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EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - CTM MEDIA HOLDINGS, INC.f10q0411ex31i_ctm.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - CTM MEDIA HOLDINGS, INC.f10q0411ex32i_ctm.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - CTM MEDIA HOLDINGS, INC.f10q0411ex31ii_ctm.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - CTM MEDIA HOLDINGS, INC.f10q0411ex32ii_ctm.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 

 
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2011
 
or
 
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 000-53718
 

 
CTM MEDIA HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)


 
 
Delaware
 
26-4831346
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
     
11 Largo Drive South, Stamford, Connecticut
 
06907
(Address of principal executive offices)
 
(Zip Code)
 
(203) 323-5161
(Registrant’s telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ¨   No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   ¨
Accelerated filer                      ¨
Non-accelerated filer     ¨ (Do not check if a smaller reporting company)
Smaller reporting company   x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨     No   x
 
As of June 14, 2011, the registrant had the following shares outstanding:
 
Class A common stock, $0.01 par value:
1,106,468 shares outstanding (excluding 178,517 treasury shares)
Class B common stock, $0.01 par value:
6,126,322 shares outstanding (excluding 797,183 treasury shares)
Class C common stock, $0.01 par value:
1,090,775 shares outstanding
 
 
 

 
 
 

 

 
 
 
CTM MEDIA HOLDINGS, INC.
 
TABLE OF CONTENTS
 
   
PART I. FINANCIAL INFORMATION
       3
     
Item 1.
Financial Statements
       3
     
 
Condensed Consolidated Balance Sheets  as of April 30, 2011 (unaudited) and July 31, 2010
       3
     
 
Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended April 30, 2011 and 2010
       4
     
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the three and nine months ended April 30, 2011 and 2010
       5
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
       6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
      11
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
      17
     
Item 4.
Controls and Procedures
      17
     
PART II. OTHER INFORMATION
18
     
Item 1.
Legal Proceedings
 18
     
Item 1A.
Risk Factors
       18
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 18
     
Item 3.
Defaults Upon Senior Securities
      18
     
Item 4.
Removed and Reserved
       18
     
Item 5.
Other Information
       18
     
Item 6.
Exhibits
       18
   
SIGNATURES
       19
 

 
 
2

 
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
 
CTM MEDIA HOLDINGS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(in thousands)
 
April 30,
2011
   
July 31,
2010
 
   
(Unaudited)
   
(Note 1)
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
5,681
   
$
6,516
 
Short term investment
   
1,033
     
 1,030
 
Trade accounts receivable, net of allowance for doubtful accounts of  $708 and $778 at April 30, 2011 and July 31,2010, respectively
   
3,290
     
 3,496
 
Inventory
   
1,732
     
 1,462
 
Prepaid expenses
   
856
     
 965
 
Note receivable – current portion
   
225
     
321
 
Total current assets
   
12,817
     
 13,790
 
Property and equipment, net
   
2,029
     
2,013
 
Note receivable – non-current portion
   
2,175
     
2,400
 
Other assets
   
231
     
 198
 
Total assets
 
$
17, 252
   
$
18,401
 
Liabilities and equity
               
Current liabilities:
               
Trade accounts payable
 
$
1,026
   
1,187
 
Accrued expenses
   
1,423
     
1,539
 
Deferred revenue
   
1,549
     
2,035
 
Due to IDT Corporation
   
23
     
38
 
Income tax payable
   
426
     
770
 
Capital lease obligations—current portion
   
233
     
227
 
Other current liabilities
   
1,009
     
646
 
Total current liabilities
   
5,689
     
 6,442
 
  Capital lease obligations—long-term portion
   
348
     
286
 
Total Liabilities
   
6,037
     
6,728
 
Commitments and contingencies
   
-
     
-
 
Stockholders’ Equity:
               
CTM Media Holdings, Inc.  stockholders’ equity :
               
Preferred stock, $0.01 par value; authorized shares—500 and 10,000 shares April 30, 2011 and July 31, 2010, respectively; no shares issued
   
-
     
-
 
Class A common stock, $0.01 par value; authorized shares—6,000 and 35,000 shares at April 30, 2011 and July 31, 2010, respectively; 1,285 shares issued and 1,106 shares outstanding at April 30, 2011 and July 31, 2010
   
 13
     
13
 
Class B common stock, $0.01 par value; authorized shares—12,000 and 65,000 shares at April 30, 2011 and  July 31, 2010, respectively; 6,924 shares issued and 6,126 shares outstanding at April 30, 2011 and July 31, 2010
   
 69
     
69
 
Class C common stock, $0.01 par value; authorized shares—2,500 and 15,000 shares at April 30, 2011 and July 31, 2010, respectively; 1,091 shares issued and outstanding at April 30, 2011 and July 31, 2010
   
 11
     
11
 
Additional paid-in capital
   
57,388
     
58,548
 
Treasury Stock, at cost, consisting of 179 shares of shares of Class A and 797 shares of Class B at April 30, 2011 and July 31, 2010
   
(1,070
)
   
(1,070
)
Accumulated other comprehensive income
   
191
     
 117
 
    Accumulated deficit
   
(45,833
)
   
(46,235
)
Total CTM Media Holdings, Inc. stockholders’ equity
   
10,769
     
11,453
 
    Non-controlling interests
   
446
     
220
 
Total stockholders’ equity
   
11,215
     
11,673
 
Total liabilities and stockholders’ equity
 
$
17,252
   
$
18,401
 
 
See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
CTM MEDIA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
   
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
(in thousands, except per share data)
 
2011
   
2010
   
2011
   
2010
 
                         
  Revenues
 
$
6,791
   
$
6,832
     
23,117
   
$
21,431
 
  Costs and expenses:
                               
Direct cost of revenues (exclusive of depreciation and amortization)
   
3,446
     
3,605
     
10,919
     
10,587
 
Selling, general and administrative (i)
   
3,650
     
3,651
     
11,250
     
10,368
 
Depreciation and amortization
   
200
     
197
     
544
     
653
 
Bad debt
   
(15
)    
36
     
69
     
91
 
  Total costs and expenses
   
7,281
     
7,489
     
22,782
     
21,699
 
  (Loss) income from operations
   
(490
)
   
(657
)
   
335
     
(268
)
  Interest income (expense), net
   
15
     
(15
)
   
43
     
(73
)
  Other income (expense), net
   
3
     
(156
   
3
     
(160
)
  (Loss) income from continuing operations before income taxes
   
(472
)
   
(828
)
   
381
     
      (501
)
  Benefit from (provision for) income taxes
   
348
     
49
     
264
     
(74
)
  (Loss) income from continuing operations
   
(124
)
   
(779
)
   
645
     
(575
)
  Discontinued operations net of tax: (Note 2)
                               
  Loss from discontinued operations
   
-
     
(316
)
   
-
     
(570
)
  Net (loss) income
   
(124
)
   
(1,095
)
   
645
     
(1,145
)
  Less – net (loss) income attributable to non-controlling interests
   
 40
     
(36)
     
243
     
115
 
  Net (loss) income attributable to CTM Media Holdings, Inc.
   
(164
)
 
$
(1,059
)
   
402
   
$
(1,260
)
  Amounts Attributable to CTM Media Holdings, Inc. common stockholders:
                               
  (Loss) income from continuing operations
   
(164
)
   
(743
)
   
402
     
(690
)
  Loss from discontinued operations
   
-
     
(316
)
   
-
     
(570
)
Net (loss) income attributable to CTM Media Holdings, Inc.
   
(164
)
 
$
(1,059
)
   
402
   
$
(1,260
)
 Basic and diluted income (loss)  per share  attributable to CTM Media Holdings, Inc. common stockholders:
                       
Income (Loss) from continuing operations
  $ (0.02 )   $ (0.13 )   $ 0.05     $ (0.11 )
Loss from discontinued operations
  $ -     $ (0.05 )   $ -     $ (0.09 )
Net (loss) income
  $ (0.02 )   $ (0.18 )   $ 0.05     $ (0.20 )
  Weighted-average number of shares used in calculation of basic and diluted loss (income) per share:
    8,323       5,834       8,323       6,304  
Dividend declared per common share:
  $ 0.06       0.25     $ 0.18       0.25  
  (i)   Stock-based compensation included in selling, general and
         administrative expenses
    113       113       339       245  
 
See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
  CTM MEDIA HOLDINGS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine months ended April 30,
(in thousands)
 
2011
   
2010
 
Operating activities
           
Net income (loss)
 
$
645
   
$
(1,145
)
Adjustments to reconcile net income (loss) to net cash provided by  operating activities:
               
Loss from discontinued operations
   
-
     
570
 
Depreciation and amortization
   
544
     
653
 
Provision for doubtful accounts receivable
   
69
     
91
 
Stock-based compensation
   
339
     
245
 
Change in assets and liabilities:
               
Trade accounts receivable
   
143
     
1,184
 
Inventory,  prepaid, and other assets
   
(193
)    
68
 
Trade accounts payable, accrued expenses, and other current liabilities
   
(215
)    
163
 
Deferred revenue
   
(486
)    
41
 
Net cash provided by operating activities
   
846
     
1,870
 
Investing activities:
               
Capital expenditures
   
(260
)    
(320
)
    Purchase of IDW non-controlling interests
   
-
     
(414
)
    Payments received on note for sale of assets
   
300
     
-
 
Net Cash provided by (used in) investing activities
   
40
     
(734
)
Financing activities:
               
Distributions to holders of non-controlling interests
   
(17
)    
(435
)
Funding provided by IDT Corporation, net
   
-
     
2,372
 
Repurchase of Class A and Class B common stock
   
-
     
(1,070
)
Repayments of capital lease obligations
   
(205
)    
(186
)
Dividends paid
   
(1,499
)    
 (2,082
Net cash used in financing activities
   
(1,721
)    
(1,401
Discontinued operations:
               
Net cash used in operating activities
   
-
     
(412
)
Net cash used in investing activities
   
-
     
(3
)
Net cash used in discontinued operations
   
-
     
(415
)
Net decrease  in cash and cash equivalents
   
(835
)    
(680
)
Cash and cash equivalents at beginning of period
   
6,516
     
6,480
 
Cash and cash equivalents at end of period
 
$
5,681
   
$
5,800
 
Supplemental schedule of non cash  investing and financing activities
               
Cash paid for interest
 
$
21
   
$
18
 
Purchases of property and equipment through capital lease obligations
 
$
267
   
$
-
 
 
The effect of exchange rate changes on cash and cash equivalents is not material.
 
See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
CTM MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1—Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of CTM Media Holdings, Inc. and its subsidiaries (the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended April 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2011. The balance sheet at July 31, 2010 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2010, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
 
The Company’s fiscal year ends on July 31. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2011 refers to the fiscal year ending July 31, 2011).
  
The Company consists of the following principal businesses:
 
 
CTM Media Group (“CTM”), the Company’s brochure distribution company and other advertising-based product initiatives focused on small to medium sized businesses; and
 
 
The Company’s majority interest in Idea and Design Works, LLC (“IDW”), which is a comic book and graphic novel publisher that creates and licenses intellectual property.
 
The Company was formerly a subsidiary of IDT Corporation (“IDT Corporation” or “IDT”) formed on May 8, 2009. On September 14, 2009, the Company was spun-off by IDT to its stockholders and became an independent public company (the “Spin-Off”). IDT transferred its ownership in all of the entities that became the Company’s consolidated subsidiaries prior to the Spin-Off. The entities that became direct or indirect subsidiaries of the Company are: CTM; Beltway Acquisition Corporation; IDT Local Media, Inc. and IDT Internet Mobile Group, Inc. (“IIMG”). IIMG owns approximately 77% of the equity interests in IDW. All indebtedness owed by any of these entities to IDT Corporation or its affiliates was converted into a capital contribution.  All references to the Company, its assets and results of operations for periods prior to the actual formation of the Company, refer to the subsidiaries of IDT that are now owned by the Company, and their consolidated assets and results of operations.

The Company’s authorized capital stock, upon the Spin-Off, consisted of (a) 35 million shares of Class A common stock, (b) 65 million shares of Class B common stock, (c) 15 million shares of Class C common stock, and (d) 10 million shares of Preferred Stock, each par value $0.01 per share. IDT Corporation completed the Spin-Off through a pro rata distribution of the Company’s common stock to IDT Corporation’s stockholders of record as of the close of business on August 3, 2009 (the “record date”). As a result of the Spin-Off, each of IDT Corporation’s stockholders received: (i) one share of the Company’s Class A common stock for every three shares of IDT Corporation’s common stock held on the record date; (ii) one share of the Company’s Class B common stock for every three shares of IDT Corporation’s Class B common stock held on the record date; (iii) one share of the Company’s Class C common stock for every three shares of the IDT Corporation’s Class A common stock held on the record date; and (iv) cash in lieu of a fractional share of all classes of the Company’s common stock. On September 14, 2009, as a result of the Spin-Off, the Company had 1.3 million shares of Class A common stock, 5.1 million shares of Class B common stock and 1.1 million shares of Class C common stock issued and outstanding.

On December 20, 2010 the Company’s authorized shares of: (i) Class A common stock was reduced from 35,000,000 shares to 6,000,000 shares; (ii) Class B common stock was reduced from 65,000,000 shares to 12,000,000 shares; (iii) Class C common stock was reduced from 15,000,000 shares to 2,500,000 shares; and (iv) Preferred Stock was reduced from 10,000,000 shares to 500,000 shares, each par value $0.01 per share.  The amendment was authorized by the Company’s Board of Directors on October 19, 2010, and approved on November 12, 2010 by the Written Consent of the holders of shares representing approximately 50.1%, 58%, and 100% of the Company’s outstanding Class A common stock, Class B common stock and Class C common stock, respectively and approximately 84% of the combined voting power of the Company’s outstanding capital stock.

 
6

 
 
Note 2—Discontinued Operations
 
Sale of assets of WMET Radio

On May 5, 2010, the Company consummated the sale of substantially all of the assets used in the WMET radio station business (other than working capital). WMET 1160 AM is a radio station serving the Washington, D.C. metropolitan area.  The sale price for the WMET assets was $4 million in a combination of cash and a promissory note of the buyer that is secured by the assets sold.  $1.3 million of the purchase price was paid in cash at the closing and the remainder is owed pursuant to a two-year promissory note, which is extendable in part to three years at the option of the buyer. The sale met the criteria to be reported as a discontinued operation in the third quarter of fiscal 2010 and accordingly, WMET’s results are classified as part of discontinued operations during the fiscal year 2010.
 
Summary Financial Data of Discontinued Operations

Revenues and loss (in thousands) before income taxes of WMET, which are included in discontinued operations, were as follows:
 
   
Three Months Ended
April 30,
   
Nine Months Ended  
April 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenue
 
$
-
   
$
56
   
$
-
   
$
407
 
Loss before income taxes and net loss
 
$
-
   
$
(316
)
 
$
-
   
$
(570
)

There were no assets or liabilities of WMET included in discontinued operations as of April 30, 2011 and July 31, 2010.
 
Note 3—Earnings Per Share
 
Basic earnings per share is computed by dividing net income (loss) attributable to all classes of common stockholders by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include non-vested restricted stock using the treasury stock method, unless the effect of such increase is anti-dilutive. In calculating the weighted average shares used for calculating earnings per share, unvested restricted stocks issued by the Company to its founder and chairman were treated as if they were fully diluted as these shares carry voting rights and are entitled to dividends and enjoy all other rights and privileges as the other shares.
 
 
7

 
 
Note 4—Equity
 
Changes in the components of equity  were as follows:
 
   
Nine Months Ended
April 30, 2011
 
   
Attributable to the Company
   
Non-controlling Interests
   
Total
 
   
(in thousands)
 
Balance, July 31, 2010
 
$
11,453
   
$
220
   
$
11,673
 
Stock based compensation
   
339
     
-
     
339
 
Cash distributions
   
-
     
(17
)
   
(17
)
Cash dividends
   
(1,499
)
   
-
     
(1,499
)
Comprehensive income:
                       
             Net income
   
402
     
243
     
645
 
             Other comprehensive  income
   
74
     
-
     
74
 
             Comprehensive income
   
476
     
243
     
719
 
Balance, April 30, 2011
 
$
10,769
   
$
446
   
$
11,215
 

As part of the Spin-Off, holders of restricted stock of IDT Corporation received, in respect of those restricted shares, one share of the Company’s Class A common stock for every three restricted shares of common stock of IDT Corporation that they owned as of the record date of the Spin-Off and one share of the Company’s Class B common stock for every three restricted shares of Class B common stock of IDT Corporation that they owned as of the record date of the Spin-Off. Those particular shares of the Company’s stock are restricted under the same terms as the corresponding IDT Corporation restricted shares in respect of which they were issued. Upon completion of the Spin-Off on September 14, 2009, there were 0.3 million shares of Class A unvested restricted stock and 0.5 million shares of Class B unvested restricted stock.

On September 3, 2009, the Company’s Compensation Committee ratified the Company’s 2009 Stock Option and Incentive Plan (the “Company’s Stock Option and Incentive Plan”), which was previously adopted by the Company’s Board of Directors and approved by IDT Corporation as the Company’s sole stockholder, to provide incentives to executive officers, employees, directors and consultants of the Company and/or its subsidiaries. The maximum number of shares of the Company’s Class B common stock reserved for the grant of awards under the Company’s Stock Option and Incentive Plan is 383,020, subject to adjustment. Incentives available under the Company’s Stock Option and Incentive Plan may include stock options, stock appreciation rights, limited stock appreciation rights, restricted stock, and deferred stock units.
 
Under the Company’s Stock Option and Incentive Plan, the option price of each option award shall not be less than one hundred percent of the fair market value of the Company’s Class B common stock on the date of grant. Each option agreement shall provide the exercise schedule for the option as determined by the Compensation Committee. The exercise period will be ten years from the date of the grant of the option unless otherwise determined by the Compensation Committee. No awards have been granted under the Company’s Stock Option and Incentive Plan to date.

On October 14, 2009, the Company’s Board of Directors granted its Chairman and founder, Howard S. Jonas, 1.8 million restricted shares of the Company’s Class B common stock with a value of $1.25 million on the date of grant in lieu of a cash base salary for five years period from October 14, 2009 through October 14, 2014. The restricted shares will vest in equal thirds on each of October 14, 2011, October 14, 2012 and October 14, 2013. Unvested shares would be forfeited if the Company terminates Mr. Jonas’ employment other than under circumstances where accelerated vesting applies. The shares are subject to adjustments or acceleration based on certain corporate transactions, changes in capitalization, or termination, death or disability of Mr. Jonas. If Mr. Jonas is terminated by the Company for cause, a pro rata portion of the shares would vest and the remainder would be forfeited. This arrangement did not impact Mr. Jonas’ cash compensation from the date of the Spin-Off through the pay period including the grant date. Total unrecognized compensation cost on the grant date was $1.25 million. The unrecognized compensation cost has been and is expected to continue to be recognized over the vesting period from October 14, 2009 through October 14, 2014. The unrecognized compensation cost as of April 30, 2011 was $554,000.
 
 
8

 
 
Note 5—Stock Repurchase and Cash Dividends

On November 17, 2009, the Company commenced a tender offer to purchase up to thirty percent of its outstanding common stock. The Company offered to purchase up to 0.4 million shares of its Class A common stock and up to 2.4 million shares of its Class B common stock, at a price per share of $1.10. The offer expired on December 22, 2009 and pursuant to the offer, the Company repurchased 0.2 million shares of Class A common stock and 0.8 million shares of Class B common stock for an aggregate purchase price of $1.1 million, representing approximately 14% of its total outstanding capital stock at the time.
  
The Company paid a cash dividend in the amount of $0.25 per share (approximately $2.1 million in the aggregate), $0.06 per share (approximately $0.5 million in the aggregate), and $0.12 per share (approximately $1.0 million in the aggregate), on March 15, 2010, June 15, 2010 and November 9, 2010, respectively, to stockholders of record as of March 8, 2010, May 3, 2010 and November 1, 2010, respectively, of the Company’s Class A, Class B and Class C common stock.
 
On October 19, 2010, the Company’s Board of Directors approved the payment of regular quarterly dividends in the amount of $0.06 per share, subject to confirmation by the Company’s management that there is sufficient surplus as of the proposed future payment dates and other circumstances existing at the relevant times. This amount was paid during the second quarter of fiscal 2011.

On February 22, 2011, the Board of Directors, in light of the Company’s cash position, declared the payment of a cash dividend in the amount of $0.06 per share (approximately $500,000 in the aggregate). The Company’s management confirmed there being sufficient surplus and on March 17, 2001, the dividend was paid to stockholders of record as of March 8, 2011 of the Company’s Class A, Class B and Class C common stock.  

On June 13, 2011, the Board of Directors, in light of the Company’s cash position, declared the payment of a cash dividend in the amount of $0.06 per share (approximately $0.5 million in the aggregate) which, subject to confirmation by the Company’s management that there is sufficient surplus as of the proposed payment date, will be paid on or about July 7, 2011 to stockholders of record as of June 28, 2011 of the Company’s Class A common stock, Class B common stock and Class C common stock.

In addition, on February 22, 2011 the Board of Directors approved the buyback of up to 1 million shares of either the Company’s Class A common stock or Class B common stock.  Any purchases will be made in compliance with applicable regulations. To date, no shares have been purchased since the buyback was approved.

Note 6—Comprehensive Income (Loss)
 
Comprehensive income (loss) consists of net income (loss) and other gains and losses affecting equity that, under generally accepted accounting principles are excluded from net income. Changes in the components of other comprehensive income (loss) are described below.
 
  
 
Three Months Ended
April 30,
   
Nine Months Ended
April 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
(in thousands)
   
(in thousands)
 
Net (loss) income
 
$
(124
)
 
$
(1,095
)
 
$
645
   
$
(1,145
)
Foreign currency translation adjustments
   
26
     
(10
)
   
74
     
(11
Comprehensive (loss) income
   
(98
)
   
(1,105
)
   
719
     
(1,156
)
Comprehensive (loss) income attributable to non-controlling interests
   
40
     
(36
)
   
243
     
115
 
Comprehensive (loss) income attributable to CTM Media Holdings, Inc.   $
(138
  $ (1069   $ 476     $ (1,271

  
 
9

 
 
Note 7—Business Segment Information
 
The Company has the following reportable business segments: CTM and IDW. CTM consists of our brochure distribution company and other advertising-based new product initiatives focused on small to medium sized businesses. IDW is a comic book and graphic novel publisher that creates and licenses original intellectual property.  The Company owns 76.665% of IDW.
  
The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s management.
 
The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments based primarily on operating income (loss).

Operating results for the business segments of the Company are as follows:
 
(in thousands)
 
CTM
   
IDW
   
Total
 
Three months ended April 30, 2011
                 
Revenues
 
$
3,714
   
$
3,077
   
$
6,791
 
(Loss) income from operations
   
(657
)
   
167
     
(490
)
Depreciation and amortization
   
195
     
5
     
200
 
Total assets at April 30, 2011
   
10,371
     
6,881
     
17,252
 
Three months ended April 30, 2010
                       
Revenues
 
$
4,051
   
$
2,781
   
$
6,832
 
(Loss) from operations
   
(343
)
   
(314
)
   
(657
)
Depreciation and amortization
   
186
     
11
     
197
 
Total assets at April 30, 2010 (i)
   
7,269
     
6,584
     
16,189
 
Nine months ended April 30, 2011
                       
Revenues
 
$
12,754
   
$
10,363
   
$
23,117
 
(Loss) income from operations
   
(689
)
   
1,024
     
335
 
Depreciation and amortization
   
518
     
26
     
544
 
Nine months ended April 30, 2010
                       
Revenues
 
$
12,890
   
$
8,541
   
$
21,431
 
Income (loss) from operations
   
44
     
(312
   
(268
)
Depreciation and amortization
   
586
     
67
     
653
 

(i)  
The Total column includes assets of WMET.

Note 8— Income Taxes
 
Income tax expense decreased in the three and nine months ended April 30, 2011 compared to the similar period in fiscal 2010 due to decreases in state and local and foreign income tax expense which was partially offset by an increase in US Alternative Minimum Tax expense. State and local income tax expense decreased in the three and nine months ended April 30, 2011 compared to the similar periods in fiscal 2010 due to the utilization of Net Operating Losses (NOL’s) that were not available in the prior periods and the release of accrued tax liability due to the expiration of the statute of limitation. Our foreign income tax expense results from income generated by our foreign subsidiaries that cannot be offset against losses of our other subsidiaries.
 
Note 9— Recently Issued Accounting Standards
 
The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded that no new standards were issued this quarter that applied to the Company.
 
In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which is included in the ASC Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements.  ASU 2010-06 also requires disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques.  Except for otherwise provided, ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of this standard did not have a material effect on the Company’s financial statements.

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-09”), which is included in ASC Topic 855 (Subsequent Events).  ASU 2010-09 clarifies that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued.  ASU 2010-09 was effective upon the issuance of the final update and did not have any impact on the Company’s financial statements.
 
 
10

 
Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following information should be read in conjunction with the accompanying condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2010, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
 
In accordance with Item 10-(f)(2)(ii) of Regulation S-K, we qualify as a “smaller reporting company” because our public float was below $75 million, calculated based on the actual share price on January 29, 2010, the last business day of our second fiscal quarter in fiscal 2010, and the aggregate number of shares distributed to non-affiliates. We therefore followed the disclosure requirements of Regulation S-K applicable to smaller reporting companies in this Quarterly Report on Form 10-Q.
 
As used below, unless the context otherwise requires, the terms “the Company,” “we,” “us,” and “our” refer to CTM Media Holdings, Inc., a Delaware corporation, and our subsidiaries.
 
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2010. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the fiscal year ended July 31, 2010.
 
OVERVIEW

We are a former subsidiary of IDT Corporation. As a result of the Spin-Off, on September 14, 2009, we became an independent public company. IDT Corporation continues to provide certain functions pursuant to a Master Services Agreement, dated September 14, 2009. During the nine months ended April 30, 2011 and 2010, our selling, general and administrative expenses included $122,000 and $500,000, respectively, for all services and allocated expenses charged by IDT Corporation to us. At April 30, 2011 and July 31, 2010 the amount owed to IDT Corporation was $23,000 and $38,000, respectively.
 
On November 17, 2009, the Company commenced a tender offer to purchase up to thirty percent of its outstanding common stock. The Company concluded the tender offer and repurchased 0.2 million shares of Class A common stock and 0.8 million shares of Class B common stock for an aggregate purchase price of $1.1 million, representing approximately 14% of its total outstanding capital stock at the time.

On May 5, 2010, the Company consummated the sale of substantially all of the assets used in the WMET radio station business (other than working capital). WMET 1160 AM is a radio station serving the Washington, D.C. metropolitan area.  The sale price for the WMET assets was $4 million in a combination of cash and a promissory note of the buyer that is secured by the assets sold.  $1.3 million of the purchase price was paid in cash at the closing and the remainder is owed pursuant to a two-year promissory note, which is extendable in part to three years at the option of the buyer. The sale met the criteria to be reported as a discontinued operation in the third quarter of fiscal 2010 and accordingly, WMET’s results are classified as part of discontinued operations during the fiscal year 2010.
 
Our principal businesses consist of:
 
 
CTM Media Group (“CTM”), our brochure distribution company and other advertising-based new product initiatives focused on small to medium sized businesses; and
 
 
Our majority interest in Idea and Design Works, LLC (“IDW”), which is a comic book and graphic novel publisher that creates and licenses intellectual property.
 
CTM

CTM develops and distributes print and mobile-based advertising and information in targeted tourist markets. Throughout its operating region, CTM operates four integrated and complimentary business lines: Brochure Distribution, Publishing, Right Card™, and Digital Distribution. CTM had operated its Design & Print business, which it exited in the US and converted into a commission based print referral business model at the beginning of the fourth quarter of fiscal 2010.  CTM offers its customers a comprehensive media marketing approach through these business lines. In fiscal 2011, CTM has been servicing over 2,600 clients and has been maintaining more than 11,000 display stations in over 28 states, territories and provinces in the United States (including Puerto Rico) and Canada. CTM’s display stations are located in travel, tourism and entertainment venues, including hotels and other lodgings, corporate and community venues, transportation terminals and hubs, tourist attractions and entertainment venues. CTM’s revenues represented 55.2% and 60.1% of our consolidated revenues in the nine months ended April 30, 2011 and 2010, respectively.
 
 
11

 
 
IDW

IDW is a comic book and graphic novel publisher that creates and licenses intellectual property. IDW’s revenues represented 44.8% and 39.9% of our consolidated revenues in the nine months ended April 30, 2011 and 2010, respectively.
 
On November 5, 2009 we purchased an additional 23.335% interest in IDW for a purchase price of $0.4 million. As a result of the transaction, we own a 76.665% interest in IDW.

REPORTABLE SEGMENTS
 
We have the following two reportable business segments: CTM and IDW.
 
PRESENTATION OF FINANCIAL INFORMATION
 
Basis of presentation
The condensed consolidated financial statements for the periods reflect our financial position, results of operations, and cash flows as if the current structure existed for all periods presented. The financial statements have been prepared using the historical basis for the assets and liabilities and results of operations.
 
CRITICAL ACCOUNTING POLICIES
 
Our condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2010. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts and intangible assets with indefinite useful lives and valuation of long-lived assets including intangible assets with finite useful lives. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal 2010.
 
RESULTS OF OPERATIONS

We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations. Also, we did not include a separate discussion of WMET’s results of operation since the operations were not significant.
 
Three and Nine months ended April 30, 2011 Compared to Three and Nine months ended April 30, 2010
 
Consolidated
 
(in thousands)
 
Three months ended April 30,
   
Change
   
Nine months ended April 30,
   
Change
 
   
2011
   
2010
   
$
     
%
     
2011
     
2010
   
$
     
%
 
Revenues
                                                       
CTM
 
$
3,714
   
$
4,051
   
$
(337
   
(8.3
 
$
12,754
   
$
12,890
   
$
(136
   
(1.1
)
IDW
   
3,077
     
2,781
     
296
   
10.6 
     
10,363
     
8,541
     
1,822
     
21.3
 
Total revenues
 
$
6,791
   
$
6,832
   
$
(41
   
    ( 0.6
 
$
23,117
   
$
21,431
   
$
1,686
     
7.9
 
 
Revenues. The decrease in consolidated revenues in the three months ended April 30, 2011 compared to the similar period in fiscal 2010 was primarily due to a decline in CTM’s revenues which were partially offset by an increase in IDW’s revenues.  CTM’s revenues during the three months ended April 30, 2011 decreased when compared to the similar period in fiscal 2010 due to decreases in distribution revenues and printing revenues, which business we exited in the US and converted into a commission based print referral model in the fourth quarter of fiscal 2010. CTM’s revenues decreased for the nine month period ended April 30, 2011 principally due to the decrease in print revenues. The increase in IDW’s revenues was primarily due to a net increase in publishing revenues, digital publishing revenues, and royalty income.
 
(in thousands)
 
Three Months ended April 30,
   
Change
   
Nine months ended April 30,
 
Change
 
   
2011
   
2010
   
$
   
%
   
2011
   
2010
   
$
   
%
 
Costs and expenses
                                                       
Direct cost of revenues
 
$
3,446
   
$
3,605
   
$
 (159
   
(4.4
)
 
$
10,919
   
$
10,587
   
$
332
     
3.1
 
Selling, general and administrative
   
3,650
     
3,651
     
(1
   
0.0
     
11,250
     
10,368
     
882
     
8.5
 
Depreciation and amortization
   
200
     
197
     
3
     
1.5
     
544
     
653
     
(109
   
(16.7
)
Bad debt expense
   
(15
)    
36
     
(51
)    
(141.7
)
   
69
     
91
     
(22
   
(24.2
                                                                 
Total costs and expenses
 
$
7,281
   
$
7,489
   
$
(208
   
(2.8
)
 
$
22,782
   
$
21,699
   
$
1,083
     
5.0
 
 
 
12

 
 
Direct Cost of Revenues. Consolidated direct cost of revenues increased during the nine month period ended April 30, 2011 compared to the similar period in fiscal 2010. This was a result of an increase in direct cost of revenues at our IDW segment which was partially offset by a decrease in direct cost of revenues at our CTM segment. The decrease in direct cost of revenues at our CTM segment for the nine months ended April 30, 2011 compared to the similar period in fiscal 2010 was directly attributable to the corresponding decrease in its revenues, principally print revenue related. The increase in IDW’s direct cost of revenues during the nine months ended April 30, 2011 compared to the similar period in fiscal 2010 was principally as a result the corresponding increase in its related revenues. Overall consolidated direct cost of revenues declined during the three month period ended April 30, 2011 compared to the similar period in fiscal 2010 primarily due to a decreases in direct cost of revenues at our CTM and IDW segments. Overall gross margin increased to 49.3% and 52.8% in the three and nine months ended April 30, 2011 respectively, from 47.2% and 50.6% in the three and nine months ended April 30, 2010 respectively. This increase was a result of an increase in overall gross margins at our CTM and IDW segments
 
Selling, General and Administrative. The increase in selling, general and administrative expenses in the nine months ended April 30, 2011 compared to the similar periods in fiscal 2010 was primarily due to an increase in the selling, general and administrative expenses of CTM which were partially offset by a decline in selling, general and administrative expenses of IDW. CTM’s selling, general and administrative expenses increased in the three and nine months ended April 30, 2011 compared to the similar periods in fiscal 2010 due to an increase in payroll costs, distribution stand location rents, advertising and professional fees. IDW’s selling, general and administrative expenses declined marginally due to a decline in administrative and occupancy costs. Total selling, general and administrative expenses associated with operating as a publicly traded company were $102,000 and $450,000 for the three and nine months ended April 30, 2011.
 
As a percentage of total revenues, selling, general and administrative expenses decreased to 53.7% in the three months ended April 30, 2011 from 53.4% in the similar period in fiscal 2010 and increased to 48.7% for the nine months ended April 30, 2011 from 48.4% in the similar period in fiscal 2010.
 
On October 14, 2009, our Board of Directors granted our Chairman and founder, Howard S. Jonas, 1.8 million restricted shares of our Class B common stock with a value of $1.25 million on the date of grant in lieu of a cash base salary for the five year period from October 14, 2009 through October 14, 2014. The restricted shares will vest in equal thirds on each of October 14, 2011, October 14, 2012 and October 14, 2013. Unvested shares would be forfeited if we terminate Mr. Jonas’ employment other than under circumstances where the accelerated vesting applies. The shares are subject to adjustments or acceleration based on certain corporate transactions, changes in capitalization, or termination, death or disability of Mr. Jonas. If Mr. Jonas is terminated by us for cause, a pro rata portion of the shares would vest. This arrangement does not impact Mr. Jonas’ cash compensation from the date of the Spin-Off through the pay period including the grant date. Total unrecognized compensation cost on the grant date was $1.25 million. The unrecognized compensation cost is expected to be recognized over the vesting period from October 14, 2009 through October 14, 2014.  The related stock-based compensation related to this grant was $113,000 and $339,000 for the three and nine months ended April 30, 2011, respectively.
 
Bad Debt Expense. The decrease in bad debt expense in the three and nine months ended April 30, 2011 was due primarily to a decrease in bad debt expense at our CTM segment.
 
(in thousands)
 
Three Months ended
April 30,
   
Change
   
Nine Months ended
April 30,
   
Change
 
   
2011
   
2010
   
$
   
%
     
2011
   
2010
   
$
   
%
 
(Loss) income from operations
 
$
(490
)  
$
(657
)
 
$
167
     
25.4
   
$
335
   
$
(268
)  
$
603
     
225.0
 
Interest income (expense)
   
15
     
(15
)    
30
     
200.0
     
43
     
(73
   
116
     
158.9
 
Other income (expense)
   
3
     
(156
)    
159
     
101.9
     
3
     
(160
)    
163
     
101.9
 
Benefit from (provision for) income taxes
   
348
     
49
     
299
     
610.2
     
264
     
(74
)
   
338
     
456.8
 
Loss related to discontinued operations
   
-
     
(316
)
   
316
     
100.0
     
-
     
(570
)
   
570
     
100.0
 
Net (loss) income
   
(124
)    
(1,095
)
   
971
     
88.7
     
645
     
(1,145
)
   
    1,790
     
156.3
 
     Less: Net (loss) income attributable to non - controlling interest
   
40
     
(36
)    
76
     
211.1
     
243
     
115
     
128
     
111.3
 
Net (loss) income attributable to CTM Media Holdings, Inc.
 
$
(164
)
 
$
(1,059
)
 
$
895
     
84.5
   
$
402
   
$
(1,260
)
 
$
1,662
     
131.9
 
 
Income Taxes. Income tax expense decreased in the three and nine months ended April 30, 2011 compared to the similar period in fiscal 2010 due to decreases in state and local and foreign income tax expense, which was partially offset by an increase in US Alternative Minimum Tax expense. State and local income tax expense decreased in the three and nine months ended April 30, 2011 compared to the similar periods in fiscal 2010 due to the utilization of Net Operating Losses (NOLs) that were not available in the prior periods and the release of accrued tax liability due to the expiration of the statute of limitations. Our foreign income tax expense results from income generated by our foreign subsidiaries that cannot be offset against losses of our other subsidiaries.
 
We and IDT entered into a Tax Separation Agreement, dated as of September 14, 2009, to provide for certain tax matters including the assignment of responsibility for the preparation and filing of tax returns, the payment of and indemnification for taxes, entitlement to tax refunds and the prosecution and defense of any tax controversies. Pursuant to this agreement, IDT must indemnify us from all liability for taxes of ours and our subsidiaries for periods ending on or before September 14, 2009, and we must indemnify IDT from all liability for taxes of ours and our subsidiaries accruing after September 14, 2009. Also, for periods ending on or before September 14, 2009, IDT shall have the right to control the conduct of any audit, examination or other proceeding brought by a taxing authority. We shall have the right to participate jointly in any proceeding that may affect our tax liability unless IDT has indemnified us. Finally, we and our subsidiaries agreed not to carry back any net operating losses, capital losses or credits for any taxable period ending after September 14, 2009 to a taxable period ending on or before September 14, 2009 unless required by applicable law, in which case any refund of taxes attributable to such carry back shall be for the account of IDT.
 
 
13

 
 
Income (loss) attributable to non controlling interests. On November 5, 2009, we purchased an additional 23.335% non-controlling interest in IDW for a purchase price of $0.4 million in cash. As a result of the transaction, we own a 76.665% interest in IDW.
 
CTM
 
(in thousands)
 
Three months ended
April 30,
   
Change
   
Nine Months ended
April 30,
   
Change
 
   
2011
   
2010
   
$
     
%
     
2011
     
2010
   
$
     
%
 
Revenues
 
$
3,714
   
$
4,051
   
$
(337
)
   
(8.3
)
 
$
12,754
   
$
12,890
   
$
(136
)
   
(1.1
)
Direct cost of revenues
   
1,566
     
1,714
     
(148
)
   
(8.6
)
   
4,709
     
5,090
     
(381
)
   
(7.5
)
Selling, general and administrative
   
2,625
     
2,458
     
167
     
6.8
     
8,147
     
7,080
     
1,067
     
15.1
 
Depreciation and amortization
   
195
     
187
     
8
     
4.3
     
518
     
586
     
(68)
     
(11.6
Bad debt expense
   
    (16
)
   
          36
     
(52
)
 
(144.4 
)
   
69
     
91
     
(22
)
 
(24.2 
)
(Loss) income from operations
 
$
(656
)
 
$
(344
)
 
$
(312
)
 
90.7 
   
$
(689
)
 
$
43
   
$
(732
)
 
(1,702.3 
)

Revenues. The decrease in CTM's revenues in the three and nine months ended April 30, 2011 compared to the similar periods in fiscal 2010 was primarily due to decreases in distribution revenues and printing revenues. Distribution revenues declined principally due to our US operations. Printing revenues declined due to our exit from the printing business in the US and conversion into a commission based print referral model during the third quarter of fiscal 2010.

Direct Cost of Revenues. Direct cost of revenues consists primarily of distribution and fulfillment payroll, warehouse and vehicle distribution expenses and print expenses. The direct cost of revenues decreased in the three months and nine months ended April 30, 2011 compared to the similar periods in fiscal 2010. The decline is primarily on account of decreases in direct cost of printing revenues associated with our exit in the US and conversion of our printing business to a commission based model during the third quarter of fiscal 2010.  These decreases were partially offset by increases in direct costs of Right Card™ and publishing revenues.
 
CTM’s gross margin percentage increased in the three and nine months ended April 30, 2011 to 57.8% and 63.1%, respectively, compared to 57.7% and 60.5% in the similar periods in fiscal 2010. Gross Margins increased as a result of significant decreases in our direct cost of sales compared to declines in related revenues and the exiting of our unprofitable printing business in the third quarter of fiscal 2010.
 
Selling, General and Administrative. Selling, general and administrative expenses consist primarily of payroll and related benefits, facilities costs and insurance. Selling, general and administrative expenses increased in the three and nine months ended April 30, 2011 as compared to the similar periods in fiscal 2010 primarily due to marginal increases in advertising costs, offsite staff training costs, and facilities rent costs. Total selling, general and administrative expenses for these costs associated with operating as a publicly traded company were $102,000 and $450,000 for the three and nine months ended April 30, 2011. As a percentage of CTM’s aggregate revenues, selling, general and administrative expenses increased to 70.7% and 63.9% in the three and nine months ended April 30, 2011 from 60.7% and 54.9% in the similar periods in fiscal 2010.

 
 
14

 

IDW
 
(in thousands)
 
Three Months ended
April 30,
   
Change
   
Nine Months ended
April 30,
   
Change
 
   
2011
   
2010
   
$
     
%
     
2011
     
2010
   
$
     
%
 
  Revenues
 
$
3,077
   
$
2,782
   
$
295
     
10.6
   
$
10,363
   
$
8,541
   
$
1,822
     
21.3
 
Direct cost of revenues
   
1,880
     
1,892
     
(12
)
   
(0.6
)
   
6,209
     
5,498
     
711
     
12.9
 
  Selling, general and administrative
   
1,025
     
1,193
     
(168
)
   
(14.1
)
   
3,104
     
3,288
     
(184
)
   
(5.6
)
  Depreciation and amortization
   
5
     
11
     
(6
)  
(54.5 
)
   
26
     
67
     
(41
)
 
(61.2 
)
  Income from operations
 
$
167
   
$
(314
)
 
$
481
   
153.2 
   
$
1,024
   
$
(312
)
 
$
1,336
   
428.2 
 
 
Revenues. IDW’s revenues increased in the three and nine months ended April 30, 2011 as compared to the similar periods in fiscal 2010. The increase in IDW’s revenues as compared to the similar periods in fiscal 2010 was primarily due increases in publishing revenues and digital publishing revenues which were partially offset by decreases in creative services revenue and licensing revenues.  Publishing revenues increased owing to better titles offered, change in product mix, and achievement of “Premier Publisher Status” in the market. Digital publishing revenues continued to increase due to the greater application of digital equipment leading to an increase in digital publishing revenues. Decreases in Creative Services Revenue and Licensing Revenues were on account of certain special titles and contracts in the prior year which were not present in the comparable periods of fiscal 2011.
 
In an effort to increase availability of versions of its content at retail outlets, IDW has entered into a number of digital distribution agreements during the period, and IDW’s publications are currently available for purchase via mobile devices, primarily iPhones/iPod Touch/iPad. IDW titles are also available direct-to-desktop via several websites and are available on Sony’s PSP and PSP Go.
 
Direct Cost of Revenues. Direct cost of revenues consists primarily of printing expenses and costs of artists and writers. Direct cost of revenues in the three months ended April 30, 2011 as compared to the similar period in fiscal 2010 slightly decreased as a result of decrease in cost of merchandise sold, writers’ and artists’ fees, which were partially offset by an increase in royalty expenses and printing costs. The increase in direct cost of revenues in the nine months ended April 30, 2011 as compared to the similar period in fiscal 2010 was principally attributable to the increase in revenues.
 
IDW’s aggregate gross margin increased in the three month period to 38.9% from 32.0% and increased to 40.1% from 35.6% in the nine  month period ended April 30, 2011. The increase in the gross margins was primarily attributable to increased publishing revenues and lower print costs .
 
Selling, General and Administrative. Selling, general and administrative expenses in the three and nine months ended April 30, 2011 decreased as compared to the similar periods in fiscal 2010. The decrease in Selling, general and administrative expenses was principally on account of a decrease in personnel costs which were partially offset by an increase in marketing costs. As a percentage of IDW’s aggregate revenues, selling, general and administrative expenses decreased in the three and nine months ended April 30, 2011 to 33.3% and 30.0%, respectively, from 42.9% and 38.5% in the similar periods in fiscal 2010, as revenues increased  while selling, general and administrative expenses declined.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Historically, we satisfied our cash requirements primarily through cash provided by CTM’s operating activities and funding from IDT.
 
(in thousands)
 
Nine months ended April 30,
 
   
2011
   
2010(i)
 
Cash flows provided by (used in):
           
Operating activities
 
$
846
   
$
1,870
 
Investing activities
   
40
     
(734
)
Financing activities
   
(1,721
)
   
(1,401
)
Decrease  in cash and cash equivalents from continuing operations
 
$
(835
)  
$
(265
Discontinued operations
   
-
     
(415
)
Decrease  in cash and cash equivalents
   
(835
)    
(680
)
 
(i)  
Excludes cash flows from discontinued operations
 
 
15

 
 
Operating Activities. Our cash flow from operations varies from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Cash flows provided by operating activities based on these factors were $846,000 and $1,870,000 for the nine months ended April 30, 2011 and 2010, respectively.

Investing Activities. Our capital expenditures were $260,000 and $320,000 during the nine months ended April 30, 2011 and 2010, respectively. During the nine months ended 2011 we also received $300,000 payments on notes receivable related to sale of WMET during fiscal 2010. During the nine months ended April 30, 2010 we paid $414,000 towards acquiring additional interests in IDW. We currently anticipate that total capital expenditures for all of our divisions in fiscal 2011 will be approximately $300,000. We expect to fund our capital expenditures with our cash, cash equivalents and short term investments on hand.

Financing Activities. During the nine months ended April 30, 2011, we did not receive any financing from IDT Corporation. During the periods presented though the September 14, 2009 Spin-Off, IDT Corporation provided us with the required liquidity to fund our working capital requirements and investments for some of our businesses. We used any excess cash provided by our operations to repay IDT. In the three months ended October 31, 2009, IDT Corporation provided cash to us of $2,400,000. In September 2009, the amount due to IDT Corporation of $25.3 million was converted into a capital contribution.
 
During the nine months ended April 30, 2011 and 2010, we distributed cash to the non-controlling shareholders of IDW in the amount of $17,000 and $435,000, respectively. We also paid dividends of $1,498,000 and $2,082,000 during the nine months ended April 30, 2011 and 2010, respectively.
 
We repaid capital lease obligations of $205,000 and $186,000 in each of the nine months ended April 30, 2011 and 2010, respectively.

CHANGES IN TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
Gross trade accounts receivable decreased to $3,998,000 at April 30, 2011 compared to $4,274,000 at July 31, 2010. The allowance for doubtful accounts as a percentage of gross trade accounts receivable marginally decreased to 17.7% at April 30, 2011 compared to 18.2% at July 31, 2010.
 
Other Sources and Uses of Resources
 
We intend to, where appropriate, make strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses, to add qualitatively to the range of businesses in our portfolio and to achieve operational synergies. Historically, such acquisitions have not exceeded $500,000, with the average acquisition being less than $100,000 If we were to pursue an acquisition in excess of $500,000 we would likely need to secure financing arrangements. At this time, we cannot guarantee that we will be presented with acquisition opportunities that meet our return on investment criteria, or that our efforts to make acquisitions that meet our criteria will be successful. 

In addition, we will utilize approximately $2,000,000 annually to pay the regular quarterly dividends in the amount of $0.06 per share, subject to confirmation by our management that there is sufficient surplus as of the proposed future payment dates and other circumstances existing at the relevant times.

Historically, we satisfied our cash requirements primarily through cash provided by CTM’s operating activities and prior to our separation from IDT, funding from IDT Corporation. The conversion of our balance due to IDT Corporation into a capital contribution in September 2009 significantly improved our working capital balance. We do not currently have any material debt obligations. With the exit of certain lines of businesses within CTM, we expect that our operations in fiscal 2011 and the balance of cash, cash equivalents and short term investment that we held as of April 30, 2011, will be sufficient to meet our currently anticipated working capital and capital expenditure requirements, capital lease obligations, make limited acquisitions and investments, pay the currently announced and any future declared dividends and fund any potential operating cash flow deficits within any of our segments for at least the next twelve months. In addition, we anticipate that our expected cash balances, as well as cash flows from our operations, will be sufficient to meet our long-term liquidity needs. The foregoing is based on a number of assumptions, including that we will collect our receivables, effectively manage our working capital requirements, and maintain our revenue levels and liquidity. Predicting these matters is particularly difficult in the current worldwide economic situation and overall decline in consumer demand. Failure to generate sufficient revenues and operating income could have a material adverse effect on our results of operations, financial condition and cash flows.
 
 
16

 
 
 
FOREIGN CURRENCY RISK
 
Revenues from our international operations represented 7.8% and 7.5% of our consolidated revenues for the nine months ended April 30, 2011 and 2010, respectively. A significant portion of these revenues is in currencies other than the U.S. Dollar, primarily Canadian dollars. Our foreign currency exchange risk is somewhat mitigated by our ability to offset the majority of these non-U.S. Dollar-denominated revenues with operating expenses that are paid in the same currencies. While the impact from fluctuations in foreign exchange rates affects our revenues and expenses denominated in foreign currencies, the net amount of our exposure to foreign currency exchange rate changes at the end of each reporting period is generally not material.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
 
RECENTLY ADOPTED ACCOUNTING STANDARDS

The Financial Accounting Standards Board (“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting and reporting. We have reviewed the recently issued pronouncements and concluded that no new standards were issued this fiscal quarter that applied to the Company.
 
In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which is included in the ASC Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements.  ASU 2010-06 also requires disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques.  Except for otherwise provided, ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of this standard did not have a material effect on the Company’s financial statements.

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-09”), which is included in ASC Topic 855 (Subsequent Events).  ASU 2010-09 clarifies that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued.  ASU 2010-09 was effective upon the issuance of the final update and did not have a significant impact on the Company’s financial statements.
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risks
 
Smaller reporting companies are not required to provide the information required by this item.
 
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of April 30, 2011, our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) and concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting during the nine months ended April 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 

 
17

 

 
   PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
None
 
Item 1A. Risk Factors.
 
There are no material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the year ended July 31, 2010.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None
 
Item 3. Defaults Upon Senior Securities.
 
None

Item 4. Removed and Reserved
 
 Item 5.   Other Information
 
None
 
Item 6. Exhibits, Financial Statement Schedules.
 
Exhibit
Number
 
Description
     
31.1*
 
Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
31.2*
 
Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
32.1*
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
     
32.2*
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
 
 *
Filed herewith.
 
 

 
 
18

 

 

 
Signatures

Pursuant to the requirements 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.
 
     
 
CTM Media Holdings, Inc.
     
June 14, 2011
By:
/s/    Marc E. Knoller        
   
Marc E. Knoller
Chief Executive Officer and President
     
June 14, 2011
By:
/s/    Leslie B. Rozner        
   
Leslie B. Rozner
Chief Financial Officer, Treasurer and Secretary
 
 
 
 
19