EX-99.1 5 f1012bex99i_ctm.htm PRELIMINARY 14C f1012bex99i_ctm.htm
 


 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
SCHEDULE 14C INFORMATION
 
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
 
 
Check the appropriate box:
 
x
Preliminary Information Statement
 
¨ 
Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))
 
¨
Definitive Information Statement
 
¨ 
Definitive Additional Materials


 
CTM MEDIA HOLDINGS, INC.
(Name of Registrant as Specified In Charter)
 
Payment of Filing Fee (Check the appropriate box):
 
ý 
No fee required.
 
¨ 
Fee computed on table below per Exchange Act Rule 14c-5(g), and 0-11.
 
 
(1) 
Title of each class of securities to which transaction applies:
 
 
(2) 
Aggregate number of securities to which transaction applies:
 
 
(3) 
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 
(4) 
Proposed maximum aggregate value of transaction:
 
 
(5) 
Total fee paid:
 
¨ 
Fee paid previously with preliminary materials.
 
¨ 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
(1) 
Amount Previously Paid:

 
(2) 
Form, Schedule or Registration Statement No.:

 
(3) 
Filing Party:
 
 
(4) 
Date Filed:
 
  



 
Howard S. Jonas
Chairman of the Board of Directors
 
 
IDT Corporation
520 Broad Street
Newark, NJ 07102
 


[ __, 2009]

Dear IDT Corporation Stockholder:

We are pleased to inform you that the Board of Directors of IDT Corporation (“IDT”) has approved the spin-off of CTM Media Holdings, Inc. (“Holdings”), a wholly-owned subsidiary of IDT, to IDT’s stockholders. Following the spin-off, IDT’s business will consist of IDT Telecom, IDT Energy and IDT’s alternative energy initiatives, as well as other interests. Holdings will consist of the CTM Media Group, IDT’s majority interest in Idea and Design Works and the WMET-AM radio station.
 
The spin-off of Holdings will occur by way of a pro rata distribution of Holdings Class A common stock and Class B common stock to IDT’s stockholders. In the distribution, each IDT stockholder will receive one share of Holdings Class A common stock for every three shares of IDT common stock, one share of Holdings Class A common stock for every three shares of IDT Class B common stock, and one share of Holdings Class B common stock for every three shares of IDT Class A common stock, held at 5:00 p.m., New York City time, on [___ __,] 2009, which is the record date of the spin-off. The distribution of unrestricted shares of Class A common stock will be paid in book-entry form and physical stock certificates will be issued only to holders of Class B common stock, holders of restricted Class A common stock and upon request. Stockholder approval of the spin-off is not being sought, and you are not required to take any action to receive your Holdings common stock.
 
We believe that the spin-off will separate certain of our business units whose performance and financial results are more predictable and have different growth characteristics than the remaining operations.  Management believes that separating the two groups of operating units will allow management of each of IDT and Holdings to design and implement corporate strategies and policies that are based primarily on the business characteristics of that company and its business units, maintain a sharper focus on core business and growth opportunities, and concentrate their financial resources wholly on their own operations.  Moreover, the separation of Holdings will provide investors with greater transparency regarding the value of Holdings’ business units. In addition, the spin-off will separate business units with different risk profiles and performance characteristics from one another. Accordingly, we believe the spin-off will build long-term stockholder value.
 
Following the spin-off, you will own shares in both IDT and Holdings. We intend to apply to have the Holdings Class A common stock traded on [_______]. IDT common stock and IDT Class B common stock will continue to trade on the New York Stock Exchange under the symbol “IDT.C” and “IDT”, respectively.
 
We intend for the spin-off to be tax-free for stockholders. To that end, we expect to receive a favorable opinion from Stern & Kilcullen, LLC confirming the spin-off’s tax-free status. You should, of course, consult your own tax advisor as to the particular consequences of the spin-off to you.
 
The enclosed information statement, which is being mailed to all IDT stockholders, describes the spin-off in detail and contains important information about Holdings, including its financial statements.
 
We look forward to your continued support as a stockholder of IDT. We remain committed to working on your behalf to build long-term stockholder value.
 
Sincerely,
 
 
 
Howard S. Jonas
Chairman of the Board of Directors
 
 

 

[HOLDINGS LOGO]
 

[____ __,] 2009

Dear CTM Media Holdings Stockholder:

It is my pleasure to welcome you as a stockholder of our newly independent company, CTM Media Holdings, Inc. All of us at CTM Media Holdings look forward to becoming an independent company. Our management team and our employees have worked hard over the years to make the businesses that comprise CTM Media Holdings what they are today.
 
As an independent public company, we will have the ability to focus exclusively on the growth and development of our businesses and to create value for our new stockholders, as well as to concentrate our financial resources solely on our own operations. We also hope to achieve greater visibility – in the financial community, and for our products and services as well.
 
Following the spin-off, we will have holdings in media and travel-related businesses. We will focus on developing our brochure distribution and comic book and graphic novel publishing businesses, which have strong presences in their respective industries and niches, as well as our radio station. We believe our experienced management team and consistent performance are representative of the strengths that will position us to excel as a stand-alone entity and to continue our growth in the several markets in which we are engaged.
 
We intend to apply to have the Holdings Class A common stock traded on [________]. We invite you to learn more about us by reviewing the enclosed information statement. We look forward to our future as a separate publicly-traded company and to your support as a stockholder of Holdings common stock.
 
I am excited about the opportunities that the spin-off will create for our company, our customers and for you, our stockholders.
 

 
Sincerely,
 
 
[Signature]                                                              
Marc E. Knoller
Chief Executive Officer
 
 

 

 
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the United States Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended.
 
SUBJECT TO COMPLETION, DATED [___________ ], 2009
 
 
PRELIMINARY INFORMATION STATEMENT
 
CTM MEDIA HOLDINGS, INC.
 
Class A Common Stock
 
and
 
Class B Common Stock
 
(each, par value $0.01 per share)
 
This information statement is being furnished in connection with the distribution to holders of common stock, Class A common stock and Class B common stock, each par value $0.01 per share, of IDT Corporation (“IDT”) of all the outstanding shares of Class A common stock and Class B common stock, each par value $0.01 per share, of CTM Media Holdings, Inc. (“Holdings”).
 
We are currently a subsidiary of IDT. Following the spin-off, our principal businesses, which are currently part of IDT, will consist of:
 
·  
CTM Media Group (“CTM”), our brochure distribution company and other advertising-based new product initiatives focused on small to medium sized businesses;
 
·  
Our majority interest in Idea and Design Works, LLC (“IDW”), which is a comic book and graphic novel publisher that creates and licenses original intellectual property; and
 
·  
The WMET-AM radio station in the Washington, D.C. metropolitan area (“WMET”).
 
The spin-off will separate our businesses from the remainder of IDT’s operations and holdings, including IDT Telecom, IDT Energy and IDT’s alternative energy initiatives, as well as other interests. We, along with IDT’s management, believe that the operational and growth prospects of our businesses may best be realized by a separation from those non-spun-off businesses based on several factors including synergies and growth prospects. Each of our businesses is described in more detail below.
 
Our business will consist of the following segments: CTM and IDW. The results of operations of WMET do not comprise a separate segment and are reported under the heading “Other.”
 
The spin-off of Holdings will occur by way of a pro rata distribution of Holdings common stock to IDT’s stockholders. In the distribution, each IDT stockholder will receive one share of Holdings Class A common stock for every three shares of IDT common stock, one share of Holdings Class A common stock for every three shares of IDT Class B common stock, and one share of Holdings Class B common stock for every three shares of IDT Class A common stock, held at 5:00 p.m., New York City time, on [___ __,] 2009, which is the record date of the spin-off. The distribution of unrestricted shares of Class A common stock will be paid in book-entry form and physical stock certificates will be issued only to holders of Class B common stock, holders of restricted Class A common stock and upon request.  Stockholder approval of the spin-off is not required, and you are not required to take any action to receive your Holdings common stock.
 
No stockholder approval of the spin-off is required or sought. We are not asking you for a proxy and you are requested not to send us a proxy. IDT stockholders will not be required to pay for the shares of our Class A common stock or Class B common stock to be received by them in the spin-off or to surrender or exchange shares of IDT common stock, Class B common stock or Class A common stock in order to receive our Class A common stock or Class B common stock or to take any other action in connection with the spin-off.
 
Currently, there is no trading market for our Class A common stock or Class B common stock. However, we expect that a limited market, commonly known as a “when-issued” trading market, for our Class A common stock will develop on or shortly before the record date for the spin-off, and we expect that “regular way” trading of our common stock will begin the first trading day after the spin-off. We intend to apply to have the Holdings Class A common stock traded on [______]. We don't intend to list our Class B Common Stock for trading on any exchange or trading system.
 
 
i

 
In reviewing this information statement, you should carefully consider the matters described under “Risk Factors” beginning on page 6 for a discussion of certain factors that should be considered by recipients of our common stock.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
 
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
 
This information statement is first being mailed to IDT stockholders on or about [____ __,] 2009.
 
 
ii

 
 
TABLE OF CONTENTS
 
 
 
Page
Questions and Answers About the Spin-Off
1
Executive Summary
5
Risk Factors
6
Special Note About Forward-Looking Statements
12
The Spin-Off
12
Dividend Policy
17
Unaudited Pro Forma Consolidated Financial Data
17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
Business
33
Management
37
Corporate Governance
37
Director Compensation
40
Executive Compensation
40
Security Ownership by Certain Beneficial Owners and Management
42
Our Relationship with IDT After the Spin-Off and Related Person Transactions
44
Legal Proceedings
45
Description of Our Capital Stock
46
Where You Can Find More Information
48
Index to Consolidated Financial Statements
F-1
 
 
 
iii


 
This information statement is being furnished solely to provide information to IDT stockholders who will receive shares of our Class A common stock and Class B common stock in the distribution. This information statement is not, and is not to be construed as, an inducement or encouragement to buy or sell any of our securities or any securities of IDT. This information statement describes our business, the relationship between IDT and us, and how the spin-off affects IDT and its stockholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of our common stock that you will receive in the distribution. Except as expressly noted, any information contained herein regarding Holdings assumes the consummation of the steps necessary to transfer CTM, IDT's interest in IDW and WMET to Holdings prior to the distribution. You should be aware of certain risks relating to the spin-off, our business and ownership of our common stock, which are described under the heading “Risk Factors.”
 
You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations and practices.
 
Unless the context indicates otherwise, all references in this information statement:
 
·  
to “Holdings,” “us,” “we,” or “our” are to CTM Media Holdings, Inc. and its subsidiaries; and
·  
to “IDT” are to IDT Corporation and its subsidiaries, and, with respect to periods following the spin-off, IDT Corporation and its subsidiaries other than Holdings and its subsidiaries.

The transaction in which we will be separated from IDT and become a separately-traded public company is referred to in this information statement as the “separation,” the “distribution” or the “spin-off.”
 
We obtained the market and industry data and other statistical information used throughout this information statement from our own research, surveys or studies conducted by third parties, independent industry or general publications and other published independent sources. While we believe that each of these sources is reliable, we have not independently verified such data. Similarly, we believe our internal research is reliable, but it has not been verified by any independent sources.
 
QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF
 
Q:
Why am I receiving this document?
   
A:
IDT is delivering this document to you because you were a holder of IDT’s common stock, Class A common stock or Class B common stock on the record date for the distribution of our shares of Class A common stock and Class B common stock. Accordingly, you are entitled to receive one share of our Class A common stock for every three shares of IDT common stock, one share of our Class A common stock for every three shares of IDT Class B common stock, and one share of our Class B common stock for every three shares of IDT Class A common stock that you held on the record date. No action is required for you to participate in the distribution.
   
Q:
What is the spin-off?
   
A:
The spin-off is the overall transaction of separating our company from IDT, which will be accomplished through a series of transactions resulting in us owning what are currently the CTM, IDW and WMET business units of IDT. The final step of the transactions will be the pro rata distribution of our Class A common stock and Class B common stock by IDT to holders of IDT’s common stock, Class A common stock and Class B common stock as set forth in the answer above. We refer to this last step as the “distribution.” For additional information regarding these transactions, see “The Spin-Off--Manner of Effecting the Spin-Off” on page 14.
   
Q:
Who is Holdings?
   
A:
Up to the time of the spin-off, we will be a wholly-owned subsidiary of IDT. Following the spin-off, we will be a separate publicly-traded company. We will have holdings in media and travel-related businesses, concentrating on our brochure distribution and comic book and graphic novel publishing businesses, as well as the WMET-AM radio station.
   
 
 
1

 

 
Q:
Why is IDT separating our businesses and distributing our stock?
   
A:
IDT’s Board of Directors and management believe the separation will provide the benefits set forth below under the caption “The Spin-Off--Reasons for the Spin-Off” on page 13, including allowing management of each of IDT and Holdings to design and implement corporate strategies and policies that are based primarily on the business characteristics of that company and its business units, maintain a sharper focus on core business and growth opportunities, concentrate their financial resources wholly on their own operations and allowing investors to appreciate the value of Holdings’ business units.
   
Q:
Why is the separation of the two companies structured as a spin-off?
   
A:
IDT’s Board of Directors believes that a tax-free spin-off of our shares is a cost-effective and tax efficient way to separate the companies.  For additional information, see “Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 14.
   
Q:
What is the record date for the distribution?
   
A:
The record date is [____ __,] 2009 and ownership will be determined as of 5:00 p.m., New York City time, on that date. When we refer to the “record date,” we are referring to that time and date.
   
Q:
What will be our relationship with IDT after the spin-off?
   
A:
IDT and Holdings each will be independent, publicly-traded companies. Howard Jonas will be chairman of both companies. Further, we intend to enter into agreements with IDT that will ease our transition from consolidated operating segments to an independent company following the spin-off and we will continue to cooperate with IDT when there is an opportunity for cost savings that does not impact the independence of the two companies. For example, it is intended that IDT will continue to provide certain administrative services for an agreed period following the spin-off. For additional information regarding our relationship with IDT after the spin-off, see “Our Relationship with IDT After the Spin-Off and Related Person Transactions” beginning on page 44.
   
Q:
When will the spin-off be completed?
   
A:
Shares of our Class A common stock and Class B common stock will be distributed on or about [____ __,] 2009. We refer to this date as the “distribution date.”
   
Q:
Can IDT decide to cancel the distribution of our Class A common stock and Class B common stock even if all the conditions have been met?
   
A:
Yes. The distribution is conditioned upon satisfaction or waiver of certain conditions. See “The Spin-Off--Spin-Off Conditions and Termination” on page 16. IDT has the right to terminate the stock distribution, even if all of these conditions are met, if at any time IDT’s Board of Directors determines, in its sole discretion, that IDT and Holdings are better served by remaining a combined company or that business conditions are such that it is not advisable to complete the spin-off.
   
Q:
What will happen to the listing of IDT’s common stock and Class B common stock?
   
A:
Nothing. We expect that IDT common stock and Class B common stock will continue to be traded on the New York Stock Exchange (“NYSE”) under the symbols “IDT.C” and “IDT”, respectively.
   
Q:
Will the spin-off affect the market price of my IDT shares?
   
A:
Probably. As a result of the spin-off, the trading price of IDT shares immediately following the distribution may be lower than immediately prior to the distribution because the trading price will no longer reflect the value of our businesses. In addition, until the market has fully analyzed the operations of IDT without these business segments, the price of IDT shares may fluctuate significantly. Furthermore, the combined trading prices of IDT’s common stock and Class B common stock and our common stock after the distribution may be higher or lower than the trading price of IDT common stock or Class B common stock prior to the distribution. See the Risk Factor entitled “There may not be an active trading market for shares of our common stock and stockholders may find it difficult to transfer our securities” on page 11.
   
 
 
2

 

 
Q:
What will IDT stockholders receive in the spin-off?
   
A:
In the spin-off, IDT stockholders will receive one share of our Class A common stock for every three shares of IDT common stock, one share of our Class A common stock for every three shares of IDT Class B common stock, and one share of our Class B common stock for every three shares of IDT Class A common stock, that they own as of the record date and cash in lieu of a fractional share of our common stock. Immediately after the spin-off, IDT stockholders will still own all of IDT’s current business segments, but they will own them as two separate investments rather than as a single investment.
 
Holders of our Class A common stock will be entitled to one vote per share and holders of our Class B common stock will be entitled to 10 votes per share.
 
After the spin-off, the certificates and book-entry interests representing the “old” IDT common stock, Class A common stock and Class B common stock will represent such stockholders’ interests in the IDT businesses (other than our business) following the spin-off, and the certificates and book-entry interests representing our Class A common stock and Class B common stock that stockholders receive in the spin-off will represent their interest in our businesses only.
   
Q:
If a stockholder owns restricted stock of IDT, what will that stockholder receive in the spin-off?
   
A:
Holders of restricted stock of IDT will receive, in respect of those restricted shares, one share of our Class A common stock for every three restricted shares of IDT that they own as of the record date of the spin-off. Those particular shares of our stock that you will receive will be restricted under the same terms as the IDT restricted shares in respect of which they were issued. This means that restricted shares of our stock received in the spin-off are subject to forfeiture on the same terms, and their restrictions lapse at the same time, as the corresponding IDT shares.
   
Q:
If a stockholder owns options to purchase shares of IDT stock, what will that option holder receive in the spin-off?
   
A:
IDT is studying the impact of the spin-off on holders of options to purchase shares of IDT stock and, if the Board of Directors of IDT deems it appropriate, IDT will adjust the exercise prices of those options to reflect the change in value of the underlying securities as a result of the spin-off. As of May 1, 2009, there were outstanding options to purchase 6.3 million shares of IDT Class B Common Stock with exercise prices ranging from $6.56 to $59.73 per share. The closing price of the IDT Class B Common Stock on May 11, 2009 was $1.84
   
Q:
What does an IDT stockholder need to do now?
   
A:
IDT stockholders do not need to take any action, although we urge you to read this entire document carefully. The approval of the IDT stockholders is not required or sought to effect the spin-off, and IDT stockholders have no appraisal rights in connection with the spin-off. IDT is not seeking a proxy from any stockholders, and you are requested not to send us a proxy.
 
IDT stockholders will not be required to pay anything for our shares distributed in the spin-off or to surrender any shares of IDT common stock, Class A common stock or Class B common stock. IDT stockholders should not send in their IDT share certificates. IDT stockholders will automatically receive their shares of our Class A common stock and Class B common stock when the spin-off is effected.  If you want to receive a physical certificate, your broker and/or clearing broker and our distribution agent will need to act together to facilitate this request. There is a nominal cost associated with this process.
   
Q:
Are there risks associated with owning our common stock?
   
A:
Yes. Our business is subject to both general and specific risks relating to our operations. In addition, our spin-off from IDT presents risks relating to our becoming a separately-traded public company as well as risks relating to the nature of the spin-off transaction itself. See “Risk Factors” beginning on page 6.
   
Q:
What are the U.S. federal income tax consequences of the spin-off to IDT stockholders?
   
A:
Generally speaking, IDT stockholders will not recognize a gain or loss on the receipt of shares of our common stock in the spin-off. IDT stockholders will apportion their tax basis in IDT common stock between such IDT common stock and our common stock received in the spin-off in proportion to the relative fair market values of such stock at the time of the spin-off. An IDT stockholder’s holding period for our common stock received in the spin-off will include the period for which that stockholder’s IDT common stock was held. See “The Spin-Off--Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 14. You should consult your own tax advisor as to the particular consequences of the spin-off to you.
   
 
 
3


 
Q:
What if I want to sell my IDT common stock or my Holdings common stock?
   
A:
You should consult with your own financial advisors, such as your stockbroker, bank or tax advisor. We do not make any recommendations on the purchase, retention or sale of shares of IDT common stock or our common stock to be distributed.
 
If you do decide to sell any shares, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your IDT common stock or your Holdings common stock after it is distributed, or both.
   
Q:
Where will I be able to trade shares of Holdings common stock?
   
A:
There is no current public market for our common stock. We intend to apply to have the Holdings Class A common stock traded on [______]. We anticipate that trading in shares of our Class A common stock will begin on a “when-issued” basis on or shortly before the record date and before the distribution date, and “regular way” trading will begin on the first trading day following the distribution date. If trading does begin on a “when-issued” basis, you may purchase or sell our Class A common stock after that time, but your transaction will not settle until after the distribution date. On the first trading day following the distribution date, when-issued trading with respect to our Class A common stock will end and regular way trading will begin. We cannot predict the trading prices for our Class A common stock before or after the distribution date.

We don't intend to list our Class B Common Stock for trading on any exchange or trading system.
   
Q:
Do you intend to pay dividends on your common stock?
   
A:
We do not anticipate paying dividends on our common stock in the foreseeable future. Our current intent is to retain earnings, if any, to finance the expansion of our business. The payment of dividends in the future will depend on our results of operations, financial condition, capital expenditure plans and other cash obligations and will be at the sole discretion of our Board of Directors.
 
Because IDT does not currently pay a dividend and because we and IDT will be separate entities after the spin-off, our decision to pay (or not pay) dividends in the future will not impact IDT’s decision of whether to pay (or not pay) dividends in the future. See “Dividend Policy” on page 17 for additional information on our dividend policy following the spin-off.
   
Q:
Where can IDT stockholders get more information?
   
A:
Before the distribution, if you have any questions relating to the distribution, you should contact:
 
IDT Corporation
520 Broad Street
Newark, New Jersey 07102
Attention: Bill Ulrey
(973) 438-3838
 
After the distribution, if you have any questions relating to our common stock, you should contact:
 
CTM Media Holdings, Inc.
11 Largo Drive South
Stamford, Connecticut 06907
Attention: Les Rozner
(203) 323-5161
   
Q:
Who will be the distribution agent for the spin-off?
   
A:
American Stock Transfer & Trust Company will be the distribution agent for the spin-off. The distribution agent can be contacted at:
 
59 Maiden Lane
Plaza Level
New York, New York 10038
 
Telephone (800) 937-5449

4


EXECUTIVE SUMMARY
 
CTM Media Holdings, Inc., a Delaware corporation, is currently a subsidiary of IDT Corporation. Following the spin-off, our principal businesses, which are currently part of IDT, will consist of:
 
·  
CTM Media Group, our brochure distribution company and other advertising-based new product initiatives focused on small to medium sized businesses;
 
·  
Our interest in Idea and Design Works, LLC, which is a comic book and graphic novel publisher that creates and licenses original intellectual property; and
 
·  
The WMET-AM radio station in the Washington, D.C. metropolitan area.
 
The spin-off will separate our businesses from the remainder of IDT’s operations and holdings, including IDT Telecom, IDT Energy and IDT’s alternative energy initiatives, as well as other interests.  We, along with IDT’s management, believe that the operational and growth prospects of our businesses may best be realized by a separation from those non-spun-off businesses based on several factors including synergies and growth prospects. Each of our businesses is described in more detail below.
 
Our business will consist of the following segments: CTM and IDW. The results of operations of WMET do not comprise a separate segment and are reported under the heading “Other.”
 
Summary of the Spin-Off
 
The following is a summary of the terms of the spin-off. Please see “The Spin-Off” beginning on page 12 for a more detailed description of the matters described below.
 
Distributing company
IDT Corporation, a Delaware corporation.
   
Distributed company
CTM Media Holdings, Inc., a Delaware corporation, which, following the spin-off, will be comprised of the current CTM, IDW and WMET business units of IDT.
 
Holdings’ principal executive offices are located at 11 Largo Drive South, Stamford, CT 06907.
   
Distribution ratio
Each holder of IDT common stock and Class B common stock will receive a distribution of one share of Holdings Class A common stock for every three shares of IDT common stock or Class B common stock held on the record date, and each holder of IDT Class A common stock will receive a distribution of one share of Holdings Class B common stock for every three shares of IDT Class A common stock held on the record date.
   
Securities to be distributed
Approximately 6.9 million shares of Holdings Class A common stock, which will constitute all of the outstanding shares of Holdings Class A common stock immediately after the spin-off (based on approximately 20.6 million shares of IDT common stock and Class B common stock that we expect to be outstanding on the record date).
 
Approximately 1.1 million shares of Holdings Class B common stock, which will constitute all of the outstanding shares of Holdings Class B common stock immediately after the spin-off (based on approximately 3.3 million shares of IDT Class A common stock that we expect to be outstanding on the record date).
   
Record date
The record date is 5:00 p.m., New York City time, on [___ __], 2009. In order to be entitled to receive shares of Holdings Class A common stock and/or Class B common stock in the spin-off, holders of shares of IDT common stock, Class B common stock and Class A common stock must be stockholders as of 5:00 p.m., New York City time, on the record date.
   
Distribution date
The distribution date will be on or about [___ __], 2009.
   
 
 
5

 
 
Relationship between Holdings
and IDT after the spin-off
Following the spin-off, IDT and Holdings each will be independent, publicly-traded companies. Howard Jonas will be chairman of both companies. Further, we intend to enter into agreements with IDT that will ease our transition from consolidated operating segments to an independent company following the spin-off and we will continue to cooperate with IDT when there is an opportunity for cost savings that does not impact the independence of the two companies. For example, it is intended that IDT will continue to provide certain administrative services for an agreed period following the spin-off. For additional information regarding our relationship with IDT after the spin-off, see “Our Relationship with IDT After the Spin-Off and Related Person Transactions” beginning on page 44.
   
Dividend policy
We do not anticipate paying dividends on our common stock in the foreseeable future. Our current intent is to retain earnings, if any, to finance the expansion of our business. The payment of dividends in the future will depend on our results of operations, financial condition, capital expenditure plans and other cash obligations and will be at the sole discretion of our Board of Directors.
   
Payment of intercompany
indebtedness
All intercompany debt between IDT and the businesses included in Holdings will be capitalized prior to the completion of the spin-off.
 
Corporate Information and Structure
 
Pursuant to the spin-off, we will be separated from IDT and become a separate publicly-traded company. The spin-off and our resulting separation from IDT involve the following steps:
 
·  
Before our separation from IDT, we will enter into a Separation and Distribution Agreement with IDT to effect the separation and provide a framework for our relationship with IDT after the spin-off. We also anticipate entering into a services agreement with IDT which will provide for certain services to be performed by each of IDT and us to facilitate our transition into a separate company. These agreements will provide, among other things, for the allocation between us and IDT of the assets, liabilities and obligations currently owned by IDT and attributable to periods prior to, at and after our separation from IDT, services relating to employee benefits and payroll and/or the allocation of liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters, the administration of insurance claims under pre-existing policies and the management of certain litigation matters from discontinued products and businesses. For more information on these agreements, see “Our Relationship with IDT After the Spin-Off and Related Person Transactions” beginning on page 44.
 
·  
The Securities and Exchange Commission (the “SEC”) will declare effective under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the registration statement on Form 10 of which this information statement is a part, and IDT will mail this information statement to its stockholders.
 
·  
On or prior to the distribution date, IDT will receive an opinion by Stern & Kilcullen, LLC as to the satisfaction of certain required qualifying conditions for the application of Section 355 of the Internal Revenue Code of 1986 (the “Code”) to the spin off.
 
·  
Following the separation, we will operate as a separate publicly-traded company, and we expect that our Class A common stock will begin trading on [______] on a regular way basis on the first trading day following the distribution date.
 
For a further explanation of the spin-off, see “The Spin-Off” beginning on page 12.
 
RISK FACTORS
 
Our business, operating results or financial condition could be materially adversely affected by any of the following risks associated with any one of our businesses, as well as the other risks highlighted elsewhere in this document, particularly the discussions about competition. The trading price of our common stock could decline due to any of these risks. Note that references to “our”, “us”, “we”, etc. used in each risk factor below refers to the business about which such risk factor is provided.
 
 
6

 

 
Risks Related to CTM
 
General economic downturns and other factors could negatively impact the tourism industry and reduce CTM’s revenues.
 
CTM’s brochure distribution business is closely linked to the travel and tourism industry. Travel is highly sensitive to business and personal discretionary spending levels, and thus tends to decline during general economic downturns. CTM’s sales and revenues would be significantly reduced as a result of a decline in travel as its business targets the tourist and travelers in the locations its brochures are displayed.  In the current recession of the global economy, discretionary spending levels have already dropped significantly.
 
Without limitation, some events that tend to reduce travel and, therefore, could reduce CTM’s sales and revenues include:
 
·  
price escalation in the airline industry or other travel-related industries;
·  
airline or other travel related strikes;
·  
pandemics or other widespread health risks;
·  
regional hostilities and terrorism;
·  
unusual extended periods of bad weather;
·  
fuel price escalation;
·  
reduction of capacity by travel suppliers;
·  
labor force stoppages that impact the Broadway theater industry;
·  
increased occurrence of travel-related accidents; and
·  
economic downturns and recessions.

If any of the foregoing factors results in a downturn in the tourism and travel industry, there could be a material adverse effect on CTM’s business, prospects and financial condition.
 
Declines or disruptions in the travel and tourism industry, such as those caused by terrorist attacks or general economic slowdowns such as the current recession, could negatively affect CTM’s business.
 
CTM’s brochure distribution business relies on the health and growth of the travel and tourism industry. Travel is highly sensitive to traveler safety concerns, and thus has historically declined after acts of terrorism such as those on September 11, 2001.  A terrorist attack or the perceived threat of one in New York City in particular (as a significant portion of CTM’s revenue is derived from the distribution of brochures related to Broadway showssee “Trends and changes in the theater industry could adversely affect CTM’s revenues”) could significantly reduce tourism and theater attendance. These effects, depending on their scope and duration, could significantly reduce travel and tourism, which in turn could negatively impact the demand for CTM’s services.   Reductions in tourism could also result in reduced tourism revenues for attractions, reducing the resources available to attractions to purchase CTM’s services.  Such declines could negatively impact CTM’s business, and if continuing, could have a material adverse affect on its business, prospects, and financial condition.
 
If CTM’s access to hotels and other locations for its brochure racks on the current terms were to be limited, it could negatively impact its results of operations.
 
CTM’s brochure distribution business relies on access to hotels and other locations for the placement of its brochure racks as a service or convenience for the customers of those businesses and other users of those facilities. If the owners or operators of those facilities were to restrict or substantially reduce such access, CTM’s brochure distribution business, revenues and results of operations could be materially and adversely affected.
 
Trends and changes in the theater industry could adversely affect CTM’s revenues.
 
A significant portion of CTM’s revenue (approximately 10% to 15%) is derived from its distribution of brochures related to Broadway shows. If theater attendance on Broadway declines, the demand for CTM’s services to the theater industry could soften, adversely affecting its revenues.  Further, economic downturns negatively affect the entertainment industry generally and attendance at Broadway shows in particular. Moreover, new shows may not open. Accordingly, the current recession could adversely impact CTM’s business from the theater industry which could have an adverse effect on its business, prospects and financial condition.
 
Any labor disputes that cause Broadway shows to close could adversely affect CTM’s revenues.
 
As a significant portion of CTM’s revenue is derived from its distribution of brochures related to Broadway shows, any strikes that cause the “lights to go off” on Broadway could adversely affect CTM’s revenues.
 
 
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Rapid technological changes and reliance on the Internet may decrease the attractiveness of CTM’s services to customers.
 
In order to remain competitive in the brochure industry, CTM must continue to enhance its services. If CTM fails to continually improve its services, it could lag behind competitors or it could become obsolete due to its customers’ and the public’s reliance on technology and the Internet.  In particular, the increasing popularity and availability of access content and the Internet through wireless devices may reduce the appeal of advertising through brochure displays.
 
CTM may need to develop technology or modify its services accordingly to retain its customers and grow its customer base. Such development and modifications may require CTM to incur substantial costs and expenses to respond. Such costs and expenses may have a material adverse effect on CTM’s business, financial condition and results of operations. It is possible that CTM may not be able to adapt as Internet technologies and customer demands continue to evolve. To be successful, CTM must adapt to its rapidly changing market by continually enhancing the technologies used in its Internet products and services, and introducing new technology to address the changing needs of its business and consumers. If CTM is unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or business and consumer customer requirements, its business, prospects and financial condition and results of operations could be materially adversely affected.
 
Seasonal factors may affect CTM’s operating results.
 
Seasonality of revenues will cause CTM’s revenues to fluctuate. Travel is usually slow during non-summer months and during the non-holiday season, and customers are less likely to pay for distribution of brochures during such periods.  Accordingly, CTM needs adequate liquidity to finance its operations during off-seasons. Although in the past CTM has consistently had sufficient cash reserves to fund its operations year-round, there can be no assurance that it will have sufficient funds from operations or external sources to fund its operations during slower periods.
 
Risks Related to IDW
 
IDW depends on a single distributor for its publications and such dependence subjects IDW to the risk that such distributor may be unable to perform its obligations to IDW.
 
Diamond Comic Distributors, Inc., which handles the vast majority of all comic publishers’ direct market distribution, distributes all of IDW’s products for both the direct and non-direct markets. Should Diamond fail to perform under its distribution agreement or if it were to experience financial difficulties that would hinder its performance, although the non-direct market may have other distributors that could fill Diamond’s role, distribution to the direct market would be significantly impaired in the short term and IDW’s ability to distribute and receive proceeds from its publications would be impaired.
 
IDW depends on its distributors for the implementation of internal controls related to the accounting of publication activities.
 
Because of Diamond’s role as distributor of IDW’s publications, IDW depends on Diamond to implement internal controls over financial reporting related to the publications they distribute for IDW and to provide IDW with information related to those internal controls.  Diamond’s internal controls might not be sufficient to allow IDW to meet its internal control obligations, to allow IDW’s management to properly assess those controls or to allow IDW’s independent registered public accounting firm to attest to IDW’s management’s assessment.  Diamond might fail to cure any internal control deficiencies related to the publications that it distributes for IDW. IDW may be unable to effectively create compensating controls to detect and prevent errors or irregularities in Diamond’s accounting to IDW and others.  Errors in properly tracking publication sales could negatively impact IDW’s revenues.
 
IDW’s publications might be more expensive to make than anticipated
 
Expenses associated with publishing IDW’s publications could increase beyond its budgetary limit because of a range of things such as an escalation in compensation rates of talent working on the publications or in the number of personnel required to work on publications, or because of creative problems or an increase in printing costs.  In addition, unexpected circumstances sometimes cause publication to exceed budget.
 
Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on IDW’s operations.
 
IDW is dependent on the continued services of key executives such as its CEO, Theodore Adams; its Executive Vice-President, Robbie Robbins; and certain creative employees. IDW currently has employment contracts with its CEO and Executive Vice-President, but does not have employment agreements with any other officers or employees. The departure of key personnel without adequate replacement could severely disrupt IDW’s business operations. Additionally, IDW needs qualified managers and skilled employees with industry experience to operate its businesses successfully. From time to time there may be shortages of skilled labor which may make it more difficult and expensive for IDW to attract and retain qualified employees. If IDW is unable to attract and retain qualified individuals or its costs to do so increase significantly, its operations would be materially adversely affected.
 
8

 
 
IDW may not be able to respond to changing consumer preferences and its sales may decline.
 
IDW operates in highly competitive markets that are subject to rapid change, including changes in customer preferences. There are substantial uncertainties associated with IDW’s efforts to develop successful publications and products for its customers.  New fads, trends, and shifts in popular culture could affect the type of creative media consumers will purchase. IDW has no professionally gathered demographic data, but anecdotal evidence and management experience indicate that the majority of IDW’s readers are males between the ages of 18 and 35. Content in which IDW has invested significant resources may fail to respond to consumer demand at the time it is published. IDW regularly makes significant investments in new products that may not be profitable, or whose profitability may be significantly lower than IDW has experienced historically.  A loss in sales due to the foregoing could have a material adverse effect on IDW’s business, prospects, and financial condition.
 
IDW’s publications might be less successful economically than anticipated.
 
IDW cannot predict the economic success of any of its publications because the revenue derived from the distribution of a publication depends primarily upon its acceptance by the public, which cannot be accurately predicted. The economic success of a publication also depends upon the public’s acceptance of competing publications, critical reviews, the availability of alternative forms of entertainment and leisure time activities, piracy and unauthorized recording, transmission and distribution of publications, general economic conditions, and other tangible and intangible factors, none of which can be predicted with certainty.  The commercial failure of just one of IDW’s publications could have a material adverse effect on IDW’s results of operations in both the year of release and in the future.
 
If IDW fails to maintain strong relationships with its licensors, authors, illustrators and other creative talent, as well as to develop relationships with new licensors and creative talent, its business could be adversely affected.
 
IDW’s business is highly dependent on maintaining strong relationships with the entertainment companies that license IDW their entertainment properties, and with authors, illustrators and other creative talent who produce the products that are sold to IDW’s customers. Any overall weakening of these relationships, or the failure to develop successful new relationships, could have an adverse impact on IDW’s business and financial performance. IDW has an exclusive relationship with one artist – Ashley Wood. IDW also depends on freelance artists who work for a variety of companies. It is important for IDW to maintain strong relationships with those freelance artists in order for them to choose to devote their time and talent towards IDW’s projects as opposed to another company’s.
 
A decrease in the level of media exposure or popularity of IDW’s characters could adversely affect its financial results.
 
If the movies or television programs that IDW licenses are not successful, or if the characters that IDW licenses lose some of their popularity, IDW’s ability to sell publications based on such characters will decline.
 
IDW cannot control certain publication delays and cancellations which could adversely affect IDW’s sales and its ability to meet delivery obligations.
 
IDW does not control the decision to proceed with the production of publications based on characters that it licenses from studios, and does not control the timing of the releases of those publications which are subject to long and inflexible schedules.  Disruptions, delays or cancellations to those schedules could cause IDW to incur additional costs, miss an anticipated publication date, endure for long periods without publishing a publication or all of the above, and could hurt IDW’s associated licensing programs and business, generally.
 
IDW might be disadvantaged by changes or disruptions in the way publications are distributed.
 
The manner in which consumers access publication content has undergone rapid and dramatic changes.  IDW cannot assure that new distribution channels, such as digital distribution, will be as profitable for its industry as are today’s channels or that it will successfully exploit any new channels. IDW can also not assure that current distribution channels will maintain their profitability. In addition, publications are distributed internationally and are subject to risks inherent in international trade including war and acts of terrorism, instability of foreign governments or economies, fluctuating foreign exchange rates and changes in laws and policies affecting the trade of publications.
 
 
9

 
IDW might lose potential sales because of piracy of publications.
 
With technological advances, the piracy of publications has increased. Unauthorized and pirated copies of IDW’s publications will reduce the revenue generated by those publications. If consumers can obtain illegal copies of IDW’s publications and media, IDW’s revenues will decline. IDW may not be able to identify or enforce violations of its intellectual property rights and even if legal remedies are available, they could be costly and drain its financial resources.  Accordingly, illegal copying of IDW’s content could negatively affect its revenues.
 
IDW’s dependence on printers outside the United States subjects it to the risks of international business.
 
IDW’s publications are printed in South Korea and occasionally in Canada on an as needed basis. International manufacturing is subject to a number of risks, including extreme fluctuations and volatility in currency exchange rates, transportation delays and interruptions, political and economic disruptions, the impositions of tariffs, import and export controls and changes in governmental policies. The impact of changes in currency rates has been especially heightened by current global economic conditions and significant devaluations of local currencies in comparison to the U.S. dollar.  Although to date, currency fluctuations have not adversely affected IDW’s revenues, such fluctuations could adversely affect IDW in the future.  Possible increases in costs and delays of, or interferences with, product deliveries could result in losses of revenues and the goodwill of IDW’s customers. Additional factors that may adversely affect IDW’s printing activities outside of the United States include international political situations, uncertain legal systems and applications of law, prejudice against foreigners, corrupt practices, uncertain economic policies and potential political and economic instability that may be exacerbated in foreign countries.
 
The competitive pressures IDW faces in its business could adversely affect its financial performance and growth prospects.
 
IDW is subject to significant competition, including from other publishers, many of which are substantially larger than IDW and have much greater resources than it, such as Marvel Comics and DC Comics. To the extent IDW cannot meet these challenges from existing or new competitors and develop new product offerings to meet customer preferences or needs, its revenues and profitability could be adversely affected.
 
Risks Relating to the Spin-Off
 
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from IDT.
 
As a stand-alone, independent public company, we believe that our business will benefit from, among other things, allowing our management to design and implement corporate policies and strategies that are based primarily on the characteristics of our business, to focus our financial resources wholly on our own operations and to implement and maintain a capital structure designed to meet our own specific needs. However, we may not be able to achieve some or all of the benefits expected as a result of the spin-off.
 
Additionally, by separating from IDT, there is a risk that our company may be more susceptible to stock market fluctuations and other adverse events than we would have been were we still a part of IDT due to a reduction in market diversification. Prior to the spin-off, we have been able to take advantage of IDT’s size and purchasing power in procuring goods, technology and services, including insurance, employee benefit support and audit services. As a separate, stand-alone entity, we may be unable to obtain access to financial and other resources on terms as favorable as those available to us prior to the separation. Furthermore, as a stand-alone company, we will not be able to enjoy certain benefits from IDT’s operating diversity, borrowing leverage and available capital for investments.
 
If the spin-off were to fail to qualify as a reorganization for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code, our stockholders, we and/or IDT might be subject to significant tax liability.
 
If the spin-off fails to qualify for tax-free treatment, IDT would be treated as if it had sold the common stock of our company for its fair market value, resulting in a taxable gain to the extent of the excess of such fair market value over its tax basis in our stock. In general, our initial public stockholders would be treated as if they had received a taxable distribution equal to the fair market value of our common stock that was distributed to them. For additional information, see “Material U.S. Federal Income Tax Consequences of the Spin-Off” beginning on page 14.
 
Our operations may depend on the availability of additional financing and, after the spin-off, we will not be able to obtain financing from IDT. We may not have access to funds under our credit facility.
 
Following the spin-off, we expect to have sufficient liquidity to support the development of our business. In the future, however, we may require additional financing for capital requirements and growth initiatives. After the spin-off, IDT will not provide funds to us. Accordingly, we will depend on our ability to generate cash flows from operations and to borrow funds and issue securities in the capital markets to maintain and expand our business. We may need to incur debt on terms and at interest rates that may not be as favorable as those historically enjoyed by IDT. If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund our expansion, successfully promote our business, develop or enhance our products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our products and business, financial condition and results of operations.
 
10

 
 
Our historical and pro forma financial information may not be indicative of our future results as an independent company.
 
The historical and pro forma financial information we have included in this information statement may not reflect what our results of operations, financial position and cash flows would have been had we been an independent company during the periods presented or be indicative of what our results of operations, financial position and cash flows may be in the future when we are an independent company. We have made pro forma adjustments based upon available information and assumptions that we believe are reasonable to reflect these factors, among others, in our pro forma financial information included in this information statement. However, our assumptions may not prove to be accurate and, accordingly, our pro forma information should not be assumed to be indicative of what our results of operations, cash flows or financial condition actually would have been as a stand-alone public company nor to be a reliable indicator of what our results of operations, cash flows and financial condition actually may be in the future.
 
Risk Factors Generally Relating to Us and Our Common Stock
 
We have limited resources and could find it difficult to raise additional capital.
 
As a result of the spin-off, CTM, IDW and WMET will be newly independent from IDT.  We have limited operating history as an independent company, and no current sources of financing. Any financing formerly provided to any of our businesses by IDT will no longer be available. We may need to raise additional capital in order for stockholders to realize increased value on our securities. Given the current global economy, there can be no assurance that we will be able to obtain the necessary funding on commercially reasonable terms in a timely fashion. Failure to receive the funding could have a material adverse effect on our business, prospects, and financial condition.
 
There may not be an active trading market for shares of our common stock and stockholders may find it difficult to transfer our securities.
 
Prior to the spin-off, there was no public trading market for shares of our common stock. We intend to apply to have our Class A common stock traded on [______]. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market in our common stock or how liquid such a market might become. It is possible that, after the spin-off, an active trading market will not develop or continue, and there can be no assurance as to the price at which our common stock will trade. The initial share price of our common stock may not be indicative of prices that will prevail in any future trading market.
 
In addition, because of the significant changes that will take place as a result of the spin-off, the trading market for both our common stock and IDT’s common stock after the spin-off may be significantly different from that for IDT’s common stock prior to the spin-off.
 
We cannot predict the price range or volatility of our common stock after the spin-off, and sales of a substantial number of shares of our common stock may adversely affect the market price of our common stock.
 
Investors may suffer dilution.
 
We may engage in equity financing to fund our future operations and growth.  If we raise additional funds by issuing equity securities, stockholders may experience significant dilution of their ownership interest (both with respect to the percentage of total securities held, and with respect to the book value of their securities) and such securities may have rights senior to those of the holders of our common stock.
 
General economic conditions may negatively impact our results.
 
Economic downturns may negatively affect our operations. These conditions may be widespread or isolated to one or more geographic regions in which we operate. Higher wages, related labor costs, printing costs, leasing costs, energy, insurance and fuel costs and the increasing cost trends in those markets may decrease our margins and thereby negatively impact our operations.
 
 
11

 
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
This information statement and other materials filed or to be filed by us and IDT, as well as information in oral statements or other written statements made or to be made by us and IDT, contain statements, including in this document under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “foresees” or the negative version of those words or other comparable words and phrases. Any forward-looking statements contained in this information statement are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved.
 
We believe that the factors that could cause our actual results to differ materially include but are not limited to the factors we describe in this information statement, including under “Risk Factors,” “The Spin-off” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:
 
·  
Fluctuations in our financial results;
·  
Unanticipated delays or acceleration in our sales cycles;
·  
Changes in demand for our products and services;
·  
Weather conditions and natural disasters;
·  
Acts of terrorism or war;
·  
Termination or loss of major customer contracts;
·  
Competition and innovation in our industries;
·  
Our ability to develop and introduce new or enhanced products and services;
·  
Difficulty in developing, preserving and protecting our intellectual property;
·  
Our ability to protect our information systems;
·  
Adequacy of our internal controls;
·  
Loss of key management and other personnel;
·  
Our ability to comply with laws governing our operations and industries;
·  
Increases in tax liabilities;
·  
Difficulty in implementing our business strategies;
·  
Availability and access to financial and other resources;
·  
Failure to qualify as a tax-free reorganization;
·  
Our ability to obtain financing; and
·  
Labor force stoppages.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this information statement. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by our forward-looking statements. The forward-looking statements included in this information statement are made only as of the date of this information statement, and we undertake no obligation to publicly update or review any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise.
 
THE SPIN-OFF
 
After a thorough strategic review of IDT’s portfolio, IDT determined that separating the CTM, IDW and WMET businesses from its other operations would allow us to be in a better position to thrive under our own management focus and long-term growth plans and allow us to create more long-term value individually than through the combined entity. In addition, by separating from the remaining IDT businesses, we would avoid the risks associated with those businesses.
 
The transaction is intended to be in the form of a tax-free distribution to IDT’s stockholders. To that end, we expect to receive an opinion from Stern & Kilcullen, LLC as to the nature of the transaction, as well as the tax implications for IDT stockholders and IDT arising therefrom. IDT’s Board of Directors will establish record and payment dates for the spin-off shortly before the completion of the distribution.  You should consult your own tax advisor concerning the tax impact of the spin-off on you.
 
 
12

 
 
Reasons for the Spin-Off
 
IDT’s Board of Directors believes that the spin-off will separate certain business units whose performance and financial results of the business units to be separated are more predictable and have different growth characteristics than the remaining operations.  Management believes that separating the two groups of operating units will allow management of each of IDT and Holdings to design and implement corporate strategies and policies that are based primarily on the business characteristics of that company and its business units, maintain a sharper focus on core business and growth opportunities, and concentrate their financial resources wholly on their own operations. Moreover, the separation of Holdings will provide investors with greater transparency regarding the value of Holdings’ business units. In addition, the spin-off will separate business units with different risk profiles and performance characteristics from one another. Accordingly, we believe the spin-off will build long-term stockholder value.
 
Other Benefits of the Spin-Off
 
The Board of Directors of IDT considered the following potential benefits in making the determination to effect the spin-off:
 
·  
Allow each separated company to recruit and retain employees pursuant to compensation policies which are appropriate for their respective lines of business. As a separate, publicly-traded company with our own executive management team, we may be able to attract greater media attention and press coverage, which could strengthen our ability to promote the CTM and IDW brands, and WMET-AM.
·  
Reduce internal competition for capital. Instead of having limited access to resources, we will now be able to invest any excess cash flow exclusively into the growth initiatives of our businesses. In addition, we will have direct access to the public capital markets to allow us to seek to finance our operations and growth without having to compete with IDT’s other businesses with respect to financing. As an independent entity, we will be in a position to pursue strategies our Board of Directors and management believe will create long-term stockholder value, including organic and acquisition growth opportunities, provided we continue to have access to capital.
·  
Provide both companies heightened strategic flexibility to form strategic business alliances in their target markets, unencumbered by considerations of the potential impact on the other business.
·  
Create our common equity shares, including options and restricted share units, in order to provide the appropriate incentive mechanisms to motivate and reward our management and employees. The common stock of the independent, publicly-traded Holdings will have a value that reflects the efforts and performance of our management and employees. As a result, we will be able to develop better incentive programs to attract and retain key employees through the use of stock-based and performance-based incentive plans that more directly link their compensation with our financial performance. These programs will be designed to more directly reward employees based on our performance.
·  
Allow us to effect future acquisitions utilizing our common stock for all or part of the consideration and to issue a security more directly tied to the performance of our business.
·  
Increase transparency and clarity into the different businesses of IDT and us. The investment community, including the respective analysts, stockholders and investors of IDT and us, will be better able to evaluate the merits and future prospects of each company. This will enhance the likelihood that each company will receive an appropriate market valuation.

Neither we nor IDT can assure you that, following the spin-off, any of these benefits will be realized to the extent anticipated or at all. For a description of the factors that might impact our ability to achieve these benefits, see “Risk Factors.”
 
IDT’s Board of Directors also considered a number of other factors in evaluating the spin-off, including:
 
·  
The one-time and on-going costs of the spin-off, and having us operate as an independent public company;
·  
Our capital structure;
·  
The possibility that disruptions in normal business may result; and
·  
The risk that the combined trading prices of our common stock and IDT common stock after the distribution may be lower than the trading price of IDT common stock before the distribution.

IDT’s Board of Directors concluded, however, that the potential long-term benefits of the spin-off outweigh these factors, and that separating us from IDT in the form of a tax-free distribution is appropriate and advisable.
 
 
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Manner of Effecting the Spin-Off
 
The general terms and conditions relating to the spin-off will be set forth in the Separation Agreement between us and IDT. The spin-off will be effective at 11:59 p.m., New York City time on the distribution date, which is [_____ __,] 2009. As a result of the spin-off, each IDT stockholder will receive one share of our Class A common stock for every three shares of IDT common stock, one share of our Class A common stock for every three shares of IDT Class B common stock they own and one share of our Class B common stock for every three shares of IDT Class A common stock they own. In order to be entitled to receive shares of our common stock in the spin-off, IDT stockholders must be stockholders at 5:00 p.m., New York City time, on the record date, [_____ __,] 2009. The spin-off of our unrestricted shares of Class A common stock will be paid in book-entry form and physical stock certificates will be issued to holders of Class B common stock, holders of restricted Class A common stock and upon request.  Each share of our Class A common stock and Class B common stock that is distributed will be validly issued, fully paid and non-assessable and free of preemptive rights. See “Description of Our Capital Stock” beginning on page 46.
 
IDT stockholders will not be required to pay for shares of our Class A common stock and Class B common stock received in the spin-off or to surrender or exchange shares of IDT common stock, Class B common stock and/or Class A common stock in order to receive our common stock or to take any other action in connection with the spin-off. No vote of IDT stockholders is required or sought in connection with the spin-off, and IDT stockholders have no appraisal rights in connection with the spin-off.
 
IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF OUR CLASS A COMMON STOCK AND CLASS B COMMON STOCK IN THE SPIN-OFF, YOU MUST BE A HOLDER OF IDT COMMON STOCK, CLASS B COMMON STOCK AND/OR CLASS A COMMON STOCK AT 5:00 P.M., NEW YORK CITY TIME, ON THE RECORD DATE.
 
Results of the Spin-Off
 
After the spin-off, we will be a separately traded, public company. Immediately following the spin-off, we expect to have approximately [______] beneficial holders and approximately [____] record holders of shares of our common stock (assuming conversion of all outstanding shares of our Class B common stock to our Class A common stock) based on the number of beneficial and record holders, respectively, of shares of IDT common stock, Class B common stock and Class A common stock (assuming conversion of all outstanding shares of IDT Class A common stock to common stock) on [______], 2009. The actual number of shares to be distributed will be determined on the record date and will reflect any exercise of IDT options between the date the Board of Directors of IDT declares the dividend for the spin-off and the record date for the spin-off.
 
We and IDT will be parties to a number of agreements that govern the spin-off and the future relationship between the two companies. For a more detailed description of these agreements, please see “Our Relationship with IDT After the Spin-Off and Related Person Transactions” beginning on page 44.
 
Material U.S. Federal Income Tax Consequences of the Spin-Off
 
The following is a summary of certain U.S. federal income tax consequences to IDT, the holders of IDT common stock, Class B common stock and Class A common stock, us and the holders of our common stock after the spin-off as of the date hereof. This summary does not discuss all tax considerations that may be relevant to stockholders in light of their particular circumstances, nor does it address the consequences to stockholders subject to special treatment under the U.S. federal income tax laws, such as stockholders subject to the alternative minimum tax, tax-exempt entities, non-resident alien individuals, foreign entities, foreign trusts and estates and beneficiaries thereof, stockholders who acquire shares as compensation for services (including holders of IDT restricted stock who did not make a Section 83(b) election), banks, insurance companies, other financial institutions, traders in securities that use mark-to-market accounting, and dealers in securities or commodities. In addition, this summary does not address any state, local or foreign tax consequences. This summary is based upon provisions of the Code, Treasury Regulations promulgated thereunder, pertinent judicial authorities, rulings of the Internal Revenue Service and such other relevant authorities, in effect on the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those summarized below.
 
If a partnership holds IDT or our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding IDT or our common stock, you should consult your tax advisors.
 
All stockholders should consult their own tax advisors concerning the specific tax consequences of the spin-off of our Class A common stock and Class B common stock to holders of IDT common stock, Class B common stock and Class A common stock in light of their particular circumstances. This summary is not intended to be, nor should it be construed to be, legal or tax advice to any particular investor.
 
 
14

 
IDT expects to obtain an opinion from Stern & Kilcullen, LLC as to the qualification of the spin-off as tax-free under Section 355 of the Code and a tax-free reorganization under Section 368(a)(1)(D) of the Code. An opinion of independent tax attorneys is not binding on the IRS or the courts. The opinion of Stern & Kilcullen, LLC will be based on, among other things, current tax law and assumptions and representations as to factual matters made by IDT, which if incorrect in certain material respects, would jeopardize the conclusions reached by Stern & Kilcullen, LLC in its opinion. Neither we nor IDT are currently aware of any facts or circumstances that would cause these assumptions and representations to be untrue or incorrect in any material respect or that would jeopardize the conclusions reached by Stern & Kilcullen, LLC in its opinion.
 
On the basis of the opinion IDT expects to receive in connection therewith, and assuming that IDT common stock, Class B common stock and Class A common stock is a capital asset in the hands of an IDT stockholder on the distribution date:
 
·  
holders of IDT common stock, Class B common stock and Class A common stock, will not recognize any income, gain or loss as a result of the receipt of shares of our Class A common stock and Class B common stock in the spin-off;
·  
holders of IDT stock will apportion their adjusted tax basis of their IDT stock between such Holdings stock received in the spin-off in proportion to the relative fair market values of such stock at the time of the spin-off;
·  
the holding period for our Class A common stock and Class B common stock received in the spin-off by holders of IDT common stock, Class B common stock and Class A common stock will include the period during which such holders held the IDT common stock, Class B common stock and Class A common stock with respect to which the spin-off was made; and neither we nor IDT will recognize gain or loss as a result of the spin-off.
 
Current federal tax regulations also generally provide that if an IDT stockholder holds different blocks of IDT common stock or Class B common stock (generally shares of IDT common stock purchased on different dates or at different prices), the aggregate basis for each block of IDT common stock and/or Class B common stock purchased or acquired on the same date and at the same price will be allocated, to the greatest extent possible, between the shares of our common stock (including any fractional share) received in the spin off in respect of such block of IDT common stock and/or Class B common stock and such block of IDT common stock and/or Class B common stock, in proportion to their respective fair market values, and the holding period of the shares of our Class A common stock (including any fractional share) received in the spin off in respect of such block of IDT common stock and/or Class B common stock will include the holding period of such block of IDT common stock, and/or Class B common stock provided that such block of IDT common stock and/or Class B common stock was held as a capital asset on the distribution date. If an IDT stockholder is not able to identify which particular shares of our Class A common stock (including any fractional share) are received in the spin off with respect to a particular block of IDT common stock and/or Class B common stock, for purposes of applying the rules described above, the stockholder may designate which shares of our Class A common stock (including any fractional share) are received in the spin off in respect of a particular block of IDT common stock and/or Class B common stock, provided that the number of shares so designated is consistent with the ratio of the total number of shares of our Class A common stock distributed to the IDT stockholder in the spin-off to the total number of shares of IDT common stock and/or Class B common stock on which the IDT stockholder received that distribution.
 
If you receive cash in lieu of a fractional share of our common stock, you will be treated as though you first received a distribution of the fractional share in the spin-off and then sold it for the amount of such cash. You will generally recognize capital gain or loss, provided that the fractional share is considered to be held as a capital asset, measured by the difference between the cash you receive for such fractional share and your tax basis in that fractional share, as determined above. Such capital gain or loss will be long-term capital gain or loss if your holding period (as determined above) for such fractional share is more than one year on the distribution date.
 
If the distribution were not to qualify as a tax-free spin-off under Section 355 of the Code, each IDT stockholder receiving shares of our common stock in the spin-off would be treated as if such stockholder had received a distribution in an amount equal to the fair market value of our Class A common stock received, which would result in (1) a taxable distribution to the extent of such stockholder’s pro rata share of IDT’s current and accumulated earnings and profits, (2) a reduction in such stockholder’s basis in IDT common stock and/or Class B common stock to the extent the amount received exceeds such stockholder’s share of earnings and profits and (3) a taxable gain to the extent the amount received exceeds the sum of the amount treated as a distribution and the stockholder’s basis in the IDT common stock and/or Class B common stock. Any such gain would generally be a capital gain if the IDT common stock is held as a capital asset on the distribution date. In addition, IDT would recognize a taxable gain to the extent the fair market value of our common stock exceeded its tax basis in such common stock.
 
Even if the spin-off otherwise qualifies for tax-free treatment under Section 355 of the Code, IDT could recognize taxable gain if the spin-off is determined to be part of a plan or series of related transactions pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50% or greater interest in either IDT or us. Under the Code, any acquisitions of IDT or us within the four-year period beginning two years before the date of the spin-off are presumed to be part of such a plan. Regulations issued by the IRS, however, provide mitigating rules in many circumstances. Nonetheless, a merger, recapitalization or acquisition, or issuance or redemption of our common stock after the spin-off, in some circumstances, could be counted toward the 50% change of ownership threshold. As a result, we may be unable to engage in strategic or capital raising transactions that stockholders might consider favorable, or to structure potential transactions in the manner most favorable to us.
 
 
15

 
If you are a “significant distributee” with respect to the spin-off, you are required to attach a statement to your federal income tax return for the year in which the spin-off occurs setting forth our name and IRS employer identification number, IDT’s name and IRS employer identification number, the date of the spin-off, and the fair market value of the shares of our common stock that you receive in the spin-off. Upon request, IDT will provide the information necessary to comply with this reporting requirement to each stockholder of record as of 5:00 p.m., New York City time, on the record date. You are a “significant distributee” with respect to the spin-off if you own at least 5% of the outstanding shares of IDT common stock immediately before the spin-off. You should consult your own tax advisor concerning the application of this reporting requirement in light of your particular circumstances.
 
Certain State Income Tax Matters
 
The above discussion does not address any tax consequences of the spin-off other than the material U.S. federal income tax consequences set forth above.  IDT stockholders are encouraged to consult their tax advisor concerning all possible state income tax consequences of the spin-off.
 
Listing and Trading of Our Class A Common Stock
 
There is currently no public market for our common stock. We intend to apply to have our Class A common stock traded on [_____]. We anticipate that trading of our Class A common stock will commence on a when-issued basis on or shortly before the record date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. On the first trading day following the distribution date, when-issued trading with respect to our Class A common stock will end and regular way trading will begin. Regular way trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full business day following the date of the transaction.
 
We cannot predict what the trading prices for our Class A common stock will be before or after the distribution date. We also cannot predict any change that may occur in the trading price of IDT common stock and Class B common stock as a result of the spin-off. Until our Class A common stock is fully distributed and an orderly market develops in our Class A common stock, the price at which it trades may fluctuate significantly and may be lower or higher than the price that would be expected for a fully distributed issue. See “Risk Factors--Risk Factors Generally Relating to Us and Our Common Stock.”
 
The shares of our Class A common stock distributed to IDT stockholders will be freely transferable except for shares received by persons who may be deemed to be our “affiliates” under the Securities Act of 1933, as amended. Persons that may be considered affiliates of us after the spin-off generally include individuals or entities that control, are controlled by or are under common control with us. This may include some or all of our officers and directors as well as our principal stockholders. Persons that are our affiliates will be permitted to sell their shares only pursuant to an effective registration statement under the Securities Act of 1933, as amended, or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.  We do not intend to list our Class B common stock on any exchange.
 
Spin-off Conditions and Termination
 
We expect that the spin-off will be effective on the distribution date, [____ __], 2009 (the “distribution date”), provided that, among other things:
 
·  
the SEC has declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act and no stop order relating to the registration statement is in effect; and
·  
no action, proceeding or investigation shall have been instituted or threatened before any court or administrative body to restrain, enjoin or otherwise prevent the consummation of the spin-off, and no restraining order or injunction issued by any court of competent jurisdiction shall be in effect restraining the consummation of the spin-off.

The fulfillment of the foregoing conditions will not create any obligation on IDT’s part to effect the spin-off, and the Board of Directors of IDT has reserved the right to amend, modify or abandon the spin-off and the related transactions at any time prior to the distribution date. The Board of Directors of IDT may also waive any of these conditions.
 
In addition, IDT has the right not to complete the spin-off and related transactions if, at any time, IDT’s Board of Directors determines, in its sole discretion, that the distribution is not in the best interests of IDT and its stockholders or that business conditions are such that it is not advisable to spin-off our business.
 
 
16

 
Reason for Furnishing this Information Statement
 
This information statement is being furnished solely to provide information to IDT stockholders who will receive shares of our common stock in the spin-off. It is not and is not to be construed as an inducement or encouragement to buy or sell any securities. We believe that the information contained in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither we nor IDT undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations.
 
DIVIDEND POLICY
 
We were formed in May 2009 and have never paid cash dividends. Following the spin-off we do not expect to pay any cash dividends for the foreseeable future. Our current policy is to retain all of our earnings to finance future growth. Any future declaration of dividends will be subject to the discretion of our Board of Directors.
 
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
 
The unaudited pro forma consolidated financial statements reported below consist of an unaudited pro forma consolidated balance sheet as of January 31, 2009 and unaudited pro forma consolidated statements of operations for the six months ended January 31, 2009 and for the fiscal year ended July 31, 2008. The unaudited pro forma consolidated financial statements reported below should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our audited consolidated financial statements for each of the fiscal years in the two year period ended July 31, 2008 and the notes thereto, and the unaudited interim consolidated financial statements for the six months ended January 31, 2009 and the notes thereto, all of which are included elsewhere in this information statement. Our unaudited pro forma financial information was prepared on the same basis as with our audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position and results of operations for these periods.
 
The pro forma balance sheet adjustments assume that our spin-off from IDT occurred as of January 31, 2009. The pro forma adjustments to the consolidated statements of operations for the six months ended January 31, 2009 and for the year ended July 31, 2008 assume that the spin-off occurred as of August 1, 2007.
 
The following unaudited pro forma consolidated financial statements reflect IDT’s transfer to us of all of its assets and liabilities related to Holdings, the conversion of our debt to IDT into a capital contribution, and the distribution by IDT to its stockholders of approximately 6.9 million shares of our Class A common stock and approximately 1.1million shares of Class B common stock.  The number of our Class A common stock is based on the number of shares of IDT common stock and Class B common stock outstanding at May 1, 2009, the number of our Class B common stock is based on the number of shares of IDT Class A common stock outstanding at May 1, 2009.
 
The unaudited pro forma consolidated balance sheet and statements of operations included in this information statement have been derived from our audited consolidated financial statements and our unaudited interim consolidated financial statements included elsewhere in this information statement and do not purport to represent what our financial position, results of operations or cash flows actually would have been had the spin-off occurred on the date indicated, or to project our financial performance for any future period.
 
 
17

 
CTM MEDIA HOLDINGS, INC.
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 2009
(in thousands)
(unaudited)
 
   
Historical
   
Pro Forma
adjustments
         
Pro Forma
 
Assets
                       
Current assets:
                       
Cash and cash equivalents
  $ 3,664                 $ 3,664  
Short-term investment
    1,010                   1,010  
Trade accounts receivable, net
    3,640                   3,640  
Inventory
    1,078                   1,078  
Prepaid expenses
    1,012                   1,012  
                             
Total current assets
    10,404                   10,404  
Property, plant and equipment, net
    4,381                   4,381  
Goodwill
    1,150                   1,150  
Licenses and other intangibles, net
    669                   669  
Other assets
    150                   150  
Total assets
  $ 16,754                 $ 16,754  
                             
Liabilities and stockholders’ (deficit) equity
                           
Current liabilities:
                           
Trade accounts payable
  $ 978                 $ 978  
Accrued expenses
    1,678                   1,678  
Deferred revenue
    1,221                   1,221  
Due to IDT Corporation
    23,824       (23,824 )    
(A)
       
Capital lease obligations—current portion
    174                       174  
Other current liabilities
    467                       467  
Total current liabilities
    28,342                       4,518  
Deferred income tax liabilities, net
                           
Capital lease obligations—long-term portion
    449                       449  
Other liabilities
    2                       2  
Total liabilities
    28,793                       4,969  
                                 
                                 
Stockholders’ (deficit) equity:
                               
Preferred stock, $.01 par value; authorized shares—10,000; no shares issued
                           
Class A common stock, $.01 par value; authorized shares—100,000; 6,868 shares issued and outstanding
          69      
(B)
      69  
Class B common stock, $.01 par value; authorized shares—15,000; 1,091 shares issued and outstanding
          11               11  
Additional paid-in capital
    33,140     $ 23,744      
(A,B)
      56,884  
Accumulated other comprehensive income
    109                       109  
Accumulated  deficit
    (45,288 )                     (45,288 )
Total stockholders’ (deficit) equity
    (12,039 )                     11,785  
Total liabilities and stockholders’ (deficit) equity
  $ 16,754                     $ 16,754  
 
 
18

 
 
CTM MEDIA HOLDINGS, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 2009
(in thousands, except per share data)
(unaudited)
 
   
Historical
   
Pro Forma
Adjustments
         
Pro Forma
 
                         
Revenues
  $ 16,301                 $ 16,301  
Costs and expenses:
                           
Direct cost of revenues (exclusive of depreciation and amortization)
    6,950                   6,950  
Selling, general and administrative
    8,254                   8,254  
Depreciation and amortization
    811                   811  
Bad debt
    395                   395  
Impairment and severance charges
    32,111                   32,111  
Total costs and expenses
    48,521                   48,521  
                             
Loss from operations
    (32,245 )                 (32,245 )
Interest expense, net
    (28 )                 (28 )
Other income, net
    3                   3  
                             
Loss before minority interests and income taxes
    (32,245 )                 (32,245 )
Minority interests
    737                     737  
Provision for income taxes
    (158 )                   (158 )
Net loss
  $ (31,666 )                 $ (31,666 )
                               
Loss per share:
                             
Basic and diluted
                   
(C)
      (3.98 )
Weighted average number of shares used in calculating basic and diluted loss per share
                           
7,959
 
 
 
 
19


 
CTM MEDIA HOLDINGS, INC.
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2008
(in thousands, except per share data)
(unaudited)
 
   
Historical
   
Pro Forma adjustments
     
Pro Forma
 
                     
Revenues
  $ 32,626             $ 32,626  
Costs and expenses:
                       
Direct cost of revenues (exclusive of depreciation and amortization)
    12,566               12,566  
Selling, general and administrative
    18,277               18,277  
Depreciation and amortization
    2,078               2,078  
Bad debt
    472               472  
Impairment and severance charges
    3,683               3,683  
Total costs and expenses
    37,076               37,076  
Loss from operations
    (4,450 )             (4,450 )
Interest income, net
    57               57  
Other expense, net
    (99 )             (99 )
Loss before minority interests and income taxes
    (4,492 )               (4,492 )
Minority interests
    (378 )               (378 )
Provision for income taxes
    (457 )               (457 )
Net loss
  $ (5,327 )             $ (5,327 )
                           
Loss per share:
               
(C)
       
Basic and diluted
                      (0.67 )
Weighted average number of shares used in calculating loss per share
                      7,959  
 
 
20


 
CTM MEDIA HOLDINGS, INC.
NOTES AND MANAGEMENT’S ASSUMPTIONS
TO THE PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
1.
The following is a description of the pro forma adjustments to the consolidated financial statements:

 
(A)
Reflected as if the amounts due from Holdings to IDT were converted into a capital contribution on January 31, 2009.

 
(B)
Reflected as if the 6.9 million shares of Class A common stock and 1.1 million shares of Class B common stock shares were issued at January 31, 2009.

 
(C)
Earnings per share is calculated as if 6.9 million shares of Class A common stock and 1.1 million shares of Class B common stock and were issued and outstanding in all period presented.
 
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview
 
We are currently a subsidiary of IDT. Following the spin-off, our principal businesses, which are currently part of IDT, will consist of:
 
·  
CTM Media Group, our brochure distribution company, other advertising-based new product initiatives focused on small to medium sized businesses;
 
·  
Our majority interest in Idea and Design Works, LLC, which is a comic book and graphic novel publisher that creates and licenses original intellectual property; and
 
·  
WMET-AM radio station in the Washington, D.C. metropolitan area.
 
The spin-off will separate our businesses from IDT Telecom, IDT Energy and IDT’s alternative energy initiatives, as well as other IDT interests.  We, along with IDT’s management, believe that the operational and growth prospects of our businesses may best be realized by a separation from those non-spun-off businesses based on several factors including synergies and growth prospects. Each of our businesses is described in more detail below.
 
CTM
 
CTM is a distributor of travel and entertainment information to visitors who desire to maximize their experience in a particular region. CTM has five divisions: Brochure Distribution, Design & Print, Publishing, RightCardTM, and Digital Distribution. Through these divisions, CTM offers clients a comprehensive media marketing approach. In fiscal 2008, CTM serviced over 3,000 clients and maintained more than 11,000 display stations, in over 30 states and provinces. CTM’s display stations are located in travel and entertainment venues, including hotels, resorts, interstate highway rest areas, airports and local attractions. Through its local sales force, CTM sells brochure slots in these stands to local advertisers, maintains the stands and ensures placement and replenishment of brochures. Advertisers include entertainment venues, tourist attractions, and cultural sites as well as their related service providers including dining, lodging, and transport services. CTM generated revenues which represented 63.6% of consolidated revenues in the six months ended January 31, 2009, 66.2% in fiscal 2008 and 88.4% in fiscal 2007.
 
IDW
 
IDW is a comic book and graphic novel publisher that creates and licenses original intellectual property. IDW generated revenues which represented 32.7% of consolidated revenues in the six months ended January 31, 2009, 30.2% in fiscal 2008 and 5.9% in fiscal 2007.
 
WMET
 
WMET 1160 AM is a radio station serving the Washington, D.C. metropolitan area. WMET generated revenues which represented 3.7% of consolidated revenues in the six months ended January 31, 2009, 3.6% in fiscal 2008 and 5.7% in fiscal 2007.
 
Reportable Segments
 
We have the following two reportable business segments: CTM and IDW. The results of operations of WMET do not comprise a separate segment and are reported under the heading “Other.”
 
Presentation of financial information
 
Basis of presentation
 
The consolidated financial statements for the periods reflect our financial position, results of operations, changes in stockholders’ equity 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.
 
 
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Critical Accounting Policies
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities.  Management continually evaluates its estimates and judgments including those related to 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.  We believe that of our significant accounting policies, the following may involve a higher degree of judgment (see Note 2 to the consolidated financial statements for a complete discussion of our significant accounting policies).
 
Allowance for Doubtful Accounts
 
We maintain allowances for doubtful accounts receivable for estimated losses, which result from the inability of our customers to make required payments.  We base our allowances on our determination of the likelihood of recoverability of trade accounts receivable based on past experience and current collection trends that are expected to continue.  In addition, we perform ongoing credit evaluations of our significant customers, but historically we have not required collateral to support trade accounts receivable from our customers.
 
Goodwill and Intangible Assets with Indefinite Useful Lives
 
In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to impairment tests, performed at least annually. Other intangible assets with definite lives are amortized over their estimated useful lives.
 
The goodwill impairment assessment involves estimating the fair value of the reporting unit and comparing it to its carrying amount (which is known as Step 1). If the carrying value of the reporting unit exceeds its estimated fair value, additional steps are followed to determine if an impairment of goodwill is required. We estimate the fair value of our reporting units by applying discounted cash flow methodologies, as well as considering third party market value indicators. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. Should our estimates and assumptions regarding the fair value of our reporting units prove to be incorrect, we may be required to record additional impairments to our goodwill in future periods and such impairments could be material
 
Valuation of Long-Lived Assets including Intangible Assets with Finite Useful Lives
 
We assess the recoverability of our long-lived assets including identifiable intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of any such asset may not be recoverable. Such events or changes in circumstances include:
 
·  
significant actual underperformance relative to expected performance or projected future operating results;
·  
significant changes in the manner or use of the asset or the strategy of our overall business; and
·  
significant adverse changes in the business climate in which we operate.

If we determine that the carrying value of certain long-lived assets may not be recoverable and may exceed its fair value based upon the existence of one or more of the above indicators, we will test for impairment based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, we will record an impairment loss based on the difference between the estimated fair value and the carrying value of the asset. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from the asset using an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should our estimates and assumptions prove to be incorrect, we may be required to record impairments in future periods and such impairments could be material.
 
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.
 
 
23

 
 
In June 2007, we acquired a controlling interest in IDW for $2.4 million, which is net of cash acquired of $1.6 million. IDW’s results of operations were included in our consolidated results of operations from the date of acquisition.
 
SIX MONTHS ENDED JANUARY 31, 2009 COMPARED TO SIX MONTHS ENDED JANUARY 31, 2008
 
Consolidated
 
                         
(in millions)
             
Change
 
Six months ended January 31,
 
2009
   
2008
    $       %  
Revenues
                         
CTM Media Group
  $ 10.4     $ 10.0     $ 0.4       3.3 %
IDW Publishing
    5.3       4.2       1.1       26.4  
Other
    0.6       0.6       0.0       8.6  
Total revenues
  $ 16.3     $ 14.8     $ 1.5       10.0 %

Revenues.  The increase in consolidated revenues in the six months ended January 31, 2009 was primarily due to the increase in IDW and CTM revenues. The increase in IDW revenues in the six months ended January 31, 2009 was the result of increases in revenue as a result of an increase in titles sold.
 
                         
(in millions)
             
Change
 
Six months ended January 31,
 
2009
   
2008
     $       %  
Costs and expenses
                         
Direct cost of revenues
  $ 7.0     $ 5.9     $ 1.1       17.8 %
Selling, general and administrative
    8.2       8.9       (0.7 )     (7.6 )
Depreciation and amortization
    0.8       0.7       0.1       13.1  
Bad debt expense
    0.4       0.3       0.1       55.0  
Impairment and severance charges
    32.1       0.2       31.9    
nm
 
Total costs and expenses
  $ 48.5     $ 16.0     $ 32.5       203.4 %

nm—not meaningful

Direct Cost of Revenues.  The increase in direct cost of revenues in the six months ended January 31, 2009 was due primarily to the increase in IDW’s direct cost of revenues. The increase in IDW’s direct cost of revenues in the six months ended January 31, 2009 was a result of the increase in revenues. In addition, overall gross margin decreased from 60.2% in the six months ended January 31, 2008 to 57.4% in the six months ended January 31, 2009 due to decrease in gross margins in CTM, which was primarily due to the mix of products as a result of an increase in lower margin printing revenues.
 
Selling, General and Administrative.  The decrease in selling, general and administrative expenses in the six months ended January 31, 2009 was due to decreases in the selling, general and administrative expenses of CTM. CTM’s selling, general and administrative expenses decreased in the six months ended January 31, 2009 due primarily to the exit from certain unprofitable lines of businesses, consisting of Traffic Pull 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 mostly completed. The Local Pull product is still being offered by CTM, however the business model has been reworked and is being marketed through outsourced channels, which is more cost effective for us. Total selling, general and administrative expenses for these exited businesses was $0.7 million and $2.2 million for the six months ended January 31, 2009 and 2008, respectively. As a percentage of total revenues, selling, general and administrative expenses decreased from 60.3% in the six months ended January 31, 2008 to 50.6% in the six months ended January 31, 2009 as selling, general and administrative expenses decreased while revenues increased.
 
Bad Debt Expense.  The increase in bad debt expense in the six months ended January 31, 2009 compared to the six months ended January 31, 2008 was due primarily to increase in bad debt expense of CTM as a result of several of its customers going out of business.
 
 
24

 
 
Impairment and severance charges.   We recorded aggregate impairment charges of $31.6 million in the six months ended January 31, 2009 of which $29.7 million was recorded by CTM and $1.8 million was recorded by IDW. 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 were in the process of estimating the fair values of our reporting units in order to compare the fair value to the carrying value of the reporting unit (which is Step 1 of the goodwill impairment test). Our management determined, in their preliminary Step 1 impairment analysis, that the goodwill of certain reporting units was likely impaired in the second quarter of fiscal 2009. We are continuing to evaluate the impairment of our goodwill, and the amount of the actual impairment, except for CTM and IDW, is currently not able to be estimated. We expect that we will complete the goodwill impairment analysis before the end of fiscal 2009.
 
For CTM and IDW, we measured each of their fair values by discounting their estimated future cash flows using an appropriate discount rate. Their carrying value including goodwill exceeded their estimated fair value, therefore Step 2 was performed to determine whether an impairment of goodwill was required. We recorded preliminary goodwill impairment of $29.7 million in CTM and $1.8 million in IDW, which are subject to adjustment. We recorded the preliminary amounts because it was probable that goodwill was impaired, and the amount of impairment could be reasonably estimated. Calculating the fair value of the reporting units, and allocating the estimated fair value to all of the tangible assets, intangible assets and liabilities, requires significant estimates and assumptions. Should these estimates or assumptions prove to be incorrect, we may record additional goodwill impairment in future periods and such impairment could be material.
 
                         
(in millions)
             
Change
 
Six months ended January 31,
 
2009
   
2008
     $     %  
 Loss from operations
  $ (32.2 )   $ (1.2 )   $ (31.0 )  
nm
 
Interest income, net
          0.1       (0.1 )  
(143.7)%
 
Other expense, net
          (0.1 )     0.1    
 103.8
 
Minority interests
    0.7       (0.2 )     0.9    
nm
 
(Provision for) benefit from income taxes
    (0.2 )     0.1       (0.3 )  
nm
 
Net loss
  $ (31.7 )   $ (1.3 )   $ (30.4 )  
nm
 
                               
 
nm—not meaningful

Minority Interests.  Minority interests arise from the 47% interest held by the minority owners of IDW.
 
Income Taxes.  Income tax expense decreased in the six months ended January 31, 2009 due primarily to decreases in our federal and foreign income tax expense, partially offset by an increase in state and local income tax expense. Our foreign income tax expense results from income generated by our foreign subsidiaries that cannot be offset against losses generated in the United States.
 
CTM
 
                         
(in millions)
             
Change
 
Six months ended January 31,
 
2009
   
2008
     $     %  
Revenues
  $ 10.4     $ 10.0     $ 0.4    
3.3%
 
Direct cost of revenues
    3.6       3.2       0.4    
10.2
 
Selling, general and administrative
    6.1       6.7       (0.6 )  
(9.2)
 
Depreciation and amortization
    0.4       0.3       0.1    
9.2
 
Bad debt expense
    0.3       0.2       0.1    
108.0
 
Impairment and severance charges
    30.2       0.2       30.0    
nm
 
Loss from operations
  $ (30.2 )   $ (0.6 )   $ (29.6 )  
nm
 
  
nm—not meaningful

Revenues.  The increase in CTM’s revenues in the six months ended January 31, 2009 was primarily due to the growth in CTM’s printing revenues.  Printing revenues are a lower margin business for us as compared to our higher margin distribution business. However, we maintain the printing business as a method to solidify our relationship with our customers by providing this requested service.
 
 
25

 
Direct Cost of Revenues.  The increase in direct cost of revenues in the six months ended January 31, 2009 reflects the increase in revenues. Direct costs of revenues consist of warehouse and delivery expense as well as salaries related to those costs and printing costs.
 
CTM’s aggregate gross margin decreased in the six months ended January 31, 2009 to 65.3% from 67.5% in the six months ended January 31, 2008. The decrease in the six months ended January 31, 2009 was primarily due to the mix of products as a result of an increase in 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 decreased in the six months ended January 31, 2009 compared to the six months ended January 31, 2008 primarily due to the exit from certain unprofitable lines of businesses, consisting of Traffic Pull and Local Pull, our Internet search position enhancement, 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 mostly completed. The Local Pull product is still being offered by CTM, however the business model has been reworked and is being marketed through outsourcing which is more cost effective for us. Total selling, general and administrative expenses for these exited businesses was $0.7 million and $2.2 million for the six months ended January 31, 2009 and 2008, respectively. As a percentage of CTM’s aggregate revenues, selling, general and administrative expenses decreased in the six months ended January 31, 2009 to 58.4% from 66.4% in the six months ended January 31, 2008, as revenues increased by a greater percentage than selling, general and administrative expenses.
 
Impairment and severance charges.   CTM recorded goodwill impairment charges of $29.7 million in the six months ended January 31, 2009, which reduced the carrying value of its goodwill to zero.  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 CTM by discounting its estimated future cash flows using an appropriate discount rate. CTM’s carrying value including goodwill exceeded its estimated fair value, therefore Step 2 was performed to determine whether an impairment of goodwill was required.  We recorded preliminary goodwill impairment of $29.7 million, which is subject to adjustment.  We recorded the preliminary amount because it was probable that goodwill was impaired, and the amount of impairment could be reasonably estimated.  We expect that we will complete the goodwill impairment analysis before the end of fiscal 2009.  Calculating the fair value of the reporting units, and allocating the estimated fair value to all of the tangible assets, intangible assets and liabilities, requires significant estimates and assumptions, and the actual fair value may be significantly different that the estimates.
 
IDW
 
                         
(in millions)
             
Change
 
Six months ended January 31,
 
2009
   
2008
   
 $
    %  
Revenues
  $ 5.3     $ 4.2     $ 1.1    
26.4%
 
Direct cost of revenues
    3.4       2.7       0.7    
27.4
 
Selling, general and administrative
    1.6       1.5       0.1    
5.4
 
Depreciation and amortization
    0.1             0.1    
nm
 
Impairment and severance charges
    1.8             1.8    
nm
 
Loss from operations
  $ (1.6 )   $     $ 1.6    
nm
 
                               
  
nm—not meaningful

Revenues.  The increase in IDW’s revenues in the six months ended January 31, 2009 was due to new editorial hires, which have resulted in more and better products and an increase in the number of titles we are releasing on a weekly and monthly basis, and the success of our Presidential Material comic books, particularly a volume featuring Barack Obama, and our licensed comics, particularly books based on Angel, Star Trek, and Transformers.
 
Direct Cost of Revenues.  The increase in direct cost of revenues in the six months ended January 31, 2009 reflects the increase in revenues. Direct costs of revenues consist primarily of printing expenses and costs of artist and writers.
 
 
26

 
IDW’s aggregate gross margin decreased slightly in the six months ended January 31, 2009 to 37.1% from 37.5% in the six months ended January 31, 2008. The decrease in the six months ended January 31, 2009 was primarily due to the mix of products.
 
Selling, General and Administrative.  Selling, general and administrative expenses increased in the six months ended January 31, 2009 compared to the six months ended January 31, 2008 primarily due to increases in the selling, general and administrative expenses relating to an increase in titles sold, an increase in the number of employees, and moving to new facilities to accommodate the growth which carries higher costs.  As a percentage of IDW’s aggregate revenues, selling, general and administrative expenses decreased in the six months ended January 31, 2009 to 30.2% from 36.2% in the six months ended January 31, 2008, as the increase in revenues was higher than the increase in selling, general and administrative expenses.
 
Impairment and severance charges. IDW recorded goodwill impairment charges of $1.8 million in the six months ended January 31, 2009, which reduced the carrying value of its goodwill to zero. 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 IDW by discounting its estimated future cash flows using an appropriate discount rate. IDW’s carrying value including goodwill exceeded its estimated fair value, therefore Step 2 was performed to determine whether an impairment of goodwill was required. We recorded preliminary goodwill impairment of $1.8 million, which is subject to adjustment. We recorded the preliminary amount because it was probable that goodwill was impaired, and the amount of impairment could be reasonably estimated. We expect that we will complete the goodwill impairment analysis before the end of fiscal 2009. Calculating the fair value of the reporting units, and allocating the estimated fair value to all of the tangible assets, intangible assets and liabilities, requires significant estimates and assumptions, and the actual fair value may be significantly different that the estimates.
 
YEAR ENDED JULY 31, 2008 COMPARED TO YEAR ENDED JULY 31, 2007
 
Consolidated
 
                         
(in millions)
             
Change
 
Year ended July 31,
 
2008
   
2007
     $       %  
Revenues
                         
CTM
  $ 21.6     $ 20.3     $ 1.3       6.2 %
IDW
    9.9       1.4       8.5       627.4  
Other
    1.1       1.3       (0.2 )     (12.1 )
Total revenues
  $ 32.6     $ 23.0     $ 9.6       41.7 %
 
nm—not meaningful

Revenues.  The increase in consolidated revenues in fiscal 2008 was primarily due to the increase in IDW revenues, which was the result of the acquisition of IDW in the fourth quarter of fiscal 2007.
 
                         
(in millions)
             
Change
 
Year ended July 31,
 
2008
   
2007
     $       %  
Costs and expenses
                         
Direct cost of revenues
  $ 12.5     $ 7.3     $ 5.2       72.5 %
Selling, general and administrative
    18.3       13.5       4.8       35.2  
Depreciation and amortization
    2.1       1.4       0.7       49.7  
Bad debt expense
    0.5       0.1       0.4       214.5  
Impairment and severance charges
    3.7       0.1       3.6       nm  
Total costs and expenses
  $ 37.1     $ 22.4     $ 14.7       65.1 %

nm—not meaningful

Direct Cost of Revenues.  The increase in direct cost of revenues in fiscal 2008 was due primarily to the increase in IDW’s direct cost of revenues, which was the result of the acquisition of IDW in the fourth quarter of fiscal 2007. Overall gross margin decreased from 68.4% in fiscal 2007 to 61.5% in fiscal 2008 primarily due to the increase in IDW revenues which have a relatively lower gross margin.
 
 
27

 
Selling, General and Administrative.  The increase in selling, general and administrative expenses in fiscal 2008 was due to increases in the selling, general and administrative expenses of IDW, which was the result of the acquisition of IDW in the fourth quarter of fiscal 2007 as well as increases in the selling, general and administrative expenses of CTM. CTM’s selling, general and administrative expenses increased in fiscal 2008 due primarily to increases in compensation and commission expenses as a result of our sales growth initiative which consisted of our increasing of our sales force and expanding into new territories. This sales growth initiative consisted of the creation of new lines of businesses of CTM, consisting of Traffic Pull and Local Pull, our Internet search position enhancement ventures, and Click2Talk, our Web-based communications product. These new lines of business have been discontinued beginning in the fourth quarter of fiscal 2008. The Local Pull product is still being offered by CTM, however the business model has been reworked and is being marketed through outsourced channels, which is more cost effective for us. Total selling, general and administrative expenses for these exited businesses was $4.6 million and $3.0 million for fiscal 2008 and 2007, respectively. As a percentage of total revenues, selling, general and administrative expenses decreased from 57.6% in fiscal 2007 to 56.0% in fiscal 2008 as total revenues increased at a faster rate than selling, general and administrative expenses
 
Bad Debt Expense.  The increase in bad debt expense in fiscal 2008 compared to fiscal 2007 was due primarily to the increase in CTM’s bad debt as a result of several of its customers going out of business and an increase in WMET’s bad debt expense which reflected the aging of its accounts receivable on one of its larger customers.
 
Impairment and Severance Charges.   Impairment and severance charges in fiscal 2008 included mainly impairment charges of $3.5 million in WMET’s fixed assets.
 
                         
(in millions)
             
Change
 
Year ended July 31,
 
2008
   
2007
   
 $
     
%
 
(Loss) income from operations
  $ (4.5 )   $ 0.6     $ (5.1 )  
nm
 
Interest income, net
    0.1       0.1              
Other expense, net
    (0.1 )     (0.4 )     0.3       72.1 %
Minority interests
    (0.4 )     (0.1 )     (0.3 )     254.1  
Provision for income taxes
    (0.4 )     (0.5 )     0.1       (16.6 )
Net loss
  $ (5.3 )   $ (0.3 )   $ (5.0 )  
nm
 
                               

Interest Income, net.  The slight decrease in net interest income in fiscal 2008 was due primarily to a decrease in interest income as a result of lower yields on our interest bearing cash.
 
Other Expense, net.  Other (expense) income in fiscal 2007 consisted primarily on losses of CTM.
 
Minority Interests.  Minority interests arise from the 47% minority owners of IDW.
 
Income Taxes.  Income tax expense decreased in fiscal 2008 due primarily to decreases in our federal and foreign income tax expense, partially offset by an increase in state and local income tax expense. Our foreign income tax expense results from income generated by our foreign subsidiaries that cannot be offset against losses generated in the United States.
 
CTM
 
                         
(in millions)
             
Change
 
Year ended July 31,
 
2008
   
2007
     $       %  
Revenues
  $ 21.6     $ 20.3     $ 1.3       6.2 %
Direct cost of revenues
    7.0       6.4       0.6       9.7  
Selling, general and administrative
    13.7       11.0       2.7       23.5  
Depreciation and amortization
    0.7       0.7              
Bad debt expense
    0.3       0.1       0.2       204.9 %
Impairment and severance charges
    0.2       0.1       0.1       75.8  
(Loss) income from operations
  $ (0.3 )   $ 2.0     $ (2.3 )     (117.5 )%
 
 
28


 
Revenues.  The increase in CTM’s revenues in fiscal 2008 was primarily due to the growth in CTM as a result of our sales growth initiative as well as an increase in lower margin printing revenues. The sales growth initiative consisted of increasing our sales force and expanding into new territory, which we started in late calendar year 2007.  Printing revenues are a lower margin business for us as compared to our higher margin distribution business. However we maintain the printing business as a method to solidify our relationship with our customers by proving this requested service.
 
Direct Cost of Revenues.  The increase in direct cost of revenues in fiscal 2008 reflects the higher printing cost of revenues as well as expansion of our distribution workforce. CTM’s aggregate gross margin decreased in fiscal 2008 to 67.5% from 68.5% in fiscal 2007. The decrease in gross margins was primarily due to the growth in printing revenues which has lower gross margins than distribution revenues.
 
Selling, General and Administrative.  Selling, general and administrative expenses increased in fiscal 2008 compared to fiscal 2007 primarily due to increases in compensation and commission expenses as a result of our sales growth initiative which consisted of our increasing of our sales force and expanding into new territory. This sales growth initiative consisted of the creation of new lines of businesses of CTM, consisting of Traffic Pull and Local Pull, our Internet search position enhancement, and Click2Talk, our Web-based communications product. These new lines of business have been discontinued beginning in the fourth quarter of fiscal 2008. The Local Pull product is still being offered by CTM, however the business model has been reworked and is being marketed through outsourcing which is more cost effective for us. Total selling, general and administrative expenses for these exited businesses was $4.6 million and $3.0 million for fiscal 2008 and 2007, respectively. As a percentage of CTM’s aggregate revenues, selling, general and administrative expenses increased in fiscal 2008 to 63.6% from 54.3% in fiscal 2007.
 
IDW
 
                         
(in millions)
             
Change
 
Year ended July 31,
 
2008
   
2007
   
$
   
%
 
Revenues
  $ 9.9     $ 1.4     $ 8.5       nm  
Direct cost of revenues
    5.6       0.9       4.7    
nm
 
Selling, general and administrative
    3.1       0.4       2.7    
nm
 
Depreciation and amortization
    0.7             0.7    
nm
 
Income from operations
  $ 0.5     $ 0.1     $ 0.4    
nm
 

nm—not meaningful

We acquired IDW in the fourth quarter of fiscal 2007. The results of operations for fiscal 2007 therefore represent operations during the fourth quarter of fiscal 2007 while fiscal 2008 includes a full year of operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Historically, we have satisfied our cash requirements through cash flow from operating activities generated from CTM and funding from IDT.
 
(in millions)
 
Six months ended 
January 31,
   
Year ended July 31,
 
Year ended July 31,
 
2009
   
2008
   
2007
 
Cash flows (used in) provided by
                 
Operating activities
  $ (1.0 )   $ (0.2 )   $ 2.0  
Investing activities
    (1.4 )     (1.0 )     (3.2 )
Financing activities
    0.5       1.1       3.6  
(Decrease) increase in cash and cash equivalents
  $ (1.9 )   $ (0.1 )   $ 2.4  

 
29

 
 
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. In the fourth quarter of fiscal 2008, we commenced the exit of certain unprofitable lines of businesses of CTM, consisting of Traffic Pull and Local Pull, our Internet search position enhancement, and Click2Talk, our Web-based communications product. The exit from these lines of business is mostly completed. The Local Pull product is still being offered by CTM, however the business model has been reworked and is being marketed through outsourcing which is more cost effective for us. Cash flow used in operating activities from these exited businesses was approximately $0.8 million and $1.9 million in the six months ended January 31, 2009 and 2008, respectively.
 
Investing Activities
 
Our capital expenditures were $0.4 million in the six months ended January 31, 2009, $0.9 million in fiscal 2008 and $0.7 million in fiscal 2007. We currently anticipate that total capital expenditures for all of our divisions in fiscal 2009 will be approximately $0.1 million. The decrease is the result of CTM upgrading their fleet of trucks and brochure distribution racks and stands as well as CTM moving to a new location in previous periods. We expect to fund our capital expenditures with our cash, cash equivalents and marketable securities on hand that we expect to be funded by IDT upon the consummation of the spin-off.
 
In the six months ended January 31, 2009 IDW invested $1.0 million in a short-term instrument.
 
In the fourth quarter of fiscal 2007, we acquired a controlling interest in IDW for $2.4 million net of cash of $1.6 million.
 
Financing Activities
 
During all periods presented, IDT, our parent company, provided us with the required liquidity to fund our working capital requirement and investments for some of our businesses. We used any excess cash provided by our operations to repay IDT. In the six months ended January 31, 2009 and in fiscal 2008 and in fiscal 2007, IDT provided cash to us of $0.9 million, $1.8 million, and $3.7 million, respectively. At January 31, 2009, the amount due to IDT was $23.8 million. Upon consummation of the spin-off, the amount due to IDT is expected to be converted into a capital contribution.
 
We distributed cash of $0.3 million in the six months ended January 31, 2009 and $0.5 million in fiscal 2008 to the minority equity holders of IDW. There were no distributions to minority equity holders in fiscal 2007.
 
We repaid capital lease obligations of $0.1 million in the six months ended January 31, 2009, in fiscal 2008 and in fiscal 2007.
 
CHANGES IN TRADE ACCOUNTS RECEIVABLE, ALLOWANCE FOR DOUBTFUL ACCOUNTS AND DEFERRED REVENUE
 
Gross trade accounts receivable decreased to $4.0 million at January 31, 2009 compared to $4.7 million at July 31, 2008 and increased from $3.4 million at July 31, 2007. The decrease in the six months ended January 31, 2009 is due to higher collections in IDW. The increase in gross account receivable at July 31, 2008 compared to July 31, 2007 was primarily due to increase in revenues of IDW. The allowance for doubtful accounts as a percentage of gross trade accounts receivable increased to 8.0% at January 31, 2009, compared to 2.9% at July 31, 2008 and 6.5% at July 31, 2007. The main reason for the changes in the allowance for doubtful accounts is due to changes in WMET’s allowance as result of new management revaluating the adequacy of WMET’s allowance.
 
Deferred revenue as a percentage of total revenues vary from period to period depending on the mix and the timing of revenues. Deferred revenue arises primarily from billings by CTM in advance of brochure distribution. Deferred revenue decreased to $1.2 million at January 31, 2009 and to $2.0 million at July 31, 2008 from $2.3 million at July 31, 2007 primarily due to fewer advance billings by CTM.
 
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. 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.
 
 
30

 
Historically, we satisfied our cash requirements primarily through operating cash generated by CTM and from funding from IDT. With the exit of certain lines of businesses within CTM, we expect our operations in fiscal 2009 and the balance of cash, cash equivalents, marketable securities that we held as of January 31, 2009 will be sufficient to meet our currently anticipated working capital and capital expenditure requirements, and to fund any potential operating cash flow deficits within any of our segments for at least the next twelve months. Failure to generate sufficient revenue and operating income could have a material adverse effect on our results of operations, financial condition and cash flows.
 
FOREIGN CURRENCY RISK
 
Revenues from our international operations represented 9.3% and 11.9% of our consolidated revenues from operations for the years ended July 31, 2008 and 2007, respectively. A significant portion of these revenues is in currencies other than the U.S. Dollar, primarily Canadian dollars and recently in Euros, although our revenues in Euros are not significant at this time. 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. As such, the net amount of our exposure to foreign currency exchange rate changes 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.
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETS RISKS
 
Smaller reporting companies are not required to provide the information required by this item. 
 
RECENTLY ISSUED ACCOUNTING STANDARDS AND STANDARDS NOT YET ADOPTED
 
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations. SFAS 141(R) establishes principles and requirements for how the acquirer: (a) recognizes and measures the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) requires the acquiring entity in a business combination to recognize the full fair value of the assets acquired and liabilities assumed in the transaction at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; the immediate expense recognition of transaction costs; changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense; and restructuring plans will be accounted for separately from the business combination, among other things. In April 2009, the FASB issued FASB Staff Position (FSP) 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends and clarifies SFAS 141(R) with regards to the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. We are required to apply SFAS 141(R) and FSP 141(R)-1 to business combinations with an acquisition date on or after August 1, 2009. SFAS 141(R) fundamentally changes many aspects of existing accounting requirements for business combinations. As such, if we enter into any business combinations after the adoption of SFAS 141(R), a transaction may significantly impact our financial position and results of operations, but not our cash flows, when compared to acquisitions accounted for under current US GAAP.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Also, SFAS 160 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, SFAS 160 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. We are required to adopt SFAS 160 on August 1, 2009. Upon the adoption of SFAS 160, we will change the classification and presentation of noncontrolling interest in our financial statements, which is currently referred to as minority interests. We are still evaluating the impact that SFAS 160 will have on our consolidated financial statements, but we do not expect SFAS 160 to have a material impact on our financial position, results of operations or cash flows.  
 
 
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In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. We are required to adopt FSP 142-3 on August 1, 2009. The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. We are currently evaluating the impact of FSP 142-3 on our consolidated financial statements.
 
In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This FSP amends the guidance in US GAAP for assessing whether an impairment of a debt security is other than temporary, and revises the presentation and disclosure in the financial statements of other than temporary impairments of debt and equity securities. We are required to adopt FSP 115-2 on May 1, 2009. In addition, in April 2009, the SEC amended Topic 5.M. in the Staff Accounting Bulletin Series entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities to exclude debt securities from its scope. Topic 5.M., as amended, maintains the staff’s previous views related to equity securities. We are currently evaluating the impact of FSP 115-2 on our consolidated financial statements. We do not expect the amendment to Topic 5.M. to have a material impact on our financial position, results of operations or cash flows.
 
In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. The FSP also requires entities to disclose the methods and significant assumptions used to estimate fair value of financial instruments in interim financial statements, and to highlight any changes in the methods and assumptions from prior periods. FSP 107-1 became effective for our financial statements beginning on May 1, 2009. We will include the disclosures required by FSP 107-1 in our consolidated financial statements for our first quarter ending October 31, 2009.
 
 
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BUSINESS
 
CTM Media Holdings, Inc., a Delaware corporation, is currently a subsidiary of IDT Corporation. Following the spin-off, our principal businesses, which are currently part of IDT, will consist of:
 
·  
CTM Media Group, our brochure distribution company and other advertising-based new product initiatives focused on small to medium sized businesses;
 
·  
Our majority interest in Idea and Design Works, LLC, which is a comic book and graphic novel publisher that creates and licenses original intellectual property; and
 
·  
The WMET-AM radio station in the Washington, D.C. metropolitan area.
 
The spin-off will separate our businesses from the remainder of IDT’s operations and holdings, including IDT Telecom, IDT Energy and IDT’s alternative energy initiatives, as well as other interests. We, along with IDT’s management, believe that the operational and growth prospects of our businesses may best be realized by a separation from those non-spun-off businesses based on several factors including synergies and growth prospects. Each of our businesses is described in more detail below.
 
Our business will consist of the following segments: CTM and IDW. The results of operations of WMET do not comprise a separate segment and are reported under the heading “Other.”
 
CTM
 
CTM Media Group, Inc. develops and distributes print and mobile-based advertising and information in targeted tourist markets.  Advertisers include entertainment venues, tourist attractions, and cultural sites as well as their related service providers including dining, lodging, and transport services. CTM leverages its regional network of more than 11,000 proprietary brochure display stations to distribute over 135 million printed brochures and cards per year to tourists, and to drive mobile and Internet traffic to its online tourist information services.
 
CTM is headquartered at 11 Largo Drive South, Stamford, Connecticut.  CTM has approximately 165 employees, 14 of whom are part-time and 151 of whom are full-time, including management, sales, distribution, graphic designers, and corporate support. CTM has 16 field offices and over 30 distribution facilities within its territory. CTM’s strategically located display stations are managed by a dedicated organization utilizing over 30 warehouses, branded delivery vans, and a uniformed distribution and delivery team.
 
CTM was an independent brochure distribution company until it was purchased by IDT in June 2000.  At that time, CTM’s primary business centered on the distribution of brochures promoting Broadway shows within the greater New York City metropolitan area. Additional territories included Boston and other locations in New England, Toronto, Ottawa, Philadelphia, Southeast Florida, and Detroit.
 
Since the acquisition by IDT, CTM has grown both geographically and by developing related lines of business.  Geographic growth has been driven both by organic expansion to new territories and through selective purchases of regional businesses.  CTM currently has over 11,000 brochure display stations from which it distributed 135 million printed brochures in 2008.
 
CTM’s client base includes over 3,000 advertisers in 36 states and provinces in the United States (including Puerto Rico) and Canada.  Its distribution territory in the United States includes the Northeast, Mid-Atlantic, and Midwestern states. CTM Media is a brochure distribution market leader in each of the following greater metro areas: New York City, Boston, Toronto, Ottawa, Miami, Ft. Lauderdale, Philadelphia, Chicago, St. Louis, Kansas City, Minneapolis/St. Paul, Detroit and Cleveland.
 
CTM’s client base is diverse. No single advertiser contributes a significant portion of CTM revenues. However, CTM is the leading distributor of Broadway show brochures and derives approximately 10% to 15% of its revenues from Broadway and its affiliated advertising agencies.
 
Throughout its operating region, CTM operates five integrated and complimentary business lines: Brochure Distribution, Design & Print, Publishing, RightCardTM, and Digital Distribution.
 
Brochure Distribution:  CTM distributes client brochures through its network of more than 11,000 strategically located display stations.  Brochure distribution is CTM’s largest line of business generating roughly 85% of CTM’s revenues.
 
 
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CTM’s extensive distribution and display station network is the key value driver and differentiator in this line of business. The large quantity and diversity of its display station locations allows CTM to segment its visitor audience and tailor targeted marketing programs for its clients. Locations are typically hosted within facilities serving the travel, tourism and entertainment industry, including: hotels and other lodgings, corporate and community venues, transportation terminals and hubs, tourist attractions and entertainment venues. CTM also contracts with public transportation authorities and high volume retail chains to host a small percentage of its brochure display stations.
 
CTM has developed strong relationships with its display station hosts and its regional client advertisers.  These relationships constitute a significant barrier to entry that CTM believes discourages competition within metropolitan markets.
 
CTM is the largest travel and tourism brochure display company in the Eastern and Midwestern United States, and the second largest nationally. Privately held Certified Folder Display is the national market leader with over 23,000 display station locations, primarily in the Western United States. Certified’s key metropolitan areas include San Francisco, Seattle, Los Angeles, Phoenix and Las Vegas. An estimated 20 to 30 other distribution companies competing from smaller regional bases comprise the remainder of the brochure distribution and display industry.
 
Design & Print:  CTM leverages its in-house design team and large print volumes to provide clients with cost-effective custom design and print services.  Design & Print services contribute approximately 7% of CTM’s revenues.
 
Publishing:  CTM publishes maps with integrated display advertising and identified tourist locations.  Current maps cover key metropolitan areas within CTM’s territory including Boston/New England, Chicago, Kansas City, Minneapolis/St. Paul, New York City, Philadelphia, Southeast Florida, St. Louis, and Toronto.  Publishing accounts for approximately 3-5% of CTM revenues.
 
RightCardTM: CTM designs and prints RightCardsTM – pocket-sized cards in a consistent format distributed through a network of specialized display stations in high-traffic areas. The RightCardTM content format includes a discount or value offer, map and contact information in both print and online.  RightCardsTM are distributed at approximately 600 locations. The RightCardTM program contributes approximately 3-5% of CTM’s revenues.
 
Digital Distribution:  CTM’s digital distribution business helps CTM clients effectively target and reach tourists who use mobile devices and/or the Internet.  In 2008, CTM launched its “City in the Pocket” series with mobile New York (www.cipny.mobi). CTM plans to introduce comparable mobile sites for Philadelphia, Chicago, and Boston later this year. Beginning in January of this year, a new text alert system developed and provided by CTM offered tourists the ability to subscribe to and receive text alerts of offers and news from local attractions and venues.
 
CTM’s telephone number at its headquarters is (203) 323-9345 and its website is www.ctmmediagroup.com.
 
IDW
 
Idea and Design Works, LLC is an independent comic book publisher pre-eminent in the horror and action genres, boasting such high-profile titles as 30 Days of Night, Angel, Doctor Who, G.I. Joe, Locke and Key, Star Trek and The Transformers.
 
In 1999, four entertainment executives and artists established IDW as a creative-service company providing artwork and graphic design to entertainment companies. In 2001, IDW formed its publishing division, IDW Publishing, which initially focused on producing a small number of high-quality publications and has since grown into a fully staffed publishing company.  In June 2007, a subsidiary of IDT purchased a 53% interest in IDW.  Founders of IDW, including Theodore Adams, its current CEO, retained the remaining ownership interests in IDW.
 
IDW has established itself as a significant player in the comic book and graphic novel marketplace. IDW has been named Publisher of the Year in 2003, 2004, 2005, 2007, and 2008 by Diamond Comic Distributors, Inc. In 2007, Hasbro named IDW as their “Transformers Licensee of the Year – Publishing” and the nationally televised Spike Awards named 30 Days of Night as the “Best Comic Book.” In 2008, IDW won an Eisner Award for its series “The Complete Terry and the Pirates.” In 2007 and 2008, IDW was the only comic publisher named by Global License as one on the “Top Global Licensees.”
 
IDW’s comic book and trade paperback publications are distributed through two channels: (i) to comic book specialty stores on a non-returnable basis (the “direct market”), and (ii) to traditional retail outlets, including bookstores and newsstands, on a returnable basis (the “mass market”). In addition, IDW provides clients with custom comic books and artwork/graphic design services (“creative services”). In fiscal 2006, 2007 and 2008, the direct market accounted for 68%, 56% and 50% of IDW’s revenue, while the mass market accounted for 10%, 30% and 34%, and creative services accounted for 18%, 10% and 11%, respectively.  IDW’s primary customer is Diamond Comic Distributors, Inc. (“Diamond”), an unaffiliated entity that handles the vast majority of all comic publishers’ direct market distribution. Diamond purchases IDW’s publications and subsequently sells them to both the direct and non-direct markets. Retail stores are also indirect IDW customers.
 
 
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In an effort to increase availability of versions of its content at retail outlets, IDW has entered into a number of digital distribution agreements this year, and IDW’s publications are currently available for purchase via mobile phones, primarily iPhones/iPod Touch. IDW has also entered into agreements for distribution via handheld video game devices, and direct-to-desktop and titles are expected to be available in both formats later this year.  IDW’s business cycle is driven by its publishing schedule and movie release dates (of movies for which IDW publishes comic books and graphic novels) which are set by third party studios.
 
IDW faces significant competition from other publishers such as Marvel Comics, DC Comics, Dark Horse Comics, Image Comics, and Dynamic Forces, many of which are substantially larger than IDW and have much greater resources than IDW.
 
In fiscal 2008, IDW generated revenues of $9.9 million and operating income of $0.5 million compared to the period of June 8, 2007 (date of IDT’s purchase of its interest in IDW) to July 31, 2007 when IDW generated revenues of $1.4 million and operating income of nil. In the first half of fiscal 2009, IDW has generated revenues of $5.3 million and an operating loss of $1.6 million. Included in the operating loss was a $1.8 million goodwill impairment related to IDT’s acquisition of IDW.
 
IDW’s telephone number at its headquarters is (858) 270-1315 and its website is www.idwpublishing.com.
 
WMET
 
We own and operate WMET 1160 AM, a radio station in the Washington, D.C. metropolitan area. In July, 2002, IDT purchased Beltway Acquisition Corporation, the entity holding WMET’s Federal Communications Commission (“FCC”) broadcast license. The station  broadcasts at  50KW power daytime and 1.5kW after sunset  serving the Washington, D.C. metropolitan area, the nation’s eighth-largest radio market, including the corridor from Baltimore, Maryland to Richmond, Virginia. WMET is a reseller of radio broadcast time to outside parties.
 
In addition to broadcasting in the Washington, D.C. metropolitan area, WMET’s radio signal is simultaneously broadcast via Web-streaming technology.  WMET’s customers, who buy airtime, provide a balance of entertainment and information programming, including Spanish and Ethiopian programming.
 
In the format as a primary reseller of radio broadcast to outside parties, WMET earns revenues through the rental of airtime slots as well as the sale of advertising. In the first half of fiscal 2009, WMET generated revenues of $0.6 million and an operating loss of $0.4 million. In fiscal 2008, WMET generated revenues of $1.2 million and an operating loss of $4.6 million, which included a $3.5 million impairment of fixed assets compared to fiscal 2007, when WMET generated revenues of $1.3 million and an operating loss of $1.4 million. WMET offers studio personnel providing technical support which it feels is a competitive advantage over its competitors.
 
The types of properties required to support WMET include an office, studios and a tower and antenna site. The tower and antenna site is located in an area that provides maximum market coverage.
 
WMET has a license from the FCC to operate at 1160 MHz in the AM band and is licensed to Gaithersburg, Maryland.
 
The radio broadcasting industry is subject to extensive and changing regulation of, among other things, program content, advertising content, technical operations and business and employment practices. The ownership, operation and sale of radio stations are subject to the jurisdiction of the FCC. Among other things, the FCC:
 
·  
assigns frequency bands for broadcasting;
 
·  
determines the particular frequencies, locations, operating powers and other technical parameters of stations;
 
·  
issues, renews, revokes, conditions and modifies station licenses;
 
·  
determines whether to approve changes in ownership or control of station licenses;
 
·  
regulates equipment used by stations; and
 
 
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·  
adopts and implements regulations and policies that directly affect the ownership, operation and employment practices of stations.
 
The FCC has the power to impose penalties for violations of its rules or the Communications Act of 1934 ( the “Communications Act”), including the imposition of monetary forfeitures, the issuance of short-term licenses, the imposition of a condition on the renewal of a license, non-renewal of licenses and the revocation of operating authority. The following is a brief summary of some provisions of the Communications Act and of specific FCC regulations and policies. The summary is not a comprehensive listing of all of the regulations and policies affecting radio stations. For further information concerning the nature and extent of Federal regulation of radio stations, you should refer to the Communications Act, FCC rules and public notices, and the rulings of the FCC and applicable courts.
 
FCC AM Radio Licenses
 
Radio stations operate pursuant to renewable broadcasting licenses that are ordinarily granted by the FCC for maximum terms of eight years. A station may continue to operate beyond the expiration date of its license if a timely filed license renewal application is pending. During the periods when renewal applications are pending, petitions to deny license renewals can be filed by interested parties, including members of the public. The FCC is required to hold hearings on a station’s renewal application if a substantial or material question of fact exists as to whether the station has served the public interest, convenience and necessity. If, as a result of an evidentiary hearing, the FCC determines that the licensee has failed to meet certain requirements and that no mitigating factors justify the imposition of a lesser sanction, then the FCC may deny a license renewal application. Historically, FCC licenses have generally been renewed. WMET’s FCC license expires on October 1, 2011. We have no reason to believe that our license for WMET will not be renewed in the ordinary course, although there can be no assurance to that effect. The non-renewal of that license could have a material adverse effect on our radio business.
 
Pursuant to FCC rules and regulations, many AM radio stations, including WMET, are authorized to operate only at a reduced power during the nighttime broadcasting hours, which results in reducing the radio station’s coverage during the nighttime hours of operation.  
 
WMET currently is licensed to serve Gaithersburg, Maryland as a Class B AM station on 1160 MHz with 50 kilowatt of effective radiated power during the daytime hours and 1.5 kilowatt during the nighttime hours.
 
Transfers or Assignment of AM Radio License
 
The Communications Act prohibits the assignment of broadcast licenses or the transfer of control of a broadcast licensee without the prior approval of the FCC. In determining whether to grant such approval, the FCC considers a number of factors pertaining to the licensee and proposed licensee, including:
 
·  
compliance with the various rules limiting common ownership of media properties in a given market;
 
·  
the character of the licensee and those persons holding attributable interests in the licensee; and
 
·  
compliance with the Communications Act’s limitations on foreign ownership as well as compliance with other FCC regulations and policies.
 
If we determine that it is in our best interest to sell the WMET license to a third party, we will need to obtain the prior consent of the FCC before consummating the sale of the WMET FCC license.
 
From time to time we may evaluate the corporate entities and structure that controls WMET and may determine that is in our best interest to reorganize that structure.  If we determine it is in our best interests to modify that ownership structure, we will need to obtain prior FCC approval of a pro forma transfer control of the license if there is a less than 50% change in the ownership interest.
 
As a result of the spin-off, a pro forma transfer of WMET would occur.  Accordingly, we will file a pro forma application with the FCC seeking approval of the proposed modification of the ownership structure of WMET whereby the stockholders of IDT would be the ultimate owner of Beltway Acquisition Corporation (the licensee of WMET) instead of IDT being the owner.
 
WMET currently employs six full time employees and three to six part-time employees.
 
WMET’s telephone number at its headquarters is (202) 969-9884 and its website is www.wmet1160.com.
 
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MANAGEMENT
 
Directors and Executive Officers
 
Set forth below is information concerning those persons that we expect to serve as our executive officers and directors immediately following the distribution date.
 
Name
  
Age
  
Position
Howard S. Jonas
  
52
  
Chairman and Director
Marc E. Knoller
  
48
  
Chief Executive Officer, President and Director
Leslie B. Rozner
 
56
 
Chief Financial Officer, Treasurer and Secretary

Howard S. Jonas founded IDT in August 1990, and has served as Chairman of the Board of Directors since its inception. Mr. Jonas served as Chief Executive Officer of IDT from December 1991 until July 2001, as President of IDT from December 1991 through September 1996, and as Treasurer of IDT from inception through 2002. Mr. Jonas has also served as the Vice Chairman of the Board of Directors of IDT Telecom from December 1999 to April 2008, as Co-Chairman since April 2008, and as a director of IDT Capital since September 2004. Mr. Jonas served as Co-Chairman of the Board of Directors of IDT Entertainment from November 2004 until August 2006. Since August 2006, Mr. Jonas has been a director of Starz Media Holdings, LLC, Starz Media, LLC and Starz Foreign Holdings, LLC, each of which is a subsidiary of Liberty Media Corporation. In addition, Mr. Jonas has been a director of IDT Energy since June 2007 and a director of American Shale Oil Corporation since January 2008. Mr. Jonas is also the founder and has been President of Jonas Media Group (f/k/a Jonas Publishing) since its inception in 1979. Mr. Jonas was the Chairman of the Board of Directors of Net2Phone from October 2001 to October 2004, the Vice Chairman of the Board of Directors of Net2Phone from October 2004 to June 2006, and has served as the Chairman of Net2Phone since June 2006.  Mr. Jonas has served as our Chairman since our inception.  Mr. Jonas received a B.A. in Economics from Harvard University.
 
Marc E. Knoller has been an Executive Vice President of IDT since December 1998 and served as a director of IDT from March 1996 to August 2007. Mr. Knoller joined IDT as a Vice President in March 1991 and also served as a director of its predecessor. Mr. Knoller has served as Vice President of Jonas Media Group (f/k/a Jonas Publishing) since 1991. Mr. Knoller has been our Chief Executive Officer since our inception. Mr. Knoller received a B.B.A. from Baruch College.
 
Leslie B. Rozner has been the Chief Financial Officer of Holdings since inception and CFO of CTM Media Group since August 2008. Mr. Rozner served as CFO of IDT Spectrum from July 2006 until July 2008. Prior to that time, Mr. Rozner worked as a CPA and provided consulting services to IDT.  Mr. Rozner originally joined IDT in 1991 and served as the first CFO of IDT until 1993. Mr. Rozner is a certified public accountant licensed by the State of New York.  Mr. Rozner received a BS in Accounting from Brooklyn College of CUNY. Mr. Rozner filed for Chapter 7 personal bankruptcy in October 2005, which was discharged in December 2007.
 
Board of Directors
 
Currently, our Board of Directors is composed of Howard Jonas and Marc Knoller. Prior to the spin-off, we intend to designate, and IDT intends, acting as our sole stockholder, to elect, additional directors such that a majority of our directors will be independent in accordance with our to-be-adopted Corporate Governance Guidelines, the rules of [______] and other applicable laws. Each director will hold office, in accordance with our Certificate of Incorporation and By-laws until the next annual meeting of stockholders and until his or her successor is duly elected and qualified.
 
CORPORATE GOVERNANCE
 
Director Independence
 
Following the spin-off, our Corporate Governance Guidelines will provide that a majority of our directors must be independent under criteria established by [______]. Prior to the spin-off, we expect to designate directors in addition to Messrs. Jonas and Knoller such that a majority of our directors will be independent in accordance with our Corporate Governance Guidelines and the rules of [______] and other applicable laws.
 
 
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Controlled Company Exemption
 
Following the spin-off, we will be a “controlled company” as defined in [______]  of [______]  because more than 50% of our voting power will be beneficially held by Howard S. Jonas, our Chairman of the Board. As a “controlled company,” we will be exempt from certain [______] listing standards. However, we intend for our corporate governance practices to go beyond the requirements of [______] listing standards and, despite being a “controlled company”, intend to have a majority of independent directors on our Board, as well as an independent Compensation Committee and Corporate Governance Committee, none of which is required for controlled companies under the [______] listing standards.
 
Committees of the Board of Directors
 
Prior to the distribution date, our Board of Directors will establish an Audit Committee, a Nominating Committee, a Compensation Committee, and a Corporate Governance Committee. All members of the Audit, Nominating, Compensation and Governance Committees will meet the criteria for independence as established by [______] and under the Sarbanes-Oxley Act of 2002. Each of the Committees is described in greater detail below. The Board will establish written charters for each of the Committees, which will be available on our website located at [www.______.com] following the spin-off. Following the spin-off, any changes to the charters will be reflected on our website.
 
 
We expect to designate members of our Audit Committee on or prior to the spin-off. The principal duties of the Audit Committee under its written charter will include: (i) responsibilities associated with our external and internal audit staffing and planning; (ii) accounting and financial reporting issues associated with our financial statements and filings with the SEC; (iii) financial and accounting organization and internal controls; (iv) auditor independence and approval of non-audit services; and (v) “whistle-blower” procedures for reporting questionable accounting and audit practices.
 
The Audit Committee charter will require that the Committee be comprised of at least three directors, all of whom must be independent under the[______] listing standards and the Sarbanes-Oxley Act of 2002. In addition, each member of the Audit Committee will be financially literate within the meaning of the [______] listing standards, and at least one member will have sufficient accounting or financial management expertise to qualify as an “audit committee financial expert,” as determined by the Board in accordance with SEC rules.
 
 
We expect to designate members of our Nominating Committee on or prior to the spin-off. The principal duties of the Nominating Committee under its charter will include: (i) developing the criteria and qualifications for membership on the Board of Directors; (ii) recommending candidates to fill new or vacant positions on the Board of Directors; and (iii) conducting appropriate inquiries into the backgrounds of potential candidates. We intend to apply the [______] exemption related to a controlled company which allows a “controlled company” to be exempted from complying with rules requiring that only independent directors comprise our Nominating Committee.
 
 
We expect to designate members of our Compensation Committee on or prior to the spin-off. The principal duties of the Compensation Committee under its charter will include: (i) ensuring that a succession plan for the Chief Executive Officer is in place; (ii) reviewing management’s recommendations for executive officers and making recommendations to the Board of Directors; (iii) approving the compensation for the Chief Executive Officer; (iv) reviewing and approving compensation policies and practices for other executive officers including their annual salaries; (v) reviewing and approving major changes in employee benefit plans; (vi) reviewing short and long-term incentive plans and equity grants; and (vii) recommending to the full Board changes to the compensation of the independent members of the Board of Directors. The Compensation Committee charter will require that the Committee be comprised of at least three directors, all of whom must be independent under the [______] listing standards.
 
 
We expect to designate members of our Corporate Governance Committee on or prior to the spin-off. The principal duties of the Corporate Governance Committee under its charter will include: (i) reviewing our Corporate Governance Guidelines and other policies and governing documents and recommending revisions as appropriate; (ii) reviewing any potential conflicts of independent directors; (iii) reviewing and monitoring related person transactions; and (iv) overseeing the self-evaluations of the Board of Directors, the Audit Committee and the Compensation Committee. The Corporate Governance Committee charter will require that the Committee be comprised of at least three directors, all of whom must be independent under the [______] listing standards.
 
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Following the spin-off, we will observe corporate governance practices and principal governance documents which are designed to ensure that we maximize stockholder value in a manner that is consistent with both the legal requirements applicable to us and a business model that requires our employees to conduct business with the highest standards of integrity. Prior to the spin-off, our Board will adopt and will adhere to corporate governance principles which the Board and senior management believe promote this purpose, are sound and represent best practices, and will review these governance practices, the corporate laws of the State of Delaware under which we were incorporated, the rules and listing standards of the [______] and the regulations of the SEC, as well as best practices recognized by governance authorities to benchmark the standards under which it operates. Our principal governance documents will be as follows:
 
·  
Corporate Governance Guidelines;
 
·  
Board of Directors committee charters, including:
 
§  
Audit Committee charter;
 
§  
Nominating Committee charter;
 
§  
Compensation Committee charter;
 
§  
Corporate Governance Committee charter; and
 
·  
Code of Business Conduct and Ethics.
 
Our governance documents will be available following the distribution date on our web site at [_______].
 
Our Board of Directors, with assistance from its Corporate Governance Committee, will regularly assess our governance practices in light of legal requirements and governance best practices.
 
Executive Director Sessions
 
Under our Corporate Governance Guidelines, the outside directors will meet in regularly scheduled executive sessions without management. We expect that a lead independent director will be selected by the Board to serve as the presiding director at these meetings.
 
Communications with the Board of Directors
 
After the spin-off, stockholders and other interested persons seeking to communicate directly with the Board of Directors, with the lead independent director or the independent directors as a group, should submit their written comments c/o Lead Independent Director at our principal executive offices set forth on page 4. The lead independent director will review any such communication at the next regularly scheduled Board meeting unless, in his or her judgment, earlier communication to the Board is warranted.
 
If a stockholder communication raises concerns about the ethical conduct of us or our management, it should be sent directly to our Corporate Secretary at our principal executive offices set forth on page 4. The Corporate Secretary will promptly forward a copy of any such communication to the Chairman of the Audit Committee and, if appropriate our Chairman, and take such actions as they authorize to ensure that the subject matter is addressed by the appropriate committee of the Board, by management and/or by the full Board.
 
At the direction of the Board, we reserve the right to screen all materials sent to its directors for potential security risks, harassment purposes or routine solicitations.
 
Code of Business Conduct and Ethics
 
Prior to the distribution date, we will adopt a Code of Business Conduct and Ethics which will apply to our directors, Chief Executive Officer, Chief Financial Officer and other Holdings employees.
 
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DIRECTOR COMPENSATION
 
We have not yet established arrangements to compensate our directors, but intend to do so prior to the spin-off.
 
 
Compensation of our Named Executive Officers
 
Prior to the spin-off, all of the named executive officers were employees of IDT and all compensation for fiscal year 2008 disclosed in the table below was paid by IDT for services provided by the named executive officers to our business segments and other units of IDT. During fiscal year 2008, Howard Jonas served as the Chairman of the Board of Directors of IDT, Marc Knoller served as an Executive Vice President of IDT and Les Rozner served as the Chief Financial Officer of IDT Spectrum, Inc.
 
The historical compensation of Marc Knoller and Howard Jonas was set by the Compensation Committee of the Board of Directors of IDT after discussions with management about the recommended levels and components of compensation for each of the individuals. The historical compensation of Les Rozner was set by the management of IDT.
 
Howard Jonas has an employment agreement with IDT, which is summarized in IDT’s Proxy Statement for its 2008 Annual Meeting of Shareholders and the agreement and all amendments to the agreement have been filed as exhibits to IDT’s reports it files with the SEC. No other named executive officers have employment agreements with the Company or IDT. Following the spin-off, the Compensation Committee will set the compensation of Mr. Jonas for his service as our Chairman. Mr. Jonas will continue to serve as the Chairman of IDT following the spin-off.
 
SUMMARY COMPENSATION TABLE (With respect to IDT Corporation)
 
Name and Principal Position
Fiscal Year
 
Salary
   
Bonus
   
Stock
Awards(1)
   
Option
Awards (1)
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