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, 2000

|_|   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             _____________

                                DAG Media, Inc.
                                ---------------
                 (Name of Small Business Issuer in its Charter)

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

                   125-10 Queens Blvd. Kew Gardens, NY 11415
                   -----------------------------------------
               (Address of Principal Executive Office) (Zip Code)

                    Issuer's telephone number (718) 535-2717

Securities registered under Section 12(b) of the Exchange Act:

          Title of Each Class                     Name of Each Exchange
          -------------------                      on Which Registered
                                      None         -------------------

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

                    Common Stock, par value $.001 per share
                    ---------------------------------------
                                (Title of class)

      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 |_|

<PAGE>

      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|

      For the year ended December 31, 2000, the revenues of the registrant were
$6,237,000.

      The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant, based on the closing price on the Nasdaq
SmallCap Market on March 27, 2001 was approximately $1.58.

      As of March 27, 2001, the registrant has a total of 2,907,460 shares of
Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                      None


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<PAGE>

                                 DAG MEDIA, INC.

                            Form 10-KSB Annual Report
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
  PART I
   Item 1.   Description of Business......................................     4
   Item 2.   Description of Property......................................    10
   Item 3.   Legal Proceedings............................................    10
   Item 4.   Submission of Matters to a Vote of Security Holders..........    10

  PART II
   Item 5.   Market for Common Equity and Related Stockholder Matters.....    10
   Item 6.   Management's Discussion and Analysis or Plan of Operations       11
   Item 7.   Financial Statements.........................................    15
   Item 8.   Changes in and Disagreements With Accountants on Accounting
             and Financial Disclosure.....................................    15

  PART III
   Item 9.   Directors, Executive Officers, Promoters and Control
             Persons; Compliance with Section 16(a) of the Exchange Act       15
   Item 10.  Executive Compensation.......................................    17
   Item 11.  Security Ownership of Certain Beneficial Owners
             and Management...............................................    18
   Item 12.  Certain Relationships and Related Transactions...............    18
   Item 13.  Exhibits, List and Reports on Form 8-K.......................    19

                           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) our limited
operating history, (ii) potential fluctuations in our quarterly operating
results, (iii) challenges facing us relating to our growth and (iv) our
dependence on a limited number of suppliers. The accompanying information
contained in this report, including the information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", identifies important factors that could cause such differences.
These forward-looking statements speak only as of the date of this report, and
we caution potential investors not to place undue reliance on such statements.
We undertake no obligation to update or revise any forward-looking statements.
All subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements.


                                       3
<PAGE>

                                     PART I

Item  1.  Description of Business

We currently publish and distribute yellow page directories in print and on the
worldwide web, both in the mainstream yellow page industry as well as in
targeted niche markets in the New York metropolitan area. We sell yellow page
advertisements as part of an overall media package that includes print
advertising, on-line advertising and other added value services such as our
referral service and consumer discount club.

We operate three internet portals, a mainstream general portal NewYellow.com,
targeting the general population, JewishYellow.com targeting worldwide Jewish
communities and JewishMasterguide.com, targeting the ultra-orthodox Hasidic
communities. Our principal source of revenue derives from the sale of ads in our
print and on-line directories.

Industry background*

      In 2000, yellow page advertising revenues in the United States were
estimated by the Yellow Pages Publishers Association ("YPPA") to be $13 billion.
The eight largest publishers of yellow page directories in the United States
including the five regional bell operating companies, GTE, SNET and Sprint
account for the overwhelming majority of yellow page advertising revenues.
Verizon and SBC Directory Operations, a division of SBC Corporation, one of the
regional bell operating companies, are the two largest publishers of yellow page
directories in the United States, each having annual yellow page advertising
revenue in excess of $2 billion.

      There are many independent publishers of yellow page directories in the
United States. In 2000, the yellow page advertising revenues of United States
publishers of yellow page directories not affiliated with local telephone
companies were estimated by the YPPA to be between 7% to 10% of the United
States yellow page advertising market.

      Further, in 1997 the total aggregate yellow page advertising revenues of
companies that publish yellow page directories on the Internet were
approximately $21.8 million. Simba estimates that yellow page Internet
advertising revenues will continue to grow significantly. In 2000, yellow page
directories on the Internet reached approximately $164.9 million.

Products and services

      NewYellow. On May 12, 1999, we launched a general interest yellow page
directory at the request of our ethnic directory advertisers who inquired of us
to provide them with an alternative to the Verizon Yellow Pages. New Yellow
competes directly with the Verizon Yellow Pages in New York City. We were the
first to publish a Manhattan year 2000 yellow page directory. The first printed
edition of NewYellow was distributed in March 2000 and the second in October
2000. New Yellow is currently published semi-annually and distributed
door-to-door in New York City. Printing of NewYellow is done domestically with a
professional directory printer.

      New Yellow is the only general interest yellow page directory to provide
full-color advertisements. NewYellow was also the first directory to include
e-mail addresses. Also, as part of our service, we offer to all New Yellow
advertisers free e-mail addresses as well as electronic mail boxes. These mail
boxes are often used to provide our advertisers with electronic referrals.

----------
*       Except as otherwise indicated, all industry data is based on the Yellow
Pages & Directory Report, a publication of Cowles/Simba Information, a unit of
Cowles Business Media; Internet Yellow Pages, 1998: Business Models and Market
Opportunities, an annual research report published by Cowles/Simba; and oral
communications with representatives of Cowles/Simba in January 2000 and of the
YPPA in January 2001.


                                       4
<PAGE>

      New Yellow offers businesses a substantially discounted advertising
package. Rates in New Yellow are at least 70% less than the Verizon rates and we
provide three added value features that are offered in addition to the basic
NewYellow printed directory: the Referral Service, Online Service and the
Consumer Discount Club. NewYellow is also available online at our web site
NewYellow.com.

      The Jewish Israeli Yellow Pages. The Jewish Israeli Yellow Pages is a
bilingual, yellow page directory that is distributed free through local,
commercial and retail establishments in the New York metropolitan area as well
as through travel agencies in Israel. All ads in the Jewish Israeli Yellow Pages
are in English and Hebrew unless the advertiser specifically requests that the
ad be English only. The Jewish Israeli Yellow Pages is organized according to
the Hebrew alphabet, although it is indexed in both Hebrew and English. We
believe that the Jewish Israeli Yellow Pages is used principally by persons
whose native language is Hebrew, although it is also used by members of the
Jewish community whether or not they speak Hebrew. The Jewish Israeli Yellow
Pages was first published in February 1990 and has been published in February
and August of each year since 1991 . The Jewish Israeli Yellow Pages is also
available online at our web site JewishYellow.com.

      All production, including layout, design, edit and most proofreading
functions, for the Jewish Israeli Yellow Pages is performed locally. The final
version of the Jewish Israeli Yellow Pages is shipped to Israel to be printed by
HaMakor Printing Ltd. The printed directories are shipped to our main office in
New York for distribution. We believe that HaMakor provides us with a
competitive advantage with respect to cost, quality and responsiveness. From
time to time we receive solicitations from printers who would like to publish
our directory. We have consistently found their pricing to be significantly
higher than that of HaMakor, even after taking into account shipping costs. In
addition, we believe the quality of HaMakor's product is superior to anything
that a local printer would produce, particularly because so much of the
directory is in Hebrew. Finally, because of our long standing relationship with
HaMakor we receive timely service.

      The Master Guide. In October 1998 we published the first edition of the
Master Guide, a yellow page directory designed to meet the special needs of the
Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area.
With its successive growth, we now publish The MasterGuide semi-annually. We
produce the Master Guide generally in the same manner as we do the Jewish
Israeli Yellow Pages, including printing it in Israel. The Master Guide differs
from the Jewish Israeli Yellow Pages in that the Master Guide is published in
English only, and that it does not advertise products or services that might
offend the Hasidic and ultra-Orthodox Jewish communities. Generally, advertising
rates for the Master Guide are lower than those for the Jewish Israeli Yellow
Pages because the market that it serves is smaller. Distribution of the Master
Guide is accomplished by placing copies of the directory in synagogues,
community centers and businesses located in Hasidic and ultra-Orthodox
neighborhoods. The development of the Master Guide reflects our strategy to
expand by identifying and pursuing niche markets for yellow page directories.
The MasterGuide is also available online at our web site JewishMasterGuide.com.

      We buy paper for our directories on the local market at prevailing prices.
Accordingly, we do not depend on any single source of supply although we are
subject to market forces that affect the price of paper. Paper costs fluctuate
according to supply and demand in the marketplace. In addition, paper costs can
be affected by events outside of our control, such as fluctuations in currency
rates, political events, global economic conditions, environmental issues and
acts of nature.

      The Referral Service. The Referral Service provides added value to users
of and advertisers in our directories. Potential consumers who are looking to
purchase goods or services call the referral service and an operator directs
them to one or more advertisers in our directories. Tourists also call the
referral service with questions involving travel, lodging, visa issues, driver's
license issues and the like. Finally, advertisers use the referral service as a
tool to generate new business. The telephone number for the Referral Service is
published throughout our various directories as well as various newspapers
serving different communities.

      Discount Club. As part of the referral service, we recently established a
program under which participating advertisers have agreed to give discounts to
customers who produce the specific directory's Discount Card. This card is
distributed with the directories or can be ordered directly from us. By
presenting the card at participating establishments, consumers can receive
discounts of up to 10%.


                                       5
<PAGE>

      Online services. We initially launched our web site in 1995 and have since
expanded it to include functions such as a "portal" with links to a variety of
sites on the web, particularly those that carry information and news that may be
of particular interest to specified users. We also develop web sites for our
advertisers for a fee. We further enhanced our web site by providing links to
NewYellow and community-focused yellow page directories, by including news and
information and by creating strategic alliances with other Internet portals. We
plan to explore ways in which our portal can be used to generate additional
advertising revenue.

Growth strategy

      In March 2000, we distributed the first printed edition of NewYellow, a
general interest yellow page directory, in the New York metropolitan area. We
were the first to print and distribute a year 2000 directory in Manhattan. With
the success of the Manhattan NewYellow directory we plan to offer additional
NewYellow directories covering the other boroughs in New York City, the other
counties in the New York metropolitan area and northern New Jersey.

      To continue our success with NewYellow in the New York market and sustain
and increase our profitability, we are focusing our efforts on the following:

      o     convincing current and potential advertisers that NewYellow is and
            will be used by a sufficient number of their potential customers to
            make it worthwhile and cost effective for them to continue or begin
            advertising in NewYellow;

      o     managing the production, including ad sales, graphic design, layout,
            editing and proofreading, of multiple directories addressing
            different markets in varying stages of development;

      o     attracting, retaining and motivating qualified personnel and
            expanding the number of sales, operating and management personnel;

      o     providing high quality, easy to use and reliable directories;

      o     establishing further brand identity for NewYellow;

      o     developing new and maintaining existing relationships with
            advertisers without diverting revenues from our existing
            directories;

      o     developing and upgrading our management, technical, information and
            accounting systems;

      o     responding to competitive developments promptly;

      o     introducing enhancements to our existing products and services to
            address new technologies and standards and evolving customer
            demands;

      o     controlling costs and expenses and managing higher levels of capital
            expenditures and operating expenses; and

      o     maintaining effective quality control over all of our directories.

      Our failure to achieve any of the above in an efficient manner and at a
pace consistent with the growth of our business could adversely affect our
business, financial condition and results of operations.

      In order to prepare for the growth of NewYellow in 2001, during fiscal
year 2000 we hired and trained many new sales representatives to promote and
sell NewYellow. We produced a special training video for our sales
representatives that is being implemented in our sales force training program,
beginning 2001.


                                       6
<PAGE>

      We may also explore opportunities for publishing and introducing Jewish
Israeli Yellow Pages and Master Guide directories in other cities with large
Jewish and Israeli populations, like Miami, Florida and Los Angeles, California.

Sales

      Advertisements for the directories are sold through our network of trained
sales representatives, all of which are independent contractors who are paid
solely on a commission basis. There are approximately 100 sales representatives
in our network including those employees hired by the respective sales agencies
with which we have agency agreements, B.I.Y., Inc. and M.I.Y. Inc. The sales
representatives operated by us work out of our offices in Queens and Long Island
City in New York and Fairlawn in New Jersey. B.I.Y. is located in Brooklyn, New
York and M.I.Y. is located in Manhattan, New York. In 2000, we opened a new
office in Long Island City, New York, dedicated to the Master Guide . This
location was chosen because of its proximity to the religious Jewish communities
in New York.

      Under our agreements with the sales agencies, which are terminable upon 30
days notice, the agencies may not sell advertising for any yellow page
directories other than those we publish. Generally, each sales agency is
responsible for all fixed costs relating to its operations. We pay sales
commissions to the agencies, which, in turn, pay commissions to the individual
sales representatives who sell the ads. The commissions payable to the
individual sales representatives are prescribed in our agreements with the
agencies and are consistent with the commissions we pay to the sales
representatives that we hire directly.

      We are responsible for training each sales representative, whether hired
directly by us or by one of our sales agencies. Generally, training consists of
a one-day orientation, during which one of our sales managers educates the sales
representative about our business and operations, and a two-week period during
which the sales representative receives extensive supervision and support from a
sales manager or another experienced sales representative.

      With the required implementation of SAB 101 beginning fiscal year end
2000, our revenue recognition policy was affected. Thus, consistent with past
revenue recognition policies, we will continue to utilize the point of
publication method of accounting, however, we have now begun recognizing
internet advertisement revenues simultaneously with the related printed yellow
page edition in which it is sold. Additionally, as our sales cycle recognition
is affected by the publication date of our books, the sales cycle will change
beginning fiscal year 2001 as our publication schedule has been slightly
altered. Nevertheless, we will continue to publish each of our yellow pages
semi-annually.

Marketing strategy

      We are now focused on increasing our share of the mainstream yellow page
market in the New York Metropolitan area as well as continuing our dominance of
the Jewish and Israeli niche yellow page markets. New Yellow currently competes
directly with the Verizon Yellow Pages in Manhattan. In the future we plan to
expand into the other boroughs of New York City and its surrounding suburbs.
Initially, we dedicated sales representatives from our existing network, spread
out over the four sales offices, to selling ads for NewYellow. Because New
Yellow is a relatively new publication, it is more difficult to sell, and
because it competes directly with Verizon, the commission structure for
NewYellow sales representatives is higher than it is for our other directories.
Generally, advertising rates for the New Yellow directory are approximately 33%
of the rates for the Verizon Yellow Pages.

      We believe that advertisers are attracted to NewYellow for several
reasons. First, advertising rates for NewYellow are significantly lower than the
comparable rates for advertising in Verizon Yellow Pages. Second, NewYellow is
lighter in weight and less dense than the Verizon Yellow Pages, so that each
advertisement in NewYellow will stand out more prominently than it would in the
Verizon Yellow Pages. Accordingly, we believe that NewYellow will attract
advertisers who do not currently advertise in the Verizon Yellow Pages as well
as existing Verizon Yellow Page advertisers

      The Jewish Israeli Yellow Pages and Master Guide are marketed to the
Jewish and Israeli communities living in the New York metropolitan area.
According to the American Jewish Congress, there are


                                       7
<PAGE>

approximately two million Jews living in this market, representing approximately
10.6% of the total population. We believe that the Jewish population has higher
than average disposable income, is well educated and possesses a strong sense of
community. In addition, while there is no precise data as to the number of
Israeli immigrants living in the New York metropolitan area, we believe the
number is substantial. Moreover, a significant number of Israeli tourists visit
the area annually. Accordingly, we believe that advertisers are attracted to the
Jewish Israeli Yellow Pages as a way to advertise directly to this market.

      We further believe that the Jewish population in the New York metropolitan
area is likely to use the Jewish Israeli Yellow Pages because of the impression
that businesses that advertise in the Jewish Israeli Yellow Pages support or are
affiliated with the Jewish community. In the case of the Master Guide, users can
be comfortable that none of its advertisers will offend their religious beliefs.
We also believe that our advertising rates are attractive, particularly to small
businesses that cannot afford to advertise in the Verizon Yellow Pages.

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. We believe that we are in material
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 these laws and regulations does not have a material adverse
effect on our capital expenditures, earnings, or competitive position.

Competition

      In New York, the yellow page advertising market is dominated by Verizon.
In addition, there are a number of independent publishers of yellow page
directories, including bilingual directories for specific ethnic communities.
There are also independent publishers of yellow page directories that publish
community or neighborhood directories. However, we are not aware of any other
Hebrew-English yellow page directory in the New York metropolitan area. By
focusing on the special needs of the Hebrew speaking, Hasidic and ultra-Orthodox
Jewish communities, we believe that we have identified niche markets that allow
us to compete effectively with our larger rivals.

      Unlike the Jewish Israeli Yellow Pages and the Master Guide, NewYellow
competes directly with the Verizon Yellow Pages and other smaller, general
interest yellow page directories published by companies other than Verizon such
as Yellow Book USA. Since there are virtually no barriers to entry in this
market, any company with a reasonable amount of capital, like the regional bell
operating companies or publishers, are potential competitors . In addition, the
Internet is growing rapidly and is a current and potential source of even
greater competition. There are a number of online yellow page directories,
including Big Yellow, owned by Verizon. Finally, strategic alliances could give
rise to new or stronger competitors. Many of our competitors, such as Verizon,
can reduce advertising rates, particularly where directory operations can be
subsidized by other revenues, making advertising in our directories less
attractive. In response to competitive pressures, we may have to increase our
sales and marketing expenses or reduce our advertising rates.

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 on the supplemental register of the United States
and some of our trade names in Queens, New York and New Jersey. In addition,
every directory we publish has been registered with the United States copyright
office. The protective steps we have taken may be inadequate to deter
misappropriation of our proprietary information. We may be unable to detect the
unauthorized use of, or take steps to enforce, our intellectual property rights.
In addition, although we believe that our proprietary rights do not infringe on
the intellectual property rights of others, other parties may assert
infringement claims against us or claims that we have violated a trademark,
trade name, service mark or copyright belonging to them. These claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources on our part.


                                       8
<PAGE>

Employees

      As of December 31, 2000 we employed 5 people, all of whom are full-time,
and all of whom were employed in executive, managerial or administrative
positions capacities. In addition, we retained the services of 18
administrative, accounting and production personnel, all of whom are independent
contractors. Finally, we had a network of 108 sales representatives, 37
contracted by us and 71 hired by the sales agencies that sell ads for our
directories. We believe that our relationship with our employees and contractors
is good. None of our employees is represented by a labor union.

CERTAIN RISK FACTORS THAT MAY AFFECT GROWTH AND PROFITABILITY

The following factors may affect the growth and profitability of the Company and
should be considered by any prospective purchaser of the Company.

Verizon and other existing or potential competitors have significant competitive
advantages.

      Many of our competitors, particularly Verizon, have significant operating
and financial advantages. Our competitors' advantages include:

      o     greater financial, personnel, technical and marketing resources,

      o     superior systems,

      o     stronger relationships with advertisers,

      o     greater production capacity,

      o     better-developed distribution channels, and

      o     greater name recognition.

Because we contract with sales agencies, we could lose a significant number of
our sales force on 30 days notice.

      A large number of our sales representatives is provided to us under
agreements with independent sales agencies, which are terminable upon 30 days
notice by either party. Accordingly, on 30 days notice we could lose a
significant portion of our sales force. In addition, due to the demands of the
job, many sales representatives leave within one year of their hire.
Replenishing our sales force involves significant time and expense for
recruiting and training.

We do not have any long-term commitments from advertisers, upon whom our success
depends.

      We do not have long-term contractual arrangements with advertisers. Thus,
we must obtain new advertisers and renewals from existing advertisers, for each
directory that we publish. There is no assurance that our current advertisers
will continue to place ads in our directories or that we will be able to attract
new advertisers. Any failure to achieve sufficient advertising revenues would
have a material adverse effect on our business, results of operations and
financial condition.

We do not have the ability to measure the effectiveness of advertisements. As
our business grows, our customers may require us to do so.

         We do not have the ability to quantify the effectiveness of advertising
in our directories. Eventually, however, we may have to provide this type of
information in order to retain existing customers as well as


                                       9
<PAGE>

expand our customer base. As we establish a longer history in publishing
NewYellow, a directory that competes directly with the Verizon Yellow Pages, we
should be able to provide such desired information. The effectiveness of
advertising is usually based upon demographic and other relevant statistical
data. If we cannot provide our advertisers with this information or if they
perceive the information that we provide to be unreliable, they may not
advertise in NewYellow or refuse to pay our standard advertising rates.
Accordingly, we will have to either develop the ability to provide this
information to our advertisers or contract with third parties to provide this
information on our behalf. Either alternative will result in additional
personnel and equipment costs for which we have not budgeted, and may also cause
interruptions in our business operations.

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 providers including our
printer, HaMakor Printing Ltd., and the heads of the independent sales agencies
that provide about two- thirds of our sales representatives. 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, but that is no
guarantee that his employment will not terminate before its expiration on June
30, 2002. In addition, we have purchased a $500,000 key man life insurance
policy on Mr. Ran.

Item  2.  Description of Property

      Our executive and principal operating office is located in Queens, New
York in 3,000 square feet. This space is occupied under a lease that expires
October 30, 2001. The monthly rent is $5,058. Our New Jersey sales office is
located in in Fair Lawn, New Jersey. The space is leased on a month-to-month
basis for $1,945 per month. Our Long Island City office lease expires April 30,
2002 with a current monthly rent of $1,100. Additionally, we maintained a lease
in Manhattan during fiscal year 2000 that has been taken over by our agency, MRD
Inc., on January 15, 2001.

Item  3.  Legal proceedings

      Not applicable.

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

      Not Applicable.

                                    PART II

Item  5.  Market for Common Equity and Related Stockholder Matters

      (a) Market Information

      The Company's 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 since May 13, 1999 the date the stock first
      started to trade. Such quotations reflect inter-dealer prices, without
      retail mark-up, markdown or commission and may not necessarily represent
      actual transactions.


                                       10
<PAGE>

                                              Bid Price
                                              ---------
                            High             Low        High       Low
                                     2000                     1999
                                     ----                     ----
        First Quarter      $5.469        $3.875          --       --
        ------------------ ------------- ----------- --------- -----------
        Second Quarter     $4.750        $2.188      $7.000    $3.625
        ------------------ ------------- ----------- --------- -----------
        Third Quarter      $3.500        $2.125      $4.688    $3.000
        ------------------ ------------- ----------- --------- -----------
        Fourth Quarter     $3.125        $1.563      $5.125    $2.703
        ------------------ ------------- ----------- --------- -----------

            (b) Holders

            As of March 27, 2001, the approximate number of record holders of
            the Common Stock of the Company was 14.

            (c) Dividends

            We have never declared or paid any cash dividends on our capital
            stock and do not anticipate paying any cash dividends on our capital
            stock in the foreseeable future. We may incur indebtedness in the
            future which may prohibit or effectively restrict the payment of
            dividends, although we have no current plans to do so.

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 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

We currently publish and distribute yellow page directories in print and on the
worldwide web. Our directories target the mainstream yellow page market in New
York City as well as niche markets in the New York metropolitan area. We sell
yellow page advertisements as part of an overall media package that includes
print advertising, on-line advertising and other added value services such as
our referral service and consumer discount club.

We operate three internet portals, a mainstream general portal NewYellow.com,
targeting the general population, JewishYellow.com, targeting worldwide Jewish
communities and JewishMasterguide.com, targeting the ultra-orthodox Hasidic
communities. Our principal source of revenue derives from the sale of ads in our
print and on-line directories.

Advertising fees, whether collected in cash or evidenced by a receivable,
generated in advance of publication dates, are recorded as "Advanced billings
for unpublished directories" on our balance sheet. Many of our advertisers pay
the ad fee over a period of time. In that case, the entire amount of the
deferred payment is booked as a receivable. Revenues are recognized at the time
the directory in which the ad appears is published. Thus, costs directly related
to the publication of a directory in advance of publication are recorded as
"Directories in progress" on our balance sheet and are recognized when the
directory to which they relate is published. All other costs are expensed as
incurred.

The principal operating costs incurred in connection with publishing the
directories are commissions payable to sales representatives and costs for paper
and printing. Generally, advertising commissions are paid as advertising revenue
is collected. However, in connection with New Yellow we pay commissions to our
sales representatives even before we collect the related advertising revenue. We
do not have any long term agreements with paper suppliers or printers. Since ads
are sold before we purchase paper and print a particular directory, a
substantial increase in the cost of paper or printing costs would reduce our
profitability. Administrative and general expenses include expenditures for
marketing, insurance, rent, sales and local franchise taxes, licensing fees,
office overhead and wages and fees paid to employees and contract workers (other
than sales representatives).


                                       11
<PAGE>

Results of operations

The following table sets forth for the periods presented statement of operations
data as a percentage of net advertising revenue. The trends suggested by this
table may not be indicative of future operating results.

                                                             2000       1999
                                                             ----       ----

Net advertising revenues.................................   100.0%     100.0%
Publishing costs.........................................    22.8%      10.0%
Gross profit.............................................    77.2%      90.0%
Selling expenses.........................................    33.8%      38.1%
Administrative and general expenses......................    47.4%      38.0%
Total operating costs and expenses.......................    81.2%      76.0%
Other income, net........................................     6.8%       5.0%
Earnings before provisions for income taxes
 and equity income.......................................     2.8%      18.9%
Provision for income taxes...............................     1.4%       9.0%
Equity in loss of affiliate..............................      --       -.01%
Cumulative effect of change in accounting................    -8.2%        --
Net income...............................................    -6.8%       9.9%

Years-ended December 31, 2000 and 1999

Net advertising revenues

Net advertising revenues in 2000 and 1999 were $6,237,000 and $4,365,000,
respectively, representing an increase of $1,872,000, or 42.9 % in 2000. This
increase was primarily attributable to: (1) the first time publication of New
Yellow - Manhattan directory as well as its internet on-line version (2)
increased advertising revenue with respect to the publication of The Jewish
Israeli Yellow Pages and The Master Guide and (3) some increases in our
advertising rates. Furthermore, in addition to the fact that in 1999 we had not
published a New Yellow directory, we had only one publication of the MasterGuide
and it was the second publication printed thus only establishing its initial
history of publication.

Publishing costs

Publishing costs for 2000 and 1999 were $1,422,000 and $438,000, respectively,
representing an increase of $984,000, or 224.7 % in 2000. As a percentage of
net advertising revenues, publishing costs were 22.8 % in 2000 compared to 10.0%
in 1999 . The increase in publishing costs as a percentage of net advertising
revenues primarily reflects that in the fiscal year ended December 31, 2000 we
first printed New Yellow which is (1) more costly to print than our other
directories which are published abroad and (2) with an initial publication there
are certain start-up costs involved with such an endeavor.

Selling expenses

Selling expenses for the year ended December 31, 2000 and 1999 were $2,109,000
and $1,661,000, respectively, representing an increase of $448,000, or 27.0 %
in 2000. As a percentage of net advertising revenues, selling expenses decreased
to 33.8 % from 38.1 %. The decrease in selling expenses as a percentage of
revenues results from the fact that the range of commission percentages
fluctuate dependant on the sales source and publication, i.e. if a sale is made
by a given office or agency. The resulting ratio of agency sales versus office
sales will thereby effect the overall sales commissions percentage as a
percentage of revenues as seen in 2000.

Administrative and general costs

Administrative and general expenses for 2000 and 1999 were $2,958,000 and $
1,657,000, respectively, representing an increase of $1,301,000, or 78.5%, in
2000. This increase is primarily attributable to (1)


                                       12
<PAGE>

increased write-offs of uncollectible accounts due to increasing sales and a
more stringent Company policy with respect to accounts receivable write-offs (2)
a cumulative increase in consulting and professional services as well as
insurance costs related to our status as a public company for the entire fiscal
year (3) increased officer expenses and payroll expenses resulting from
corporate expansion and (4) increased advertising costs for the Company as well
as for the NewYellow publication.

Other income, net

For the year ended December 31, 2000 and 1999 we had other income of $425,000,
and $226,000, respectively. This increase of $199,000 was primarily
attributable to interest and dividends earned from the investment of the net
proceeds from our initial public offering in May 1999. Earnings before provision
for income taxes, equity income and cumulative effect of change in accounting
principle Earnings before provision for income taxes and equity income for the
year ended December 31, 2000 were $173,000 compared to $827,000 for the year
ended December 31, 1999. The decrease of $654,000 was primarily attributable to
the increase of $622,000 in bad debt expense, included in general and
administrative expenses, since the prior year as well as increased publication
costs and selling expenses associated with the establishment and growth of the
Company and its newest publication NewYellow.

Provision for income taxes

Provision for income taxes in 2000 and 1999 was $88,000 and $391,000,
respectively. The decrease in provision for income taxes reflects the decrease
in earnings. As a percentage of net advertising revenues, provision for income
taxes decreased to 1.4% in 2000 from 9.0% in 1999.

Equity in Loss of affiliate

There was no equity in loss of affiliate in 2000. In 1999, there was a $3,000
equity in loss of affiliate resulting from losses incurred in the first quarter
of 1999 by our subsidiary at the time, DAH, that has since been consolidated
pursuant to its acquisition by us that became effective with our initial public
offering, in May 1999.

Cumulative effect of change in accounting principle

The cumulative effect of change in accounting principles incurred in fiscal year
2000 was a loss of $511,000, net of tax benefit. This charge was incurred as a
result of the fact that in December 1999, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements. SAB No. 101 that expresses the views of the SEC staff in
applying generally accepted accounting principles to certain revenue recognition
issues. SAB 101 has since become a required accounting principle to be applied
with the onset of the fourth quarter of this year, effective from January 1,
2000.

Net income (loss) available to common shareholders

Net loss for 2000 was $(425,000) compared to net income of $433,000 in 1999
respectively 1998. This decrease is primarily attributable to the resulting
increased expenses in fiscal year 2000 associated with the growth of the
Company, increased publishing costs as they relate to the company's newest
publication, New Yellow, and its status as a public corporation for a full
fiscal year.

Liquidity and Capital Resources

Until our initial public offering in 1999, our only source of funds was cash
flow from operations, which has funded both our working capital needs and
capital expenditures. We have no debt to third parties or credit facilities.
Generally, advertising fees, whether collected in cash or evidenced by a
receivable, are generated


                                       13
<PAGE>

before the publication of the related directory and before many of the costs
directly associated with publishing the related directory are incurred.

As a result of our initial public offering in May 1999, we received proceeds of
approximately $6.4 million net of underwriting discounts and commissions and
other expenses. The funds from the initial public offering, $6.7 million in the
aggregate, were deposited at the time in an interest bearing money market
account, thereby increasing our working capital and are available to pay
operating expenses including marketing expenses for NewYellow.

We do not have any material commitments under any leases, sales agency
agreements or employment agreements, other than those of the employment
agreements with Assaf Ran and Orna Kirsh. Those agreements call for annual
salaries of $75,000 and $100,000 respectively. Mr. Ran's contract runs through
June 30, 2002, and Ms. Kirsh's agreement expires on July 19, 2001.

At December 31, 2000 we had cash and cash equivalents of $7,149,000 and working
capital of $6,643,000 compared to cash and cash equivalents of $7,201,000 and
working capital of $6,997,000 at December 31, 1999. The decrease in cash and
cash equivalents is primarily attributable to the use of cash in investing
activity.

Net cash provided by operating activities was $66,000 for the year ended
December 31, 2000 compared to $500,000 for the year ended December 31, 1999. The
decrease in net cash provided by operating activities reflects increased
corporate expenses in 2000.

Net cash used in investing activities was $118,000 for the year ended December
31, 2000 compared to net cash used in investing activities of $9,000 for the
year ended December 31, 1999. Net cash used in investing activities in 2000 is
primarily the result of various fixed asset purchases made.

There was no cash provided by financing activities in 2000 as opposed to
$6,399,000 of net cash provided by financing activities in 1999. The net cash
provided from financing activities in 1999 reflects the initial public offering
proceeds.

We anticipate that our current cash balances together with our cash flows from
operations will be sufficient to fund the production of our directories and the
maintenance of our web site as well as increases in our marketing and
promotional activities for the next 12 months. However, we expect our working
capital requirements to increase significantly over the next 12 months as we
continue to market NewYellow and expand our on-line services.

Recent accounting pronouncements

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 expresses the views of the SEC staff in applying
generally accepted accounting principles to certain revenue recognition issues.
The Company has decided to apply this SAB effective fiscal year ending December
31, 2000. The effect of this application can be seen in the table below.

                                              Three months period ended -
                                              ---------------------------
                                          3/31/00       6/30/00       9/30/00
                                          -------       -------       -------

As reported                              $ 421,654     $ (124,065)    $ 142,430
Effect for applying SAB 101                225,990       (133,746)      (33,921)
                                        ----------------------------------------
Net income (loss)                        $ 647,644     $ (257,811)    $ 108,509
                                        ----------------------------------------


                                       14
<PAGE>


Per Share Amounts:
------------------
Basic earnings per common share:

As reported                                $ 0.15       $ (0.04)       $  0.05
Effect for applying SAB 101                $ 0.08       $ (0.05)       $ (0.01)
                                        ----------------------------------------
Net income (loss)                          $ 0.23       $ (0.09)       $  0.04
                                        ----------------------------------------

Diluted earnings per common share:

As reported                                $ 0.14       $ (0.04)       $  0.05
Effect for applying SAB 101                $ 0.08       $ (0.05)       $ (0.01)
                                        ----------------------------------------
Net income (loss)                          $ 0.22       $ (0.09)       $  0.04
                                        ----------------------------------------

Item  7.  Financial Statements

The 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 Financial
          Disclosure.

Not Applicable.

                                    PART III

Item  9.  Directors, Executive Officers, Promoters and Control Persons;
          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 (2)...................     35      Chairman of the board, Chief
                                             executive officer, president and
                                             director
Orna Kirsh......................     29      Chief financial officer, treasurer
                                             and secretary
Gury Bar-Lev....................     32      Vice president of sales and
                                             director
Stephen A. Zelnick (1) (2)......     63      Director
Phillip Michals (1) (2).........     31      Director
Eran Goldshmid (1)..............     34      Director
Michael Jackson (2).............     36      Director

----------
(1)      Member of the Compensation Committee
(2)      Member of the Audit 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:


                                       15
<PAGE>

      Assaf Ran, our founder, has been our chief executive officer and president
since our inception in 1989. In 1987 Mr. Ran founded Dapey Assaf Maagarei
Mechirim, Ltd., a publishing company in Israel, and is a member of its board of
directors.

      Orna Kirsh, our chief financial officer joined DAG Media in July 1999. Ms.
Kirsh is a New York State licensed CPA and formerly worked for Arthur Andersen
LLP, the Company's auditors. Ms. Kirsh's work experience was with public
reporting companies. Ms. Kirsh received her BS in accounting in May 1992 from
the NYU Stern School of Business.

      Gury Bar-Lev, our vice president of sales joined DAG Media in July 2000,
upon which he became a board of director member as well. Mr. Bar-Lev was a
former sales representative from November 1995 through January 1996. Thereafter,
he was a full time student through 1999. Mr. Bar-Lev has chosen to leave the
company in January 2001 due to a personal relocation.

      Stephen A. Zelnick, Esq., joined our board in July 2000. He has been a
partner in the law firm Morse, Zelnick, Rose & Lander LLP since its inception in
1995. Mr. Zelnick has been a practicing attorney in New York State for over 40
years.

      Phillip Michals has been a member of our board of directors since March
1999. He is the founder and, since August 1996, the president of Up-Tick
Trading, a consulting company to investment banking firms. Since July 1994, he
has also been a principal and a vice president of Michals and Stockmen
Consulting Inc., a management-consulting firm. Mr. Michals received a BS degree
in human resources from the University of Delaware in May 1992.

      Eran Goldshmid has been a member of our board of directors since March
1999. Since December 1998, he has been the general manager of the Carmiel
Shopping Center in Carmiel, Israel. From April 1995 through December 1998, he
was head of marketing at Environmental Engineering & Design Company, Ltd., Tel
Aviv, Israel. From February 1993 through April 1995, he was head of a sales
office for Yedioth Aharonath, an Israeli daily newspaper. Mr. Goldshmid received
certification as a financial consultant in February 1993 from the School for
Investment Consultants, Tel Aviv, Israel, and a BA in business administration
from the University of Humberside, England in December 1998.

      Michael J. Jackson has been a member of the board since July, 2000. Since
May 2000, he has been the Corporate Controller and Chief Accounting Officer of
AGENCY.COM, a global internet professional services 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 is currently serving on
the New York State Society's SEC Committee.

      The Company's Board of Directors has established compensation and audit
committees. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all the officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company, and administers the stock option plan and authorizes
the issuance of stock options to the Company's officers, employees, directors
and consultants. The Audit Committee meets with management and the Company's
independent auditors to determine the adequacy of internal controls and other
financial reporting matters.

Section 16(a) Beneficial Ownership Reporting Compliance

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


                                       16
<PAGE>

      To the best of the Company's knowledge, based solely on review of the
copies of such forms furnished to the Company, or written representations that
no other forms were required, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten percent
(10%) shareholders were complied with during 2000.

Item  10. Executive Compensation.

      The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 2000 and
1999 by (i) the Company's Chief Executive Officer and (ii) the most highly
compensated executive officers, other than the CEO, who were serving as
executive officers at the end of the 2000 fiscal year and whose salary as
determined by Regulation S-B, Item 402, exceeded $100,000 (the individuals
falling within categories (i) and (ii) are collectively referred to as the
"Named Executives").

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                                            Long-Term Compensation
                                                                  -------------------------------------------
                                                 Annual
                                              Compensation               Awards                 Payouts
                                        ----------------------    ----------------------    -----------------
                                                                      Common Stock             All Other
  Name and Principal                        Salary/ Bonus          Underlying Options         Compensation
       Position              Year                ($)                       (#)                    ($)
-----------------------     -------     ----------------------    ----------------------    -----------------

<S>                          <C>        <C>           <C>                   <C>                  <C>
Assaf Ran                    2000       $67,788        --                  --                    $2,250
Chief Executive              1999       $75,000        --                  --
Officer and                  1998       $25,000        --                  --
President

Orna Kirsh                   2000       $98,717       $10,000              --                    $3,000
Chief Financial              1999       $43,584        --                  --                      --
Officer
</TABLE>

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 $200 per meeting
attended.

Employment Contracts

      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 ends June 30, 2002 but renews automatically for successive one-year
periods until either party gives 180 days written notice of its intention to
terminate the agreement. Under the agreement, Mr. Ran receives 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 agreed to a one-year non-competition
period following the termination of his employment.

      On July 19, 1999, the Company entered into an employment agreement with
Orna Kirsh, providing for her employment as chief financial officer of the
Company through July 19, 2001 at a base salary of $100,000. The agreement with
Ms. Kirsh renews automatically for successive one-year periods until either
party gives 14 days written notice of its intention to terminate the agreement.


                                       17
<PAGE>

Item  11. Security Ownership of Certain Beneficial Owners and Management

      The following table, together with the accompanying footnotes, sets forth
information, as of March 27, 2000, regarding stock ownership of all persons
known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, certain executive officers, all directors, and all
directors and officers of the Company as a group:

                                              Shares of
                                             Common Stock
                                             Beneficially      Percentage of
     Name of Beneficial Owner (1)              Owned (2)          Ownership
   ----------------------------------------  -------------     -------------
   Executive Officers and Directors
   Assaf Ran...............................    1,413,095            48.6%
   Orna Kirsh..............................       25,000             *
   Gury Bar-Lev............................       20,000             *
   Stephen A. Zelnick......................       17,000             *
   Michael Jackson.........................        7,000             *
   Phillip Michals.........................       14,000             *
   Eran Goldshmid..........................       14,000             *
                                               ---------
   All officers and directors as a group...    1,510,095            51.9%
                                               ---------

   5% and Greater Stockholders                  none

----------
* Less than 1%

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

                  Assaf Ran
                  60 Exeter Street
                  Forest Hills NY 11375

      The address of the rest of the persons listed above is c/o DAG Media Inc,
      125-10 Queens Boulevard, Kew Gardens, NY 11415.

(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
      exercise 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 2,907,460
      shares outstanding on March 27, 2000.

Item  12. Certain Relationships and Related Transactions

On September 21, 2000 the Company pledged $1,000,000 as security for a
promissory note payable by its Chief Executive Officer and its restriction
expires in conjunction with the settlement of its officers' promissory note,
which is due on demand. On January 26, 2001 Chase Manhattan Bank released the
restriction it placed on this $1,000,000 pledge. This cash and accumulating
interest is free of any liens and restrictions as of the January 26, 2001.


                                       18
<PAGE>

Item  13. Exhibits and Reports on Form 8-K.

(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 between
                                Assaf Ran and the Company (1).

         10.3              Employment Agreement dated June 14, 1999 between
                                Orna Kirsh and the Company (3).

         10.6              Form of the Company's 1999 Stock Option Plan(1)

----------
        (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 10KSB on March 22, 2000.

(b)   Reports on Form 8-K - none.


                                       19
<PAGE>

                                   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 and Chief Executive Officer

Date:  March 27, 2001

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
27, 2001.

      Signature          Date              Title
      ---------          ----              -----

/s/Assaf Ran             March 27 , 2001   President and Chief Executive Officer
----------------------
    Assaf Ran

/s/Orna Kirsh            March 27 , 2001   Chief Financial Officer
----------------------
    Orna Kirsh

/s/Gury Bar-Lev          March  27, 2001   Director
----------------------
    Gury Bar-Lev

/s/Stephen A. Zelnick    March  27, 2001   Director
----------------------
    Stephen A. Zelnick


/s/Phillip Michals       March 27, 2001    Director
----------------------
    Phillip Michals


/s/Eran Goldshmid        March 27, 2001    Director
----------------------
    Eran Goldshmid

/s/Michael Jackson       March 27, 2001    Director
----------------------
    Michael Jackson


                                       20
<PAGE>

                                DAG MEDIA, INC.

                         Index to Financial Statements

                                                                   Page Number
                                                                   -----------

         Report of Independent Public Accountants................      F-2

         Balance Sheet at December 31, 2000......................      F-3

         Statements of Operations for the years
         ended December 31, 2000 and 1999........................      F-4

         Statements of Changes in Shareholders' Equity
         for the years ended December 31, 2000 and 1999..........      F-5

         Statements of Cash Flows for the
         years ended December 31, 2000 and 1999..................      F-6

         Notes to Financial Statements...........................      F-7


                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of DAG Media, Inc.:

We have audited the accompanying balance sheet of DAG Media, Inc. (a New York
corporation) as of December 31, 2000, and the related statements of operations,
changes in shareholders' equity and cash flows for the years ended December 31,
2000 and 1999. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DAG Media, Inc. as of December
31, 2000, and the results of its operations and its cash flows for the years
then ended December 31, 2000 and 1999, in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 2, the Company changed its method of accounting for revenue
recognition.


                                                Arthur Andersen LLP

New York, New York
February 9, 2001


                                      F-2
<PAGE>

                                        DAG MEDIA, INC.
                                         BALANCE SHEET
                                       DECEMBER 31, 2000

      Assets
      Current assets:
      Cash and cash equivalents (Note 2)                          $  7,148,664
      Trade accounts receivable, net of
      allowance for doubtful accounts of $485,000                    2,299,267
      Directories in progress                                        1,469,182
      Deferred tax asset                                               187,058
      Other current assets                                              48,669
                                                                  ------------
                  Total current assets                              11,152,840
                                                                  ------------

      Fixed assets, net of accumulated
      depreciation of $67,629                                          222,764
      Goodwill and trademarks, net of accumulated
      amortization of $87,815                                        1,263,166
      Other assets                                                      14,196

                                                                  ------------
      Total assets                                                $ 12,652,966
                                                                  ============

      Liabilities and Shareholders' Equity

      Current liabilities:
      Accounts payable and accrued expenses                       $     75,752
      Commissions payable                                              553,116
      Advanced billing for unpublished directories                   3,545,211
      Income tax payable                                               335,945
                                                                  ------------
                  Total current liabilities                          4,510,024
                                                                  ------------

      Commitments and contingencies (Note 10)

      Shareholders' equity:

      Preferred shares - $.01 par value; 5,000,000
      shares authorized; no shares issued                                   --


      Common shares - $.001 par value; 25,000,000
      authorized; 2,976,190 issued and 2,907,460 outstanding             2,976
      Additional paid-in capital                                     7,916,701
      Treasury stock, at cost- 68,730 shares                          (231,113)
      Deferred compensation                                            (77,061)
      Retained earnings                                                531,439
                                                                  ------------
              Total shareholders'  equity                            8,142,942
                                                                  ------------

       Total liabilities and shareholders' equity                 $ 12,652,966
                                                                  ============

       The accompanying notes are an integral part of this balance sheet


                                      F-3
<PAGE>

                                DAG MEDIA, INC.
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                              2000               1999
                                                              ----               ----

    <S>                                                   <C>                <C>
    Advertising revenues                                  $ 6,237,173        $ 4,365,107
    Publishing costs                                        1,421,994            438,350
                                                          -----------        -----------
          Gross profit                                      4,815,179          3,926,757

    Operating costs and expenses:
    Selling expenses                                        2,109,136          1,661,090
    General and administrative expenses                     2,957,637          1,656,928
                                                          -----------        -----------
          Total operating costs and expenses                5,066,773          3,318,018
                                                          -----------        -----------

    Income (loss) from operations                            (251,594)           608,739
                                                          -----------        -----------

    Interest income                                           425,021            225,830
    Other expense                                                  --             (7,504)
                                                          -----------        -----------
    Other income, net                                         425,021            218,326

    Income before provision for income taxes
    and equity in loss of affiliate                           173,427            827,065

    Provision for income taxes                                 87,667            391,000
    Equity in loss of affiliate                                    --             (2,654)
                                                          -----------        -----------

    Income before cumulative effect of change in
    accounting principle                                       85,760            433,411

    Cumulative effect of change in accounting
    principle, net of tax benefit of  $ 435,356              (511,071)                --
                                                          -----------        -----------
    Net (loss) income                                     $  (425,311)       $   433,411
                                                          ===========        ===========

    Earnings per common share:
    Basic -
      Income before cumulative effect of change in
    accounting principle                                       $ 0.03             $ 0.19
      Cumulative effect of change in accounting
    principle                                                   (0.18)                --
                                                               ------             ------
      Net (loss) income                                        $(0.15)            $ 0.19
                                                               ======             ======
    Diluted -
      Income before cumulative effect of change in
    accounting principle                                       $ 0.03             $ 0.19
      Cumulative effect of change in accounting
    principle                                                   (0.18)                --
                                                               ------             ------
      Net (loss) income                                        $(0.15)            $ 0.19
                                                               ======             ======

    Weighted  average  number of common  shares
    outstanding
          -     Basic                                       2,907,460          2,285,639
                                                          ===========        ===========
          -     Diluted                                     2,915,430          2,286,153
                                                          ===========        ===========
</TABLE>

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


                                      F-4
<PAGE>

                                DAG MEDIA, INC.
                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                          Common Stock         Addititional       Treasury Shares
                                                          ------------           Paid-in          ---------------
                                                      Shares        Amount       Capital         Shares        Cost
                                                      ------        ------       -------         ------        ----

<S>                                                 <C>         <C>           <C>                <C>      <C>
Balance, December 31, 1998 ....................     1,250,000   $     1,250   $       150            --   $        --

Sale of common stock in public offering,
      net of expenses .........................     1,250,000         1,250     6,407,260            --            --

Acquisition of affiliates .....................       476,190           476     1,392,379            --            --

Treasury shares purchased .....................            --            --            --        68,730      (231,113)

Net income for the year ended December 31, 1999            --            --            --            --            --
                                                    ---------   -----------   -----------   -----------   -----------

Balance, December 31,1999 .....................     2,976,190   $     2,976   $ 7,799,789        68,730   $  (231,113)

Issuance of stock options .....................            --            --       116,912            --            --

Amortization of deferred compensation .........            --            --            --            --            --

Net loss for the year ended December 31, 2000 .            --            --            --            --            --
                                                    ---------   -----------   -----------   -----------   -----------

Balance, December 31, 2000 ....................     2,976,190   $     2,976   $ 7,916,701        68,730   $  (231,113)
                                                    =========   ===========   ===========   ===========   ===========

<CAPTION>
                                                        Deferred       Retained
                                                      Compensation     Earnings        Total
                                                      ------------     --------        -----

<S>                                                   <C>            <C>            <C>
Balance, December 31, 1998 ....................       $        --    $   523,339    $   524,739

Sale of common stock in public offering,
      net of expenses .........................                --             --      6,408,510

Acquisition of affiliates .....................                --             --      1,392,855

Treasury shares purchased .....................                --             --       (231,113)

Net income for the year ended December 31, 1999                --        433,411        433,411
                                                      -----------    -----------    -----------

Balance, December 31,1999 .....................       $        --    $   956,750    $ 8,528,402

Issuance of stock options .....................          (116,912)            --              0

Amortization of deferred compensation .........            39,851             --         39,851

Net loss for the year ended December 31, 2000 .                --       (425,311)      (425,311)
                                                      -----------    -----------    -----------

Balance, December 31, 2000 ....................       $   (77,061)   $   531,439    $ 8,142,942
                                                      ===========    ===========    ===========
</TABLE>

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


                                       F-5
<PAGE>

                                 DAG MEDIA, INC.
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                           2000              1999
                                                                           ----              ----
   <S>                                                                  <C>               <C>
         Cash flows from operating activities:
            Net (loss) income ....................................      $  (425,311)      $   433,411
            Adjustment to reconcile net (loss) income to net
             cash provided by operating activities -
               Cumulative effect of change in accounting principle          511,071                --
               Loss on disposal of fixed assets ..................               --             7,504
               Depreciation and amortization .....................           93,445            62,253
               Amortization of deferred compensation .............           39,851                --
         Equity in loss of affiliate .............................               --             2,654
         Bad debt expense ........................................        1,311,924           689,634
         Deferred taxes ..........................................         (303,058)          (55,000)
               Changes in operating assets and liabilities -
               Accounts receivable ...............................       (1,145,635)       (1,502,219)
               Directories in progress ...........................          (13,319)         (289,934)
               Other current and non current assets ..............           60,205           (92,977)
               Accounts payable and accrued expenses .............           45,797           (54,155)
               Commissions payable ...............................          (34,497)          570,305
               Advanced billings for unpublished directories .....         (451,856)          693,013
               Income taxes payable ..............................          377,301            36,000
                                                                        -----------       -----------
                       Net cash provided by operating activities .           65,918           500,489
                                                                        -----------       -----------

         Cash flows from investing activities:
             Investment in affiliate .............................               --            39,221
             Acquisition of business .............................               --            43,125
             Sale of fixed assets ................................               --            22,500
             Purchase of fixed assets ............................         (118,111)         (113,407)
                                                                        -----------       -----------
                       Net cash used in investing activities .....         (118,111)           (8,561)
                                                                        -----------       -----------

         Cash flows from financing activities:
             Proceeds from IPO, net of expenses ..................               --         6,408,510
             Purchase of treasury shares .........................               --          (231,113)
             Repayment of loans to shareholders, net .............               --           221,347
                                                                        -----------       -----------
                       Net cash provided by financing activities .               --         6,398,744
                                                                        -----------       -----------

         Net (decrease) increase in cash and cash equivalents ....          (52,193)        6,890,672
                                                                        -----------       -----------

         Cash and cash equivalents, beginning of year ............        7,200,857           310,185
                                                                        -----------       -----------

         Cash and cash equivalents, end of year ..................      $ 7,148,664       $ 7,200,857
                                                                        ===========       ===========
         Supplemental Cash Flow Information:
             Taxes paid during the years .........................      $    15,579       $   394,438
                                                                        -----------       -----------
             Non-cash transactions -
             Goodwill and trademark acquired in connection
               with acquisition of affiliate .....................               --       $ 1,350, 981
      </TABLE>

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


                                      F-6
<PAGE>

                                DAG MEDIA, INC.
                         NOTES TO FINANCIAL STATEMENTS
                           December 31, 2000 AND 1999

1.    The Company

      We currently publish and distribute yellow page directories in print and
on the worldwide web, both in the mainstream yellow page industry as well as in
targeted niche markets in the New York metropolitan area. We sell yellow page
advertisements as part of an overall media package that includes print
advertising, on-line advertising and other added value services such as our
referral service and consumer discount club.

      We operate three internet portals, a mainstream general portal
NewYellow.com, targeting the general population, JewishYellow.com targeting
worldwide Jewish communities and JewishMasterguide.com, targeting the
ultra-orthodox Hasidic communities. Our principal source of revenue derives from
the sale of ads in our print and on-line directories.

      Effective September 28,1999, the wholly-owned subsidiaries of the Company,
Dapey Assaf- Dapey Zahav Ltd. (a New York corporation) and Dapey Assaf -
Hamadrikh Leassakim Be New York Ltd. (a New York corporation), were merged into
DAG pursuant to the laws of the State of New York.

2.    Significant Accounting Policies

      Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.

      Cash and Cash Equivalents

      The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

      Cash and cash equivalents include $1,000,000 that the Company pledged as
security for a promissory note payable by its Chief Executive Officer ("CEO") to
a third party. The restriction on such amount expires in conjunction with the
settlement of such officers' promissory note, which is due on demand. See Note
11 below, with respect to information regarding the release of the restriction
on these funds in January 2001.

      Directories in Progress/Advanced Billings for Unpublished Directories

      Directories in progress include direct costs incurred applicable to
unpublished directories. Advanced billings for unpublished directories arise
from billings on advertising contracts. Upon publication, revenue and the
related expense are recognized.

<PAGE>

      Fixed Assets

      Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis to distribute costs evenly over the estimated useful
economic lives of the assets, ranging from three to five years.

      Goodwill and Trademarks

      Goodwill and trademarks are amortized using the straight-line method over
twenty-five years.

      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 liabilites 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.

      Revenue Recognition

      Advertising revenues are recognized under the point-of-publication method,
which is generally followed by publishing companies. Under this method, revenues
and expenses are recognized when the related directories are published.
Similarly, costs directly related to the publication of a directory in advance
of publication are recorded as "Directories in progress" on the accompanying
balance sheet and are recognized when the directory to which they relate is
published. All other costs are expensed as incurred.

      In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements SAB No. 101" expresses the views of the SEC staff in applying
generally accepted accounting principles to certain revenue recognition issues.
The Company adopted SAB 101 effective January 1, 2000.

      In the past, the Company recognized non-printed advertising revenues
related to its NewYellow directory sales upon launch of the applicable
advertisement. In accordance with SAB 101, the Company began to recognize such
revenues simultaneously with the related printed editions in which the
advertisement was sold. In addition, the Company allocates directory sales over
the number of printed editions, based on its past experience. Accordingly, the
Company recorded a cumulative effect of change in accounting principle of
$946,427, net of tax benefit of $435,356. The related revenues amounting to
approximately $1,472,000 were recognized in full during 2000. Net effect of this
change on fiscal 1999 is immaterial to the overall presentation of the financial
statements. The following table represents the net effect for applying SAB 101
in the 2000 interim period.

<PAGE>

                                          Three months period ended -
                                          ---------------------------
                                  3/31/2000      6/30/2000         9/30/2000
                                  ---------      ---------         ---------

As reported                       $ 421,654      $ (124,065)       $ 142,430
Effect for applying SAB 101         225,990        (133,746)         (33,921)
                               ----------------------------------------------
Net Income (Loss)                 $ 647,644      $ (257,811)       $ 108,509
                               ==============================================

Per Share Amounts:
------------------
Basic earnings per common
 share:
As reported                       $    0.15      $    (0.04)       $    0.05
Effect for applying SAB 101       $    0.08      $    (0.05)       $   (0.01)
                               ----------------------------------------------
Net Income (Loss)                 $    0.23      $    (0.09)       $    0.04
                               ----------------------------------------------

Diluted earnings per common
 share:
As reported                         $ 0.14       $    (0.04)       $    0.05
Effect for applying SAB 101         $ 0.08       $    (0.05)       $   (0.01)
                               ----------------------------------------------
Net Income (Loss)                   $ 0.22       $    (0.09)       $    0.04
                               ----------------------------------------------

      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 includes the
potential dilution from the exercise of stock options and warrants for common
shares using the treasury stock method.

      The following table reconciles the number of weighted average common
shares outstanding for basic and diluted earning per share:

                                                  Years ended
                                                 December 31,
                                       ------------------------------
                                           2000               1999
                                           ----               ----

Basic                                    2,907,460         2,285,639
Incremental shares for
 assumed conversion of options               7,970               514
                                         ---------         ---------
Diluted                                  2,915,430         2,286,153
                                         =========         =========

      103,884 and 175,824 stock options and warrants were not included in the
diluted earnings per share calculation for the 2000 and 1999 fiscal years,
respectively, as their effect would have been anti-dilutive.

      Accounting for Long-Lived Assets

      The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS 121"). This statement
establishes financial accounting and reporting standards for impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS 121 requires, among other
things, that an entity review its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The Company does not
believe that any such changes have taken place as of December 31, 2000.

<PAGE>

      Stock-Based Compensation

      SFAS No. 123, "Accounting for Stock-Based Compensation", establishes a
fair market value based method of accounting for an employee stock option plan
but allows companies to continue to measure compensation cost for those plans
using the intrinsic value based method prescribed by APB Opinion No. 25
"Accounting for Stock Issued to Employees." Companies electing to continue using
the accounting under APB Opinion No. 25 are required to present pro forma
disclosure of net income and earnings per share as if the fair value based
method of accounting had been applied. The Company has elected to continue to
account for its stock-based compensation awards to employees and directors under
the accounting prescribed by APB Opinion No. 25, and to provide the necessary
pro forma disclosures as if the fair value method had been applied (Note 8).

3.    Fixed Assets, net

      Fixed assets, net consist of the following at December 31, 2000:

              Office equipment                 $ 153,036
              Automobiles                        117,696
              Leasehold improvements              19,661
                                               ---------
                     Total fixed assets          290,393
              Less:  accumulated depreciation
                and amortization                 (67,629)
                                               ---------
              Fixed assets, Net                $ 222,764
                                               =========

      Depreciation and amortization expense was approximately $93,000 and
$62,000 for the years ended December 31, 2000 and 1999, respectively.

4.    Initial Public Offering

      On May 13, 1999, the Company's initial public offering of common shares
was declared effective and trading of the Company's common shares commenced on
the Nasdaq Small Cap Market. An aggregate of 1,325,000 common shares were sold
in the offering of which 1,250,000 common shares were sold by the Company and
75,000 common shares were sold by Assaf Ran. The initial public offering price
was $6.50 per share and the net proceeds to the Company, after payment of
underwriting discounts and commissions and other expenses related to the
offering of approximately $1,716,000 were $6,408,000. In addition, Mr. Ran
repaid a loan offering of $221,000 out of the net proceeds he received from the
sale of his common shares.

      In connection with the Company's initial public offering the Company
issued 132,500 warrants to the underwriters of the initial public offering. The
warrants are convertible into the same number of common shares at an exercise
price of $7.80 per warrant. The warrants are exercisable over a four-year period
beginning on the first anniversary of the offering.

5.    Acquisition of affiliates

      In connection with the initial public offering ("IPO"), the Company
entered into an Exchange Agreement with Dapey Assaf-Dapey Zahav, Ltd. ("DAZ"),
Dapey Assaf-Hamadrikh Leassakim Israelim Be New York, Ltd. ("DAH") and the
shareholders of DAZ and DAH. Pursuant to the Exchange Agreement, on May 11, 1999
the shareholders of DAZ and DAH exchanged all of their common shares in DAZ and
DAH, as the case may be, for the common

<PAGE>

shares of the Company and DAZ and DAH became wholly owned subsidiaries of the
Company. The exchange has been accounted for under the purchase method of
accounting, resulting in a "step up" in the basis of the Company's assets to the
extent of the interests of the minority shareholders. The value of the stock
issued for the purchase of the minority interest was approximately $1,393,000
(assuming a 10% discount from the initial public offering price) and has been
allocated among the assets of the Company based on their relative fair market
values. Of this amount, approximately $42,000 has been allocated to the
Company's tangible assets, $350,000 has been allocated to the Company's
trademarks, trade names and other intellectual property and $1,000,000 has been
allocated to goodwill. The amounts allocated to the Company's intellectual
property and goodwill are being amortized on a straight-line basis over 25
years. The pro forma effect of the aforementioned transaction is immaterial to
the overall presentation of the financial statements.

6.    Income Taxes

      The provision for income taxes consists of the following:

                                               For the Years Ended
                                               -------------------
                                                  December 31,
                                                  ------------
                                              2000           1999
                                              ----           ----
      Current Taxes:
          Federal.....................     $ 237,725     $ 273,000
          State.......................       153,000       173,000
                                           ---------     ---------
                                             390,725       446,000

      Deferred Taxes:
          Federal.....................      (184,000)      (33,000)
          State.......................      (119,058)      (22,000)
                                           ---------     ---------
                                            (303,058)      (55,000)
                                           ---------     ---------
      Provision for income taxes......     $  87,667     $ 391,000
                                           =========     =========

      Deferred tax assets (liabilities) are comprised of the following:

                                                      For the Years Ended
                                                      -------------------
                                                          December 31,
                                                          ------------
                                                     2000            1999
                                                     ----            ----
Accounts receivable ..........................   $(1,053,000)   $(1,129,000)
Directories-in-progress ......................      (673,000)      (418,000)
                                                 -----------    -----------
    Gross deferred tax (liability) ...........    (1,726,000)    (1,547,000)
                                                 -----------    -----------

Advanced billings for unpublished directories      1,624,000      1,156,000
Other deferred tax liability .................       289,058        275,000
                                                 -----------    -----------
    Gross deferred tax asset .................     1,913,058      1,431,000
                                                 -----------    -----------
    Net deferred tax asset (liability) .......   $   187,058    $  (116,000)
                                                 ===========    ===========

      The Company is on the cash method of accounting for tax purposes. The
deferred tax items indicated above are primarily a result of recognizing items
of income or expense under the cash method in different periods from when those
items are recognized for accrual basis financial

<PAGE>

purposes. The provision for income taxes on income differs from the amount
computed by applying the U.S. federal income tax rate (34%) because of the
effect of the following items:

                                                           For the Years Ended
                                                           -------------------
                                                               December 31,
                                                               ------------

                                                              2000       1999
                                                              ----       ----

Tax at U.S. federal income tax rate ....................   $ 59,000   $281,000

State income tax, net of U.S. federal income tax benefit     22,000    100,000
Other ..................................................      6,667     10,000
                                                           --------   --------
    Provision for income taxes .........................   $ 87,667   $391,000
                                                           ========   ========

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 employees.
The IRA Plan was effective August, 2000 with a trustee, which allows up to 100
eligible employees to participate. It is a "Matching Contribution" plan under
which eligible employees may contribute up to 6% of their yearly salary, on a
pre-tax basis (with a cap of $6,000), with the Company matching on a
dollar-for-dollar basis up to 3% of the employees' compensation (with a cap of
$3,000). These thresholds are subject to change under notice by the trustee. The
Company is not responsible for any other costs under this plan. For fiscal year
2000 the Company contributed $5,250 as a matching contribution to the IRA Plan.

8.    Stock Option Plan

      Immediately prior to the initial public offering, the Company adopted the
DAG Media, Inc. 1999 Stock Option Plan (the "Plan") reserving 124,000 common
shares of the Company for issuance upon exercise of stock options granted
pursuant to the Plan. At the Company's annual shareholder meeting held on July
18, 2000, an amendment to the Company's Stock Option Plan to increase the
maximum number of options issuable there under by 145,000 options was proposed
and passed as of December 31, 2000. At December 31, 2000, 34,116 options are
available for future grants under the plan.

      The exercise price of options granted under the 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 the Plan may be awarded to
officers, key-employees, consultants and non-employee directors of the Company.
Under the Plan, every non-employee director of the Company is granted 7,000
options upon first taking office, and then upon each additional year in office.
The objectives of the 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. The Plan is the only plan that the Company has adopted with stock
options available for grant.

      The Company accounts for the employee options under APB Opinion No. 25,
under which no compensation cost has been recognized as all options granted to
employees during 2000 and 1999 have been granted at the fair market value of the
Company's common stock. Options granted to consultants are accounted for under
SFAS No. 123 and are measured using Black-Scholes option pricing model.
Accordingly, deferred compensation costs of approximately $117,000 was recorded
in 2000. Such costs will be amortized over the option
<PAGE>

vesting period (generally five years). In 2000, the Company charged $39,857 of
compensation costs to operations. Had compensation cost for all options granted
under the Plan been determined in accordance with SFAS No. 123, the Company's
net income (loss) and EPS would have been changed as follows:

                                               Years ended December 31,
                                               ------------------------
                                              2000                  1999
                                              ----                  ----
Net income (loss)           As reported    $(425,311)             $433,411
                            Pro-forma      $(488,697)             $179,982

Basic EPS                   As reported       $(0.15)               $ 0.19
                            Pro-forma         $(0.17)               $ 0.08

Diluted EPS                 As reported       $(0.15)               $ 0.19
                            Pro-forma         $(0.17)               $ 0.08

      Under SFAS No. 123, 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 2000 and 1999,
respectively: (1) expected life of 5 years; (2) no dividend yield; (3) expected
volatility 70% and 209%; (4) risk free interest rate of 6%.

      Weighted average fair value of options granted during 2000 and 1999 is
$1.35 and $4.81, respectively.

The following summarizes stock option activity for 2000 and 1999:

                                                            Weighted Average
                                            Shares           Exercise Price
Outstanding at December 31, 1998                --                  --
Granted                                     101,824               $4.82
--------------------------------------------------------------------------------
Outstanding at December 31, 1999            101,824               $4.82
Granted                                     157,000               $2.59
Forfeited                                   (23,940)              $4.32
--------------------------------------------------------------------------------
Outstanding at December 31, 2000            234,884               $3.67
                                            -------               -----
--------------------------------------------------------------------------------
Exercisable at December 31, 2000            144,884               $3.95
--------------------------------------------------------------------------------

9.    Shareholders' Equity

      In August 1999, the Board of Directors of the Company authorized a stock
repurchase program. The program authorizes the Company to purchase up to 150,000
common shares of the Company within the upcoming years. As of December 31, 2000,
the Company has purchased 68,730 common shares at an aggregate cost of
approximately $231,000. None of the proceeds of the Company's initial public
offering have been used in connection with this stock repurchase program. The
purpose of the stock repurchase program is to help the Company achieve its
long-term goal of enhancing shareholder value. No additional shares were
repurchased during fiscal year 2000.

<PAGE>

10.   Commitments and Contingencies

Operating leases  -

           The Company has various lease and rental commitments ending 2003 for
its offices, automobiles and equipment. At December 31, 2000, approximate future
minimum rental payments under these commitments are as follows:

2001........................              $109,894
2002........................                49,869
2003........................                24,709
                                          --------
Total.......................              $184,472
                                          ========

Rent expense was approximately $109,000 and $71,000 in 2000 and 1999,
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 ends June 30, 2002 but renews automatically for successive one-year
periods until either party gives 180 days written notice of its intention to
terminate the agreement. Under the agreement, Mr. Ran will receive an annual
base salary of $75,000, annual bonuses as 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.

      On July 19, 1999, the Company entered into an employment agreement with
Orna Kirsh, providing for her employment as Chief Financial Officer of the
Company through July 19, 2001 at a base salary of $100,000. The agreement with
Ms. Kirsh renews automatically for successive one-year periods until either
party gives 14 days written notice of its intention to terminate the agreement.

11.   Subsequent Events

      On January 26, 2001 Chase Manhattan Bank released the restriction it
placed on the $1,000,000 the Company assigned as security for a promissory note
payable by the Company's CEO (See Note 2). This cash and accumulating interest
is free of any liens and restrictions as of the aforementioned date.