |   | $      | 3,511,079 |   | $      | (127,595                      | )      |
|                              |   |        |            |   |        |           |   |        |                               |   |

          On June 25,            2003, the Company purchased a 5-year Guaranteed Growth Annuity (GGA) contract for $1            million. The annuity guarantees interest of 3.65% for its first two years; 3.00% for            the following two years, and has a minimum guaranteed interest rate of 3.00% for the            remaining period. 

          In 2007 the            Company withdrew approximately $214,360 from the value of the annuity. 

**4.      Short term            Commercial Notes**

          DAG Funding,            offers short-term secured commercial notes to small businesses. Notes are secured by            collateral such as real estate, receivables, and marketable securities and, generally,            accompanied by personal guarantees from the principals of the businesses. Lending            activities commenced on May 15, 2007. The notes are generally for a term of one year.            Most of the notes provide for receipt of interest only during the term of the note and            a balloon payment at the end of the term. As of December 31, 2007 the aggregate amount            of $4,927,250 has been lent, offset by collections received from borrowers, under the            short term commercial notes in the amount of $614,039. Notes ranging in size from            $50,000 to $1,020,000 were concluded at stated interest rates of 13% to 16%, but often            at higher effective rates based upon points or other up-front fees. The Company uses            its own employees, outside lawyers and other independent professionals to verify titles            and ownership, to file liens and to consummate the transactions. Outside appraisers are            also employed to assist the Company’s officials in evaluating the worth of            collateral. To date, the Company has not experienced any defaults and none of the loans            previously made have been non-collectable, although no assurances can be given that            existing or future loans may not go into default or prove to be non-collectible in the            future. 

F - 13 

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          At December            31, 2007, approximately $1,620,000 of the notes outstanding are due from four different            entities that have a principal in common. The notes are secured by commercial real            estate located in New York metropolitan area. The remaining notes are also principally            secured by real estate located in the New York metropolitan area. 

**5.      Property and            Equipment**

          Property and            equipment, at cost, consist of the following at December 31, 2007: 

|                                                                                         |   |   |   |   |
|----------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Office equipment                                                                             |   | $      | 20,744 |   |
| Less: accumulated depreciation                                                               |   |   | (6,483 | )      |
|                                                                                         |   |        |        |   |
|        Property and                        equipment, net |   | $      | 14,261 |   |
|                                                                                         |   |        |        |   |

          Depreciation            expense was $4,537 and $8,848 for the years ended December 31, 2007 and 2006,            respectively. 

**6.      Income            Taxes**

          Deferred tax            assets consist of the following: 

|                                                             |   |    |     |   |    |     |   |
|------------------------------------------------------------------|--------|---------|----------|--------|---------|----------|--------|
|                                                             |   |    | 2007     |   |    | 2006     |   |
|                                                             |   |         |          |   |         |          |   |
| Deferred tax assets:                                             |   |    |     |   |    |     |   |
| Unrealized loss on marketable                        securities  |   | $       | 150,032  |   | $       | 43,382   |   |
| Compensation and web development                        expenses |   |    | 62,816   |   |    | 86,346   |   |
| Net operating loss                                               |   |    | 12,800   |   |    | 176,000  |   |
|                                                             |   |    |     |   |    |     |   |
| Deferred tax assets                                              |   |    | 225,648  |   |    | 305,728  |   |
| Less: valuation allowance                                        |   | $  | (225,648 | )      | $  | (305,728 | )      |
|                                                             |   |    | –  |   |    | –  |   |

          The            Company’s net operating loss of $32,000 can be used to offset future taxable            income and it expires in 2027. 

F - 14 

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          The income            tax benefit differs from the amount computed using the federal statutory rate of 34% as            a result of the following: 

|                                                                                                 |   |   |     |   |   |     |   |
|------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|
| **Year Ended December 31,**                                                                          |   |   | **2007** |   |   | **2006** |   |
|                                                                                                      |   |        |          |   |        |          |   |
| Federal Statutory Rate                                                                               |   |   | (34      | )%     |   | (34      | )%     |
| State income taxes, net of federal tax                        benefit                                |   |   | –  |   |   | –  |   |
| Valuation allowance                                                                                  |   |   | 34       | %      |   | 34       | %      |
| Change in estimate resulting from changes                        in prior years’ tax positions |   |   | (83      | )%     |   | –  |   |
|                                                                                                 |   |        |          |   |        |          |   |
| Provision for income taxes                                                                           |   |   | (83      | )%     |   | –  |   |
|                                                                                                 |   |        |          |   |        |          |   |

          During the            fourth quarter of 2007 management determined to amend its previously filed federal,            state and local income tax returns for the years 2003, 2004 and 2005. In addition the            Company recorded an income tax benefit of approximately $183,000 in its statement of            operations during the fourth quarter of 2007 to reflect a change in estimate resulting            from changes in prior years’ tax positions. 

          The Company            continues to reflect interest and penalties, if any, in its income tax liability. As of            December 31, 2007, the Company did not have any accrued interest or            penalties. 

          The Company            is no longer subject to U.S. federal and state and local income tax examinations by tax            authorities for years prior to 2003, as these tax years are closed. 

**7.      Simple IRA            Plan**

          On October            26, 2000, the Board of Directors approved a Simple IRA Plan (the “IRA            Plan”) for the purpose of attracting and retaining valuable executives. The IRA            Plan was effective August 2000 with a trustee, which allows up to 100 eligible            executives to participate. It is a “Matching Contribution” plan under which            eligible executives may contribute up to 6% of their yearly salary, on a pre-tax basis            (with a cap of $10,500), with the Company matching on a dollar-for-dollar basis up to            3% of the executives’ compensation (with a cap of $10,500). These thresholds are            subject to change under notice by the trustee. The Company is not responsible for any            other costs under this plan. For the years ended December 31, 2007 and 2006 the Company            contributed $2,077 and $4,248, respectively, as matching contributions to the IRA            Plan. 

**8.      Stock Option            Plan**

          The Company            adopted the 1999 Stock Option Plan (the “Plan”), as amended, reserving            1,154,000 common shares of the Company for issuance upon exercise of stock options            granted pursuant to the Plan. At December 31, 2007 options for 345,000 shares were            available for future grants under the plan. 

          The exercise            price of options granted under our stock option plan may not be less than the fair            market value on the date of grant. The options may vest over a period not to exceed ten            years. Stock options under our stock option plan may be awarded to officers,            key-employees, consultants and non-employee directors of the Company. Under our stock            option plan, every non-employee director of the Company is granted 7,000 options upon            first taking office, and then 7,000 upon each additional year in office. The objectives            of our stock option plan include attracting and retaining key personnel, providing for            additional performance incentives and promoting the success of the Company by            increasing the efforts of such officers, employees, consultants and directors. Our            stock option plan is the only plan that the Company has adopted with stock options            available for grant. 

F - 15 

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          We adopted            SFAS 123(R) using the modified prospective transition method. Under this transition            method, compensation cost in 2007 and 2006 includes cost for options granted prior to            but not vested as of December 31, 2005, or vested in 2007 and 2006. Therefore results            for prior periods have not been restated. Share based compensation expense recognized            under SFAS 123(R) for the year ended December 31, 2007 and 2006 were $156,926 and            $173,420, respectively. 

          The            following summarizes stock option activity for 2007: 

|                                               |   |   |                    |   |   |                                          |   |   |                                                                                      |   |   |                                    |   |
|----------------------------------------------------|--------|--------|-------------------------|--------|--------|-----------------------------------------------|--------|--------|-------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------|--------|
|                                               |   |   | Number of        Shares |   |   | Weighted        Average        Exercise Price |   |   | Weighted        Average        Remaining        Contractual        Term (in        years) |   |   | Aggregate        Intrinsic        Value |   |
|                                                    |   |        |                         |   |        |                                               |   |        |                                                                                           |   |        |                                         |   |
| Outstanding        at December 31, 2006            |   |   | 578,000                 |   | $      | 2.68                                          |   |   |                                                                                      |   |   |                                    |   |
| Granted                                            |   |   | 96,000                  |   |   | 1.67                                          |   |   |                                                                                      |   |   |                                    |   |
| Exercised                                          |   |   |                    |   |   |                                          |   |   |                                                                                      |   |   |                                    |   |
| Forfeited                                          |   |   | (64,000                 | )      |   | 1.55                                          |   |   |                                                                                      |   |   |                                    |   |
| Outstanding        at December 31, 2007            |   |   | 610,000                 |   | $      | 2.64                                          |   |   | 2.59                                                                                      |   | $      | 774,998                                 |   |
|                                               |   |        |                         |   |        |                                               |   |        |                                                                                           |   |        |                                         |   |
| Vested and exercisable        at December 31, 2007 |   |   | 484,666                 |   | $      | 2.80                                          |   |   | 2.33                                                                                      |   | $      | 631,506                                 |   |
|                                               |   |        |                         |   |        |                                               |   |        |                                                                                           |   |        |                                         |   |

          The            weighted-average fair value of each option granted during the year ended December 31,            2007 and 2006, estimated as of the grant date using the Black-Scholes option valuation            model, was $0.94 per option and $1.37 per option, respectively. 

          A summary of            the status of the Company’s nonvested shares as of December 31, 2007, and changes            during the year ended December 31, 2007 is as presented below: 

|                                         |   |   |                           |   |   |                                                 |   |   |                                                                        |   |
|----------------------------------------------|--------|--------|--------------------------------|--------|--------|------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|
|                                         |   |   | Number        of        Shares |   |   | Weighted        Average        Exercise        Price |   |   | Weighted Average        Remaining        Contractual Term        (in years) |   |
|                                              |   |        |                                |   |        |                                                      |   |        |                                                                             |   |
| Nonvested        shares at December 31, 2006 |   |   | 224,867                        |   | $      | 2.32                                                 |   |   | 4.20                                                                        |   |
| Granted                                      |   |   | 96,000                         |   |   | 1.67                                                 |   |   | 4.07                                                                        |   |
| Vested                                       |   |   | (141,333                       | )      |   | 2.45                                                 |   |   | 3.40                                                                        |   |
| Forfeited                                    |   |   | (54,200                        | )      |   | 1.48                                                 |   |   | 3.69                                                                        |   |
|                                         |   |        |                                |   |        |                                                      |   |        |                                                                             |   |
| Nonvested        shares at December 31, 2007 |   |   | 125,334                        |   | $      | 2.04                                                 |   |   | 3.60                                                                        |   |
|                                         |   |        |                                |   |        |                                                      |   |        |                                                                             |   |

F - 16 

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          The            following table summarizes information about stock options outstanding at December 31,            2007: 

|                     |   |                            |                           |        |   |                                                 |   |   |                                                                               |   |   |                    |   |   |                                                 |   |
|--------------------------|--------|---------------------------------|--------------------------------|-------------|--------|------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------|--------|--------|-------------------------|--------|--------|------------------------------------------------------|--------|
|                     |   | Stock Option        Outstanding |                           | Exercisable |   |
|                     |   |                                 |                           |             |   |
| Range of Exercise Prices |   |                            | Number        of        Shares |        |   | Weighted        Average        Exercise        Price |   |   | Weighted        Average        Remaining        Contractual        Term (in years) |   |   | Number        of Shares |   |   | Weighted        Average        Exercise        Price |   |
|                          |   |                                 |                                |        |        |                                                      |   |        |                                                                                    |   |        |                         |   |        |                                                      |   |
| $1.00-        $2.00      |   |                            | 187,000                        |        | $      | 1.73                                                 |   |   | 2.82                                                                               |   |   | 136,333                 |   | $      | 2.37                                                 |   |
| $2.01- $3.00             |   |                            | 220,000                        |        |   | 2.29                                                 |   |   | 3.16                                                                               |   |   | 145,333                 |   |   | 2.29                                                 |   |
| $3.01-        $4.00      |   |                            | 133,000                        |        |   | 3.55                                                 |   |   | 1.50                                                                               |   |   | 133,000                 |   |   | 3.55                                                 |   |
| $4.01- $5.00             |   |                            | 70,000                         |        |   | 4.47                                                 |   |   | 2.25                                                                               |   |   | 70,000                  |   |   | 4.47                                                 |   |
|                     |   |                            | 610,000                        |        | $      | 2.64                                                 |   |   | 2.59                                                                               |   |   | 484,666                 |   | $      | 2.80                                                 |   |
|                     |   |                                 |                                |        |        |                                                      |   |        |                                                                                    |   |        |                         |   |        |                                                      |   |

**9.      Shareholders’            Equity**

          On December            5, 2005, following the execution of a web-site development and services agreement            signed between us and Ocean-7, a software development and Internet company, we agreed            to issue a total of 60,000 shares of our common stock. The shares will be            issued in three equal installments of 20,000 shares each, pursuant to a three tier            schedule, as provided in the agreement. The first 20,000 shares were issued upon the            execution of the agreement and valued at $2.37 per share, or $47,400, which was our            market price at the date of the grant. On May 2, 2007 an additional 20,000 shares were            issued 10 days following the delivery of an internal 80% functional beta site and            valued at $2.25 per share, or $45,000, which was our market price at the date of the            grant. The remaining 20,000 shares were issued on July 31, 2006 following production            release of the website, which were valued at $1.78 per share, or $35,600, which was our            market price at the date of the grant. In addition to the issuance of shares, we            granted Ocean-7 an option to purchase 75,000 shares of our common stock under our            stock option plan, to be vested annually over three years. Both the shares and the            options are restricted pursuant to Rule 144 promulgated under the Securities Act of            1933. Because at the time these shares and options were granted, the service had not            yet been performed by Ocean-7 under the agreement, the value of the shares issued were            accounted for under EITF 00-2, “Accounting for Web Site Development Costs”.            During the year ended December 31, 2006, we capitalized $148,031, related to the            services performed by Ocean-7 during the period. Beginning in the third quarter of 2006            we started amortizing the capitalized web development costs of nextyellow.com, over an            estimated useful life of 3 years. Amortization expenses for the years ended December            31, 2007 and 2006 were $49,344 and $24,672, respectively, which were reflected under            the Web development costs in the consolidated statements of operations. The value of            the options was accounted for under EITF 96-18 “Accounting for equity instruments            that are issued to other than employees for acquiring, or in conjunction with selling,            goods or services.” Ocean-7 is a related party in that its majority shareholder            is on our board of directors. 

          On October            11, 2006, we entered into a Stock Purchase Agreement (the “Stock            Agreement”) with Mr. Guy Mushkat, the founder and Chief Executive Officer of            Shopila. Pursuant to the terms of the Stock Agreement, we purchased 80% of the issued            and outstanding common shares of Shopila from him, in consideration for $100,000 in            cash, the issuance of 50,000 restricted shares of our common stock, par value $0.001            (the “Common Stock”), and an option to purchase 50,000 shares of our Common            Stock under our stock option plan with an exercise price equal to the fair market value            at the date of grant. Such options were to vest annually in three equal consecutive            installments, commencing October 11, 2007. In addition, as further provided by the            Stock Agreement, we agreed to replace Mr. Guy Mushkat’s personal guarantees            on Shopila’s liabilities up to, but not to exceed $90,000, in addition the            Company paid acquisition costs in the amount of $7,500. Accordingly the purchase price            was approximately $318,000 including liabilities assumed. 

F - 17 

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**10.     Discontinued            Operations**

          In July of            2007 the Company decided to discontinue Shopila’s operations since Shopila was            struggling financially and facing insufficient operating cash flow. Consequently,            Shopila can not repay its liabilities, including a promissory note and a line of            credit, and thus the Company wrote-off Shopila’s liabilities. 

          During the            second quarter of 2007, the Company wrote-off its goodwill and other intangible assets            relating to the acquisition of Shopila. 

          Accordingly,            the Company has reflected Shopila’s operations as a discontinued operation in the            accompanying financial statements. As a result, sales, cost of goods sold, and related            expenses have been reclassified in the statement of operations and are shown separately            as a net amount under the caption income (loss) from discontinued operations for all            periods presented. Accordingly, the Company recorded a loss of discontinued operations            of $260,240 and $55,239 for the years ended December 31, 2007 and 2006, respectively.            The loss from discontinued operations for the year ended December 31, 2007 includes            income from minority interest in the amount of $66,724 and the write-off of liabilities            in the amount of $114,664 which Shopila does not have the financial ability to pay. Net            sales from the discontinued operations of Shopila were $71,001 and $222,307, for the            years ended December 31, 2007 and 2006, respectively. The write-off of goodwill and            other intangible assets had previously been recognized as an impairment loss in            connection with the filing of the Company’s Form 10QSB for the six month period            ended June 30, 2007. In addition, a previously recorded deferred tax liability related            to other intangible assets in the amount of $67,600, previously recorded as an income            tax benefit in the six month period ended June 30, 2007, has been reclassified in            connection with the discontinued operations. 

          The Company            on October 11, 2006, had purchased 80% of the issued and outstanding common shares of            Shopila for approximately $318,000, consisting of $100,000 in cash; the issuance of            50,000 restricted shares of the Company’s common stock and an option to purchase            an additional 50,000 shares of common stock at an exercise price equal to the fair            market value at date of grant and the assumption of certain liabilities. 

          Until April            20, 2006, our principal business was the publication of bilingual, English, and Hebrew            yellow page directories distributed free through local commercial and retail            establishments in the New York metropolitan area, New Jersey and Florida including a            yellow page directory designed to meet the special needs of the Hasidic and            ultra-Orthodox Jewish communities. On April 20, 2006, we sold our two remaining yellow            page directories to DAG-Jewish Directories, Inc., a buying entity that was established            by a group of sales agency owners and a few of our employees for (i) $291,667 paid in            cash at closing; (ii) a promissory note in the amount of $613,333 payable in 24            consecutive monthly installments of $25,556 each bearing interest, at 5% per annum; and            (iii) the Buyer’s assumption of liabilities relating to the Jewish directories            business in the amount of $3,197,000. 

          The Company            has reflected its directories businesses as discontinued operations in the accompanying            financial statements for all periods presented. As a result, sales, cost of goods sold,            and related expenses have been reclassified in the statement of operations and are            shown separately as a net amount under the caption income (loss) from discontinued            operations for all periods presented. Accordingly, we recorded a net loss from            discontinued operations of the Jewish Directories totaling $75,129 for the year ended            December 31, 2006. Net revenue from the discontinued operations was $1,370,242, for the            year ended December 31, 2006. 

          The Company            also recorded a gain on the sale of the Jewish Directories in the amount of $267,360            for the year ended December 31, 2007, which represents installment payments from the            sale of the directories, compared to a gain on the sale of the Jewish directories            business amounting to $692,810 for the year ended December 31, 2006, which includes net            liabilities assumed and payments received, net of professional fees 

F - 18 

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**11.     Commitments and            Contingencies**

*          Operating            Leases*

          On June 12,            2006, we entered into a new Lease Agreement dated as of June 9, 2006 (the            “Agreement”). In accordance with the Agreement, we are leasing the Premises            for a term of 5 years commencing July 1, 2006 and ending on June 30, 2011. At December            31, 2007, approximate future minimum rental and utilities payments under these            commitments are as follows: 

|   |   |   |    |   |
|--------|--------|--------|---------|--------|
| 2008   |   | $      | 65,543  |   |
| 2009   |   |   | 67,312  |   |
| 2010   |   |   | 69,134  |   |
| 2011   |   |   | 35,030  |   |
|   |   |        |         |   |
| Total  |   | $      | 237,019 |   |

          Rent expense            was approximately $57,000 and $40,000 in 2007 and 2006, respectively. 

*          Employment            Agreements*

          In March            1999, the Company entered into an employment agreement with Assaf Ran, its president            and chief executive officer. Mr. Ran’s employment term initially renews            automatically for successive one-year periods unless 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 determined by the            compensation committee of the Board of Directors in its sole and absolute discretion,            and is eligible to participate in all executive benefit plans established and            maintained by the Company. Under the agreement, Mr. Ran has also agreed to a one-year            non-competition period following the termination of his employment. As of March 2003            the compensation committee approved an increase in Mr. Ran’s compensation to an            annual base salary of $225,000. On March 15, 2006 the compensation committee approved            Mr. Ran’s reduction of his annual salary by 50% for one year following the            closing of the sale of the Jewish directories business. On March 22, 2007 the            compensation committee approved Mr. Ran’s reduction of his annual salary by 75%            to $56,000 for one year or until the Company has more significant operations (as            defined by the Committee), whichever is earlier. Mr. Ran’s annual compensation            was $69,000 and $148,000 during the years 2007 and 2006, respectively. 

          *Contingencies*

          In January            2001, Flexible Business Systems, Inc. commenced an action against DAG Media, Inc. and            Dapey Assaf, Ltd., in the Supreme Court of the State of New York, County of Suffolk for            breach of contract, seeking compensation for unpaid invoices pursuant to a written            agreement for computer software. We defended the complaint claiming there was no valid            contract between the parties as the software program did not comport to our needs.            Following a trial, on January 26, 2006, we received a Notice of Entry, finding in favor            of Flexible Business Systems and awarding them the sum of $38,553 plus interest from            January 19, 2001. In April 2006, the plaintiff levied our bank account for the sum of            $58,926, which was ultimately drawn from our bank account in satisfaction of the            judgment. We filed an appeal and the appeal was argued in January 2007 and we await the            court’s decision. This amount is to be paid to us by the purchasers and therefore            is showing on the balance sheet as due from purchasers at December 31, 2007 and            2006. 

F - 19 

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          In 2004,            Neopost Leasing, Inc. commenced a collection action against Black Book Photography,            Inc. (“BBP”), a former subsidiary of DAG Media, in the Civil Court of the            State of New York, County of Queens, to recover $15,987 on an equipment lease for a            certain postage meter or similar equipment sold to Brandera.com (USA) Inc., which in            turn sold certain assets to BBP. The equipment was apparently in the office in            Manhattan when BBP purchased the assets of the business from Brandera.com (USA) Inc. on            August 2, 2002. The agreement governing that purchase provided, inter alia, that BBP            would take title to any equipment and would assume “any contracts”. In            connection with the later sale of DAG’s interest in BBP to Modern Holdings, Inc.            it appears that DAG agreed to indemnify Modern as to this claim, and it remains a            contingent liability of DAG’s accordingly. In light of the terms of the contract            between Brandera.com (USA) Inc., there may be full liability on this claim. We have            opposed the motion. We made a provision in the amount of $15,987 as of December 31,            2006, which remains included in accounts payable and accrued expenses as of December            31, 2007. The motion for summary judgment was withdrawn by the plaintiff and thus there            was no decision on the motion. We expect that plaintiff will, at some point, place the            case on the trial calendar. 

**12.     Related Parties            Transactions**

          DAG            Interactive Inc, our subsidiary is being held 20% by Ocean-7. Mark Alhadeff is the main            shareholder of Ocean-7 and effective December of 2005 is a member of our board of            directors. 

          On December            5, 2005, following the execution of a web-site development and services agreement            signed between us and Ocean-7, a software development and Internet company, we agreed            to issue a total of 60,000 shares of our common stock. The shares were issued in            three equal installments of 20,000 shares each, pursuant to a three tier schedule, as            provided in the agreement. The first 20,000 shares were issued upon the execution of            the agreement and valued at $2.37 per share, or $47,400, which was our market price at            the date of the grant. On May 2, 2006 an additional 20,000 shares were issued 10 days            following the delivery of an internal 80% functional beta site and valued at $2.25 per            share, or $45,000, which was our market price at the date of the grant. The remaining            20,000 shares were issued on July 31, 2006 following production release of the website,            which were valued at $1.78 per share, or $35,600, which was our market price at the            date of the grant. 

          General and            Administrative expenses includes approximately $24,600 and $7,180 of software            maintenance fees incurred for the years ended December 31, 2007 and 2006, respectively,            under an agreement with Ocean-7. 

**13.     Subsequent            Event**

          On January            8, 2008 and February 11, 2008 we purchased 7 days auction rate securities issued by two            different mutual funds in the amount of $450,000 and $725,000, respectively. During the            period from February 18, 2008 through March 11, 2008, auctions for these securities            were not successful. Consequently, we continue to hold these securities and the issuers            have continue to pay interest at the maximum contractual rate. 

F - 20 

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