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, 2003

|_|   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) 520-1000

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
|_|

      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

<PAGE>

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, 2003, the revenues of the registrant were
$9,086,000.

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 February 25, 2004 of $3.75, was approximately $6,108,240.

      As of February 25, 2004 the registrant has a total of [2,976,460] 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........................................  11
   Item 3.   Legal Proceedings..............................................  12
   Item 4.   Submission of Matters to a Vote of Security Holders............  12

PART II
   Item 5.   Market for Common Equity and Related Stockholder Matters.......  12
   Item 6.   Management's Discussion and Analysis or Plan of Operation......  14
   Item 7.   Consolidated Financial Statements..............................  18
   Item 8.   Changes in and Disagreements With Accountants on Accounting
                and Financial Disclosure....................................  18

PART III
   Item 9.   Directors and Executive Officers of the Registrant.............  18
   Item 10.  Executive Compensation.........................................  20
   Item 11.  Security Ownership of Certain Beneficial Owners and
               Management and Related Stockholders Matters..................  21
   Item 12.  Certain Relationships and Related Transactions.................  23
   Item 13.  Exhibits List and Reports on Form 8-K..........................  23
   Item 14.  Principal Accountant Fees and Services.........................  24

SIGNATURES..................................................................  24

EXHIBITS....................................................................  28

                           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.


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<PAGE>

                                     PART I

Item 1. Description of Business

      We publish and distribute print and online business directories for niche
markets, in the nation. Our principal source of revenue comes from the sale of
ads in these directories. As a sales incentive we also provide our advertisers
with added values, such as referral services and a consumer discount club. We
also operate Internet portals, JewishYellow.com targeting worldwide Jewish
communities and JewishMasterguide.com, targeting the ultra-orthodox and Hasidic
communities.

      Our principal directories are: the Jewish Israeli Yellow Pages, a
bilingual, English and Hebrew, yellow page directory distributed free through
local commercial and retail establishments in the New York metropolitan area and
Florida and through travel agencies in Israel; the Master Guide and Kosher
Guide, each a yellow page directory designed to meet the special needs of the
Hasidic and ultra-Orthodox Jewish communities in the New York metropolitan area;
and various Blackbook photography and illustration source books that have become
the "Industry Standard" reference source for finding photographers, illustrators
and graphic designers in North America.

      Until August 22, 2003 we also published New Yellow, a general circulation
classified directory for Manhattan. On that date, we sold this directory to
Yellow Book USA for $1.3 million in cash. However, under the terms of sale we
printed and distributed the October 2003 directory and we will print and
distribute the April 2004 directory.

Products and services

      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, New Jersey
and Florida and 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 in 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 and by other 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.

      The layout, design, editing and most proofreading for the Jewish Israeli
Yellow Pages is done domestically. The final version of the directory is then
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. (Also known as the Kosher Yellow Pages) 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. We produce the Master Guide and
its similar companion, the Kosher Guide, in the same manner as the Jewish
Israeli Yellow Pages, except that starting with the December 2003 edition, we
have printed these Guides domestically with a directory printer. The Master and
Kosher Guides differ from the Jewish Israeli Yellow Pages in that they are
published in English only, and they do not advertise products or services that
might offend the Hasidic and ultra-Orthodox Jewish communities. Generally,
advertising rates for these Guides are lower than those for the Jewish Israeli
Yellow Pages because the market served is smaller. Distribution is accomplished
by placing copies of the directories in synagogues, community centers and
businesses located in Hasidic and ultra-Orthodox neighborhoods. The development
of the Master and Kosher Guides reflect our strategy of expansion through
identifying and pursuing niche markets for yellow page directories. The Master
and Kosher Guides are also available online at our web site
JewishMasterGuide.com.

      Blackbook Publications. Our wholly owned Blackbook subsidiary publishes
photography and illustration source books that have become the "Industry
Standard" reference source for finding photographers, illustrators and


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<PAGE>

graphic designers in North America. The Blackbook name is respected worldwide
with an estimated 25,000 art directors, creative directors, designers and
corporations worldwide using Blackbook to find the talent they need. Blackbook
publishes three principal source books: Blackbook Photography, Blackbook
Illustration and Blackbook AR100 which serve three distinct advertiser groups:
photographers, illustrators and a select group of more than 100 leading
corporate annual reports designers. Blackbooks publications are supported by its
web site, "Blackbook.com". To expand the Blackbook business, on August 27, 2003,
we announced the launch of a new directory, The Complete Industry Directory. A
directory designed to meet the needs of professionals who work with every aspect
of photo, illustration, design, and creative studio services in the advertising
and corporate communities and on October 2003, we announced the launch of a
stock photography web site named "Blackbookstock.com", which will complement the
suite of Blackbook publications by allowing web access to a large array of stock
photography and illustrators through a direct link with the Blackbook.com web
site. Blackbook's array of products and services are as follows:

      Blackbook Photography. The book directory reproduces, in full color, the
      work of the finest commercial photographers in high-quality prints. The
      Blackbook name is respected worldwide among art directors, creative
      directors, designers and corporations using Blackbook Photography to find
      the talent they need. Celebrating 35 years of brand recognition, Blackbook
      Photography is the incomparable and original sourcebook for the creative
      industry.

      Blackbook Illustration. The directory reproduces in full color the work of
      both well-known artists and young talent, and many of the images on
      display have appeared in high-profile ad campaigns, magazines and
      newspapers. The annual directory is a source book that has became the
      reference source for finding commercial illustrators and graphic designers
      in North America and in west Europe. The Blackbook Illustration book is
      used by ad agencies, design firms, book, magazine and newspaper publishers
      and corporate communicators who use it when needing an illustrator's touch
      to introduce audiences to new concepts or new worlds. The 2003-2004
      Blackbook illustration directory was printed and distributed on October
      2003. Blackbook Illustration database of qualified art directors,
      designers, creative directors, editors, producers, directors of corporate
      communications and owners has been developed in association with ADBASE.
      The lists are updated 6 times a year and guaranteed to be 98% accurate.

      Blackbook AR 100 Award Show. The Blackbook AR100 Award Show is the largest
      and most prestigious competition recognizing excellence in corporate
      annual reports. A panel of leading designers selects the 100 best reports,
      which are then reproduced - in full color - in the AR100 Award Show Book.
      This sourcebook contains design and production credits for each winner,
      along with an extensive resource section showcasing the work of highly
      respected designers, photographers, illustrators, paper companies and
      printers who specialized in reports. The annual directory is a source book
      aimed directly at corporate America. AR 100 is distributed to leading
      corporations, design firms and to agencies specializing in annual reports
      and other corporate collateral. Art directors, designers, corporate
      communicators and other talent buyers will look for the talent needed to
      produce their upcoming annuals. AR 100 also features an extensive "Talent
      & Resources" section. The nineteenth annual edition of The AR100 Award
      Show was published and distributed in November 2003. AR 100's database,
      developed in association with ADBASE, is updated 6 times a year and
      guaranteed to be 98% accurate.

      The Complete Industry Directory. On August 27, 2003, we announced the
      launch of a new directory, The Complete Industry Directoyr. The first
      edition will be published and distributed by May 2004. The directory will
      be specifically designed to meet the needs of professionals who work with
      every aspect of photo, illustration, design and creative studio services
      in the advertising and corporate communities. The directory's database of
      qualified art directors, creative directors, editors, producers,
      publishers, corporate communication professional and others is easy to use
      and its structure makes it easier to reach targeted buyers. The book will
      be organized with sections that help users find their resource of choice
      in seconds. The advertising pages will be high quality, exciting, and
      represent listing around the country. The Complete Industry Directory's
      database, developed in association with ADBASE, is updated 6 times a year
      and guaranteed to be 98% accurate.

      www.Blackbook.com. The Blackbook website functions as a showcase of the
      Blackbook advertisers' portfolios on line. Blackbook.com offers a full
      service portfolio, which is managed by Blackbook sales consultant, as well
      as self-managed portfolios. The Blackbook.com enable the Blackbook's
      adcertisers including Artists, Photographers and Illustrators, to exhibit
      their arts and change them at any time. In


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<PAGE>

      addition, the site enables its artist to e-mail vivid full-colored samples
      of their own work anywhere in the world through the web site Electronic
      Leave Behind features. Additional web site features provide the artist
      options to extend and market their art as well as different ways to
      connect with talent buyers.

      www.Blackbookstock.com. On October 2003, we announced the launch of its
      stock photography web site named "Blackbookstock.com". Blackbookstock.com
      will complement the suite of Blackbook publications by allowing web access
      to its vast array of stock photography and illustrators through a direct
      link with the Blackbook.com web site. The site extensive searching
      capability will enable creative professionals to find stock images faster
      and easier, while opening the market to a wider range of Communications
      Executives. Blackbook.com allows users to do keyword searches by type,
      color, orientation and a number of other criteria.

We purchased the business and assets of the Blackbook from Brandera.com [U.S],
Inc on August 5, 2002.

      We provide the following additional services for our advertisers.

      www.dagmedia.com. Our web site, launched in 1995, serves 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 community-focused yellow page directories, by
including 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.

      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 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%.

      We buy paper for our directories 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.

Growth strategy

      We plan to continue to publish and expand our existing niche and ethnic
directories and may start new niche and ethnic directories, in other geographic
areas. We have enhanced our expansion capability through the retention of sales
personnel, sales offices and other assets previously assigned to our New Yellow
operations. In addition, we plan to expand sales of the Blackbook's existing
directories and have launched "The Complete Industry Directory," a new source
book to be printed and distributed for the first time in May 2004. Also, we plan
to increase the revenues derived from both of Blackbook`s web sites, which
generate sales on a daily basis, Blackbook.com and Blackbookstock.com, which was
launched in October 2003.


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<PAGE>

      We plan to increase sales of advertisements in our directories through the
following:

      o     convince current and potential advertisers that DAG's directories
            are 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 DAG's directories;

      o     convince current, past and potential advertisers in the Blackbook
            directories that the management of the Company will lead Blackbook
            to a better era while maintaining high end printing standards,
            world-wide distribution and particularly the directories' reputation
            as the "Industry Standard" reference source for finding
            photographers, illustrators and graphic designers in North America
            as well as extending its verity of products both in print and
            online.

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

      o     attract, retain and motivate qualified personnel;

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

      o     establish further brand identity for our directories;

      o     develop new and maintain existing relationships with advertisers
            without diverting revenues from our existing directories;

      o     develop and upgrade our management, technical, internal controls,
            information and accounting systems;

      o     respond to competitive developments promptly;

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

      o     control costs and expenses and manage higher levels of capital
            expenditures and operating expenses; and

      o     maintain effective quality control over all of our directories.

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

      In order to prepare for the growth of the company's directories in 2004,
during fiscal year 2003 we hired and trained new sales representatives to
promote and sell for all of the Company's directories. By the end of 2003 we
dedicated six sales offices for advertisement sales for the Jewish Israeli
Yellow Pages Directory, four offices dedicated for advertisement sales for the
Master Guide Directory and two for the Blackbook's directories and other
products.

      In 2003, we opened a new sales office of the Jewish Israeli Yellow Pages
in Forest Hills NY where its target market is located. In addition, during the
year 2003 we opened a new sales office in Miami FL to fulfill the needs of both
the advertisers and population. The 27th edition of the Jewish Yellow Pages
directory was already distributed in Florida's synagogues as well as in
Jewish-Israeli community's centers. After the sale of the New Yellow Manhattan
Directory, we converted two of its sales offices to sell ad space to the
Company's Master Guide Directory and one sales office to sale to the Blackbook's
new directory "The Complete Industry Directory". During 2003, we also produced a
special training kit for our new Master Guide sales representatives that are
currently being implemented in our sales force training program.


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<PAGE>

Sales

      Advertisements for the directories are sold through our network of trained
sales representatives, some of which are sales agencies, paid solely on a
commission basis and some of which are directly employed by the Company. There
are approximately 110 sales representatives in our network including those
employees hired by the respective sales agencies with which we have agency
agreements. In 2003, we opened two new sales offices for the Jewish Israeli
Yellow Pages directory one in Miami Florida and the other in Forest Hills New
York. After the completion of the sale of our New Yellow Manhattan directory the
Company converted two of its sales agencies to sell add space to the Master
Guide Directory. We now also use our in-house sales office in Queens NY for the
sale of ads for Master Guide.

      Under our agreements with the sales agencies, the agencies may not sell
advertising for any 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 whose services we retain directly.

      We are responsible for training each sales representative, whether
retained 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.

      Ad spaces of the Blackbook's directories are sold by the Company's sales
representatives, as well as by independent contractors. Sales representatives
are paid a minimum monthly salary and variable commissions. The independent
contractors are paid solely on a commission basis. There are currently more than
15 sales representatives and independent contractors.

      Under the Company's agreement with all of its sales representatives,
commissions for all employees and independent contractors are being paid upon
collection. According to the Company's commission payments policy any
collections made for sale of add space for the Company's yellow pages
directories will be subjected to commission payments with no time limit whereas
according to collections made for any other Company's business directories its
commissions will be paid only for the three months period after the completion
of the directory's distribution, and all further collections will not be subject
to any commission payments. Therefore it is the sales representative's
responsibility to help contact the clients and collects the outstanding balances
within three months after the directory's distribution.

Marketing strategy

      We are now focused on continuing our dominant position in of the Jewish
and Israeli niche yellow page markets. In the future we plan to expand into
other major Jewish populated cities.

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


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<PAGE>

      We further believe that the Jewish population in our covered areas 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 other mainstream Yellow Pages
directories.

      We have been focusing our efforts on increasing Blackbook's sales volume
and expending its market share. By continually supporting the Company's sales
force and expediting a marketing plan through the restructuring of Blackbook's
operations, we believe that we will increase the customer support and industry
appreciation and will be able to maintain Blackbook as the most respected
original source books for finding professional photographers, illustrators and
graphic designers. As part of our restructuring and marketing plan of the
Blackbook we recently launched a new Blackbook's directory, "The Complete
Industry Directory", as well as a launch of a new web site dedicated to stock
sales "Blackbookstock.com". We believe that both new products will shortly
increase the sales volume of the Blackbook and its profitability.

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 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 our markets, the yellow pages advertising market is dominated by
Verizon, Bell South, SBC and Yellow book. 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
directories in the area. By focusing on the special needs of the Hebrew
speaking, we believe that we have identified niche markets that allow us to
compete effectively with our larger rivals.

      Even though both the Jewish Israeli Yellow Pages and the Master /Kosher
Guide directories have no direct competition there are virtually no barriers to
entry in this market, and any company with a reasonable amount of capital, is a
potential competitor. 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 super pages, owned by Verizon.
Finally, strategic alliances could give rise to new or stronger competitors.
Many of our competitors, can reduce advertising rates, particularly where other
revenues can subsidize its directory operations and 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.

      The Blackbook's primary competitor is The Workbook, which publishes four
directories of designers and illustrators. In addition, Blackbook competes
directly with other smaller directories as American Showcase, Alternative Pick
and New York Gold. The Blackbook also faces competition throughout the Internet
and competitors' web sites. Since there are relatively no barriers to entry in
both the directory and web sites markets we are expecting even more competition
in the future. In order to get prepared to the greater competition expected, we
are focusing extra attention on our sales team, expediting new marketing plan as
well as marketing strategies, strengthening our brand names and working to
improve the technology provided by our web sites.

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


                                       9
<PAGE>

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.

Employees

      As of December 31, 2003 we employed in both companies, DAG Media, Inc. and
Blackbook Photography Inc. a total of 25 people, all of whom are full-time
employees, filling executive, managerial and administrative positions. In
addition, we retained the services of 20 additional administrative, accounting
and production personnel, all of whom are independent contractors. Finally, we
had a network of 110 sales representatives, 7 contracted by us and 103 hired by
the sales agencies that sell ads for our directories. We believe that our
relationships with our employees and contractors are 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, might present new aggressive pricing to our
markets. Few of our competitors (such as Verison and SBC) 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.

            o     greater added value to the services provided

We do not have currently the ability to quantify the impact of competition on
our sales volumes, sales representatives and the public appreciation of the
Company's directories. We might have to adjust and reduce our advertisements
selling prices or maintain more aggressive multi-media advertisement in order to
keep our current market share.

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


                                       10
<PAGE>

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 cannot predict the paper prices fluctuation and its effectiveness on the
Company's profitability.

      We cannot predict the paper prices. Higher prices would tend to negatively
affect our profitability. Publishing costs may vary as it corresponds to the
particular requirements of the directory being published and on the prevailing
paper costs.

Our growth depends on the continued services of Assaf Ran.

      We depend on the continued services of Assaf Ran, our founder, president
and chief executive officer. 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
printers - HaMakor Printing Ltd. Mondadori printing SPA and Quebecor World
Directory Group. Mr. Ran maintain a good relationsheep with the Company's heads
of its independent sales agencies that provide about three-quarters of our sales
force. If Mr. Ran's employment terminates, our relationships with our key
suppliers and vendors may be jeopardized. Mr. Ran has entered into an employment
agreement that is subject to automatic one-year renewals on June 30th of every
year, unless either party gives the other a termination notice at least 180 days
prior to this date. In addition, we have purchased a $500,000 key man life
insurance policy on Mr. Ran.

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
November 31, 2008. The monthly rent is $5,058. Through 2003, we have been
maintaining a sales office at 7th Avenue, Manhattan. The space is leased under a
lease agreement that expires on May 2004 for $2,150 per month.

      Blackbook principal office is located in Manhattan, New York in
approximately 2,600 square feet. The monthly rent is $4,180 under a lease
agreement that expires December 2004.

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


                                       11
<PAGE>

      (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 in the years 2003 and 2002. Such quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.

                                                 Bid Price
                                                 ---------
                                             High          Low
        ----------------------------------------------------------
                               2002
        ----------------------------------------------------------
        First Quarter                        $1.65        $1.26
        ----------------------------------------------------------
        Second Quarter                       $1.61        $1.22
        ----------------------------------------------------------
        Third Quarter                        $1.82        $1.55
        ----------------------------------------------------------
        Fourth Quarter                       $1.72        $1.55
        ----------------------------------------------------------
                               2003
        ----------------------------------------------------------
        First Quarter                        $1.95        $1.51
        ----------------------------------------------------------
        Second Quarter                       $3.49        $1.60
        ----------------------------------------------------------
        Third Quarter                        $4.20        $1.84
        ----------------------------------------------------------
        Fourth Quarter                       $4.34        $3.00
        ----------------------------------------------------------

      (b)   Holders

      As of February 11, 2004, the approximate number of record holders of the
Common Stock of the Company was 16 but the company estimates that it has more
than 350 beneficial owners.

      (c)   Dividends

      Due to the increase in both income and cash related to the Company's sale
of the New Yellow Manhattan directory, the Company declared dividend of $0.25
cents per share to all shareholders of record on December 15, 2003. The dividend
paid on January 5th, 2004.

      (d)   Use of Proceeds

      In May 1999, we completed an initial public offering of 1,325,000 common
shares (the "IPO"), of which we sold 1,250,000 common shares and Assaf Ran, our
president, chief executive officer and principal shareholder, sold 75,000 common
shares. The common shares were sold for $6.50 each. Net proceeds, after expenses
of the IPO, were $6,423,763.

      We have not previously filed an initial report of sales of securities and
use of proceeds. We will report the following information in our quarterly and
annual filings until the proceeds have been fully used.

(a)   Effective date of Registration Statement: May 13, 1999 (File No.
      333-74203).

(b)   The offering was declared effective May 13, 1999 and was consummated on
      May 18, 1999.

(c)   The managing underwriters were Paulson Investment Company, Inc. and
      Redwine & Company, Inc.

(d)   Securities Sold:

      (i)   Common shares - common shares par value $.001 per share


                                       12
<PAGE>

      (ii)  Representatives' warrants - warrants convertible into 132,500 common
            shares at a price of $7.80 per share. The representatives' warrants
            are exercisable over the four year period beginning on the first
            anniversary of the offering. These warrants were issued to the
            underwriters in connection with the offering.

(e)   Amount registered and sold:

      (i)   Common shares - 1,523,750 common shares were registered; 1,250,000
            common shares were sold for the account of the issuer and 75,000
            common shares were sold for the account of Assaf Ran, our president,
            chief executive officer and principal shareholder.

      (ii)  Representatives' warrants - 132,500 warrants registered and issued
            to the underwriters in connection with the IPO.

      (iii) Common shares issuable upon exercise of representatives' warrants -
            132,500 common shares registered.

(f)   Gross proceeds to issuer: $8,125,000.

(g)   Expenses incurred in connection with issuance of securities:

         Underwriting discounts and commissions                 $   731,250
         Expenses paid to the underwriters                      $   252,455
         Other expenses                                         $   717,532
                                                                -----------
                                                                $ 1,701,237

(h)   Net proceeds: $6,423,763.

(i)   Amount of net offering proceeds used for the purposes listed below:

    ---------------------------------------------------------------------
    Temporary investments with maturities of three months   $     776,889
                                                            =============
    or less
    ---------------------------------------------------------------------
     New Yellow printing and distribution cost              $   5,038,930
                                                            =============
    ---------------------------------------------------------------------
    Investment in Blackbook Photography Inc.  (*)           $     607,944
                                                            =============
    ---------------------------------------------------------------------

(*)   Including purchase price.

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

The following management's discussion and analysis of financial condition and
results of operations should be read in conjunction with our audited
consolidated financial statements and notes thereto contained elsewhere in this
report. This discussion contains forward-looking statements based on current
expectations that involve risks and uncertainties. Actual results and the timing
of certain events may differ significantly from those projected in such
forward-looking statements.


                                       13
<PAGE>

Overview

      We currently publish and distribute business directories in print and
online. We also operate several web sites that complement our directories. The
principal source of revenues is derived from the sales of ads in our print and
online services. Our yellow pages directories target the niche of the Jewish and
Israeli communities living in the New York metropolitan area, New Jersey and
Florida. As a sale incentive the Company may also provide added values to the
Yellow Pages communities such as referral services and consumer discount club.
Our photography and illustration directories target advertising agencies, art
directors, designers, design firms and the creative community of advertisers
mainly located in the North America and west Europe.

      We operate several websites: JewishYellow.com, targeting worldwide Jewish
communities, JewishMasterguide.com, targeting the ultra-orthodox and Hasidic
communities, Blackbook .com targeting the advertising agencies and advertisers
communities and Blackbookstock.com.com which its search capability enable
creative professionals to find stock images fast and easily. Our principal
source of revenue derives from the sale of ads in our print and online
directories as well as production charges, entry fees and reprint fees
pertaining to the publication in the Blackbook's 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. 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).

Critical Accounting Policies and 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.

      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.

      The allowance for doubtful accounts is established as losses are estimated
to have occurred through a provision for bad debts charged to operations. The
allowances for doubtful accounts is evaluated based on management's periodic
review of accounts receivable and is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available.

      The above listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application.


                                       14
<PAGE>

      There are also areas in which management's judgment in selecting any
available alternative would not produce a materially different result. See our
audited consolidated financial statements and notes thereto which begin on page
F-4 of this Annual Report on Form 10-KSB, which contain accounting policies and
other disclosures required by generally accepted accounting principles.

Results of operations

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

<TABLE>
<CAPTION>
                                                                             2003      2002
                                                                             ----      ----
<S>                                                                         <C>       <C>
Advertising revenues ...................................................    100.0%    100.0%
Publishing costs .......................................................     23.3%     26.4%
Gross profit ...........................................................     76.7%     73.5%
Selling expenses .......................................................     36.5%     35.8%
General and administrative expenses ....................................     35.6%     46.8%
Total operating costs and expenses .....................................     72.0%     82.6%
Other income, net ......................................................     16.1%      3.7%
Income (loss) before provisions for income taxes and equity income .....     20.8%     -5.4%
Provision (benefit) for income taxes ...................................     -3.2%     -2.4%
Cumulative effect of change in accounting ..............................       --     -13.7%
Net Income (loss) ......................................................     17.6%    -16.7%
</TABLE>

Years ended December 31, 2003 and 2002

Advertising revenues

Advertising revenues in 2003 and 2002 were $ 9,086,000 and $ 6,530,000,
respectively, representing an increase of $ 2,556,000, or 39.1%. This increase
is primarily attributable to: (i) general increase in sales, (ii) publishing
three Blackbook's business directories compared to only one in 2002 in which had
the effect of recognizing revenues of $2,165,000 compared to $ 364,000 in 2002.

Publishing costs

Publishing costs for 2003 and 2002 were 2,118,000 and $ 1,730,000, respectively,
representing an increase of $ 388,000, or 22.4 %. This increase reflects the
added $ 839,000 publishing costs of the three published Blackbook's directories
offset by decreased printing costs of the Company's Yellow Pages directories
mainly due to decrease in the paper and distribution costs of the Company's
Yellow Pages directories. As a percentage of advertising revenues, publishing
costs were 23.3 % in 2003 compared to 26.4% in 2002. The difference in
publishing costs can vary as it corresponds to the particular requirements of
the directory being published and on the prevailing paper costs.

Selling expenses

Selling expenses for the yeas ended December 31, 2003 and 2002 were $ 3,314,000
and $ 2,337,000, respectively, representing an increase of $ 977,000, or 41.8 %.
As a percentage of advertising revenues, selling expenses increased to 36.5 %
from 35.8 %. The increase in selling expenses was attributable to the general
increases in sales commissions and promotions due to the general increase in the
Company's sales. In addition, increased selling expenses attributable to the
Blackbook's three directories published in 2003 and its related commission
payments, compared to the same period in 2002.


                                       15
<PAGE>

General and administrative costs

Administrative and general expenses for 2003 and 2002 were $ 3,234,000 and $
3,057,000, respectively, representing an increase of $ 177,000, or 5.8%, in
2003. This increase is primarily attributable to an additional full year of
general and administration cost related to the Blackbook included this year
compared to five months only in 2002 offset with a slight decrease in the
Company's other administrative costs.

Gain from the sale of the New Yellow directory

On August 22, 2003, we sold the New Yellow directory to Yellow Book USA, Inc.
for $1.3 million in cash. Our net profit before provision for income taxes
totaled $1,208,000 due to a finder's fee, compensation to sales franchisees and
payments to legal advisors.

Other income

For the year ended December 31, 2003 we had other income consist of dividend,
interest and realized gains of $259,000 compared to other income of $241,000 for
the year ended December 31, 2002.

Income before provision for income taxes and cumulative effect of change in
accounting principle

Income before provision for income taxes for the year ended December 31, 2003
was $ 1,887,000 compared to loss of $ (353,000) for the year ended December 31,
2002. This increase of $ 2,240,000 mainly attributable to the $1,208,000 gain
from sale of the New Yellow directory as well as a better performances and
earnings derives from the Company and it subsidiary income from operation.
Additionally, in 2002 we had a one time goodwill write off charge of $895,000.

Provision for income taxes

Provision for income taxes in 2003 were $ 288,000 and benefit of $ 155,000 for
the year ended December 31, 2002. The increase in provision for income taxes
reflects income increase due to the sale of the New Yellow directory as well as
increased net operation income for both the Company and its subsidiary.
Effective for the calendar year 2003, we changed from a cash basis to an accrual
basis of accounting and began preparing and filing out tax returns according to
the accrual basis. We utilized tax asset for the expected future tax
consequences between the carrying amounts and the tax basis of assets and
liabilities and net operating loss carry forward.

Net income available to common shareholders

Net income was $ 1,599,000 compared to net loss of $ (1,092,000) in 2003 and
2002, respectively. This increase in net income is primarily attributable to the
added $ 1,208,000 gain from the sale of the New Yellow directory as well as to
the cumulative effect of change in accounting principles in fiscal year 2002
totaled $ 895,000. In addition, for the year ended December 31, 2003 both the
Company and its subsidiary ended with a net operation income after provision for
income taxes, totaled $391,000 (excluding the gain from the sale of New Yellow
directory included in other income) compared to a net loss of $(198,000) before
cumulative effect of change in accounting principal and after benefit for income
taxes for the year ended December 31, 2002.

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. As a result of our initial public offering in May 1999, we
received proceeds of approximately $6.4 million, which has increased our
availability to pay operating expenses. We have no debt to third parties or
credit facilities. As of December 31, 2003, we invested approximately $5.6
million (representing 87.9% of the total funds), in introduction of the New
Yellow directory and the purchase of the Blackbook business. The remaining $0.7
million are currently invested in money market, preferred stocks and other
marketable securities.


                                       16
<PAGE>

Our lease commitments are as follows:

2004........................                                   94,438
2005........................                                   62,520
2006........................                                   62,677
2007........................                                   64,558
2008........................                                   60,801
                                                             --------
Total.......................                                 $344,994
                                                             ========

      In addition, the Company has an employment agreement with Assaf Ran. The
agreement calls for annual salary of $ 75,000. Mr. Ran's employment term renews
automatically on July 1st of every year for successive one-year periods unless
either party gives 180 days written notice of its intention to terminate the
agreement. As of March 2003, the compensation committee approved an increase in
Mr. Ran's compensation to an annual base salary of $225,000. Ted Rubin, the
president of Blackbook, is being paid 4% of the cash deposits up to $200,000 a
month plus 10% of the cash deposits of any amount above $200,000 a month but in
any case not less then an annual salary of $125,000.

      At December 31, 2003 we had cash and cash equivalents and marketable
securities of $ 8,781,000 and working capital of $ 6,813,000 compared to cash
and cash equivalents of $ 7,303,000 and working capital of $ 5,763,000 at
December 31, 2002. The increase in cash and cash equivalents is primarily
attributable to the $1.3 million cash provided by the sale of the New Yellow
directory as well as cash provided from our other operating and finance
activities. The increase in working capital is primarily reflects the general
growth in business activity and better collection rate of our trade account
receivable.

      Net cash provided by operating activities was $ 601,000 for the year ended
December 31, 2003 compared to net cash used in operating activities of $ 235,000
for the year ended December 31, 2002. The increase in net cash provided by
operating activities reflects the sale of the New Yellow directory as well as
increase in corporate sales in 2003 and collections.

      Net cash provided by investing activities was $ 327,000 for the year ended
December 31, 2003 compared to net cash used in investing activities of $
3,282,000 for the year ended December 31, 2002. Net cash provided by investing
activities in 2003 is primarily the result of our purchase of marketable
securities and a change in our investment strategy.

      Net cash provided by financing activities was $ 72,000 for the year ended
December 31, 2003 compared to net cash provided by financing activities of
$21,000 for the year ended December 31, 2002. Net cash provided by financing
activities in 2003 reflects proceeds received due to exercise of the company's
stock options.

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

Recent Technical Accounting Pronouncements

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


                                       17
<PAGE>

Item 7. Consolidated Financial Statements

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

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

Previously reported on a Form 8-K and Form 8-K/A, filed with the Securities and
Exchange Commission on July 21st and July 28th, 2003.

                                    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:

<TABLE>
<CAPTION>
Name                                     Age                            Position
----                                     ---                            --------
<S>                                      <C>    <C>
Assaf Ran (3) .......................    38     Chairman of the board, chief executive officer, president and
                                                director
Yael Shimor - Golan(3)...............    34     Chief financial officer, treasurer, secretary and director
Stephen A. Zelnick (1) (2)...........    66     Director
Phillip Michals (1) (2) (3)..........    34     Director
Eran Goldshmid (1)...................    37     Director
Michael Jackson (2)..................    39     Director
Howard Bernstein.....................    44     Director
</TABLE>

(1)   Member of the Compensation Committee

(2)   Member of the Audit Committee

(3)   Member of the Blackbook Committee

      All directors hold office until the next annual meeting of shareholders
and until their successors are duly elected and qualified. Officers are elected
to serve subject to the discretion of the board of directors.

      Set forth below is a brief description of the background and business
experience of our executive officers and directors:

      Assaf Ran, our founder, has been our chief executive officer and president
since our inception in 1989.

      Yael Shimor-Golan, our chief financial officer and a member of our board
of directors joined DAG Media in August 2001. Mrs. Shimor-Golan is an Israeli
licensed CPA and previously worked at Marks Paneth & Shron LLP, a Manhattan
accounting firm since 1999. From 1995 until 1999, Mrs. Shimor-Golan was a
partner at the firm Shimon Dill & Co. an accounting firm in Jerusalem, Israel.

      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 and has been a practicing attorney in New York State for more than 40
years. Mr. Zelnick is also a member of the board of directors of Adstar, Inc.,
an application service provider for the classified advertising industry.


                                       18
<PAGE>

      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 November 2000,
he has also been a principal and a vice president of Italish Holding 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. Mr. Goldshmid received certification as a financial consultant in February
1993 from the School for Investment Consultants, Tel Aviv, Israel, and a BA in
business administration from the University of Humberside, England in December
1998. From December 1998 until July 2001, he has been the general manager of the
Carmiel Shopping Center in Carmiel, Israel. Since August 2001, he is the
president of the New York Diamond Center, New York, NY.

      Michael J. Jackson has been a member of the board since July 2000. Since
September 1999, he has been the corporate controller of AGENCY.COM, a global
internet professional services Company, since May 2000 until September 2001 the
Chief Accounting Officer and from October 2001 the Chief Financial Officer of
the Company. From October 1994 until August 1999, Mr. Jackson was a manager at
Arthur Andersen, LLP and Ernst and Young. Mr. Jackson also served on the New
York State Society Auditing Standards and Procedures Committee from 1998 to 1999
and was serving on the New York State Society's SEC Committee from 1999 to 2001.

      Howard Bernstein was appointed to our board in November 2002. Since 1982,
Mr. Bernstein has been CEO of Bernstein & Andriulli, an artist management
agency. He graduated with honors from the Boston University's Communication
School in 1982.

The Company's Board of Directors has established compensation, audit and
Blackbook 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, 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. In addition, the committee provides an avenue for
communication between the independent accountants, financial management and the
Board. Subject to the prior of the board, the committee is granted the authority
to investigate any matter or activity involving financial accounting and
financial reporting, as well as the internal controls of the Company. The board
of directors has determined that Michael Jackson, the Chairman of the audit
committee, qualifies as an Audit Committee Financial Expert pursuant to Item
401(e) of Regulation S-B. Mr. Jackson is independent as that term is used in
Item 7(d)(3)(iv) of Schedule 14A under Exchange Act. The Blackbook committee
oversees the Blackbook's operation and review, analyze and make recommendations
to the board regarding any material transaction affecting Blackbook

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.

      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 2003.

Code of Ethics

      The Company has adopted a code of ethics that applies to the Company's
principal executive officer, principal financial officer and other persons
performing similar functions. This code of ethics is posted on the company's
website at www.dagmedia.com.

Item 10. Executive Compensation.

      The following Summary Compensation Table sets forth all compensation
earned, in all capacities, during the fiscal years ended December 31, 2003 and
2002 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


                                       19
<PAGE>

the end of the 2003 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                    2003       $202,000           --               --                   $6,077
chief Executive              2002       $125,000           --               --                   $3,750
officer and                  2001       $107,732           --               --                   $3,400
president
</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 $600 per board meeting
attended and $300 for any other committee participation.

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 renews
automatically on July 1st of each year for successive one-year periods unless
either party gives 180 days written notice of its intention to terminate the
agreement. Under the agreement, Mr. Ran receives an annual base salary of
$75,000 and annual bonuses as determined by the compensation committee of the
Board of Directors in its sole and absolute discretion and is eligible to
participate in all executive benefit plans established and maintained by the
Company. Under the agreement, Mr. Ran agreed to a one-year non-competition
period following the termination of his employment. As of March 2003, the
compensation committee approved an increase in Mr. Ran's compensation to an
annual base salary of $225,000.

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

      The following table, together with the accompanying footnotes, sets forth
information, as of February 25, 2004, 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:


                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                     Shares of
                                                    Common Stock
                                                    Beneficially       Percentage of
        Name of Beneficial Owner (1)                 Owned (2)           Ownership
--------------------------------------------------  ------------       -------------
<S>                                                   <C>                    <C>
Executive Officers and Directors
Assaf Ran ........................................    1,374,262              46.22%
Yael Shimor-Golan ................................       20,000                  *
Stephen A. Zelnick ...............................       14,000                  *
Michael Jackson ..................................       28,000                  *
Phillip Michals ..................................       35,000               1.18%
Eran Goldshmid ...................................       28,000                  *
Howard Bernstein .................................       14,000                  *
                                                    -----------

All officers and directors as a group ............    1,513,262              50.89%
                                                    -----------

5% and Greater Stockholders
Hummingbird Management, LLC                             526,521              17.71%
</TABLE>

*     Less than 1%

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

          Assaf Ran and Yael Shimor-Golan -
          c/o DAG Media Inc, 125-10 Queens Boulevard Kew Gardens, NY 11415

          Stephen A. Zelnick -
          c/o  Morse, Zelnick, Rose & Lander LLP, 405 Park Avenue New York,
          NY 10022

          Michael Jackson -
          20 Exchange Place New York, NY 10005

          Phillip Michals -
          67 Wall Street, New York, NY 10005

          Eran Goldshmid -
          65 Broadway New York, NY 10006

          Howard Bernstein -
          58 West 40th Street New York, NY 10018

(2)   A person is deemed to be a beneficial owner of securities that can be
      acquired by such person within 60 days from the filing of this report upon
      the exercise of options and warrants or conversion of convertible
      securities. Each beneficial owner's percentage ownership is determined by
      assuming that options, warrants and convertible securities that are held
      by such person (but not held by any other person) and that are exercisable
      or convertible within 60 days from the filing of this report have been
      exercised or converted. Except as otherwise indicated, and subject to
      applicable community property and similar laws, each of the persons named
      has sole voting and investment power with respect to the shares shown as
      beneficially owned. All percentages are determined based on 2,973,460
      shares outstanding on February 25, 2004.

(3)   Equity Compensation Plan Information

      The following table summarizes the (i) options granted under the Dag Media
      1999 Stock Option Plan, and (ii) options and warrants granted outside the
      Dag Media Stock 1999 Option Plan, as of December 31, 2003. The shares
      covered by outstanding options and warrants are subject to adjustment for
      changes in capitalization stock splits, stock dividends and similar
      events. No other equity compensation has been issued.


                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                     Equity Compensation Plan Table
                                                 ---------------------------------------------------------------------
                                                        Number of             Weighted-average         Number of
                                                   securities(1) to be       exercise price of       securities(1)
                                                 issued upon exercise of    outstanding options,   remaining available
                                                   outstanding options,     warrants and rights    for future issuance
                                                   warrants and rights                                under equity
                                                                                                   compensation plans
                                                 ---------------------------------------------------------------------
<S>                                                      <C>                       <C>                <C>
Equity Compensation Plans Approved By
Security Holders
Grants under the Dag Media, Inc. 1999 Stock
Option Plan....................................          346,440                   2.43                   85,560
Equity Compensation Plans Not Requiring
Approval By Security Holders
Aggregate Individual Option Grants.............          122,000                   1.83               Not applicable

Aggregate Individual Warrant Grants ...........          132,500                   7.80               Not applicable
                                                      --------------------------------------------------------------

             Total.............................          600,940                   3.49                   85,560
                                                      --------------------------------------------------------------
</TABLE>

(1)   Reflect shares of Dag Media Common Stock.

The aggregate individual option grants outside the Stock Option Plan referred to
in the table above include options granted to consultants and providers of
certain services to the company. The aggregate individual warrant grants outside
the Stock Option Plan referred to in the table above include warrants granted to
underwriters in connection with the public offering of our common shares.

Item 12. Certain Relationships and Related Transactions

      Not applicable.

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)

            10.2            Form of the Company's 1999 Stock Option Plan As
                            Amended (3)

            14              Code of Ethics

            21              Information re Blackbook Photography, Inc., a wholly
                            owned subsidiary of the Company.

            31.1            Chief Executive Officer Certification as required
                            under section 302 of the Sarbanes-Oxley Act of 2002

            31.2            Chief Financial Officer Certification as required
                            under section 302 of the Sarbanes-Oxley Act of 2002

            32.1            Chief Executive Officer Certification pursuant to 18
                            U.S.C section 1350 as adopted pursuant to section
                            906 of the Sarbanes-Oxley Act of 2002

            32.2            Chief Financial Officer Certification pursuant to 18
                            U.S.C section 1350 as adopted pursuant to section
                            906 of the Sarbanes-Oxley Act of 2002


                                       22
<PAGE>

            32.2            Chief Financial Officer Certification pursuant to 18
                            U.S.C section 1350 as adopted pursuant to section
                            906 of the Sarbanes-Oxley Act of 2002

        (1)   Previously filed as exhibit to Form SB-2 on March 10, 1999.

        (2)   Previously filed as exhibit to Form SB-2/A on April 23, 1999.

        (3)   Previously filed as exhibit to Form S-8 on February 8, 2002.

(b)   Reports on Form 8-K -

      No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fourth quarter of 2003.

Item 14. Principal Accountant Fees and Services

(a)   Audit fees

2003

The aggregate fees billed during 2003 by Goldstein Golub Kessler LLP, the
Company's principal accountant, were $35,000, covering the audit of our annual
financial statements and the review of our financial statements for the second
and third quarters of 2003.

The aggregate fees billed during 2003 by Grant Thornton LLP, the Company's
previous principal accountant, were $8,000, covering the review of our financial
statements for the first quarter of 2003.

2002

The aggregate fees billed during 2002 by Grant Thornton LLP, the Company's
previous principal accountant, were $30,000, covering the audit of our annual
financial statements and the review of our financial statements for the second
and third quarters of 2002.

The aggregate fees billed during 2002 by Arthur Andersen LLP, the Company's
principal accountant before Grant Thornton LLP, were $8,000, covering the review
of our financial statements for the first quarter of 2002 and their consent in
connection with the filing of a registration statement on Form S-8.

(b)   Audit-Related Fees

The aggregate audit-related fees billed during 2002 and 2003 by the Company's
principal accountant were in the amount of $7,500, billed by Grant Thornton LLP,
the Company's previous principal accountant and covered the preparation of
opening balances for the newly acquired BlackBook Photography Inc. and the
provision of its work papers to Goldstein Golub Kessler LLP, the new principal
accountant.

(c)   Tax Fees

No fees services for related to tax compliance, tax advice and tax planning were
billed by our principal accountants in 2002 and 2003.

(d)   All Other Fees

No other fees, beyond those disclosed in this Item 14, were billed by our
principal accountants in 2002 and 2003.

(e)   Audit Committtee Administration of the Engagement

The engagement with Goldstein Golub Kessler LLP, the Company's principal
accountant, was approved in advance by our Audit Committee. No non-audit
services were approved by the audit committee in 2003.

(f)   Hours expended on audit by persons other than the Company's principal
      accountant's full time, permanent employees.

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


                                       23
<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, Chief Executive Officer and
                                   Chairman of the Board of Directors

Date: February 25, 2004

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
February 25th, 2004:

<TABLE>
<CAPTION>
       Signature                         Date                                 Title
       ---------                         ----                                 -----
<S>                               <C>                           <C>
/s/ Assaf Ran                     February 25, 2004             President, Chief Executive Officer and
-------------------------                                       Chairman of the Board of Directors
      Assaf Ran

/s/ Yael Shimor-Golan             February 25, 2004             Chief Financial Officer and
-------------------------                                       Director
      Yael Shimor-Golan

/s/ Stephen A. Zelnick            February 25, 2004             Director
-------------------------
      Stephen A. Zelnick

/s/ Phillip Michals               February 25, 2004             Director
-------------------------
      Phillip Michals

/s/ Eran Goldshmid                February 25, 2004             Director
-------------------------
      Eran Goldshmid

/s/ Michael Jackson               February 25, 2004             Director
-------------------------
      Michael Jackson

/s/ Howard Bernstein              February 25, 2004             Director
-------------------------
      Howard Bernstein
</TABLE>


                                       24
<PAGE>

                                 DAG MEDIA, INC.

                   Index to Consolidated Financial Statements

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

Reports of Independent Publics Accountants ........................  F-2 - F-3

Consolidated Balance Sheet at December 31, 2003 ...................  F-4

Consolidated Statements of Operations for the years
ended December 31, 2003 and 2002 ..................................  F-5

Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2003 and 2002 ....................  F-6

Consolidated Statements of Cash Flows for the
years ended December 31, 2003 and 2002 ............................  F-7

Notes to Financial Statements .....................................  F-8

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and shareholders
Dag Media, Inc.

We have audited the accompanying consolidated balance sheet of Dag Media, Inc
and subsisiary as of December 31, 2003, and the related consolidated statements
of operations, shareholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Dag Media, Inc. as
of December 31, 2003 and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.


By: /s/ Goldstein Golub Kessler LLP
        ---------------------------

GOLDSTEIN GOLUB KESSLER LLP
New York, New York

January 23, 2004


                                      F-2
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of DAG Media, Inc.:

We have audited the accompanying consolidated balance sheet (not presented
herein) of DAG Media, Inc. and subsidiary as of December 31, 2002, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DAG Media, Inc. and
subsidiary as of December 31, 2002, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 2, the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") on January 1, 2002.


                                              By: /s/ Grant Thornton LLP
New York, New York                                ----------------------
February 28, 2003                                 Grant Thornton LLP


                                       F-3
<PAGE>

                                 DAG MEDIA, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003

<TABLE>
<S>                                                                                 <C>
Assets

Current assets:

Cash and cash equivalents                                                           $  1,201,819
Marketable securities                                                                  6,560,805
Short term investment - insurance annuity contract - at fair value                     1,018,536
                                                                                    ------------
    Total cash and cash equivalents, marketable securities and short                   8,781,160
terms investments
                                                                                    ------------

Trade accounts receivable, net of allowance for doubtful accounts of
$567,000                                                                               2,330,555
Directories in progress                                                                1,833,903
Other current assets                                                                     218,118
                                                                                    ------------
            Total current assets                                                      13,163,736
                                                                                    ------------

Property and equipment, net                                                              286,633
Goodwill                                                                                 458,131
Trademarks and other intangibles, net                                                    419,274
Other assets                                                                             123,412
                                                                                    ------------

Total assets                                                                        $ 14,451,186
                                                                                    ============

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses                                               $    734,961
Commissions payable                                                                      782,254
Advanced billing for unpublished directories                                           4,000,483
Dividends payable                                                                        744,113
Income taxes payable                                                                      89,000
                                                                                    ------------
        Total current liabilities                                                      6,350,811
 Deferred income taxes                                                                    76,216
                                                                                    ------------
         Total liabilities                                                             6,427,027
                                                                                    ------------

Commitments and contingencies (Note 9)

Shareholders' equity:
Preferred shares - $.01 par value; 5,000,000 shares authorized; no shares
issued                                                                                        --
Common shares - $.001 par value; 25,000,000 authorized; 3,045,190 issued and
2,976,460 outstanding                                                                      3,045
Additional paid-in capital                                                             8,054,827
Treasury stock, at cost- 68,730 shares                                                  (231,113)
Deferred compensation                                                                    (81,000)
Accumulated other comprehensive income                                                   102,185
Retained earnings                                                                        176,215
                                                                                    ------------
         Total shareholders' equity                                                    8,024,159
                                                                                    ------------

 Total liabilities and shareholders' equity                                         $ 14,451,186
                                                                                    ============
</TABLE>

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


                                       F-4
<PAGE>

                                 DAG MEDIA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                         2003               2002
                                                                      ----------        -----------
<S>                                                                   <C>               <C>
Advertising revenues                                                  $9,085,670        $ 6,529,605
Publishing costs                                                       2,117,907          1,729,993
                                                                      ----------        -----------
         Gross profit                                                  6,967,763          4,799,612

Operating costs and expenses:
Selling expenses                                                       3,313,867          2,336,710
General and administrative expenses                                    3,233,817          3,056,713
                                                                      ----------        -----------
         Total operating costs and expenses                            6,547,684          5,393,423
                                                                      ----------        -----------

Income (loss) from operations                                            420,079           (593,811)
                                                                      ----------        -----------

Interest income                                                          233,099            246,540
Gain from the sale of the New Yellow directory                         1,207,997                 --
Realized gain (loss) on marketable securities                             26,043             (5,854)
                                                                      ----------        -----------
           Total other income, net                                     1,467,139            240,686
                                                                      ----------        -----------
Income (loss) before income taxes                                      1,887,218           (353,125)

Provision (benefit) for income taxes                                     288,254           (155,131)
                                                                      ----------        -----------

Income (loss) before cumulative effect of change in accounting
principle                                                              1,598,964           (197,994)

Cumulative effect of change in accounting principle                           --           (895,000)
                                                                      ----------        -----------

Net income (loss)                                                     $1,598,964        $(1,092,994)
                                                                      ==========        ===========

Income (loss) per common share:
Basic -
  Income (loss) before cumulative effect of change in
  accounting principle                                                $     0.55        $     (0.07)
  Cumulative effect of change in accounting principle                         --              (0.30)
                                                                      ----------        -----------
  Net income (loss)                                                   $     0.55        $     (0.37)
                                                                      ==========        ===========
Diluted-
  Income (loss) before cumulative effect of change in
  accounting principle                                                $     0.53        $     (0.07)
  Cumulative effect of change in accounting principle                         --              (0.30)
                                                                      ----------        -----------
  Net income (loss)                                                   $     0.53        $     (0.37)
                                                                      ==========        ===========

Weighted average number of common shares outstanding
  - Basic
  - Diluted                                                            2,933,164          2,917,973
                                                                      ==========        ===========
                                                                       3,037,155          2,917,973
                                                                      ==========        ===========
</TABLE>

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


                                       F-5
<PAGE>

                                 DAG MEDIA, INC.
            CONSOLIDATED STATEMENTS OF CHANGES IN SHARHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                Common Stocks     Additional    Treasury Shares    Deferred   Accumulated    Retained      Totals
                                -------------     ----------    ---------------    --------   -----------    --------      ------
                                                   Paid-in                        Compensa-      other       Earnings
                                                   -------                        ---------      -----       --------
                                                                                     tion    comprehensive
                                                                                     ----    -------------
                                                                                                 income
                                                                                                 ------
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
                               Shares     Amount    Capital    Shares      Cost
                               ------     ------    -------    ------      ----
------------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>      <C>         <C>      <C>         <C>           <C>        <C>         <C>
Balance December 31, 2001     2,976,190   $2,976   $7,896,953  68,730   $(231,113)  $(49,678)     $15,361     $414,358   $8, 048,857

------------------------------------------------------------------------------------------------------------------------------------
Stock option exercise          20,000       20       21,180                                                                 21,200

------------------------------------------------------------------------------------------------------------------------------------
Issuance of options to                              152,843                         (152,843)                                 --
consultants
------------------------------------------------------------------------------------------------------------------------------------
Amortization of deferred                                                              18,606                                18,606
compensation
------------------------------------------------------------------------------------------------------------------------------------
Cancellation of options                             (58,029)                          58,029                                  --
issued to consultants
------------------------------------------------------------------------------------------------------------------------------------
Unrealized gains on                                                                                7,057                    7,057
preferred stocks and other
marketable securities, net
of taxes
------------------------------------------------------------------------------------------------------------------------------------
Net loss for the year ended                                                                                  (1,092,994) (1,092,994)
December 31, 2002

------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002    2,996,190   $2,996   $8,012,947  68,730   $(231,113)  (125,886)     $22,418    $(678,636)   $7,002,726
                              ---------   ------   ----------  ------   ---------   --------      -------    ---------    ----------
------------------------------------------------------------------------------------------------------------------------------------
Stock Option exercise          49,000       49       71,531                                                                 71,580
------------------------------------------------------------------------------------------------------------------------------------
Amortization of deferred                                                              15,236                                15,236
compensation
------------------------------------------------------------------------------------------------------------------------------------
Cancellation of options                             (29,650)                          29,650                                  --
issued to consultants
------------------------------------------------------------------------------------------------------------------------------------
Unrealized gains on                                                                               79,767                    79,767
preferred stocks and other
marketable securities, net
of income taxes
------------------------------------------------------------------------------------------------------------------------------------
Dividend declared to be                                                                                        (744,113)  (744,113)
paid at 1/5/2004 ($0.25 per
share)
------------------------------------------------------------------------------------------------------------------------------------
Net income for  the year                                                                                       1,598,964  1,598,964
ended December 31, 2003
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003    3,045,190   $3,045   $8,054,827  68,730   $(231,113)  $(81,000)    $102,185      $176,215   $8,024,159
                              ---------   ------   ----------  ------   ----------  ---------    --------      --------   ----------

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       F-6
<PAGE>

                                 DAG MEDIA, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                                    2003                2002
                                                                                -----------         -----------
<S>                                                                             <C>                 <C>
 Cash flows from operating activities:
    Net income (loss)                                                           $ 1,598,964         $(1,092,994)
    Adjustment to reconcile net income (loss) to net cash provided by
     operating activities -
       Gain on sale of New Yellow directory                                      (1,207,997)
       Cumulative effect of change in accounting principle                               --             895,000
       Depreciation and amortization                                                159,028             114,493
       Amortization of deferred compensation                                         15,236              18,606
 Bad debt expense                                                                   883,740           1,232,738
 Deferred taxes                                                                     515,320            (248,132)
 Realized (gain) loss on marketable securities                                           --               5,854
        Changes in operating assets and liabilities -
        Accounts receivable                                                        (548,198)         (1,176,338)
        Directories in progress                                                     276,924            (608,867)
        Other current and non current assets                                        (86,783)             28,270
        Accounts payable and accrued expenses                                       (17,244)           (301,406)
        Accrued Interest Income                                                          --              (8,782)
        Commissions payable                                                         (25,798)            163,092
        Advanced billings for unpublished directories                              (781,069)          1,231,611
        Income taxes payable                                                       (181,549)              4,198
        Advances to employees                                                            --             (22,876)
                                                                                -----------         -----------
               Net cash provided by operating activities                            600,574             234,467
                                                                                -----------         -----------

 Cash flows from investing activities:
        Investment in Dune Medical Devices                                         (100,000)            (70,537)
        Investment in preferred stocks, other marketable securities and
           annuity contract                                                      (8,573,154)         (6,796,164)
        Cash received on sale of New Yellow directory, net of expenses            1,207,997
        Proceeds from sale of preferred stocks and marketable securities          7,901,498           3,681,343
       Sale of property and equipment                                                46,200
       Purchase of property and equipment                                          (155,296)            (97,068)
                                                                                -----------         -----------
               Net cash provided by (used in) investing activities                  327,245          (3,282,426)

 Cash flows from financing activities:
        Stock option exercise                                                        71,580              21,200
                                                                                -----------         -----------
              Net cash provided by financing activities                              71,580              21,200

 Net increase (decrease) in cash and cash equivalents                               999,399          (3,026,759)
                                                                                -----------         -----------

 Cash and cash equivalents, beginning of year                                       202,420           3,229,179
                                                                                -----------         -----------

 Cash and cash equivalents, end of year                                         $ 1,201,819         $   202,420
                                                                                ===========         ===========

 Supplemental Cash Flow Information:
 Taxes paid during the year                                                     $    21,936         $    88,801
                                                                                ===========         ===========
  Dividends declared but not paid                                               $   744,113                  --
                                                                                ===========         ===========

Acquisition of subsidiary company:
     Assets acquired                                                                      $   652,278
     Liabilities assumed                                                                  $  (991,967)
     Goodwill and other intangibles                                                       $   633,132
                                                                                          -----------
                                                                                          $   293,443
     Less - cash acquired                                                                 $  (211,406)
     Less - accrued acquisition costs                                                     $   (11,500)
                                                                                          -----------
       Net cash paid                                                                      $    70,537
                                                                                          ===========
</TABLE>

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


                                       F-7
<PAGE>

                                 DAG MEDIA, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 AND 2002

1. The Company

      Dag Media, Inc. ("the Company") publishes and distributes business
directories in print and online, as well as in targeted niche markets nation
wide. The principal source of revenue is derived from the sale of ads in our
print and online directories. As a sales incentive the Company may also provide
added values such as referral services and a consumer discount club.

      The Company operates Internet portals, JewishYellow.com targeting
worldwide Jewish communities and JewishMasterguide.com, targeting the
ultra-orthodox and Hasidic communities and a mainstream general portal
NewYellow.com, targeting the general population.

      New Yellow, Dag Media's Manhattan directory was sold on August 22nd, 2003
to Yellow Book USA for $1.3 Million in cash. Under the agreement, Dag media
published and distributed the October 2003 edition and will publish and
distribute the April 2004 edition of the directory.

      On August 5th, 2002 the Company purchased the business and assets of the
Blackbook from Brandera.com [U.S], Inc. and operated the business through
Blackbook Photography Inc., a wholly owned subsidiary of Dag media. The
Blackbook is a publisher of photography and illustration source books. The
assets included The Blackbook source books which consist of 3 different books:
Blackbook Photography, Blackbook Illustration and AR 100 Award Show Book that
encompass 3 distinct advertiser groups: photographers, illustrators and select
group of more then 100 leading corporate annual reports designers as well as the
Blackbook's website, the Blackbook.com. On August 27th, 2003, Blackbook
Photography Inc. announced the launch of new directory, The Complete Industry
Directory. The 2004 edition will be specifically designed to meet the needs of
professional that work with every aspect of photo, illustration, design, and
creative studio services in the advertising and corporate communities.

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.

<PAGE>

      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.

      Marketable Securities

      Marketable securities are reported at fair value and are classified as
available-for-sale. Unrealized gains and losses from those securities are
reported as a separate component of shareholders' equity. Net of the related tax
effect, realized gains and losses are determined on a specific identification
basis.

The Company's securities consist of the following:

<TABLE>
<CAPTION>
           As of 12/31/2003              Fair Value         Cost         Holding Gains
           ----------------              ----------         ----         -------------
<S>                                       <C>            <C>                <C>
Preferred Stocks                            911,019        882,254           28,765
Insurance annuity contract                1,018,536      1,000,000           18,536
Marketable Securities                     5,649,786      5,526,779          123,543
                                          ---------      ---------          -------
                Total                     7,579,341      7,409,033          170,309

<CAPTION>
           As of 12/31/2002              Fair Value         Cost         Holding Gains
           ----------------              ----------         ----         -------------
<S>                                       <C>            <C>                 <C>
Preferred Stocks                            366,875        363,030            3,845
Marketable Securities                     6,461,044      6,437,485           18,573
                                          ---------      ---------           ------
                Total                     6,827,919      6,800,515           22,418
</TABLE>

      Directories in Progress/Advanced Billings for Unpublished Directories

      Directories in progress mainly include direct production costs and
commissions 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.

      Property and equipment

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

      Goodwill, trademarks and other intangibles

      Under the provision of SFAS 142 the Company's Goodwill is no longer
amortized. Other intangibles include trademarks, artist and customers lists
which are amortized over their estimated useful live which ranges between 1.5-25
years.

      The following summarize the carrying amounts of acquired intangible
assets, Goodwill and related amortization:

<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                    As of December 31, 2003
                                                                    -----------------------
-------------------------------------------------------------------------------------------------------------
                                                               Gross Carrying           Accumulated
                                                               --------------           -----------
                                                                   Amounts              Amortization
                                                                   -------              ------------
-------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                     <C>
Amortized intangible assets:
-------------------------------------------------------------------------------------------------------------
Trademarks                                                        $ 350,981               $  64,934
-------------------------------------------------------------------------------------------------------------
Artists List                                                        170,000                  37,051
-------------------------------------------------------------------------------------------------------------
Other                                                                 5,000                   4,722
                                                                      -----                   -----
-------------------------------------------------------------------------------------------------------------
     Total                                                        $ 525,981               $ 106,707
-------------------------------------------------------------------------------------------------------------
Unamortized intangible assets:
-------------------------------------------------------------------------------------------------------------
Goodwill                                                            458,131                      --
                                                                    -------                   -----
-------------------------------------------------------------------------------------------------------------
     Total Goodwill and Trademarks                                $ 984,112               $ 106,707
-------------------------------------------------------------------------------------------------------------
</TABLE>

      Amortization expenses for years ended December 31, 2003 and 2002 were $
43,527 and $ 26,325, respectively.

      Estimated amortization expenses:

      For year ended 12/31/2004 - $40,471
      For year ended 12/31/2005 - $40,471
      For year ended 12/31/2006 - $40,471
      For year ended 12/31/2007 - $40,471
      For year ended 12/31/2008 - $40,471

      Income Taxes

      The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rate is recognized in income in the
period that includes the enactment date.

      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.

      The allowance for doubtful accounts is established as losses are estimated
to have occurred through a provision for bad debts charged to earnings. The
allowances for doubtful accounts is evaluated based on management's periodic
review of accounts and notes receivable and is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available.

      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

<PAGE>

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 earnings per share:

                                                              Years ended
                                                              December 31,
                                                        ------------------------
                                                           2003           2002
                                                        ---------      ---------
Basic                                                   2,933,164      2,917,973
Incremental shares for assumed exercise of options        103,991             --
                                                        ---------      ---------
Diluted                                                 3,037,155      2,917,973
                                                        =========      =========

      174,440 and 387,440 stock options and 132,500 warrants were not included
in the diluted earnings per share calculation for the 2003 and 2002 fiscal
years, respectively, as their effect would have been anti-dilutive.

      Long-Lived Assets and Impairment of Long-Lived Assets

      The Company's long-lived assets include property and equipment, goodwill,
trademarks, artists list and other intangibles.

      As of January 1, 2002 the Company has adopted SFAS No. 142 "Goodwill and
Other Intangible Assets". Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). Pursuant to the
adoption, as discussed below, the Company has evaluated its goodwill and other
intangibles to identify additional separately identifiable intangibles.

      In connection with a reorganization at the consummation of the Company's
initial public offering ("IPO") in 1999, the Company acquired the 50% interest
of an affiliate, which resulted in the recognition of $1 Million in goodwill and
$351,000 in trademarks based on the IPO price. This goodwill was being amortized
over 25 years. As a result of the transition impairment test required by SFAS
142, due to the decline in the market value of the Company's share, and
considering that this is considered entity level goodwill the Company determined
that, as of January 1, 2002 the goodwill has been fully impaired. Accordingly
the goodwill has been written off as a cumulative effect of an accounting change
in the accompanying Consolidated Financial Statements. The Company is continuing
to amortize its trademarks over 25 years estimated life as it believes that they
do not have unlimited future life.

      As of January 1, 2002, the Company adopted SFAS No. 144, " Accounting for
the Impairment or Disposal of Long-lived Assets" which supersedes SFAS No.121
"Accounting for the Impairment of Long-lived Assets to be Disposed Of." SFAS No.
144 requires that identifiable intangible assets that are not deemed to have
indefinite lives will be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may be impaired.
Furthermore, these assets are evaluated for continuing value and proper useful
lives by comparison to undiscounted expected future cash flow projections. The
Company has determined that no impairment exists as of December 31, 2003. The
adoption of SFAS No. 144 had no effect on the Company.

<PAGE>

      Stock-Based Compensation

      At December 31, 2003, the Company has a stock based compensation plan,
which is described more fully in Note 6. As permitted by the SFAS No. 123,
"Accounting for Stock Based Compensation", the Company accounts for stock-based
compensation arrangements with employees in accordance with provisions of
Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued
to Employees". Compensation expense for stock options issued to employees is
based on the difference on the date of grant, between the fair value of the
Company's stock and the exercise price of the option. No stock based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock at the date of grant. The Company accounts for equity instruments issued
to non employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction With
Selling, or in Conjunction With Selling Goods Or Services". All transactions in
which goods or services are the consideration received for the issuance of
equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable.

The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock based compensation:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                              Year Ended                      Year Ended
                                                              ----------                      ----------
                                                          December 31, 2003               December 31, 2002
                                                          -----------------               -----------------

-----------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                           <C>
Net earnings (loss), as reported                              $ 1,598,964                   $ (1,092,994)
-----------------------------------------------------------------------------------------------------------------
Less:
-----------------------------------------------------------------------------------------------------------------
Total stock based employee                                        (71,231)                       (54,801)
compensation expenses determined
under fair value based method for all
awards
-----------------------------------------------------------------------------------------------------------------
Net earnings (loss), pro forma                                $ 1,527,733                   $ (1,147,795)
-----------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share, as                                $ 0.55                        $ (0.37)
reported
-----------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share, as                              $ 0.53                        $ (0.37)
reported
-----------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share, pro                               $ 0.53                        $ (0.39)
forma
-----------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share,                                 $ 0.50                        $ (0.39)
pro forma
-----------------------------------------------------------------------------------------------------------------
</TABLE>

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 2003 and 2002,
respectively: (1) expected life of 5 years; (2) no dividend yield; (3) expected
volatility 70%; (4) risk free interest rate of 5% and 6%.

      Concentrations of Credit Risk

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

<PAGE>

obligations. The Company believes that concentration of credit risk with respect
to trade accounts receivable are limited due to the large number of customers
comprising the Company's customer base. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential losses.

      Fair Value of Financial Instruments

      For cash and cash equivalents, accounts receivable and account payable the
carrying amount approximates fair value due to the short-term nature of such
investments.

      Other Comprehensive Income

      Other comprehensive income (loss) consists of unrealized gains on
marketable securities net of the related tax effect. The Company's comprehensive
net income is $ 1,678,731 and net loss of $1,085,937 for the years ended
December 31, 2003 and 2002.

      Recent Accounting Pronouncements

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

3. Property and equipment, net

      Property and equipment, net consist of the following at December 31, 2003:

      Office equipment                                                $ 313,516
        Automobiles                                                     131,118
        Leasehold improvements                                           54,912
                                                                      ---------
              Total property and equipment                              499,546
      Less: accumulated depreciation                                   (212,913)
                                                                      ---------
              Property and equipment, net                             $ 286,633
                                                                      =========

      Depreciation expense was approximately $115,500 and $88,000 for the years
      ended December 31, 2003 and 2002, respectively.

4. Income Taxes

The provision (benefit) for income taxes consists of the following:

                                                   For the Years Ended
                                                   -------------------
                                                      December 31,
                                                      ------------
                                                  2003            2002
                                                  ----            ----
      Current Taxes:
         Federal .........................      $(175,976)      $  56,730
         State ...........................        (51,090)         36,270
                                                ---------       ---------
                                                 (227,066)         93,000
                                                ---------       ---------
      Deferred Taxes:
         Federal .........................        399,373        (151,359)
         State ...........................        115,947         (96,772)
                                                ---------       ---------
                                                  515,320        (248,131)
                                                ---------       ---------
      Provision (benefit) for income taxes      $ 288,254       $(155,131)
                                                =========       =========

<PAGE>

Deferred income taxes are comprised of the following at December 31, 2003:

---------------------------------------------------------------------------
Unrealized gains on marketable securities                 $68,124
---------------------------------------------------------------------------
Intangible assets                                         $ 8,092
                                                          -------
---------------------------------------------------------------------------
                                                          $76,216
---------------------------------------------------------------------------

The provision (benefit) for income taxes on earnings differs from the amount
computed using the federal statutory rate of 34% as a result of the following:

------------------------------------------------------------------------------
Year ended December, 31                                    2003       2002
-----------------------                                    ----       ----
------------------------------------------------------------------------------
Federal Statutory Rate                                     34%        (34%)
------------------------------------------------------------------------------
State income taxes, net of U.S. federal income             (6%)       (12%)
tax benefit
------------------------------------------------------------------------------
Utilization of net operating loss                         (11%)        --
------------------------------------------------------------------------------
Other                                                      (2%)         2%
                                                           --          --
------------------------------------------------------------------------------
Provision (benefit) for income taxes                       15%        (44%)
                                                           ==         ===
------------------------------------------------------------------------------

      The Company, effective for the calendar year 2003, changed from a cash
basis to an accrual basis of accounting and began preparing and filing its tax
return according to the accrual basis.

5. 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 $8,000), with the Company matching on a
dollar-for-dollar basis up to 3% of the employees' compensation (with a cap of
$8,000). 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
2003 and 2002 the Company contributed $8,000 and $7,000 respectively, as a
matching contribution to the IRA Plan.

6. 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 thereunder by 145,000 options was proposed
and passed as of December 31, 2000 and at both Company's annual shareholder
meeting held on June 22, 2001 and July 10, 2002, an additional 145,000 and

<PAGE>

140,000 options were approved, respectively. An additional 122,000 options were
granted under individual option grant outside of the Plan. At December 31, 2003
and 2002, 85,560 and 166,560 options were available for future grants under the
plan, respectively.

      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 2003 and 2002 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 EITF No. 96-18 and are measured using Black-Scholes option
pricing model. Accordingly, a deferred compensation cost of approximately
$153,000 was recorded in 2002 whereas none were recorded in 2003. Such costs
will be amortized over the option vesting period (generally five years).
Compensation costs of $15,236 and $18,606 were charged to operations in 2003 and
in 2002, respectively.

      The weighted average fair value of options granted during the year ended
December 31, 2003 and 2002 was $ 1.10 and $ 0.70, respectively.

The following summarizes stock option activity for 2003 and 2002:

                                                                     Weighted
                                                                      Average
                                                     Shares       Exercise Price
--------------------------------------------------------------------------------
Outstanding at December 31, 2001                    292,440            $2.53
                                                    -------            -----
--------------------------------------------------------------------------------
Granted                                             195,000            $1.35
Exercised                                           (20,000)           $1.06
Forfeited                                           (80,000)           $3.53
--------------------------------------------------------------------------------
Outstanding at December 31, 2002                    387,440            $1.81
                                                    -------            -----
--------------------------------------------------------------------------------
Granted                                             155,000            $2.46
Exercised                                           (49,000)           $1.46
Forfeited                                           (25,000)           $1.66
--------------------------------------------------------------------------------
Outstanding at December 31, 2003                    468,440            $2.67
                                                    -------            -----
--------------------------------------------------------------------------------

<PAGE>

      As of December 31, 2003 and 2002 there were exercisable options amounting
to 302,587 and 202,587 respectively, with a weighted average exercise price of
$2.12 and $2.04, respectively. As of December 31, 2003 and 2002 the weighted
average remaining contractual life of options outstanding are 3.17 and 3.64,
respectively.

      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 through 2003. As of December
31, 2003 all of the warrants are outstanding.

7. 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. In
September 20, 2001 the Board of the Directors of the Company authorized a stock
repurchase program that allows the Company additional purchase up to 200,000
common shares of the Company, out of the available funds of the Company, in the
open market within the ensuing year. 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 years 2003 and 2002.

8. Commitments and Contingencies

Operating leases -

      The Company has various lease and rental commitments ending 2008 for its
offices, automobiles and equipment. At December 31, 2003, approximate future
minimum rental payments under these commitments are as follows:

2004........................                                    94,438
2005........................                                    62,520
2006........................                                    62,677
2007........................                                    64,558
2008........................                                    60,801
                                                              --------
Total.......................                                  $344,994
                                                              ========

Rent expense was approximately $148,000 and $134,500 in 2003 and 2002,
respectively.

Employment Agreements -

      In March 1999, the Company entered into an employment agreement with Assaf
Ran, its president and chief executive officer. Mr. Ran's employment term
initially renews automatically for successive one-year periods unless either
party gives 180 days written notice of its intention to terminate the agreement.
Under the agreement, Mr. Ran will receive an annual base salary of $75,000,
annual bonuses as determined by the

<PAGE>

compensation committee of the Board of Directors in its sole and absolute
discretion, and is eligible to participate in all executive benefit plans
established and maintained by the Company. Under the agreement, Mr. Ran has also
agreed to a one-year non-competition period following the termination of his
employment. As of March 2003 the compensation committee approved an increase in
Mr. Ran's compensation to an annual base salary of $225,000. Mr. Ran's annual
compensation was $202,500 and $125,000 during fiscal years 2003 and 2002.

Contingencies-

      From time to time, the Company is a party to litigation arising in the
normal course of its business operations. In the opinion of management and
counsel, it is not anticipated that the settlement or resolution of any such
matters will have a material adverse impact on the Company's financial position,
liquidity or results of operations.

9. Related Parties Transactions

      During 2003 and 2002, the Company has paid $71,000 each year in legal fees
to Morse, Zelnick Rose & Lander LLP for legal advice and representation. Stephen
A. Zelnick, a director of the Company, is a partner of Morse, Zelnick, Rose &
Lander LLP.