SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-KSB/A (Amendment No. 1) (Mark One) x

                    Annual Report Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934For the Fiscal Year ended December 31,
                        2007  o

                    Transition Report Pursuant to Section 13 or 15(d) of
                        the Securities Exchange Act of 1934For 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. Employerof incorporation or
                        organization)

                    Identification No.)  192 Lexington Avenue, New York, NY 10016   (Address of Principal Executive Office) (Zip Code)
 Issuer’s telephone number (212)
            489-6800 Securities registered under Section 12(b) of the
            Exchange Act: Title of Each Class

                    Name of Each Exchange
                        on Which RegisteredCommon Stock, par value $.001 per
                        share

                    The NASDAQ Stock Market, LLC Securities Registered under Section 12(g) of the
            Exchange Act: None.(Title of class) Check whether issuer is not required to file
            reports pursuant to Section 13 or 15(d) of the
            Exchange Act: o Check
            whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d)
            of the Exchange Act during the past 12 months (or for such shorter period that the
            registrant was required to file such reports) and (2) has been subject to such filing
            requirements for the past 90 days: Yes x
            No o Check if
            there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
            is not contained in this form, and no disclosure will be contained, to the best of the
            registrant’s knowledge, in definitive proxy of information statements
            incorporated by reference in Part III of this Form 10-KSB or any amendment to this
            Form 10-KSB: x Indicate
            by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
            the Exchange Act): Yes o No
            x For
            the year ended December 31, 2007, the revenues of the registrant were
            $221,000. The
            aggregate market value of the voting and non-voting common equity stock of the
            registrant held by non-affiliates of the registrant, based on the closing price on the
            NASDAQ Capital Market on March 13, 2008 of $0.92, was approximately
            $1,735,667. As of
            March 14, 2008 the registrant has a total of 3,305,190 shares of Common Stock issued
            outstanding. DOCUMENTS INCORPORATED BY REFERENCE None.    Explanatory Note


This Amendment No. 1 to the Annual Report on Form 10-KSB (the Form 10-KSB) of DAG
Media, Inc. (the Company) for the fiscal year ended December 31,
2007 is being filed to correct the typographical error made in the name of our
Independent Registered Public Accounting Firm in the Consent of the Independent
Registered Public Accounting Firm (filed as exhibit 23.2) and in the Report of
Independent Registered Public Accounting Firm (on page F-2) to Hoberman, Miller,
Goldstein & Lesser, P.C., which were filed along with the Form 10-KSB on
March 14, 2008. The remainder of the Form 10-KSB is, however, unchanged.

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

            PagePART IItem 1.

                    Description of Business

                    4Item 1A.

                    Risk Factors

                    9Item 2.

                    Description of Property

                    15Item 3.

                    Legal Proceedings

                    15Item 4.

                    Submission of Matters to a Vote of
                        Security Holders

                    15PART IIItem 5.

                    Market for Common Equity, Related
                        Stockholder Matters and Small Business Issuer Purchases of Equity
                        Securities

                    16Item 6.

                    Management’s Discussion and
                        Analysis or Plan of Operation

                    17Item 7.

                    Financial Statements

                    26Item 8.

                    Changes in and Disagreements with
                        Accountants on Accounting and Financial Disclosure

                    26Item 8A.

                    Controls and Procedures

                    26Item 8B.

                    Other Information

                    28PART IIIItem 9.

                    Directors, Executive Officers, Promoters
                        and Control Persons and Corporate Governance; Compliance with
                        Section 16(a) of the Exchange Act

                    29Item 10.

                    Executive Compensation

                    32Item 11.

                    Security Ownership of Certain Beneficial
                        Owners and Management and Related Stockholders Matters

                    35Item 12.

                    Certain Relationships and Related
                        Transactions and Director Independence

                    36Item 13.

                    Exhibits List

                    38Item 14.

                    Principal Accountant Fees and
                        Services

                    40SIGNATURES

                    

                    42EXHIBITS2
            
            FORWARD-LOOKING STATEMENTS

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

            _____________________

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

            3
            
            PART I

            Item 1. Description of Business

            General

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

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

            Products and services

            ▪ DAG
            Funding.

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

            ▪ Nextyellow.com

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

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

            4
            
            Nextyellow
            was developed by us and our development partner, Ocean-7 Development, Inc., a company
            experienced in Internet and software development, pursuant to a web-site development
            and services agreement dated December 5, 2005. The objective of Nextyellow is to
            facilitate the accurate, instant and automated matching of consumers’ needs to
            the capabilities of businesses’ serving their local area. To utilize this
            application, a customer will visit our website and describe the need that the customer
            has for goods or services. Upon completing this description, our application will
            characterize the consumers’ requests by geographic location as well as by a DAG
            Interactive-developed category index which locates businesses or vendors which provide
            the sought after services or goods. The software then automatically matches those
            businesses or vendors with the customer’s request. Upon completing the match, an
            automated message will be sent from our system to those matching businesses or vendors
            who are then responsible for following up on the lead and contacting the customer. In
            simple terms, businesses, service providers and retailers can register and receive
            leads for prospective customers in their geographic coverage area and categories for a
            monthly fee and generate business in response to inquiries submitted by customers who
            visit our website.

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

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

            ▪ Discontinued
            and Divested Operations

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

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

            5
            
            Shopila had
            been an e-commerce company that bought products from wholesale suppliers and sold them
            to online shoppers. On October 11, 2006, we had purchased 80% of the issued and
            outstanding common shares of Shopila for approximately $318,000, consisting of $100,000
            in cash; the issuance of 50,000 restricted shares of our common stock and an option to
            purchase an additional 50,000 shares of our common stock at an exercise price equal to
            the fair market value at date of grant and the assumption of certain
            liabilities.

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

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

            Growth strategy

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

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

            Sales and Marketing

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

            6
            
            Nextyellow,
            offers a low cost monthly subscription to businesses that want to participate in its
            matching process and receive qualified leads specific to their locality. Fees are based
            on the number of zip code/category combinations covered by the subscription.

            Government regulation

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

            Competition

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

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

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

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

            7
            
            Intellectual property

            To protect
            our rights to our intellectual property, we rely on a combination of federal, state and
            common law trademarks, service marks and trade names, copyrights and trade secret
            protection. We have registered some of our trademarks and service marks in the United
            States Patent and Trademark Office (USPTO) including the following marks relating to
            our current business:

            Nextyellow

            Let the
            business do the walking

            Where the
            business does the walking

            Where the
            business calls you

            and some of our trade names in New York and New
            Jersey. In addition, every directory we publish has been registered with the United
            States Copyright Office. The protective steps we have taken may be inadequate to deter
            misappropriation of our proprietary information. These claims, if meritorious, could
            require us to license other rights or subject us to damages and, even if not
            meritorious, could result in the expenditure of significant financial and managerial
            resources on our part.

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

            Employees

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

            8
            
            Item 1A. CERTAIN RISK FACTORS
            THAT MAY AFFECT GROWTH AND
            PROFITABILITY

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

            Risks Related to
            our Business

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

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

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

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

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

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

            9
            
            Existing or future government regulation impacting
            the use of the Internet could decrease our revenues and increase our
            costs.

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

            •

                    user privacy;•

                    pricing;•

                    intellectual property;•

                    federal, state and local
                        taxation;•

                    distribution; and•

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

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

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

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

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

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

            10
            
            We face intense competition in our
            market

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

            We may experience increased delinquencies and
            credit losses

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

            •

                    Missed Payments. We face the risk
                        that customers will miss payments. Loan charge-offs are generally preceded
                        by missed payments or other indications of worsening financial condition.
                        Our reported delinquency levels measure these trends. Customers may be more
                        likely to miss payments in the event of an economic downturn. In addition,
                        we face the risk that consumer and commercial customer behavior may change,
                        causing a long-term rise in delinquencies and charge-offs;•

                    Collateral. We face the risk that
                        collateral, when we have it, will be insufficient to compensate us for loan
                        losses. When customers default on their loans and we have collateral, we
                        attempt to seize it. However, the value of the collateral may not be
                        sufficient to compensate us for the amount of the unpaid loan and we may be
                        unsuccessful in recovering the remaining balance from our customers.
                        Particularly with respect to our commercial lending and mortgage
                        activities, decreases in real estate values could adversely affect the
                        value of property used as collateral for our loans and investments. Thus,
                        the recovery of such property could be insufficient to compensate us for
                        the value of these loans;11
            
            •

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

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

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

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

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

            12
            
            Reputational Risk and Social Factors May Impact
            our Results

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

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

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

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

            Our growth depends on the continued services of
            Assaf Ran.

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

            13
            
            We cannot predict the future costs of Sarbanes
            Oxley section 404 implementation.

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

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

            Risks Related to
            Our Common Stock

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

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

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

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

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

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

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

            14
            
            Item 2. Description of
            Property

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

            Item 3. Legal
            Proceedings

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

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

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

            Not
            applicable.

            15
            
            PART II

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

            (a)

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

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

            Bid PriceHigh

                    

                    Low2006First Quarter

                    

                    $

                    2.35

                    

                    $

                    1.90Second Quarter

                    

                    $

                    2.33

                    

                    $

                    1.70Third Quarter

                    

                    $

                    2.00

                    

                    $

                    1.33Fourth Quarter

                    

                    $

                    2.79

                    

                    $

                    1.302007First Quarter

                    

                    $

                    1.77

                    

                    $

                    1.43Second Quarter

                    

                    $

                    1.69

                    

                    $

                    1.45Third Quarter

                    

                    $

                    2.44

                    

                    $

                    1.18Fourth Quarter

                    

                    $

                    1.44

                    

                    $

                    0.96(b)

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

            (c)

                    DividendsIn 2006 we
            didn’t declare any dividend.

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

            16
            
            Item 6. Management’s
            Discussion and Analysis or Plan of Operations

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

            Overview

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

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

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

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

            17
            
            With
            Nextyellow, businesses will pay a low monthly fee for each zip code/category
            combination in which they wish to market their goods or services. In return they
            receive qualified leads specific to their locality. Consumers, for whom the use of the
            website is free of charge, enjoy a friendly application that shortens the process of
            locating, selecting and contacting a business, which then provides an instant match
            between their needs and businesses’ capabilities.

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

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

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

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

            18
            
            Critical Accounting Policies and Use of
            Estimates

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

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

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

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

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

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

            19
            
            Results of operations

            Years
            ended December 31, 2007 and 2006

            Total
            revenue

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

            Web
            Development costs

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

            Marketing
            Expenses

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

            General
            and administrative costs

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

            20
            
            Other
            income

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

            Loss from
            continuing operations before income tax benefit

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

            Income
            tax benefit

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

            Discontinued
            Operations

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

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

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

            21
            
            The Company
            on October 11, 2006, had purchased 80% of the issued and outstanding common shares of
            Shopila for approximately $318,000, consisting of $100,000 in cash; the issuance of
            50,000 restricted shares of the Company’s common stock and an option to purchase
            an additional 50,000 shares of common stock at an exercise price equal to the fair
            market value at date of grant and the assumption of certain liabilities.

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

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

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

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

            Gain from the Sale ofJewish Directories.Cash Proceeds

                    

                    $

                    534,000Net liabilities assumed by the
                        buyers

                    

                    

                    396,000930,000Direct related Costs:Professional fees

                    

                    

                    162,000Gain from the sale of Jewish
                        Directories

                    

                    

                    768,00022
            
            Net
            loss

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

            Liquidity
            and Capital Resources

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

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

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

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

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

            23
            
            Contractual
            Obligations

            Contractual Obligations

                    

                    Total

                    

                    Less than
                        1 Year

                    

                    1-3
                        Years

                    

                    3-5
                        Years

                    

                    More than
                        5 yearsLong-Term Debt Obligations

                    

                    $

                    –

                    

                    $

                    –

                    

                    $

                    –

                    

                    $

                    –

                    

                    $

                    –Operating Lease Obligations

                    

                    

                    237,019

                    

                    

                    65,543

                    

                    

                    171,476

                    

                    

                    –

                    

                    

                    –Total

                    

                    $

                    237,019

                    

                    $

                    65,543

                    

                    $

                    171,476

                    

                    $

                    –

                    

                    $

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

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

            Recent Technical Accounting
            Pronouncements

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

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

            24
            
            In February
            2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.159,
            “The Fair Value Option for Financial Assets and Financial Liabilities –
            Including an amendment of FASB Statement No.115”. SFAS No.159 permits entities to
            choose to measure eligible financial instruments and other items at fair value at
            specified election dates. A business entity shall report unrealized gains and losses on
            items for which the fair value option has been elected in earnings at each subsequent
            reporting date. The fair value option may be applied instrument by instrument but only
            upon the entire instrument – not portions of the instrument. SFAS No.159 is
            effective as of the beginning of an entity’s first fiscal year that begins after
            November 15, 2007. The Company does not anticipate that the adoption of SFAS No. 159
            will have an impact on the Company’s overall results of operations or financial
            position.

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

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

            25
            
            Item 7. Financial
            Statements

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

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

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

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

            Item 8A. Controls and
            Procedures

            1.  Disclosure Controls and
            Procedures

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

            26
            
            Our previous
            auditors, Amper, Politziner & Mattia, P.C., in connection with their audit and in
            the issuance of their report on our financial statements for the year ended December
            31, 2006, included in their report to the Audit Committee of our Board of Directors a
            communication that identified certain items that they considered to be material
            weaknesses in the effectiveness of our internal controls pursuant to standards
            established by the Public Company Accounting Oversight Board. A “material
            weakness” is a reportable condition in which the design or operation of one or
            more of the specific control components has a defect or defects that could have a
            material adverse effect on an organization’s ability to record, process,
            summarize and report financial data in the financial statements in a timely
            manner.

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

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

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

            2.  Internal Control over
            Financial Reporting

            (a)

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

            27
            
            The
            Company’s internal control system was designed to provide reasonable assurance to
            the Company’s management and Board of Directors regarding the preparation and
            fair presentation of published financial statements. All internal control systems, no
            matter how well designed, have inherent limitations which may not prevent or detect
            misstatements. Therefore, even those systems determined to be effective can provide
            only reasonable assurance with respect to financial statement preparation and
            presentation. Projections of any evaluation of effectiveness to future periods are
            subject to the risk that controls may become inadequate because of changes in
            conditions, or that the degree of compliance with the policies or procedures may
            deteriorate.

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

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

            (b)

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

            ITEM 8B. Other
            Information.

            None.

            28
            
            PART III

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

            Executive Officers and
                        DirectorsOur executive officers and directors and
                        their respective ages are as follows:Name

                    

                    Age

                    

                    PositionAssaf Ran

                    

                    42

                    

                    Chairman of the Board, Chief Executive
                        Officer, President and DirectorInbar Evron-Yogev

                    

                    35

                    

                    Chief Financial Officer, Treasurer and
                        SecretaryPhillip Michals (1,2,3)

                    

                    38

                    

                    DirectorEran Goldshmid (1,2,3)

                    

                    41

                    

                    DirectorMichael Jackson (1,2,3)

                    

                    43

                    

                    DirectorMark Alhadeff

                    

                    44

                    

                    Director
            (1) Member of the Compensation
                        Committee(2) Member of the Audit
                        Committee(3) Member of the Nominating
                        CommitteeAll
            directors hold office until the next annual meeting of shareholders and until their
            successors are duly elected and qualified. Officers are elected to serve subject to the
            discretion of the board of directors.

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

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

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

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

            29
            
            Eran
            Goldshmid has been a member of our board of directors since March 1999.
            Mr. Goldshmid received certification as a financial consultant in February 1993
            from the School for Investment Consultants, Tel Aviv, Israel, and a BA in business
            administration from the University of Humberside, England in December 1998. From
            December 1998 until July 2001, he had been the general manager of the Carmiel Shopping
            Center in Carmiel, Israel. Since August 2001, he has been president of the New York
            Diamond Center, New York, NY.

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

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

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

            30
            
            Section 16(a) Beneficial Ownership
            Reporting Compliance

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

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

            Code of Ethics

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

            Audit Committee

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

            Stockholder Communications

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

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

            31
            
            Item 10. Executive Compensation.

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

            Summary Compensation Table

            Name and
                        Principal
                        Position

                    

                    

                    Year

                    

                    Salary($)

                    

                    Bonus($)

                    

                    Stock
                        Awards($)

                    

                    Option
                        Awards($)
                        (1)

                    

                    Non
                        Equity
                        Incentive
                        plan
                        Compensation($)

                    

                    Nonqualified
                        Deferred
                        Compensation
                        Earning($)

                    

                    All
                        Other
                        Compensation($)
                        (2)

                    

                    Total($)Assaf RanChief

                    

                    

                    2007

                    

                    $

                    69,231

                    

                    

                    –

                    

                    

                    –

                    

                    

                    $

                    64,021

                    (4)

                    

                    $

                    2,077

                    

                    

                    –

                    

                    $

                    2,077

                    

                    $

                    135,329Executive

                    

                    

                    2006

                    

                    $

                    147,615

                    

                    

                    –

                    

                    

                    –

                    

                    

                    $

                    170,897

                    (5)

                    

                    $

                    4,248

                    

                    

                    –

                    

                    $

                    4,248

                    

                    $

                    322,760Officer
                        andPresident(1) Consists of stock options. valued in accordance
            with FAS 123(R).(2) Company’s matching contributions are made pursuant to a simple
            master IRA plan.

            Employment Contracts

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

            32
            
            Outstanding Equity Awards at Fiscal
            Year-End

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


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

(1)

                    The options were granted on August 4,
                        2003. One third of such options vested immediately and the balance vest in
                        equal annual installments on each anniversary of the grant date. The
                        exercise price represents 110% of the fair market price on the date of
                        grant.(2)

                    The options were granted on July 12,
                        2004. One third of such options vested immediately and the balance vest in
                        equal annual installments on each anniversary of the grant date. The
                        exercise price represents 110% of the fair market price on the date of
                        grant.(3)

                    The options were granted on March 3,
                        2005. One third of such options vested immediately and the balance vest in
                        equal annual installments on each anniversary of the grant date. The
                        exercise price represents 110% of the fair market price on the date of
                        grant.(4)

                    The options were granted on March 15,
                        2006. One third of such options vested immediately and the balance vest in
                        equal annual installments on each anniversary of the grant date. The
                        exercise price represents 110% of the fair market price on the date of
                        grant.(5)

                    The options were granted on March 22,
                        2007. One third of such options vested immediately and the balance vest in
                        equal annual installments on each anniversary of the grant date. The
                        exercise price represents 110% of the fair market price on the date of
                        grant.(6)

                    5,000 shares of our common stock were
                        granted to Inbar Evron-Yogev, our current Chief Financial Officer on March
                        15, 2006, the date she commenced employment with our company. One fifth of
                        such options vested immediately and the balance vest in equal annual
                        installments on each anniversary of the grant date. The shares were granted
                        with an exercise price of $2.05 which was the fair market price on the date
                        of grant. 33    (7)

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

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

            Director Compensation

            Name
                        (a)

                    

                    Fees Earned or Paid in Cash($)

                    

                    Stock Awards($)

                    

                    Option Awards($)
                        (1)

                    

                    Non-Equity Incentive Plan
                        Compensation($)

                    

                    Change in Pension Value and
                        Nonqualified Deferred Compensation Earnings($)

                    

                    All Other Compensation($)

                    

                    Total ($)Michael Jackson (2)

                    

                    $

                    3,000

                    

                    

                    –

                    

                    $

                    7,154

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –

                    

                    $

                    10,154Phillip Michals(3)

                    

                    $

                    3,000

                    

                    

                    –

                    

                    $

                    7,154

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –

                    

                    $

                    10,154Eran Goldshmid (4)

                    

                    $

                    3,000

                    

                    

                    –

                    

                    $

                    7,154

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –

                    

                    $

                    10,154Mark Alhadeff

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –

                    

                    

                    –(1)

                    Consists of stock options. Valuation is
                        based on FAS 123(R).(2)

                    The aggregate number of option awards
                        outstanding at fiscal year end is 35,000.(3)

                    The aggregate number of option awards
                        outstanding at fiscal year end is 35,000.(4)

                    The aggregate number of option awards
                        outstanding at fiscal year end is 35,000.34
            
            Item 11. Security Ownership
            of Certain Beneficial Owners and Management and Related Stockholder
            Matters

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

            Name of Beneficial Owner
                        (1)

                    

                    Title of
                        Class

                    

                    Amount and
                        Nature of
                        Beneficial
                        Ownership (2)

                    

                    Percentage of
                        ClassExecutive Officers and DirectorsAssaf
                        Ran (3)

                    

                    

                    Common

                    

                    

                    1,670,262

                    

                    

                    

                    51.61

                    %Inbar
                        Evron-Yogev (4)

                    

                    

                    Common

                    

                    

                    3,000

                    

                    

                    

                    *Michael
                        Jackson (4)

                    

                    

                    Common

                    

                    

                    35,000

                    

                    

                    

                    1.08

                    %Phillip
                        Michals (5)

                    

                    

                    Common

                    

                    

                    50,000

                    

                    

                    

                    1.54

                    %Eran
                        Goldshmid (4)

                    

                    

                    Common

                    

                    

                    35,000

                    

                    

                    

                    1.08

                    %Mark
                        Alhadeff (6)

                    

                    

                    Common

                    

                    

                    110,000

                    

                    

                    

                    3.40

                    %All
                        officers and directors as a group

                    

                    

                    Common

                    

                    

                    1,903,262

                    

                    

                    

                    58.81

                    %* Less than 1%

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

            Assaf Ran and Inbar Evron-Yogev –c/o DAG Media Inc, 192 Lexington Avenue, New York NY
                        10016Michael Jackson –260 Madison Avenue, New York, NY 10016Phillip Michals –67 Wall Street, New York, NY 10005Eran Goldshmid –65 Broadway, New York, NY 10006(2)     A
            person is deemed to be a beneficial owner of securities that can be acquired by such
            person within 60 days from the filing of this report upon the exercise of options and
            warrants or conversion of convertible securities. Each beneficial owner’s
            percentage ownership is determined by assuming that options, warrants and convertible
            securities that are held by such person (but not held by any other person) and that are
            exercisable or convertible within 60 days from the filing of this report have been
            exercised or converted. Except as otherwise indicated, and subject to applicable
            community property and similar laws, each of the persons named has sole voting and
            investment power with respect to the shares shown as beneficially owned. All
            percentages are determined based on 3,236,460 outstanding on March 14, 2008.

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

            35
            
            (4)     All
            of the shares beneficially owned by Inbar Evron-Yogev, Michael Jackson and Eran
            Goldshmid are vested options as of December 31, 2007.

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

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

            Equity Compensation Plan Information

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

            Equity Compensation Plan TableNumber of
                        securities(1)
                        to be issued
                        upon exercise
                        of
                        outstanding
                        options,
                        warrants and
                        rights

                    

                    Weighted-
                        average exercise
                        price of
                        outstanding
                        options, warrants
                        and rights

                    

                    

                    Number of
                        securities(1)
                        remaining
                        available for
                        future issuance
                        under equity compensation
                        plansEquity Compensation Plans Approved By Security
                        HoldersGrants
                        under the DAG Media, Inc. 1999 Stock Option Plan

                    

                    610,000

                    

                    

                    $

                    2.64

                    

                    

                    

                    345,000Equity Compensation Plans Not Requiring Approval By
                        Security HoldersAggregate Individual Option Grants

                    

                    0

                    

                    

                    

                    0

                    

                    

                    

                    Not applicableTotal

                    

                    610,000

                    

                    

                    $

                    2.64

                    

                    

                    

                    345,000(1) Reflect shares of DAG Media common stock.

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

            Item 12. Certain
            Relationships and Related Transactions and Director
            Independence

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

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

            36
            
            Director Independence

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

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

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

            37
            
            Item 13. Exhibits

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

            Exhibit No.

                    

                    Description3.1

                    

                    Certificate of Incorporation of the Company
                        (1)3.2

                    

                    By-laws of the Company (1)4.1

                    

                    Specimen Stock Certificate (2)4.2

                    

                    Form of Underwriter’s Warrant (1)10.1*

                    

                    Employment Agreement dated March 1, 1999 by and between
                        Assaf Ran and the Company (1)10.2*

                    

                    Form of the Company’s 1999 Stock Option Plan As
                        Amended (3)10.3

                    

                    Web Site Company Formation, Development and Services
                        Agreement dated December 5, 2005 by and between DAG Media, Inc. and Ocean-7
                        Development, Inc. (4)10.4

                    

                    Asset Purchase Agreement by and between DAG Media, Inc.
                        and DAG-Jewish Directories, Inc. (5)10.5

                    

                    Lease Agreement by and between DAG Media, Inc. and Cres,
                        Inc. for the premises located at 192 Lexington Avenue, New York, New York
                        10016. (6)10.6

                    

                    Stock Purchase Agreement by and between DAG Media, Inc.
                        and Guy Mushkat dated October 11, 2006. (7)16.1

                    

                    Letter from Amper, Politziner & Mattia, P.C., dated
                        June 6, 2007 to the Securities and Exchange Commission. (8)23.1

                    

                    Consent of Amper, Politziner
                        & Mattia, P.C., dated March 13, 2008. (filed herewith)23.2

                    

                    Consent of Hoberman, Miller,
                        Goldstein & Lesser, P.C., dated March 13, 2008. (filed
                        herewith)31.1

                    

                    Chief Executive Officer
                        Certification as required under section 302 of the Sarbanes Oxley Act
                        (filed herewith)31.2**

                    

                    Chief Financial Officer
                        Certification as required under section 302 of the Sarbanes Oxley Act
                        (filed herewith)32.1

                    

                    Chief Executive Officer
                        Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to
                        section 906 of the Sarbanes Oxley Act (furnished herewith)32.2**

                    

                    Chief Financial Officer
                        Certification pursuant to 18 U.S.C. section 1350 as adopted pursuant to
                        section 906 of the Sarbanes Oxley Act (furnished herewith)*
            Compensation plan or arrangement for current or former executive officers and
            directors.

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

            38
            
            Exhibit No.

                    

                    Description(1)

                    

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

                    

                    Previously filed as exhibit to Form SB-2/A on April 23,
                        1999.(3)

                    

                    Previously filed as exhibit to Form S-8 on February 8,
                        2002.(4)

                    

                    Previously filed as exhibit to Form 8-K on December 12,
                        2005.(5)

                    

                    Previously filed as exhibit to Form 8-K on February 10,
                        2006.(6)

                    

                    Previously filed as an exhibit to Form 10-KSB on August
                        14, 2006.(7)

                    

                    Previously filed as an exhibit to Form 8-K on October 17,
                        2006.(8)

                    

                    Previously filed as exhibit to Form 8-K on June 8,
                        2007.39
            
            Item 14. Principal Accountant Fees and Services

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

            (a)     Audit
            Fees

            2007

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

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

            2006

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

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

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

            (b)     Audit-Related
            Fees

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

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

            (c)     Tax
            Fees

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

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

            40
            
            (d)
                 All Other Fees

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

            Audit
            Committee Pre-Approval, Policies and Procedures

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

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

            41
            
            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 RanAssaf Ran, President, Chief Executive
                        Officer and Chairman of the Board of DirectorsDate: March 14, 2008In
            accordance with the Exchange Act, this report has been signed below by the following
            persons on behalf of the Registrant and in the capacities and on March 14,
            2008:

            Signature

                    

                    Date

                    

                    Title/s/ Assaf Ran

                    

                    March 14, 2008

                    

                    President, Chief Executive Officer and Chairman of the
                        Board of Directors (principal executive officer)Assaf Ran/s/ Inbar Evron-Yogev

                    

                    March 14, 2008

                    

                    Chief Financial Officer (principal financial and
                        accounting officer)Inbar Evron-Yogev/s/ Phillip Michals

                    

                    March 14, 2008

                    

                    DirectorPhillip Michals/s/ Eran Goldshmid

                    

                    March 14, 2008

                    

                    DirectorEran Goldshmid/s/ Michael Jackson

                    

                    March 14, 2008

                    

                    DirectorMichael Jackson/s/ Mark Alhadeff

                    

                    March 14, 2008

                    

                    DirectorMark Alhadeff42
            
            DAG MEDIA, INC.

            Index to Consolidated Financial
            Statements

            Page NumberReports of Independent Registered Public
                        Accounting Firms

                    

                    F-2 - F-3Consolidated Financial Statements:Balance Sheet at December 31,
                        2007

                    

                    F-4Statements of Operations for the years ended
                        December 31, 2007 and 2006

                    

                    F-5Statements of Changes in Shareholders’
                        Equity for the years ended
                        December 31, 2007 and 2006

                    

                    F-6Statements of Cash Flows for the years ended
                        December 31, 2007 and 2006

                    

                    F-7Notes to Consolidated Financial
                        Statements

                    

                    F-8
            REPORT OF INDEPENDENT REGISTERED PUBLIC
            ACCOUNTING FIRM

            The Board of Directors and Shareholders
            Dag Media, Inc.

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

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

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

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

            By: /s/ Hoberman, Miller, Goldstein & Lesser, P.C.

            Hoberman, Miller, Goldstein & Lesser, P.C.

            March 13, 2008
            New York, New York

            F - 2
            
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
            FIRM

            The Board of Directors and Shareholders
            Dag Media, Inc.

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

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

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

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

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

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

            Amper, Politziner & Mattia, P.C.

            March 23, 2007
            New York, New York

            F - 3
            
            DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEET
            DECEMBER 31, 2007

            AssetsCurrent
                        assets:Cash
                        and cash equivalents

                    

                    $

                    621,724Marketable securities

                    

                    

                    802,811Short
                        term investment – insurance annuity contract – at fair
                        value

                    

                    

                    931,555Total cash and cash equivalents, marketable securities and
                        short term investment

                    

                    

                    2,356,090Short
                        term commercial notes

                    

                    

                    4,313,211Interest receivable on short term commercial
                        notes

                    

                    

                    41,184Due
                        from purchaser

                    

                    

                    156,103Other
                        current assets

                    

                    

                    17,083Total current assets

                    

                    

                    6,883,671Property and equipment, net

                    

                    

                    14,261Capitalized web development costs, net

                    

                    

                    74,015Security deposit

                    

                    

                    17,515Investment in privately held company, at cost

                    

                    

                    100,000Total assets

                    

                    $

                    7,089,462Liabilities and Shareholders’ EquityCurrent
                        liabilities:Accounts payable and accrued expenses

                    

                    $

                    123,886Deferred gain from the sale of Jewish Directories

                    

                    

                    72,917Deferred origination fee

                    

                    

                    4,597Total current liabilities

                    

                    

                    201,400Commitments and contingencies (Note 11)Shareholders’ equity:Preferred shares - $.01 par value; 5,000,000 shares
                        authorized; no shares issued

                    

                    

                    –Common
                        shares - $.001 par value; 25,000,000 authorized; 3,305,190 issued and
                        3,236,460 outstanding

                    

                    

                    3,305Additional paid-in capital

                    

                    

                    9,180,235Treasury stock, at cost- 68,730 shares

                    

                    

                    (231,113

                    )Accumulated other comprehensive loss

                    

                    

                    (441,272

                    )Accumulated deficit

                    

                    

                    (1,623,093

                    )Total shareholders’ equity

                    

                    

                    6,888,062Total
                        liabilities and shareholders’ equity

                    

                    $

                    7,089,462The accompanying notes are an integral part of these
            consolidated financial statements.

            F - 4
            
            DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

            2007

                    

                    2006Interest income from short term commercial notes

                    

                    $

                    209,898

                    

                    $

                    –Origination fees

                    

                    

                    6,913

                    

                    

                    –Subscription revenues, net

                    

                    

                    4,351

                    

                    

                    9,885Total
                        Revenue

                    

                    

                    221,162

                    

                    

                    9,885Operating costs and expenses:Web
                        development expenses

                    

                    

                    49,344

                    

                    

                    137,666Marketing expenses

                    

                    

                    8,788

                    

                    

                    87,955General
                        and administrative expenses

                    

                    

                    756,753

                    

                    

                    824,963Total operating costs and expenses

                    

                    

                    814,885

                    

                    

                    1,050,584Loss
                        from operations

                    

                    

                    (593,723

                    )

                    

                    (1,040,699

                    )Interest and dividend income

                    

                    

                    249,053

                    

                    

                    260,394Realized gain (loss) on marketable securities

                    

                    

                    148,777

                    

                    

                    (45,611

                    )Write-off of investment in convertible loan

                    

                    

                    (25,000

                    )

                    

                    –Other
                        (loss) income

                    

                    

                    (400

                    )

                    

                    14,232Total other income

                    

                    

                    372,430

                    

                    

                    229,015Loss
                        from continuing operations before income tax benefit

                    

                    

                    (221,293

                    )

                    

                    (811,684

                    )Income
                        tax benefit

                    

                    

                    182,469

                    

                    

                    –Loss
                        from continuing operations

                    

                    

                    (38,824

                    )

                    

                    (811,684

                    )Discontinued Operations:Gain on
                        the sale of the Jewish Directories (net of tax effect of 0 in 2007 and
                        2006)

                    

                    

                    267,360

                    

                    

                    767,939Loss
                        from operations of Jewish Directories

                    

                    

                    –

                    

                    

                    (75,129

                    )Loss
                        from operations of Shopila (net of tax effect of 0 in 2007 and
                        2006)

                    

                    

                    (260,240

                    )

                    

                    (55,239

                    )Income
                        from discontinued operations

                    

                    

                    7,120

                    

                    

                    637,571Net
                        loss

                    

                    $

                    (31,704

                    )

                    $

                    (174,113

                    )Basic
                        and diluted net income (loss) per common share outstandingContinuing operations

                    

                    $

                    (0.01

                    )

                    $

                    (0.25

                    )Discontinued operations

                    

                    

                    *

                    

                    $

                    0.20Net
                        loss per common share

                    

                    $

                    (0.01

                    )

                    $

                    (0.05

                    )Weighted average number of common shares
                        outstanding- Basic
                        and diluted

                    

                    

                    3,236,460

                    

                    

                    3,177,765* Less than $0.01 per share

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

            F - 5
            
            DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
            FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006


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

The accompanying notes are an integral part of these
            consolidated financial statements. F - 6    DAG MEDIA, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
            FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

            2007

                    

                    2006Cash
                        flows from operating activities:Net loss

                    

                    $

                    (31,704

                    )

                    $

                    (174,113

                    )Adjustments to reconcile net loss to net cash used in
                        operating activities -Gain on sale of Jewish Directories

                    

                    

                    (267,360

                    )

                    

                    (481,468

                    )Loss from discontinued operations of Shopila

                    

                    

                    260,240

                    

                    

                    55,239Depreciation and amortization

                    

                    

                    53,881

                    

                    

                    33,520Non cash compensation expense

                    

                    

                    156,926

                    

                    

                    305,848Write-off of investment in convertible loan

                    

                    

                    25,000

                    

                    

                    –Realized (gain) loss on sale of marketable
                        securities

                    

                    

                    (148,777

                    )

                    

                    45,611Loss (gain) on the sale of fixed assets

                    

                    

                    400

                    

                    

                    (14,232

                    )Changes in operating assets and liabilities net of effects
                        of disposition -Interest receivable on short term commercial
                        notes

                    

                    

                    (41,184

                    )

                    

                    –Other current and non current assets

                    

                    

                    21,507

                    

                    

                    (9,638

                    )Accounts payable and accrued expenses

                    

                    

                    (65,818

                    )

                    

                    108,424Deferred origination fees

                    

                    

                    4,597

                    

                    

                    –Due from purchasers

                    

                    

                    –

                    

                    

                    (125,047

                    )Income taxes payable

                    

                    

                    (341,681

                    )

                    

                    (25,652

                    )Assets and liabilities from discontinued
                        operations

                    

                    

                    (112,755

                    )

                    

                    (171,625

                    )Net cash used in operating activities

                    

                    

                    (486,728

                    )

                    

                    (453,133

                    )Cash
                        flows from investing activities:Investment in marketable securities and annuity
                        contract

                    

                    

                    (1,544,637

                    )

                    

                    (2,591,432

                    )Partial redemption of insurance annuity contract

                    

                    

                    214,360

                    

                    

                    –Proceeds from sale of marketable securities

                    

                    

                    2,814,495

                    

                    

                    2,628,275Short term commercial notes made

                    

                    

                    (4,927,250

                    )

                    

                    –Collection received from short term commercial
                        notes

                    

                    

                    614,039

                    

                    

                    –Investment in convertible loan

                    

                    

                    –

                    

                    

                    (25,000

                    )Acquisition of Shopila

                    

                    

                    –

                    

                    

                    (107,500

                    )Purchase of fixed assets

                    

                    

                    (3,215

                    )

                    

                    (18,729

                    )Proceeds from sale of fixed assets

                    

                    

                    500

                    

                    

                    9,213Capitalized web development costs

                    

                    

                    –

                    

                    

                    (22,429

                    )Cash received on sale of Jewish Directories, net of
                        expenses

                    

                    

                    309,223

                    

                    

                    309,971Net cash (used in) provided by investing
                        activities

                    

                    

                    (2,522,485

                    )

                    

                    182,369Cash
                        flows from financing activities:Proceeds from exercise of options

                    

                    

                    –

                    

                    

                    5,520Dividends paid

                    

                    

                    –

                    

                    

                    (314,246

                    )Net cash used in financing activities

                    

                    

                    –

                    

                    

                    (308,726

                    )Net
                        decrease in cash and cash equivalents

                    

                    

                    (3,009,213

                    )

                    

                    (579,490

                    )Cash
                        and cash equivalents, beginning of year

                    

                    

                    3,630,937

                    

                    

                    4,210,427Cash
                        and cash equivalents, end of year

                    

                    $

                    621,724

                    

                    $

                    3,630,937Supplemental Cash Flow Information:Taxes
                        paid during the year

                    

                    $

                    212,430

                    

                    $

                    25,535Common
                        stock issued to Ocean 7 and in regards to Shopila acquisition

                    

                    $

                    –

                    

                    $

                    151,100Capitalized software acquired through issuance of stock and
                        grant of options

                    

                    $

                    –

                    

                    $

                    47,400Acquisition of company :Liabilities assumed

                    

                    

                    –

                    

                    $

                    (140,000

                    )Goodwill and other intangibles

                    

                    

                    –

                    

                    

                    465,100Deferred tax liability

                    

                    

                    –

                    

                    

                    (67,600

                    )Minority interest

                    

                    

                    –

                    

                    

                    (79,500

                    )Less – Stock issued

                    

                    

                    –

                    

                    

                    (70,500

                    )Net cash paid

                    

                    $

                    –

                    

                    $

                    107,500The accompanying notes are an integral part of these
            consolidated financial statements.

            F - 7
            
            DAG MEDIA, INC. AND SUBSIDIARIESNOTES TO FINANCIAL STATEMENTS
            DECEMBER 31, 2007 AND 2006

            1.      The
            Company

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

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

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

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

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

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

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

            F - 8
            
            2.      Significant
            Accounting Policies

            Principles
            of Consolidation

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

            Use of
            Estimates

            The
            preparation of financial statements in conformity with generally accepted accounting
            principles in the United States of America requires management to make estimates and
            assumptions that affect the reported amounts of assets and liabilities and disclosure
            of contingent assets and liabilities at the date of the financial statements and the
            reported amounts of revenues and expenses during the reporting period. Management will
            base the use of estimates on (a) a preset number of assumptions that consider past
            experience, (b) future projections, and (c) general financial market condition. Actual
            amounts could differ from those estimates.

            Cash and
            Cash Equivalents

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

            Marketable
            Securities and Short Term Investment –Insurance Annuity
            Contract

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

            Property
            and Equipment

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

            Income
            Taxes

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

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

            F - 9
            
            Revenue
            Recognition

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

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

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

            Web
            Development Costs

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

            Earnings
            Per Share (“EPS”)

            Basic and
            diluted earnings per share are calculated in accordance with Statement of Financial
            Accounting Standards (“SFAS”) No. 128, “Earnings Per Share”.
            Under this standard, basic earnings per share is computed by dividing income available
            to common shareholders by the weighted-average number of common shares outstanding for
            the period. Diluted earnings per share include the potential dilution from the exercise
            of stock options and warrants for common shares using the treasury stock
            method.

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

            Impairment
            of long- lived assets including goodwill

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

            F - 10
            
            Stock-Based
            Compensation

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

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

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

            Concentrations
            of Credit Risk

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

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

            Fair
            Value of Financial Instruments

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

            Advertising
            Expenses

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

            F - 11
            
            Other
            Comprehensive Income (Loss)

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

            Recent
            Accounting Pronouncements

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

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

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

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

            F - 12
            
            Management
            does not believe that any other recently issued, but not yet effected, accounting
            standards if currently adopted would have a material effect on the Company’s
            consolidated financial statements.

            3.      Marketable
            Securities and Insurance Annuity Contract

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

            As of 12/31/2007

                    

                    

                    Fair Value

                    

                    

                    Cost

                    

                    

                    Holding Gains
                        (Losses)Insurance Annuity Contract

                    

                    $

                    931,555

                    

                    $

                    927,265

                    

                    $

                    4,290Marketable Securities

                    

                    

                    802,811

                    

                    

                    1,248,373

                    

                    

                    (445,562

                    )Total

                    

                    $

                    1,734,366

                    

                    $

                    2,175,638

                    

                    $

                    (441,272

                    )As of 12/31/2006

                    

                    

                    Fair Value

                    

                    

                    Cost

                    

                    

                    Holding Gains
                        (Losses)Insurance Annuity Contract

                    

                    $

                    1,116,350

                    

                    $

                    1,000,000

                    

                    $

                    116,350Marketable Securities

                    

                    

                    2,267,134

                    

                    

                    2,511,079

                    

                    

                    (243,945

                    )Total

                    

                    $

                    3,383,484

                    

                    $

                    3,511,079

                    

                    $

                    (127,595

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

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

            4.      Short term
            Commercial Notes

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

            F - 13
            
            At December
            31, 2007, approximately $1,620,000 of the notes outstanding are due from four different
            entities that have a principal in common. The notes are secured by commercial real
            estate located in New York metropolitan area. The remaining notes are also principally
            secured by real estate located in the New York metropolitan area.

            5.      Property and
            Equipment

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

            Office equipment

                    

                    $

                    20,744Less: accumulated depreciation

                    

                    

                    (6,483

                    )Property and
                        equipment, net

                    

                    $

                    14,261Depreciation
            expense was $4,537 and $8,848 for the years ended December 31, 2007 and 2006,
            respectively.

            6.      Income
            Taxes

            Deferred tax
            assets consist of the following:

            2007

                    

                    

                    2006Deferred tax assets:Unrealized loss on marketable
                        securities

                    

                    $

                    150,032

                    

                    $

                    43,382Compensation and web development
                        expenses

                    

                    

                    62,816

                    

                    

                    86,346Net operating loss

                    

                    

                    12,800

                    

                    

                    176,000Deferred tax assets

                    

                    

                    225,648

                    

                    

                    305,728Less: valuation allowance

                    

                    $

                    (225,648

                    )

                    $

                    (305,728

                    )–

                    

                    

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

            F - 14
            
            The income
            tax benefit differs from the amount computed using the federal statutory rate of 34% as
            a result of the following:

            Year Ended December 31,

                    

                    

                    2007

                    

                    

                    2006Federal Statutory Rate

                    

                    

                    (34

                    )%

                    

                    (34

                    )%State income taxes, net of federal tax
                        benefit

                    

                    

                    –

                    

                    

                    –Valuation allowance

                    

                    

                    34

                    %

                    

                    34

                    %Change in estimate resulting from changes
                        in prior years’ tax positions

                    

                    

                    (83

                    )%

                    

                    –Provision for income taxes

                    

                    

                    (83

                    )%

                    

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

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

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

            7.      Simple IRA
            Plan

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

            8.      Stock Option
            Plan

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

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

            F - 15
            
            We adopted
            SFAS 123(R) using the modified prospective transition method. Under this transition
            method, compensation cost in 2007 and 2006 includes cost for options granted prior to
            but not vested as of December 31, 2005, or vested in 2007 and 2006. Therefore results
            for prior periods have not been restated. Share based compensation expense recognized
            under SFAS 123(R) for the year ended December 31, 2007 and 2006 were $156,926 and
            $173,420, respectively.

            The
            following summarizes stock option activity for 2007:

            Number of
                        Shares

                    

                    

                    Weighted
                        Average
                        Exercise Price

                    

                    

                    Weighted
                        Average
                        Remaining
                        Contractual
                        Term (in
                        years)

                    

                    

                    Aggregate
                        Intrinsic
                        ValueOutstanding at December 31,
                        2006

                    

                    

                    578,000

                    

                    $

                    2.68Granted

                    

                    

                    96,000

                    

                    

                    1.67ExercisedForfeited

                    

                    

                    (64,000

                    )

                    

                    1.55Outstanding at December 31,
                        2007

                    

                    

                    610,000

                    

                    $

                    2.64

                    

                    

                    2.59

                    

                    $

                    774,998Vested and exercisable at December 31,
                        2007

                    

                    

                    484,666

                    

                    $

                    2.80

                    

                    

                    2.33

                    

                    $

                    631,506The
            weighted-average fair value of each option granted during the year ended December 31,
            2007 and 2006, estimated as of the grant date using the Black-Scholes option valuation
            model, was $0.94 per option and $1.37 per option, respectively.

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

            Number
                        of
                        Shares

                    

                    

                    Weighted
                        Average
                        Exercise
                        Price

                    

                    

                    Weighted Average
                        Remaining
                        Contractual Term
                        (in years)Nonvested shares at December 31,
                        2006

                    

                    

                    224,867

                    

                    $

                    2.32

                    

                    

                    4.20Granted

                    

                    

                    96,000

                    

                    

                    1.67

                    

                    

                    4.07Vested

                    

                    

                    (141,333

                    )

                    

                    2.45

                    

                    

                    3.40Forfeited

                    

                    

                    (54,200

                    )

                    

                    1.48

                    

                    

                    3.69Nonvested shares at December 31,
                        2007

                    

                    

                    125,334

                    

                    $

                    2.04

                    

                    

                    3.60F - 16
            
            The
            following table summarizes information about stock options outstanding at December 31,
            2007:

            Stock Option Outstanding

                    

                    ExercisableRange of Exercise Prices

                    

                    

                    Number
                        of
                        Shares

                    

                    

                    Weighted
                        Average
                        Exercise
                        Price

                    

                    

                    Weighted
                        Average
                        Remaining
                        Contractual
                        Term (in years)

                    

                    

                    Number
                        of Shares

                    

                    

                    Weighted
                        Average
                        Exercise
                        Price$1.00- $2.00

                    

                    

                    187,000

                    

                    $

                    1.73

                    

                    

                    2.82

                    

                    

                    136,333

                    

                    $

                    2.37$2.01- $3.00

                    

                    

                    220,000

                    

                    

                    2.29

                    

                    

                    3.16

                    

                    

                    145,333

                    

                    

                    2.29$3.01- $4.00

                    

                    

                    133,000

                    

                    

                    3.55

                    

                    

                    1.50

                    

                    

                    133,000

                    

                    

                    3.55$4.01- $5.00

                    

                    

                    70,000

                    

                    

                    4.47

                    

                    

                    2.25

                    

                    

                    70,000

                    

                    

                    4.47610,000

                    

                    $

                    2.64

                    

                    

                    2.59

                    

                    

                    484,666

                    

                    $

                    2.809.      Shareholders’
            Equity

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

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

            F - 17
            
            10.     Discontinued
            Operations

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

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

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

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

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

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

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

            F - 18
            
            11.     Commitments and
            Contingencies

            Operating
            Leases

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

            2008

                    

                    $

                    65,5432009

                    

                    

                    67,3122010

                    

                    

                    69,1342011

                    

                    

                    35,030Total

                    

                    $

                    237,019Rent expense
            was approximately $57,000 and $40,000 in 2007 and 2006, respectively.

            Employment
            Agreements

            In March
            1999, the Company entered into an employment agreement with Assaf Ran, its president
            and chief executive officer. Mr. Ran’s employment term initially renews
            automatically for successive one-year periods unless either party gives 180 days
            written notice of its intention to terminate the agreement. Under the agreement, Mr.
            Ran will receive an annual base salary of $75,000, annual bonuses as determined by the
            compensation committee of the Board of Directors in its sole and absolute discretion,
            and is eligible to participate in all executive benefit plans established and
            maintained by the Company. Under the agreement, Mr. Ran has also agreed to a one-year
            non-competition period following the termination of his employment. As of March 2003
            the compensation committee approved an increase in Mr. Ran’s compensation to an
            annual base salary of $225,000. On March 15, 2006 the compensation committee approved
            Mr. Ran’s reduction of his annual salary by 50% for one year following the
            closing of the sale of the Jewish directories business. On March 22, 2007 the
            compensation committee approved Mr. Ran’s reduction of his annual salary by 75%
            to $56,000 for one year or until the Company has more significant operations (as
            defined by the Committee), whichever is earlier. Mr. Ran’s annual compensation
            was $69,000 and $148,000 during the years 2007 and 2006, respectively.

            Contingencies

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

            F - 19
            
            In 2004,
            Neopost Leasing, Inc. commenced a collection action against Black Book Photography,
            Inc. (“BBP”), a former subsidiary of DAG Media, in the Civil Court of the
            State of New York, County of Queens, to recover $15,987 on an equipment lease for a
            certain postage meter or similar equipment sold to Brandera.com (USA) Inc., which in
            turn sold certain assets to BBP. The equipment was apparently in the office in
            Manhattan when BBP purchased the assets of the business from Brandera.com (USA) Inc. on
            August 2, 2002. The agreement governing that purchase provided, inter alia, that BBP
            would take title to any equipment and would assume “any contracts”. In
            connection with the later sale of DAG’s interest in BBP to Modern Holdings, Inc.
            it appears that DAG agreed to indemnify Modern as to this claim, and it remains a
            contingent liability of DAG’s accordingly. In light of the terms of the contract
            between Brandera.com (USA) Inc., there may be full liability on this claim. We have
            opposed the motion. We made a provision in the amount of $15,987 as of December 31,
            2006, which remains included in accounts payable and accrued expenses as of December
            31, 2007. The motion for summary judgment was withdrawn by the plaintiff and thus there
            was no decision on the motion. We expect that plaintiff will, at some point, place the
            case on the trial calendar.

            12.     Related Parties
            Transactions

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

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

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

            13.     Subsequent
            Event

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

            F - 20