Web
Development costs
Web development costs for the
nine
months ended
September
30, 2007
were $37,008
compared to $125,330
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
to
the
amortization of nextyellow.com web
development expenses.
Marketing
Expenses
Marketing expenses for the
nine months ended September 30, 2007 were $7,537 compared to $56,832 for the same
period in 2006.
These marketing expenses
are primarily attributable to the operation of nextyellow.com.
The decrease in marketing expenses is
due
to
management’s
decision to
reduce marketing activities
until
such time a
strategic partner or an investor
is found.
General
and Administrative Expenses
General and
administrative
expenses for the
nine
months ended
September
30, 2007
were $541,831
compared to $584,161
for the same period in 2006, a
decrease of $42,330, or
7.2%. This
decrease is primarily attributable to
a
decrease in
professional fees of
approximately
$42,000
due to decrease in legal expenses and
accounting expenses, a decrease in
shared based compensation expenses
of approximately $25,000 and a
decrease in public relations expenses of
approximately $18,000 mainly due to less filings made by the Company
in 2007, offset by an increase in
rental expenses of approximately $22,000
due to the new lease agreement
in
July 2006 and
an
increase in hosting and maintenance
expenses
of
the
nextyellow.com website of approximately
$18,000, 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.
Other
Income
For the
nine
month period ended
September
30, 2007, we had other income
mainly
consisting of dividend, interest and
realized gains of $230,224
compared
to other income of $111,342
for
the
nine
month period ended
September
30, 2006. The
increase is attributable primarily to the
fluctuation in performance of our portfolio and marketable securities
and
to the higher interest
rates.
Discontinued
Operations
On April 20, 2006, we completed the
sale of The Jewish Israeli Yellow Pages and The Jewish Master Guide (also known as the
Kosher Yellow Pages, referred to herein as the Jewish directory business), to
DAG-Jewish Directories, Inc., a buying entity that was established by a group of sales
agencies’ owners and a few of our employees. For the nine month period ended
September 30, 2007 we had other income in the amount of $194,444 which represents
installment payments from the sale of the directories, compared to a gain on the sale
of the Jewish directories business amounting to $605,589 for the nine month period
ended September 30, 2006, which includes net liabilities assumed and payments received,
net of professional fees.
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
-13
-
not repay its liabilities,
including a promissory note and a line of credit, and thus the Company wrote-off
Shopila’s liabilities.
As
of June 30, 2007, the Company
had written-off its goodwill and other intangible assets relating
to the acquisition of
Shopila.
Accordingly, the Company has
reflected Shopila’s operations as a discontinued operations 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 loss from discontinued operations for all periods presented.
Accordingly, we recorded a loss from discontinued operations totaling $259,089 for the
nine month period ended September 30, 2007.
The $259,089 loss for the nine month
period includes Shopila’s losses for the period in the amount of $59,020 and a
write-off of goodwill and other intangible assets in the amount of $449,057. 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 loss from discontinued
operations
for the nine month
period ended September 30, 2007 also 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.
Liquidity and Capital
Resources
At
September
30, 2007, we had cash and cash
equivalents, marketable securities and short term investments of
approximately
$4,300,000 and working capital of
$6,535,000 as compared to cash and cash equivalents, marketable securities and short
term investments of
$7,014,000 and
working capital of approximately $6,529,000
at
December 31, 2006. The decrease in cash
and cash equivalents and marketable securities primarily reflects the
loss from operations and issuance
of
short term notes of $2,489,000
which were
issued
by DAG Funding, offset by cash received
on
the
sale of Jewish directories business. The
decrease in working capital is primarily attributable to the operating losses
recognized during the
nine
month period ended
September
30, 2007.
Net cash used in operating
activities was $434,776 for the nine months ended September 30, 2007 compared to
$371,097 for the same period ended September 30, 2006.The increase in net cash used in
operating activities primarily results from the net loss, a decrease in accounts
payable and accrued expenses and amortization of deferred compensation, 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 $1,635,342 for the nine month period ended September 30, 2007 compared
to net cash provided by investing activities of $176,494 for the nine months ended
September 30, 2006. Net cash used in investing activities was primarily the result of
issuance of short term notes in the amount of $2,488,618 in 2007 and the investment in
marketable securities offset by the proceeds from the sales of marketable securities
and cash received from the sale of the Jewish Directories.
Net cash used in financing activities for the
nine
months ended
September
30, 2007 was
$0
compared to
$308,726
for the
same period
in 2006.
Net
cash used in financing activities
reflects
mainly
dividend payments of approximately
$314,000 in 2006.
-14
-
We have not entered into any off-balance sheet transactions, arrangements or other
relationships with unconsolidated entities or other persons that are likely to affect
liquidity or the availability of or requirements for capital resources.
We anticipate that our current cash balances will be sufficient to fund the maintenance
of our web sites as well as increases in our marketing and promotional activities for
the next 12 months. However, we expect our working capital requirements to increase
over the next 12 months as we continue to strive for growth.
Changes
to Critical Accounting Policies and Estimates
Effective January 1, 2007, we adopted Financial Accounting Standards Board
(“FASB”) 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. See
Note 5 for additional information regarding income taxes.
Our critical accounting polices and estimates are set forth in our Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2006.
Forward Looking
Statements
This report
contains forward-looking statements within the meaning
of
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 success
o
f our new business strategy;
(i
i)
potential acquisitions;
(iii
)
our limited operating history;
(
iv
) potential fluctuations in our quarterly operating results; (v) challenges facing us
relating to our growth; and (vi) our dependence on a limited number of suppliers. The
accompanying information contained in this report, including the information set forth
under
“
Management
’
s
Discussion and Analysis of Financial Condition and Results of
Operations
”
, identifies important factors that could cause such differences. These forward-looking
statements speak only as of the date of this report, and we caution potential investors
not to place undue reliance on such statements. We undertake no obligation to update or
revise any forward-looking statements. All subsequent written or oral forward-looking
statements attributable to us or persons acting on our behalf are expressly qualified
in their entirety by the Cautionary Statements.
