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.
CTM MEDIA HOLDINGS, INC.
CTM MEDIA HOLDINGS, INC.
See accompanying notes to condensed consolidated financial statements.
The effect of exchange rate changes on cash and cash equivalents is not material.
See accompanying notes to condensed consolidated financial statements.
CTM MEDIA HOLDINGS, INC.
The accompanying unaudited condensed consolidated financial statements of CTM Media Holdings, Inc. and its subsidiaries (the “Company” or “Holdings”) 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 principally of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended JanuaryOctober 31, 2010 are not necessarily indicative of the results that may be expectedexp ected for the fiscal year ending July 31, 2010.2011. The balance sheet at July 31, 20092010 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, 2009,2010, as filed with the U.S. Securities and Exchange Commission (the “SEC”).
The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 20102011 refers to the fiscal year ending July 31, 2010)2011).
The CompanyHoldings was formerly a subsidiary of IDT Corporation (“IDT Corporation” or “IDT”) formed on May 8, 2009. On September 14, 2009, the CompanyHoldings 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’sHoldings’ consolidated subsidiaries to Holdings prior to the Spin-Off. The entities that became direct or indirect subsidiaries of the CompanyHoldings are: CTM; Beltway Acquisition Corporation; IDT Local Media, Inc. (which conducted certain operations related to CTM with only the Local Pull business currently still active) and IDT Internet Mobile Group, Inc. (“IIMG”). IIMG ownshad owned approximately 77%53% of the equity interests in IDW (see Note 10 forIDW. On November 5, 2009, the purchase ofCompany purchased an additional 23.33 5% interest in IDW).IDW for a purchase price of $0.4 million in cash. As a result of the transaction, the Company owns a 76.665% interest in IDW. The acquisition was accounted for in the second quarter of fiscal 2010, as an equity transaction, in accordance with the accounting standards on non-controlling interests. All indebtedness owed by any of these entities to IDT Corporation or its affiliates was converted into a capital contribution.contribution prior to the Spin-Off. 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’sHoldings’ authorized capital stock currently consists 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. IDT Corporation completed the Spin-Off through a pro rata distribution of the Company’sHoldings 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’sHoldings’ 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’sHoldings’ 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’sHoldings’ 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 from IDT Corporation in lieu of a fractional share of all classes of the Company’sHoldings’ common stock. On September 14, 2009, as a result of the Spin-Off, the CompanyHolding’s 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 October 19, 2010, the Company’s Board of Directors passed resolutions to amend (the “Amendment”) the Company’s Second Restated Certificate of Incorporation to decrease the authorized number of shares of (i) Class A common stock from 35 million shares to 6 million shares, (ii) Class B common stock from 65 million shares to 12 million shares, (iii) Class C common stock from 15 million shares to 2.5 million shares, and (iv) Preferred Stock from 10 million shares to 500,000 shares. The Amendment was approved on November 12, 2010, by written consent of the holders of a majority of the shares of each class of the Company’s outstanding capital stock, holding shares of the Company’s common stock (which included 560,234 shares of Class A common stock, 3,573,472 shares of Class B common sto ck and 1,090,775 shares of Class C common stock which are convertible into shares of Class A common stock on a 1-for-1 basis), representing approximately 50.1%, 58%, and 100%, respectively of the combined voting power of the Company’s outstanding Class A, Class B and Class C common stock, as of October 29, 2010. An Information Statement disclosing the Amendment and its approval was mailed to stockholders on or about November 29, 2010 and the Amendment will become effective on December 20, 2010, which is at least twenty days after mailing of the Information Statement.
Prior to the Spin-Off, IDT Corporation provided certain services to the entities that became Holdings’ consolidated subsidiaries. Holdings and IDT Corporation entered into a Master Services Agreement, dated September 14, 2009, pursuant to which IDT Corporation continues to provide to Holdings, among other things, certain administrative and other services. In addition, pursuant to the Master Services Agreement, IDT Corporation provides certain additional services to Holdings, on an interim basis. Such services include assistance with periodic reports required to be filed with the SEC, as well as maintaining minutes, books and records of meetings of the Board of Directors, Audit Committee and Compensation Committee, as well as assistance with corporate governance. The cost of these additional services are not included in Holdings’ historical results of operations for the period prior to the Spin-Off, as they were not applicable for periods that Holdings was not a separate public company.
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 millions) before income taxes of WMET, which are included in discontinued operations, were as follows:
| | | Three Months Ended October 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
Revenue | | $ | — | | | $ | 0.2 | |
| Loss before income taxes and net loss | | | — | | | | (0.1 | ) |
There were no assets or liabilities of WMET included in discontinued operations as of October 31, 2010 or July 31, 2010.
Note 3—Stock Repurchase and Cash Dividend
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 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.
In addition, on October 19, 2010, our Board of Directors approved the payment of 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.
The declaration of any future dividend will be at the discretion of the Company’s Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination by the Company’s Board of Directors that dividends are in the best interest of the Company’s stockholders.
Note 4—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.
For the three and six months ended January 31, 2009 and 2010, the diluted earnings per share equal basic earnings per share because the Company had losses from operations. The following securities have been excluded from the dilutive earnings per share computations because their inclusion would have been anti-dilutive:
| | | January 31, | |
| | | 2010 | | | 2009 | |
| | | (in thousands) | |
| Non-vested restricted stock | | | 2,495 | | | | 831 | |
The earnings per share for the periods prior to the Spin-Off were calculated as if the number of shares outstanding at the Spin-Off were outstanding during those periods.
Note 3—5—Equity (deficit)
Changes in the components of stockholders’ equity (deficit) were as follows:
| | | Six Months Ended January 31, 2010 | |
| | | Attributable to the company | | | Noncontrolling Interests | | | Total | |
| | | (in thousands) | |
Balance, July 31, 2009 | | $ | (14,218 | ) | | $ | 1,967 | | | $ | (12,251 | ) |
| | | | | | | | | | | | | |
Cash contribution and capitalization of balance due to IDT Corporation | | | 27,293 | | | | — | | | | 27,293 | |
Stock based compensation | | | 131 | | | | — | | | | 131 | |
| Repurchases of common stock and Class B common stock | | | (1,070 | ) | | | — | | | | (1,070 | ) |
Partial acquisition of noncontrolling interest | | | 431 | | | | (845 | ) | | | (414 | ) |
Cash distributions | | | — | | | | (435 | ) | | | (435 | ) |
Net (loss) income | | | (201 | ) | | | 151 | | | | (50 | ) |
| | | | | | | | | | | | | |
Balance, January 31, 2010 | | $ | 12,366 | | | $ | 838 | | | $ | 13,204 | |
| | | | | | | | | | | | | |
On August 1, 2009, the Company adopted the accounting standard relating to noncontrolling interests in consolidated financial statements (see Note 11).| | | Three Months Ended October 31,2010 | |
| | | Attributable to Holdings | | | Non-controlling Interests | | | Total | |
| | | (in thousands) | |
| Balance, July 31, 2010 | | $ | 11,453 | | | $ | 220 | | | $ | 11,673 | |
| | | | | | | | | | | | | |
| Stock based compensation | | | 112 | | | | — | | | | 112 | |
Cash distributions | | | — | | | | (12 | ) | | | (12 | ) |
Cash dividends | | | (999 | ) | | | — | | | | (999 | ) |
| Comprehensive income: | | | | | | | | | | | | |
Net income | | | 710 | | | | 87 | | | | 797 | |
Other comprehensive income | | | 32 | | | | — | | | | 32 | |
| | | | | | | | | | | | | |
Comprehensive income | | | 742 | | | | 87 | | | | 829 | |
| | | | | | | | | | | | | |
| Balance, October 31, 2010 | | $ | 11,308 | | | $ | 295 | | | $ | 11,603 | |
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.s tock.
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 the next five years. The restricted shares will vest in equal thirds on each of October 14, 2011, October 14, 2012 and October 14, 2013. 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.
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 itsthe 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 shall beis 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,sto ck, 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 November 17,October 14, 2009, the Company commenced a tender offer to purchase up to thirty percentCompany’s Board of Directors granted its outstandingChairman 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 the next five years. 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’s terminates Mr. Jonas’ employment other than under circumstances where accelerated vesting applies. The shares are subject to adjustments or acceleration based on December 3, 2009, revisedcertain corporate transactions, changes in capitalization, or termination, death or disability of Mr. Jonas. If Mr. Jonas is terminated by the numberCompany for cause, a pro rata portion of the shares it offered to purchase pursuant to,would vest and extended the expirationremainder would be forfeited. This arrangement did not impact Mr. Jonas’ cash compensation from the date of the tender offer. On December 17,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 the Company further extended the expiration date of the tender offer. through October 14, 2014.
The Company offered to purchase up to 0.4repurchased $1.1 million shares of its Class A common stock, or any lesser number of Class A shares that stockholders properly tender in the tender offer, and up to 2.4 million shares of its Class B common stock or any lesser number of Class B shares that stockholders properly tender in the second quarter ended January 31, 2010 in connection with the tender offer representing up to thirty percent of its total outstanding capital stock, at a price per share of $1.10, for a maximum aggregate purchase price of $3.1 million. The tender offer was made upon the terms and conditions set forth in the Offer to Purchase dated November 17, 2009, and the related Letter of Transmittal, each as amended and supplemented, which have been filed with the SEC and were made available to the Company’s stockholders. The offerthat expired at 5:00 p.m., New York City time, on Tuesday, December 22, 2009. As a result, 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. Following the tender offer, the Company had approximately 1.1 million shares of its Class A common stock, 6.1 million shares of its Class B common stock and 1.1 million shares of its Class C common stock outstanding.
Note 4—6—Comprehensive LossIncome
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 January 31, | | | Six Months Ended January 31, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | (in thousands) | | | (in thousands) | |
Net loss | | $ | (725 | ) | | $ | (32,239 | ) | | $ | (50 | ) | | $ | (32,402 | ) |
Foreign currency translation adjustments | | | (5 | ) | | | (20 | ) | | | - | | | | (82 | ) |
Comprehensive loss | | | (730 | ) | | | (32,259 | ) | | | (50 | ) | | | (32,484 | ) |
Comprehensive loss (income) attributable to noncontrolling interests | | | 6 | | | | 888 | | | | (151 | ) | | | 736 | |
Comprehensive loss attributable to CTM Media Holdings, Inc. | | $ | (724 | ) | | | (31,371 | ) | | $ | (201 | ) | | $ | (31,748 | ) |
| | | Three Months Ended October 31, | |
| | | 2010 | | | 2009 | |
| | | (in thousands) | |
| Net income | | $ | 797 | | | $ | 676 | |
| Foreign currency translation adjustments | | | 32 | | | | 5 | |
| Comprehensive income | | | 829 | | | | 681 | |
| Comprehensive income attributable to non-controlling interests | | | (87 | ) | | | (158 | ) |
| Comprehensive income attributable to CTM Media Holdings, Inc. | | $ | 742 | | | $ | 523 | |
Note 5—7—Business Segment Information
The Company has the following two reportable business segments: CTM IDW and WMET.IDW. CTM consists of ourthe Company’s 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. WMET-AM operates a radio station in the Washington, D.C. metropolitan area.
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 chief operating decision maker.
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).income. There are no other significant asymmetrical allocations to segments.
Operating results for the business segments of the Company are as follows:
| (in thousands) | | CTM | | | IDW | | | Total | |
| Three months ended October 31, 2010 | | | | | | | | | |
Revenues | | $ | 5,029 | | | $ | 3,620 | | | $ | 8,649 | |
Operating income | | | 495 | | | | 362 | | | | 857 | |
Depreciation and amortization | | | 159 | | | | 12 | | | | 171 | |
Total assets at October 31, 2010 | | $ | 17,522 | | | $ | 937 | | | $ | 18,459 | |
Three months ended October 31, 2009 (i) | | | | | | | | | | | | |
Revenues | | $ | 4,915 | | | $ | 3,318 | | | $ | 8,233 | |
Operating income | | | 763 | | | | 308 | | | | 1,071 | |
Depreciation and amortization | | | 197 | | | | 31 | | | | 228 | |
Total assets at October 31, 2009 | | $ | 11,556 | | | $ | 6,537 | | | $ | 18,093 | |
(i) Amounts for 2009 exclude assets and discontinued operations of WMET.
Note 8—Provision for Income Taxes
| | | | | | | | | | | | | |
| (in thousands) | | CTM | | | IDW | | | WMET | | | Total | |
| Three months ended January 31, 2010 | | | | | | | | | | | | |
| Revenues | | $ | 3,924 | | | $ | 2,441 | | | $ | 149 | | | $ | 6,514 | |
| Operating loss | | | (375 | ) | | | (306 | ) | | | (121 | ) | | | (802 | ) |
| Depreciation and amortization | | | 203 | | | | 25 | | | | 45 | | | | 273 | |
| Total assets at January 31, 2010 | | | 9,918 | | | | 6,547 | | | | 2,741 | | | | 19,206 | |
| Three months ended January 31, 2009 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 4,578 | | | $ | 2,375 | | | $ | 291 | | | $ | 7,244 | |
| Operating income(loss) | | | (30,079 | ) | | | (1,931 | ) | | | (234 | ) | | | (32,244 | ) |
| Depreciation and amortization | | | 198 | | | | 67 | | | | 126 | | | | 391 | |
| Impairment and severance charges | | | 29,831 | | | | 1,806 | | | | 60 | | | | 31,697 | |
| Total assets at January 31, 2009 | | | 7,729 | | | | 4,843 | | | | 4,182 | | | | 16,754 | |
| Six months ended January 31, 2010 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 8,839 | | | $ | 5,759 | | | $ | 351 | | | $ | 14,949 | |
| Operating income (loss) | | | 387 | | | | 1 | | | | (251 | ) | | | 137 | |
| Depreciation and amortization | | | 399 | | | | 57 | | | | 91 | | | | 547 | |
| Six months ended January 31, 2009 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 10,367 | | | $ | 5,325 | | | $ | 609 | | | $ | 16,301 | |
| Operating loss | | | (30,192 | ) | | | (1,618 | ) | | | (411 | ) | | | (32,221 | ) |
| Depreciation and amortization | | | 408 | | | | 151 | | | | 252 | | | | 811 | |
| Impairment and severance charges | | | 30,226 | | | | 1,825 | | | | 61 | | | | 32,112 | |
Note 6—CommitmentsProvision for income taxes for the three months ended October 31, 2010 and Contingencies
2009 was $68,000 and $238,000 respectively. The Companydecrease is subjectdue to legal proceedings that have arisenthe reduction in the ordinary course of businessprovisions for federal, state and have not been finally adjudicated. Although there can be no assurance in this regard,foreign income taxes. The reduction in the opinion of the Company’s management, none of the legal proceedingsprovision for federal and state income taxes amounts to which the Company$120,000 and is a party will have a material adverse effect on the Company’s results of operations, cash flows or its financial condition.
Note 7—Related Party Transaction
Priorrelated to the Spin-Off, IDT Corporation, the Company’s former parent company, charged the Company for certain transactionsutilization of tax benefits that were created in periods subsequent to October 31, 2009. The reduction in foreign tax expense amounts to $50,000 and allocated routine expenses based on company specific itemsis proportional to the entities that became the Company’s consolidated subsidiaries. The Company and IDT Corporation entered into a Master Services Agreement, dated September 14, 2009, pursuant to which IDT Corporation will continue to provide to the Company, among other things, certain administrative and other services. In addition, pursuant to the Master Services Agreement, IDT Corporation will provide certain additional services to the Company, on an interim basis. Such services include assistance with periodic reports required to be filed with the SEC, as well as maintaining minutes, books and records of meetings of the Board of Directors, Audit Committee and Compensation Committee, as well as assistance with corporate governance. The cost of these additional services are not includedreduction in foreign earnings in the Company’s historical results of operations for the period prior to the Spin-Off, as they were not applicable for periods that the Company was not a separate public company. In the three and six months ended January 31, 2010, the Company’s selling, general and administrative expenses were $0.4 million and $0.9 million, respectively, for all services and allocated expenses charged by IDT Corporation to the Company. In the three and six months ended January 31, 2009, the Company’s selling, general and administrative expenses were $1.1 million and $2.8 million, respectively, for all services and allocated expenses charged by IDT Corporation to the Company.corresponding periods.
In September 2009, IDT Corporation funded the Company with an additional $2.0 million in cash in advance of the Spin-Off. Also on September 14, 2009, the aggregate of approximately $27.3 million of the amount due to IDT Corporation was converted into a capital contribution. At January 31, 2010, other current liabilities included $0.2 million due to IDT Corporation.
IDT Corporation and the Company 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 Corporation shall indemnify the Company from all liability for taxes of the Company and its subsidiaries for periods ending on or before September 14, 2009, and the Company shall indemnify IDT Corporation from all liability for taxes of the Company and its subsidiaries accruing after September 14, 2009. Also, for periods ending on or before September 14, 2009, IDT Corporation shall have the right to control the conduct of any audit, examination or other proceeding brought by a taxing authority. The Company shall have the right to participate jointly in any proceeding that may affect its tax liability unless IDT Corporation has indemnified the Company. Finally, the Company and its 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 Corporation.
Note 8 – Impairment and Severance Charges
In the second quarter of fiscal 2009, the following events and circumstances indicated that the fair value of certain of the Company’s reporting units may be below their carrying value: (1) a significant adverse change in the business climate, (2) operating losses of reporting units, and (3) significant revisions to internal forecasts. The Company measured the fair value of its reporting units by discounting their estimated future cash flows using an appropriate discount rate. The carrying value including goodwill of CTM and IDW exceeded their estimated fair values; therefore additional steps were performed for these reporting units to determine whether an impairment of goodwill was required. As a result of this analysis, in the three and six months ended January 31, 2009, the Company recorded goodwill impairment of $29.7 million in CTM and $1.8 million in IDW, which reduced the carrying amount of the goodwill in each of these reporting units to zero.
In the three and six months ended January 31, 2009 the Company recorded restructuring charges of $0.2 million and $0.6 million, respectively, consisting primarily of severance related to a company-wide cost savings program and reduction in force.
Note 9 – Tender Offer
On November 17, 2009, the Company commenced a tender offer to purchase up to thirty percent of its outstanding common stock and on December 3, 2009, revised the number of shares it offered to purchase pursuant to, and extended the expiration date of, the tender offer. On December 17, 2009, the Company further extended the expiration date of the tender offer.stock. The Company offered to purchase up to 0.4 million shares of its Class A common stock, or any lesser number of Class A shares that stockholders properly tender inconcluded the tender offer and up to 2.4 million shares of its Class B common stock, or any lesser number of Class B shares that stockholders properly tender in the tender offer, representing up to thirty percent of its total outstanding capital stock, at a price per share of $1.10, for a maximum aggregate purchase price of $3.1 million. The tender offer was made upon the terms and conditions set forth in the Offer to Purchase dated November 17, 2009, and the related Letter of Transmittal, each as amended and supplemented, which have been filed with the SEC and were made available to the Company’s stockholders. The offer expired at 5:00 p.m., New York City time, on Tuesday, December 22, 2009. As a result, 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.stock at the time.
Note 10 – Acquisitions and Dispositions
Purchase of NoncontrollingNon-Controlling Interests in IDW
On November 5, 2009, the Company purchased an additional 23.335% noncontrolling interest in IDW for a purchase price of $0.4 million in cash. As a result of the transaction, the Company owns a 76.665% interest in IDW. The acquisition was was accounted for in the second quarter of fiscal 2010 as an equity transaction, in accordance with the accounting standards on noncontrollingnon-controlling interests. The Company acquired the additional noncontrolling interests as it determined that the purchase price was reasonable as well as to reduce the number of noncontrolling interest holders in this business.
Sale of assets of WMET
See Note 12 for subsequent event regarding the Company’s agreement for the sale of the assets of its WMET radio station.
Note 11— Recently Adopted Accounting Standards and Recently Issued Accounting Standards Not Yet Adopted
In September 2009, the Company adopted changes issued by theThe 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 authoritative hierarchy of U.S. GAAP. These changes establish the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative U.S. GAAP for all non-governmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification did not change or alter existing U.S. GAAP. The adoption of these changes had no impact on the Company’s financial position, results of operations or cash flows.
On August 1, 2009, the Company adopted the accounting standard relating to noncontrolling interests in consolidated financial statements. This standard clarifies that a noncontrolling interest in a subsidiary, which was previously referred to as a minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Also, this standard requires consolidated net income (loss) to include the amounts attributable to both the parent and the noncontrolling interest, and it requires disclosure of the amounts of net income (loss) attributable to the parent and to the noncontrolling interest. Finally, this standard requires increases and decreases in the noncontrolling ownership interest amount to be accounted for as equity transactions, and the gain or loss on the deconsolidation of a subsidiary will be measured using the fair value of any noncontrolling equity investment rather than the carrying amount of the retained investment. As required by this standard, the Company retrospectively changed the classification and presentation of noncontrolling interests in its financial statements for all prior periods. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows. In January 2010, the FASB amended the accounting standard relating to noncontrolling interests in consolidated financial statements (1) to address implementation issues related to the changes in ownership provisions of the standard and (2) to expand the disclosures about the deconsolidation of a subsidiary or derecognition of a group of assets within the scope of the standard. These amendments were effective for the Company when they were issued by the FASB. The adoption of the amendments to this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
In June 2009, the FASB issued changes to the accounting for transfers of financial assets. These changes include (a) eliminating the concept of a qualifying special-purpose entity (“QSPE”), (b) clarifying and amending the de-recognition criteria for a transfer to be accounted for as a sale, (c) amending and clarifying the unit of account eligible for sale accounting, and (d) requiring that a transferor initially measure at fair value and recognize all assets obtained and liabilities incurred as a result of a transfer of an entire financial asset or group of financial assets accounted for as a sale. Additionally, on and after the effective date, existing QSPEs must be evaluated for consolidation by reporting entities in accordance with the applicable consolidation guidance. These changes also require enhanced disclosures about, among other things, (a) a transferor’s continuing involvement with transfers of financial assets accounted for as sales, (b) the risks inherent in the transferred financial assets that have been retained, and (c) the nature and financial effect of restrictions on the transferor’s assets that continue to be reported in the statement of financial position. The Company is required to adopt these changes on August 1, 2010. The Company is currently evaluating the impact of these changes on its consolidated financial statements.
In June 2009, the FASB issued changes to the consolidation guidance applicable to a variable interest entity (“VIE”) including amending the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The changes also require continuous reassessments of whether an enterprise is the primary beneficiary of a VIE and enhanced disclosures about an enterprise’s involvement with a VIE. The Company is required to adopt these changes on August 1, 2010. The Company is currently evaluating the impact of these changes on its consolidated financial statementsCompany.
In January 2010, the FASB amendedissued Accounting Standards Update (ASU) No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-06”), which is included in the accounting standard relating to fair value measurements primarily to improve the disclosures about fair value measurements in financial statements. The main provisions of the amendment requireASC Topic 820 (Fair Value Measurements and Disclosures). ASU 2010-06 requires new disclosures about (1)on the amount and reason for transfers in and out of the three levels of theLevel 1 and 2 fair value hierarchymeasurements. ASU 2010-06 also requires disclosure of activities, including purchases, sales, issuances, and (2) activitysettlements within the Level 3 of the hierarchy. In addition, the amendment clarifies existing disclosures about (1) the level of disaggregation of fair value measurements (2)and clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniquestechniques. Except for otherwise provided, ASU 2010-06 is effective for interim and inputs usedannual reporting periods beginning after December 15, 2009. The adoption of this standa rd did not have a material effect on the Company’s financial statements.
In February 2010, the FASB issued ASU No. 2010-09, “Amendments to measure fair value,Certain Recognition and (3) postretirement benefit plan assets. The Company wasDisclosure Requirements” (“ASU 2010-09”), which is included in ASC Topic 855 (Subsequent Events). ASU 2010-09 clarifies that an SEC filer is required to adopt these changes to its disclosures about fair value measurements on February 1, 2010, except for certainevaluate subsequent events through the date that the financial statements are issued. ASU 2010-09 was effective upon the issuance of the disclosures about the activity within Level 3, which are required to be adopted on August 1, 2011. The Company doesfinal update and did not expect the adoption of these changes to its disclosures about fair value measurements to have anany impact on itsthe Company’s financial position, results of operations or cash flows.statements.
Note 12 — 12—Subsequent Eventsevents
SaleThe Company completed a review and analysis of WMET Radio
On February 23, 2010,all events that occurred after the Company executed an agreementbalance sheet date to sell the assets of its WMET radio station for a sale price of $4 million in a combination of cashdetermine if any such events must be reported and a promissory note of the buyerhas determined that will be secured by the assets being sold. The sale is subject to approval of the Federal Communications Commission (the “FCC”), other third parties and other customary conditions. The sale includes substantially all of the assets used in the WMET business other than working capital. The purchase price is payable $1.3 million in cash by the closing and the remainder under a two-year promissory note, which is extendable in part to three years at the option of the buyer. The buyer also has the option of paying a total of $3.6 million in cash at the closing as payment in full for the transaction. The transaction is expected to close during the Company’s third or fourth fiscal quarter. The sale met the criteriathere are no subsequent events to be reported as a discontinued operation in the third quarter of fiscal 2010 and accordingly, WMET’s results will be classified in the third quarter of fiscal 2010 as part of discontinued operations. The carrying value of the assets being sold as of January 31, 2010 were $1.8 million net property plant and equipment and $0.5 million of intangible assets.disclosed.
In conjunction with the sale of the WMET assets, the Company also announced that its Board of Directors approved the payment of a cash dividend in the amount of $0.25 per share (approximately $2 million in the aggregate) which was paid to holders of the Company’s Class A, Class B and Class C common stock. The dividend was paid on March 15, 2010 to stockholders of record as of March 8, 2010.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
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, 2009,2010, as filed with the U.S. Securities and Exchange Commission (the “SEC”).SEC.
In accordance with Item 10(f)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 31, 2010, the September 14, 2009 Spin-Off datelast business day of its second fiscal quarter, 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,” “Holdings,” “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. Statements that are not historical facts are 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. Thesesuch forward-looking statements are subjectstatements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include:
• statements about Holdings’ and its divisions’ future performance;
• projections of Holdings’ and its divisions’ results of operations or financial condition; and
• statements regarding Holdings’ plans, objectives or goals, including those relating to its strategies, initiatives, competition, acquisitions, dispositions and/or its products.
Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “aim,” “will,” “should,” “likely,” “continue” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Readers are cautioned not to place undue reliance on these forward-looking statements and all such forward-looking statements are qualified in their entirety by reference to the following cautionary statements.
Forward-looking statements are based on Holdings’ current expectations, estimates and assumptions and because forward-looking statements address future results, events and conditions, they, by their very nature, involve inherent risks and uncertainties, many of which are unforeseeable and beyond Holdings’ control. Such known and unknown risks, uncertainties and other factors may cause Holdings’ actual results, performance or other achievements to differ materially from the anticipated results, performance or achievements expressed, projected or implied by these forward-looking statements.
These factors include those discussed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Holdings’ periodic filings made with the SEC.
Holdings cautions that couldsuch factors are not exhaustive and that other risks and uncertainties may cause actual results to differ materially from the results projectedthose in any forward-looking statement. In addition to the factors specifically noted in the forward-lookingstatements.
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, 2009. The forward-looking statements are madespeak only as of the date they are made and are statements of this reportHoldings’’ current expectations concerning future results, events and we assumeconditions and Holdings is under no obligation to update any of the forward-looking statements, whether as a result of new information, future events or to update the reasons why actual results could differ from those projected in the forward-looking statements.otherwise. 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, 2009.2010.
OVERVIEW
We are a former subsidiary of IDT Corporation (“IDT”).Corporation. As a result of the Spin-Off, on September 14, 2009, we became an independent public company. While many of the costs of being a public company were already borne by our business units – either directly or by allocation of corporate overhead from IDT – we now needCorporation continues to incur additional costs for the infrastructure to perform the necessary accounting, internal control and reporting functions. We expect the annual incremental costs of for theseprovide certain functions to be between approximately $450,000-$650,000. A significant portion of these functions will be provided by IDT pursuant to thea Master Services Agreement, dated September 14, 2009. During the three months ended October 31, 2010 and 2009, between usour selling, general and IDT.administrative expenses were $0.1 million and $.20.15 million, respectively, for all services and allocated expenses charged by IDT Corporation to us. At October 31, 2010 and 2009 the amount owed to IDT Corporation was $0.1 million and $0.2 million, respectively.
On November 17, 2009, wethe Company commenced a tender offer to purchase up to thirty percent of ourits outstanding common stock and on December 3, 2009 revised the number of shares we offered to purchase pursuant to, and extended the expiration date of, the tender offer. On December 17, 2009, we further extended the expiration date of the tender offer. We offered to purchase up to 0.4 million shares of our Class A common stock, or any lesser number of Class A shares that stockholders properly tendered instock. The Company concluded the tender offer and up to 2.4 million shares of our Class B common stock, or any lesser number of Class B shares that stockholders properly tendered in the tender offer, representing up to thirty percent of our total outstanding capital stock, at a price per share of $1.10, for a maximum aggregate purchase price of $3.1 million. The tender offer was made upon the terms and conditions set forth in the Offer to Purchase dated November 17, 2009, and the related Letter of Transmittal, each as amended and supplemented, which have been filed with the SEC and were made available to our stockholders. The offer expired at 5:00 p.m., New York City time, on Tuesday, December 22, 2009. In the tender offer, we 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 our thenits total outstanding capital stock.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; andproperty. |
| The WMET-AM radio station in the Washington, D.C. metropolitan area (“WMET”). |
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.
CTM
CTM develops and distributes print and mobile-based advertising and information in targeted tourist markets. Throughout its operating region, CTM operates fivefour integrated and complimentary business lines: Brochure Distribution, Publishing, RightCardTM, and Digital Distribution. CTM had operated its Design & Print Publishing, RightCardTM, and Digital Distribution.business, which it exited 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 2009,2010, CTM serviced over 3,0002,600 clients and maintained more than 11,000 display stations in over 3028 states 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, transportationtransporta tion terminals and hubs, tourist attractions and entertainment venues. CTM’s revenues represented 59.2%58% and 60% of our consolidated revenues in the sixthree months ended JanuaryOctober 31, 2010 and 63.6% in the similar period in fiscal 2009.2009, respectively.
IDW
IDW is a comic book and graphic novel publisher that creates and licenses intellectual property. IDW’s revenues represented 38.5%42% and 40% of our consolidated revenues in the sixthree months ended JanuaryOctober 31, 2010 and 32.7% in the similar period in fiscal 2009.2009, respectively.
On November 5, 2009 we purchased an additional 23.335% noncontrolling interest in IDW for a purchase price of $0.4 million in cash.million. As a result of the transaction, we own a 76.665% interest in IDW. We acquired the additional noncontrolling interests as we determined that the purchase price was reasonable as well as to reduce the number of noncontrolling interest holders in this business.
WMET
WMET 1160 AM is a radio station serving the Washington, D.C. metropolitan area. WMET’s revenues represented 2.3% of our consolidated revenues in the six months ended January 31, 2010 and 3.7% in the similar period in fiscal 2009.
On February 23, 2010, we executed an agreement to sell the assets of our WMET radio station for a sale price of $4 million in a combination of cash and a promissory note of the buyer that will be secured by the assets being sold. The sale is subject to approval of the FCC, other third parties and other customary conditions. The sale includes substantially all of the assets used in the WMET business other than working capital. The purchase price is payable $1.3 million in cash by the closing and the remainder under a two-year promissory, which is extendable in part to three years at the option of the buyer. The buyer also has the option of paying a total of $3.6 million in cash at the closing as payment in full for the transaction. The transaction is expected to close during our third or fourth fiscal quarter. The sale met the criteria to be reported as a discontinued operation in the third quarter of fiscal 2010 and accordingly, WMET’s results will be classified in the third quarter of fiscal 2010 as part of discontinued operations. The carrying values of the assets being sold as of January 31, 2010 are $1.8 million net property plant and equipment and $0.5 million in intangible assets.
REPORTABLE SEGMENTS
We have the following two reportable business segments: CTM IDW and WMET.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”).States. 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 2009.2010. 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, goodwill 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 2009.2010.
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 result of operation since the operations are not significant.
Three and Six Months Ended JanuaryOctober 31, 2010 Compared to Three and Six Months Ended JanuaryOctober 31, 2009
Consolidated Revenues
| (in millions) | | | | | | | | Change | |
| Quarter ended October 31, | | 2010 | | | 2009 | | | $ | | | | % | |
| Revenues | | | | | | | | | | | | | |
CTM | | $ | 5.0 | | | $ | 4.9 | | | $ | 0.1 | | | | 2.0 | |
IDW | | | 3.6 | | | | 3.3 | | | | 0.3 | | | | 9.0 | |
Total revenues | | $ | 8.6 | | | $ | 8.2 | | | $ | 0.4 | | | | 4.8 | |
| (in millions) | | Three Months ended January 31, | | | Change | | | Six Months ended January 31, | | | Change | |
| | | 2010 | | | 2009 | | | $ | | | | % | | | | 2010 | | | | 2009 | | | $ | | | | % | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CTM | | $ | 3.9 | | | $ | 4.5 | | | $ | (0.6 | ) | | | (14.3 | )% | | $ | 8.8 | | | $ | 10.4 | | | $ | (1.6 | ) | | | (14.7 | )% |
| IDW | | | 2.4 | | | | 2.4 | | | | - | | | nm | | | | 5.7 | | | | 5.3 | | | | 0.4 | | | | 8.1 | |
| WMET | | | 0.2 | | | | 0.3 | | | | (0.1 | ) | | | (49. | ) | | | 0.4 | | | | 0.6 | | | | (0.2 | ) | | | (42.3 | ) |
| Total revenues | | $ | 6.5 | | | $ | 7.2 | | | $ | (0.7 | ) | | | (10.1 | )% | | $ | 14.9 | | | $ | 16.3 | | | $ | (1.4 | ) | | | (8.3 | )% |
nm—not meaningful
Revenues.The decreaseincrease in consolidated revenues in the three months ended JanuaryOctober 31, 2010 compared to the three months ended October 31, 2009 was primarily due to a marginal increase in CTM revenues of $0.1 million and an increase in IDW revenues of $0.3 million. Revenues at our IDW segment increased as a result of increases in publishing revenues of $0.3 million and Digital and Creative Services revenue of $0.1 million which were partially offset by a decline in Licensing and Royalty Revenues of $0.1 million. The marginal increase in CTM revenues was primarily due to better economic conditions in the current fiscal period compared to the same period in fiscal 2010.
Consolidated Costs and Expenses | (in millions) | | | | | | | | Change | |
| Three months ended October 31, | | 2010 | | | 2009 | | | $ | | | | % | |
| Costs and expenses | | | | | | | | | | | | | |
Direct cost of revenues | | $ | 3.8 | | | $ | 3.7 | | | $ | 0.1 | | | | 2.7 | |
Selling, general and administrative | | | 3.8 | | | | 3.2 | | | | 0.6 | | | | 18.8 | |
Depreciation and amortization | | | 0.2 | | | | 0.2 | | | | — | | | | — | |
Bad debt expense | | | 0.0 | | | | 0.0 | | | | — | | | | — | |
Total costs and expenses | | $ | 7.8 | | | $ | 7.1 | | | $ | 0.7 | | | | 9.8 | |
Direct Cost of Revenues. Direct Cost of Consolidated Revenues in the three months ended October 31, 2010 compared to the similar period in fiscal 2009 was primarily due to the decrease in CTM revenues. The decrease in CTM revenues was primarily due to the global economic slowdown in our distribution and printing businesses. Some of CTM’s distribution customers rely on state and local funding or grants which have been decreased or eliminated, resulting in reduced advertising and customer spending and, in some cases, certain of our customers going out of business. The decrease in consolidated revenues in the six months ended January 31, 2010 compared to the similar period in fiscal 2009 was primarily due to the decrease in CTM revenues, partially offset by an increase in IDW revenues. The increase in IDW revenues was primarily the result of an increase in titles sold from fourth quarter comic book movie releases that continued to have an impact on first quarter revenues.
| (in millions) | | Three Months ended January 31, | | | Change | | | Six Months ended January 31, | | | Change | |
| | | 2010 | | | 2009 | | | $ | | | | % | | | | 2010 | | | | 2009 | | | $ | | | | % | |
| Costs and expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Direct cost of revenues | | $ | 3.2 | | | $ | 3.4 | | | $ | (0.2 | ) | | | 3.8 | % | | $ | 7.0 | | | $ | 6.9 | | | $ | 0.1 | | | | 0.5 | % |
| Selling, general and administrative | | | 3.6 | | | | 3.7 | | | | (0.1 | ) | | | (2.1 | ) | | | 7.1 | | | | 8.3 | | | | (1.2 | ) | | | (14.2 | ) |
| Depreciation and amortization | | | 0.3 | | | | 0.4 | | | | (0.1 | ) | | | (30.2 | ) | | | 0.5 | | | | 0.8 | | | | (0.3 | ) | | | (32.5 | ) |
| Bad debt expense | | | 0.2 | | | | 0.3 | | | | (0.1 | ) | | | (47.1 | ) | | | 0.2 | | | | 0.4 | | | | (0.2 | ) | | | (49.0 | ) |
| Impairment and severance charges | | | - | | | | 31.7 | | | | (31.7 | ) | | nm | | | | - | | | | 32.1 | | | | (32.1 | ) | | nm | |
| Total costs and expenses | | $ | 7.3 | | | $ | 39.5 | | | $ | (32.2 | ) | | | (81.5 | )% | | $ | 14.8 | | | $ | 48.5 | | | $ | (33.7 | ) | | | (69.5 | )% |
nm—not meaningful
marginally increased. Direct Cost of Revenues. The decrease in direct cost of revenues at IDW for the three months ended October 31, 2010 and 2009 was approximately $2.2 million and $2.1 million respectively. Direct costs of revenues at CTM for the three months ended October 31, 2010 and 2009 were each approximately $1.6 million. Overall gross margin increased from 54.9% in the three months ended JanuaryOctober 31, 2010 compared2009 to the similar period in fiscal 2009 was a result of the decrease in revenues. The slight increase in direct cost of revenues in the six months ended January 31, 2010 compared to the similar period in fiscal 2009 reflects the increases in IDW’s direct cost of revenues offset by CTM’s decrease in cost of revenues. The increase in IDW’s direct cost of revenues in the six months ended January 31, 2010 compared to the similar period in fiscal 2009 was a result of the increase in revenues while the decrease in CTM’s direct cost of revenues was primarily the result of lower revenues. Overall gross margin decreased to 50.4% and 53.3%55.8% in the three and six months ended JanuaryOctober 31, 2010 respectively,2010. The increase was due to increases in the gross margin at both our CTM segment and IDW segments. CTM’s gross margin increased from 53.6% and 57.4%67.3% in the three and six months ended JanuaryOctober 31, 2009 respectively, was due to a decrease68.0% in CTM’sth e three months ended October 31, 2010, while IDW’s gross margin. Since a significant portion of CTM cost of sales is fixed,margins increased from 36.3% in the gross margin percentage decreases when revenues decrease.three months ended October 31, 2009 to 38.8% in the three months ended October 31, 2010.
Selling, General and Administrative. Selling, general, and administrative expenses increased from $3.2 million in the three months ended October 31, 2009 to $3.8 million in the three months ended October 31, 2010. As a percentage of consolidated revenues, selling, general and administrative costs increased from 39.0% in the three months ended October 31, 2009 to 44.2% in the three months ended October 31, 2010. The decreaseincrease in selling, general and administrative expenses in the three months ended JanuaryOctober 31, 2010 compared to the similar period in fiscal 20092010 was primarily due to a decreaseincrease in the selling, general and administrative expenses of CTM.CTM and a marginal increase in our IDW segment. CTM’s selling, general and administrative expenses decreasedincreased in the three and six months ended Januaryend ed October 31, 2010 compared to the similar period in fiscalthree months ended October 31, 2009 due to the exit from certain unprofitable linesan increase in payroll costs, offsite costs related to meetings of businesses, overall cost reductions including headcountCTM’s sales personnel, advertising costs, and insurance premiums,audit/accounting costs. Selling, general, and lower commissionsadministrative costs at our IDW segment marginally increased as a result of a decreaseincrease in revenue. The exited businesses consist of Traffic Pullpersonnel costs and Local Pull, our Internet search position enhancement ventures, and Click2Talk, our Web-based communications product. The exit from these lines of business was a process that commenced in the fourth quarter of fiscal 2008 and is completed. The Local Pull product is still being offered by CTM, however the business model has been reworked and Local Pull is being marketed through outsourced channels which is more cost effective for us. Total selling, general and administrative expenses for these exited businesses was $0.5 million and $1.1 million for the three and six months ended January 31, 2009. The decrease in selling, general and administrative expenses in the three months ended January 31, 2010 compared to the similar period in fiscal 2009 was offset by increased expenses from costs associated with operating as a publicly traded company. Total selling, general and administrative expenses associated with operating as a publicly traded company was $0.5 million and $0.7 million for the three and six months ended January 31, 2010.marketing expenses.
As a percentage of total revenues, selling, general and administrative expenses increased to 55.9% in the three months ended January 31, 2010 from 51.4% in the similar period in fiscal 2009 and decreased to 47.4% in the six months ended January 31, 2010 from 50.6% in the similar period in fiscal 2009.
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 next five years. 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.vest and the remainder would be forfeited. This arrangement does notno t 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 ishas been and expected to continue to be recognized over the vesting period from October 14, 2009 through October 14, 2014. The related stock-based compensation related to this grant in the first quarter of fiscal 2011 and 2010 was $0.1 million for the three$112 thousand and six months ended January 31, 2010.19 thousand, respectively.
Bad Debt Expense.The decrease in bad Bad debt expense in the three and six months ended JanuaryOctober 31, 2010 of fiscal 2011 compared to the same period in fiscal 2010 was due primarilyflat.
Net Income attributable to a decrease in bad debt expense of CTM.CTM Media Holdings, Inc. and non controlling interests
| (in millions) | | | | | | | | Change | |
| Three months ended October 31, | | 2010 | | | 2009 | | | $ | | | | % | |
Income from continuing operations | | $ | 0.8 | | | $ | 1.0 | | | $ | (0.2 | ) | | | (20.0 | ) |
Interest income, net | | | — | | | | — | | | | — | | | | — | |
Other expense, net | | | — | | | | — | | | | — | | | | — | |
Provision for income taxes | | | — | | | | (0.2 | ) | | | 0.2 | | | | 100.0 | |
Loss from discontinued operations | | | — | | | | (0.1 | ) | | | 0.1 | | | | 100.0 | |
Net income | | | 0.8 | | | | 0.7 | | | | 0.1 | | | | 14.3 | |
Less: Net income attributable to non controlling interest | | | (0.1 | ) | | | (0.2 | ) | | | 0.1 | | | | 50.0 | |
Net income attributable to CTM Media Holdings, Inc. | | $ | 0.7 | | | $ | 0.5 | | | $ | 0.2 | | | | 40.0 | |
Impairment and Severance Charges. In the second quarter of fiscal 2009, the following events and circumstances indicated that the fair value of certain of our reporting units may be below their carrying value: (1) a significant adverse change in the business climate, (2) operating losses of reporting units, and (3) significant revisions to internal forecasts. We measured the fair value of our reporting units by discounting their estimated future cash flows using an appropriate discount rate. The carrying value including goodwill of CTM and IDW exceeded their estimated fair values; therefore additional steps were performed for these reporting units to determine whether an impairment of goodwill was required. As a result of this analysis, in the three and six months ended January 31, 2009, we recorded goodwill impairment of $29.7 million in CTM and $1.8 million in IDW, which reduced the carrying amount of the goodwill in each of these reporting units to zero. In the three and six months ended January 31, 2009 we recorded restructuring charges of $0.2 million and $0.6 million, respectively, consisted primarily of severance related to a company-wide cost savings program and reduction in force.| (in millions) | | Three Months ended January 31, | | | Change | | Six Months ended January 31, | | | Change |
| | | 2010 | | | 2009 | | | $ | | % | | | 2010 | | | | 2009 | | | $ | | % |
| (Loss) income from operations | | $ | (0.8 | ) | | $ | (32.2 | ) | | $ | 31.4 | | nm | | $ | 0.1 | | | $ | (32.2 | ) | | $ | 32.3 | | nm |
| Benefit from (provision for) income taxes | | | 0.1 | | | | 0.0 | | | | 0.1 | | nm | | | (0.1 | ) | | | (0.2 | ) | | | 0.1 | | nm |
| Net loss | | | (0.7 | ) | | | (32.2 | ) | | | 31.5 | | nm | | | (0.0 | ) | | | (32.4 | ) | | | 32.4 | | nm |
| Less: Net loss (income) attributable to noncontrolling interest | | | 0.0 | | | | 0.8 | | | | 0.8 | | nm | | | (0.2 | ) | | | 0.7 | | | | 0.9 | | nm |
| Net loss attributable to CTM Media Holdings, Inc. | | $ | (0.7 | ) | | $ | (31.4 | ) | | $ | 30.7 | | nm | | $ | (0.2 | ) | | $ | (31.7 | ) | | $ | 31.5 | | nm |
nm—not meaningful
Income Taxes. Benefit from (provision for)Provision for income taxes intax for the three and six months ended JanuaryOctober 31, 2010 compared to 2009 decreased by $170,000. This decrease is due to the similar periodutilization of tax benefits that were created in fiscalperiods subsequent to October 31, 2009 remained substantially unchanged.of $120,000, and a reduction in foreign earnings and related foreign income tax of $50,000.
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 jointlyjointl y 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.
IDT Corporation.
Income (loss) attributable to noncontrolling interests. non-controlling interest.On November 5, 2009, we purchased an additional Non-controlling interests arise from the 23.335% noncontrolling 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.not held by Holdings.
CTM
| (in millions) | | | | | | | | Change | |
| Three months ended October 31, | | 2010 | | | 2009 | | | $ | | | | % | |
Revenues | | $ | 5.0 | | | $ | 4.9 | | | $ | 0.1 | | | $ | 2.0 | |
Direct cost of revenues | | | 1.6 | | | | 1.6 | | | | — | | | | — | |
Selling, general and administrative | | | 2.7 | | | | 2.3 | | | | 0.4 | | | | 17.4 | |
Depreciation and amortization | | | 0.2 | | | | 0.2 | | | | — | | | | — | |
Bad debt expense | | | — | | | | — | | | | — | | | | — | |
Impairment and severance charges | | | — | | | | — | | | | — | | | | — | |
| Income from operations | | $ | 0.5 | | | $ | 0.8 | | | $ | (0.3 | ) | | $ | (37.5 | ) |
CTM
| (in millions) | | Three months ended January 31, | | | Change | | | Six Months ended January 31, | | | Change | |
| | | 2010 | | | 2009 | | | $ | | | | % | | | | 2010 | | | | 2009 | | | $ | | | | % | |
| Revenues | | $ | 3.9 | | | $ | 4.5 | | | $ | (0.6 | ) | | | (14.3 | )% | | $ | 8.8 | | | $ | 10.4 | | | $ | (1.6 | ) | | | (14.7 | )% |
| Direct cost of revenues | | | 1.7 | | | | 1.7 | | | | 0.0 | | | | (3.8 | ) | | | 3.4 | | | | 3.6 | | | | (0.2 | ) | | | (6.2 | ) |
| Selling, general and administrative | | | 2.4 | | | | 2.6 | | | | (0.2 | ) | | | (9.9 | ) | | | 4.6 | | | | 6.1 | | | | (1.5 | ) | | | (23.6 | ) |
| Depreciation and amortization | | | 0.2 | | | | 0.2 | | | | 0.0 | | | | 2.3 | | | | 0.4 | | | | 0.4 | | | | 0.0 | | | | (2.2 | ) |
| Bad debt expense | | | 0.0 | | | | 0.3 | | | | (0.3 | ) | | nm | | | | 0.0 | | | | 0.3 | | | | (0.3 | ) | | nm | |
| Impairment and severance charges | | | 0.0 | | | | 29.8 | | | | (29.8 | ) | | nm | | | | 0.0 | | | | 30.2 | | | | (30.2 | ) | | nm | |
| (Loss) income from operations | | $ | (0.4 | ) | | $ | (30.1 | ) | | $ | 29.7 | | | nm | | | $ | 0.4 | | | $ | (30.2 | ) | | $ | 30.6 | | | nm | |
nm—not meaningful
Revenues.The decreasemarginal increase in CTM’s revenues in the three and six months ended JanuaryOctober 31, 2010 compared to the similar period in fiscalthree months ended October 31, 2009 was primarily due to a decreaseincreases in distribution and publishing revenues, primarily attributable to the global economic slowdowndigital distribution revenues and right card revenues, which were partially offset by a decline in our distribution and printing business. The most significant declines have been in our New York market, due to the weakness in Broadway show advertising, followed by the Mid-West and Florida. Some of CTM’s distribution customers rely on state and local funding or grants which have been decreased or eliminated resulting in reduced advertising and customer spending. We are beginning to see positive signs of a gradual recovery in our business such that we expect revenues beginning withrevenues. In the fourth quarter of fiscal 2010, CTM exited the unprofitable printing and now refers customers to be equal or slightly higher thana third party provider and receives a commission on the comparable period fiscal 2009.work.
Direct Cost of Revenues.Direct cost of revenues consists primarily of distribution and fulfillment payroll, warehouse, and vehicle distribution, expenses and print and design expenses. The directDirect cost of revenues infor the three months ended JanuaryOctober 31, 2010 compared towas approximately the similar period in fiscal 2009 is relatively flat.same as the three months ended October 31, 2009. The variable component of cost of sales has decreased as revenue has decreased offset by increased gasoline and payroll expenses. The decreasedecline in direct cost of printing revenues, CTM’s unprofitable line of business that we exited at the beginning of the fourth quarter of fiscal 2010, were offset by marginal increases in direct costs of digital distribution revenues, right cardrevenues, and distribution and publishing revenues. Additionally, CTM’s distribution and fleet maintenance costs marginally increased during the sixthree months ended JanuaryOctober 31, 2010 as compared to the similar period in fiscal 2009 is primarily due to decreased revenues offset by increased gasoline and payroll expenses.three months ende d October 31, 2009.
CTM’s gross margin percentage decreasedincreased in the three and six months ended JanuaryOctober 31, 2010 to 57.2% and 61.8%, respectively,68.0% compared to 61.9% and 65.3%67.3% in the similar period in fiscal 2009. Since a significant portion of CTM’s cost of sales is fixed, the gross margin percentage decreases when revenues decrease. Additionally, there was an increase in gasoline and payroll costs during the three and six months ended JanuaryOctober 31, 2010.2009. The increase was primarily due to a shift in product mix to relatively higher margin distribution revenues from relatively lower margin printing revenues.
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 decreasedincreased in the three and six months ended JanuaryOctober 31, 2010 as compared to the similar period in fiscalthree months ended October 31, 2009 primarily due to the exit from certain unprofitable lines of businesses, consisting of Traffic Pull, Local Pullincrease in payroll costs, offsite costs related to our sales personnel, advertising costs, and Click2Talk. The exit from these lines of business was a process that commenced in the fourth quarter of fiscal 2008 and is completed. The Local Pull product is still being offered by CTM, however the business model has been reworked and Local Pull is being marketed through outsourced channels, which is more cost effective for us. Total selling, general and administrative expenses for these exited businesses was $0.5 million and $1.1 million for the three and six months ended January 31, 2009. The decrease in selling, general and administrative expenses in the three months ended January 31, 2010 compared to the similar period in fiscal 2009 was partially offset by increased expenses from the costs associated with operating as a publicly traded company. Total selling, general and administrative expenses for these costs associated with operating as a publicly traded company was $0.3 million and $0.5 million for the three and six months ended January 31, 2009. accounting costs.
As a percentage of CTM’s aggregate revenues, selling, general and administrative expenses increased in the three month ended October 31, 2010 to 60.3%54.0% from 46.9% in the three months ended January 31, 2010 from 57.4% in the similar period in fiscal 2009 and decreased to 52.3% in the six months ended January 31, 2010 from 58.4% in the similar period in fiscal 2009.
Impairment and severance charges. In the three and six months ended JanuaryOctober 31, 2009, we recorded aggregate goodwill impairment of $29.7 millionas selling, general and administrative expenses increased at a faster rate than the increase in CTM, which reduced the carrying amount of the goodwill to zero. In the three and six months ended January 31, 2009 we recorded restructuring charges of $0.1 million and $0.5 million, respectively, consisted primarily of severance related to a company-wide cost savings program and reduction in force.revenues.
IDW
| (in millions) | | Three Months ended January 31, | | | Change | | | Six Months ended January 31, | | | Change | | | | | | | | | Change | |
| Three months ended October 31, | | | 2010 | | | 2009 | | | $ | | | | % | |
| | | 2010 | | | 2009 | | | % | | | | % | | | | 2010 | | | | 2009 | | | $ | | | | % | | | | | | | | | | | | | | |
| Revenues | | $ | 2.4 | | | $ | 2.4 | | | $ | 0.0 | | | | 2.8 | % | | $ | 5.8 | | | $ | 5.3 | | | $ | 0.5 | | | | 8.1 | % | | $ | 3.6 | | | $ | 3.3 | | | $ | 0.3 | | | | 9.0 | |
| Direct cost of revenues | | | 1.6 | | | | 1.6 | | | | 0.0 | | | | (3.9 | ) | | | 3.6 | | | | 3.4 | | | | 0.2 | | | | 7.6 | | | | 2.2 | | | | 2.1 | | | | 0.1 | | | | 4.7 | |
| Selling, general and administrative | | | 1.1 | | | | 0.8 | | | | 0.3 | | | | 44.2 | | | | 2.1 | | | | 1.6 | | | | 0.5 | | | | 30.2 | | | | 1.0 | | | | 0.9 | | | | 0.1 | | | | 11.1 | |
| Depreciation and amortization | | | 0.0 | | | | 0.1 | | | | (0.1 | ) | | nm | | | | 0.1 | | | | 0.1 | | | | 0.0 | | | Nm | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | — | |
| Impairment and severance charges | | | 0.0 | | | | 1.8 | | | | (1.8 | ) | | nm | | | | 0.0 | | | | 1.8 | | | | (1.8 | ) | | Nm | | |
| Income from operations | | $ | (0.3 | ) | | $ | (1.9 | ) | | $ | (1.6 | ) | | nm | | | $ | 0.0 | | | $ | (1.6 | ) | | $ | (1.6 | ) | | Nm | | | $ | 0.4 | | | $ | 0.3 | | | $ | 0.1 | | | | 33.3 | |
In an effort to increase availability of versions of its content at retail outlets, IDW has entered into a number of digital distribution agreements thisover the past calendar year, and IDW’s publications are currently available for purchase via mobile phones, primarily iPhones/iPod Touch. Various IDW titles are also available direct-to-desktop via several websites and are available on Sony’s PSP and PSP Go.Go gaming devices.
Historically, we satisfied our cash requirements primarily through cash provided by CTM’s operating activities and funding from IDT.IDT Corporation.
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 $0.5 million, with the average acquisition being less than $0.1 million. If we were to pursue an acquisition in excess of $0.5 million 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.
Historically, we satisfied our cash requirements primarily through cash provided by CTM’s operating activities and funding from IDT.IDT Corporation. The conversion of our balance due to IDT Corporation into a capital contribution as well as the $2.0 million cash contribution by IDT 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 20102011 and the balance of cash, cash equivalents and short term investment that we held as of JanuaryOctober 31, 2010, 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 on 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.
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.
Smaller reporting companies are not required to provide the information required by this item.
Item 3. Defaults Upon Senior Securities.
Item 6. Exhibits, Financial Statement Schedules.
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.