Report of Independent Registered Public Accounting Firm
Board
of Directors and Stockholder
IDW
Media Holdings, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of IDW Media Holdings, Inc. and its Subsidiaries (the “Company”)
as of October 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity
and cash flows for each of the two years in the period ended October 31, 2020 and the related notes (collectively referred to as the
“financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of October 31, 2020 and 2019, and the results of its operations and its cash flows for each
of the two years in the period ended October 31, 2020 in conformity with accounting principles generally accepted in the United States
of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. the Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
ZWICK
& BANYAI, PLLC
We
have served as the Company’s auditor since 2010.
Southfield,
Michigan
January
25, 2021
IDW
MEDIA HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
(in thousands,
except per share data)
|
|
October
31,
2020
|
|
|
October 31,
2019
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
10,541
|
|
|
$
|
7,543
|
|
Trade accounts receivable,
net
|
|
|
22,921
|
|
|
|
43,462
|
|
Inventory
|
|
|
3,754
|
|
|
|
3,313
|
|
Prepaid expenses
|
|
|
1,361
|
|
|
|
1,319
|
|
Current
assets held for sale from discontinued operations
|
|
|
11,171
|
|
|
|
5,186
|
|
Total current assets
|
|
|
49,748
|
|
|
|
60,823
|
|
Property and equipment,
net
|
|
|
410
|
|
|
|
562
|
|
Right-of-use assets,
net
|
|
|
771
|
|
|
|
-
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Taxes receivable
|
|
|
-
|
|
|
|
513
|
|
Investments
|
|
|
25
|
|
|
|
-
|
|
Intangible assets, net
|
|
|
52
|
|
|
|
115
|
|
Goodwill
|
|
|
199
|
|
|
|
199
|
|
Television costs, net
|
|
|
2,926
|
|
|
|
9,388
|
|
Other assets
|
|
|
527
|
|
|
|
372
|
|
Non-current
assets held for sale from discontinued operations
|
|
|
-
|
|
|
|
5,165
|
|
Total assets
|
|
$
|
54,658
|
|
|
$
|
77,137
|
|
Liabilities and stockholders’
equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
1,406
|
|
|
$
|
2,145
|
|
Accrued expenses
|
|
|
3,953
|
|
|
|
3,036
|
|
Deferred revenue
|
|
|
2,385
|
|
|
|
1,058
|
|
Bank loans payable –
current portion
|
|
|
14,204
|
|
|
|
29,242
|
|
Related party loans payable
– current portion
|
|
|
-
|
|
|
|
4,550
|
|
Government loans- current
portion
|
|
|
793
|
|
|
|
-
|
|
Operating lease obligations
– current portion
|
|
|
562
|
|
|
|
-
|
|
Other current liabilities
|
|
|
69
|
|
|
|
2,007
|
|
Current
liabilities held for sale from discontinued operations
|
|
|
8,540
|
|
|
|
3,344
|
|
Total
current liabilities
|
|
|
31,912
|
|
|
|
45,382
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Operating lease obligations
– long term portion
|
|
|
368
|
|
|
|
-
|
|
Bank loans payable –
long term portion
|
|
|
-
|
|
|
|
10,500
|
|
Government loans –
long term portion
|
|
|
403
|
|
|
|
-
|
|
Related party loans payable
– long term portion
|
|
|
3,750
|
|
|
|
4,500
|
|
Non-current
liabilities held for sale from discontinued operations
|
|
|
-
|
|
|
|
683
|
|
Total
non-current liabilities
|
|
|
4,521
|
|
|
|
15,683
|
|
Total liabilities
|
|
$
|
36,433
|
|
|
$
|
61,065
|
|
Stockholders’ equity (see note 4):
|
|
|
|
|
|
|
|
|
Preferred stock, $.01
par value; authorized shares – 500; no shares issued at October 31, 2020 and October 31, 2019
|
|
|
-
|
|
|
|
-
|
|
Class
B common stock, $0.01 par value; authorized shares – 12,000; 9,987 and 7,419 shares issued and 9,467 and 6,899 shares outstanding
at October 31, 2020 and October 31, 2019, respectively
|
|
|
93
|
|
|
|
74
|
|
Class
C common stock, $0.01 par value; authorized shares – 2,500; 545 shares issued and outstanding at October 31, 2020 and October
31, 2019
|
|
|
5
|
|
|
|
5
|
|
Stock subscription receivable
|
|
|
-
|
|
|
|
(1,000
|
)
|
Additional paid-in capital
|
|
|
111,379
|
|
|
|
96,671
|
|
Accumulated other comprehensive
loss
|
|
|
(60
|
)
|
|
|
(60
|
)
|
Accumulated deficit
|
|
|
(91,996
|
)
|
|
|
(78,457
|
)
|
Treasury
stock, at cost, consisting of 519 shares of Class B common stock at October 31, 2020 and October 31, 2019
|
|
|
(1,196
|
)
|
|
|
(1,196
|
)
|
Total
IDW Media Holdings Inc. stockholders’ equity
|
|
|
18,225
|
|
|
|
16,037
|
|
Non-controlling
interest
|
|
|
-
|
|
|
|
35
|
|
Total
stockholders’ equity
|
|
|
18,225
|
|
|
|
16,072
|
|
Total liabilities and
stockholders’ equity
|
|
$
|
54,658
|
|
|
$
|
77,137
|
|
IDW
MEDIA HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Fiscal
Years Ended
October 31,
|
|
(in thousands,
except per share data)
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
38,162
|
|
|
$
|
42,835
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Direct
cost of revenues
|
|
|
29,530
|
|
|
|
49,153
|
|
Selling,
general and administrative
|
|
|
17,270
|
|
|
|
18,415
|
|
Depreciation
and amortization
|
|
|
252
|
|
|
|
286
|
|
Bad
debt expense
|
|
|
434
|
|
|
|
33
|
|
Total
costs and expenses
|
|
|
47,486
|
|
|
|
67,887
|
|
Loss
from operations
|
|
|
(9,324
|
)
|
|
|
(25,052
|
)
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(46
|
)
|
|
|
(173
|
)
|
Other
income (expense), net
|
|
|
(318
|
)
|
|
|
(15
|
)
|
Loss
before income taxes
|
|
|
(9,688
|
)
|
|
|
(25,240
|
)
|
(Provision
for) benefit from income taxes
|
|
|
-
|
|
|
|
42
|
|
Net
loss from continuing operations
|
|
|
(9,688
|
)
|
|
|
(25,198
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations,
net
|
|
|
(4,110
|
)
|
|
|
(1,294
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(13,798
|
)
|
|
|
(26,492
|
)
|
|
|
|
|
|
|
|
|
|
Net
income attributable to non-controlling interests
|
|
|
-
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to IDW Media Holdings, Inc
|
|
$
|
(13,798
|
)
|
|
$
|
(26,429
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted income (loss) per share (note 3):
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(1.08
|
)
|
|
$
|
(3.71
|
)
|
Discontinued
operations, net
|
|
|
(0.46
|
)
|
|
|
(0.19
|
)
|
Net
loss
|
|
$
|
(1.54
|
)
|
|
$
|
(3.90
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares used in the calculation of basic and diluted loss per share:
|
|
|
8,982
|
|
|
|
6,768
|
|
|
|
|
|
|
|
|
|
|
Dividend declared per common
share:
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
See
accompanying notes to consolidated financial statements.
IDW
MEDIA HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
|
|
Fiscal
Years Ended
October
31,
|
|
(in
thousands)
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(13,798
|
)
|
|
$
|
(26,492
|
)
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
|
168
|
|
Comprehensive loss
|
|
|
(13,798
|
)
|
|
|
(26,324
|
)
|
Comprehensive
loss attributable to non-controlling interest
|
|
|
-
|
|
|
|
63
|
|
Total
comprehensive loss
|
|
$
|
(13,798
|
)
|
|
$
|
(26,261
|
)
|
See
accompanying notes to consolidated financial statements
IDW
Media Holdings, Inc.
Consolidated
Stockholders’ Equity
Fiscal
Years Ended October 31, 2020 and 2019
(in
thousands)
|
|
Class
B Common Stock
|
|
|
Class
C Common Stock
|
|
|
Stock
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
Non-
Controlling
|
|
|
Treasury
Stock, at Cost
|
|
|
Total
|
|
|
|
Number
of
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Subscriptions
|
|
|
Paid
In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Interest
|
|
|
Number of
|
|
|
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Receivable
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
(“NCI”)
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
Balance
October 31, 2019
|
|
|
7,419
|
|
|
|
74
|
|
|
|
545
|
|
|
|
5
|
|
|
|
(1,000
|
)
|
|
|
96,671
|
|
|
|
(60
|
)
|
|
|
(78,457
|
)
|
|
|
35
|
|
|
|
519
|
|
|
|
(1,196
|
)
|
|
|
16,072
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
722
|
|
Issuance
of common stock
|
|
|
2,568
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,585
|
|
Subscriptions
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,011
|
|
Issuance
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409
|
|
NCI
divestment in subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
224
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,798
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
(13,798
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(13,798
|
)
|
Balance
October 31, 2020
|
|
|
9,987
|
|
|
|
93
|
|
|
|
545
|
|
|
|
5
|
|
|
|
-
|
|
|
|
111,379
|
|
|
|
(60
|
)
|
|
|
(91,996
|
)
|
|
|
-
|
|
|
|
519
|
|
|
|
(1,196
|
)
|
|
|
18,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
October 31, 2018
|
|
|
6,072
|
|
|
|
61
|
|
|
|
545
|
|
|
|
5
|
|
|
|
-
|
|
|
|
69,780
|
|
|
|
(228
|
)
|
|
|
(51,930
|
)
|
|
|
|
|
|
|
519
|
|
|
|
(1,196
|
)
|
|
|
16,492
|
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,123
|
|
Issuance
of common stock
|
|
|
1,347
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,605
|
|
Subscriptions
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
Issuance
of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Issuance
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Acquisition
of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98
|
)
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,429
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,492
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
Total
comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168
|
|
|
|
(26,429
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(26,261
|
)
|
Balance
October 31, 2019
|
|
|
7,419
|
|
|
|
74
|
|
|
|
545
|
|
|
|
5
|
|
|
|
(1,000
|
)
|
|
|
96,671
|
|
|
|
(60
|
)
|
|
|
(78,457
|
)
|
|
|
35
|
|
|
|
519
|
|
|
|
(1,196
|
)
|
|
|
16,072
|
|
See
accompanying notes to consolidated financial statements.
IDW
MEDIA HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Fiscal years ended October 31,
|
|
|
|
|
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(13,798
|
)
|
|
$
|
(26,492
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,017
|
|
|
|
1,513
|
|
Amortization
of finance leases
|
|
|
411
|
|
|
|
-
|
|
Bad
debt expense
|
|
|
680
|
|
|
|
113
|
|
Stock
based compensation
|
|
|
722
|
|
|
|
3,123
|
|
Stock
options
|
|
|
409
|
|
|
|
-
|
|
Warrants
issued
|
|
|
-
|
|
|
|
118
|
|
Amortization
of right-of-use asset
|
|
|
1,557
|
|
|
|
-
|
|
Loss
on deconsolidation of subsidiary
|
|
|
35
|
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
20,807
|
|
|
|
(28,960
|
)
|
Inventory
|
|
|
(442
|
)
|
|
|
297
|
|
Prepaid
expenses and other assets
|
|
|
760
|
|
|
|
(443
|
)
|
Investment
|
|
|
(25
|
)
|
|
|
-
|
|
Television
costs
|
|
|
6,462
|
|
|
|
28,527
|
|
Operating
lease liability
|
|
|
(1,597
|
)
|
|
|
-
|
|
Trade
accounts payable, accrued expenses and other liabilities
|
|
|
(2,108
|
)
|
|
|
(3,501
|
)
|
Deferred
revenue
|
|
|
795
|
|
|
|
715
|
|
Deconsolidation
of subsidiary
|
|
|
304
|
|
|
|
-
|
|
Net
cash provided by (used in) operating activities
|
|
|
15,989
|
|
|
|
(24,990
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Business
acquisitions
|
|
|
-
|
|
|
|
(12
|
)
|
Proceeds
on disposition of long lived assets
|
|
|
185
|
|
|
|
-
|
|
Disposition
of subsidiary, net of cash received
|
|
|
(115
|
)
|
|
|
-
|
|
Capital
expenditures
|
|
|
(420
|
)
|
|
|
(1,113
|
)
|
Net
cash used in investing activities
|
|
|
(350
|
)
|
|
|
(1,125
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
14,596
|
|
|
|
22,663
|
|
Financing
under capital leases
|
|
|
-
|
|
|
|
360
|
|
Repayments
of capital lease obligations
|
|
|
-
|
|
|
|
(410
|
)
|
Repayments
of finance lease obligation
|
|
|
(404
|
)
|
|
|
-
|
|
Proceeds
of related party loans
|
|
|
-
|
|
|
|
9,050
|
|
Proceeds
of government loans
|
|
|
3,004
|
|
|
|
-
|
|
Proceeds
of bank loans
|
|
|
1,021
|
|
|
|
19,382
|
|
Repayments
of related party loans
|
|
|
(5,300
|
)
|
|
|
(19,000
|
)
|
Repayments
of bank loans
|
|
|
(26,559
|
)
|
|
|
(9,378
|
)
|
Net
cash (used in) provided by financing activities
|
|
|
(13,642
|
)
|
|
|
22,667
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
|
168
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$
|
1,997
|
|
|
$
|
(3,280
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
10,165
|
|
|
|
13,445
|
|
Cash
and cash equivalents at end of period
|
|
$
|
12,162
|
|
|
$
|
10,165
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of investing and financing activities
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
200
|
|
|
$
|
228
|
|
Cash
paid for income taxes
|
|
$
|
98
|
|
|
$
|
25
|
|
Purchases
of property and equipment through capital lease obligations
|
|
$
|
-
|
|
|
$
|
360
|
|
Received
from sale of long lived assets
|
|
$
|
154
|
|
|
$
|
-
|
|
The
effect of exchange rate changes on cash and cash equivalents is not material.
See
accompanying notes to consolidated financial statements.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation
The
accompanying consolidated financial statements of IDW Media Holdings, Inc. and its subsidiaries (the “Company”) have been
prepared by management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
In the opinion of management, all adjustments (consisting principally of normal recurring accruals) considered necessary for a fair presentation
have been included. Any reference to quarterly information is unaudited.
The
Company’s fiscal year ends on October 31st. Each reference below to a fiscal year refers to the fiscal year ending in
the calendar year indicated (e.g., fiscal 2020 refers to the fiscal year ended October 31, 2020).
Description
of Business and Segment Information
IDW
Media Holdings, Inc. together with its subsidiaries is a diversified media company with operations in publishing, television entertainment
and media distribution.
The
terms “Company,” “we,” “us,” and “our” are used herein to refer collectively to the parent
company and the subsidiaries through which various businesses are conducted. The term IDWMH is used to refer to the parent company.
The
following are our principal businesses and segments:
Publishing
(“IDWP”), a publishing company that creates comic books, graphic novels, digital content and games through its imprints IDW,
IDW Games, Top Shelf Productions, Artist’s Editions, The Library of American Comics, Yoe! Books, Sunday Press, and EuroComics;
and Clover Press, a boutique publishing company that focuses on the book trade and direct market. Effective April 1, 2020, our
interest in Clover Press decreased to 19.9% and IDWMH no longer consolidates the operations of Clover Press, but rather values the investment
at cost.
IDW
Entertainment (“IDWE”), is a production company and studio that develops and produces content and formats for global platforms
and services.
CTM
Media Group (“CTM”), a Company that develops and distributes print and digital-based advertising and information advertising
for tourist destinations in targeted tourist markets in 32 states / provinces in the US and Canada. On July 14, 2020, the Company and
Howard Jonas, our Chairman of the Board of Directors, executed a share purchase agreement pursuant to which we agreed to sell all of
the stock of CTM to Mr. Jonas or his assignee (the “CTM Sale”) for (i) the cancelation of $3.75 million of indebtedness owed
to Mr. Jonas by us, (ii) a contingent payment of up to $3.25 million based upon a recovery of quarterly revenues of CTM to 90% of its
fiscal 2019 levels during the 18-month period following the closing of the CTM Sale, and (iii) a contingent payment if CTM is sold within
36 months for more than $4.5 million. We expect to close the sale of CTM in the first calendar quarter of 2021.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
Variable
Interest Entities
The
Company, through its subsidiary IDWE has arrangements with seven special-purpose entities (“SPEs”), some formed for the sole
purpose of providing production services in Canada for the production of a television pilot and television series, others for production
and writing purposes. The SPEs are independently owned companies that are effectively controlled by IDWE, that are parties to the related
bank production financing arrangements. The Company has determined that SPEs are variable interest entities and that the Company is the
primary beneficiary of the SPEs activities and obligor on the SPEs’ debt. All financial activity of the SPEs have been included
IDWE’s financial statements, which are part of these consolidated financial statements. IDWE does not need to provide any support
to the VIE’s and therefore no foreseen potential losses associated. They have finished all of the productions and these shows have
been delivered. The outstanding loans will be paid off by the tax credits in the receivable balances. The carrying amounts and classification
of the VIE’s assets and liabilities are presented below:
Fiscal
year October 31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Cash and cash equivalents
|
|
$
|
732
|
|
|
$
|
231
|
|
Accounts receivable
|
|
|
12,420
|
|
|
|
16,103
|
|
Bank loans payable
|
|
|
14,204
|
|
|
|
39,743
|
|
Total
|
|
$
|
27,356
|
|
|
$
|
56,077
|
|
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results may differ from those estimates.
Revenue
Recognition
IDWP’s
primary revenue is recognized, net of an allowance for estimated sales returns, at the time of shipment of its graphic novels and comic
books by IDWP’s distributor to its customers. IDWE’s revenue is recognized when evidence of a sale or licensing arrangement
exists, the product is complete, has been delivered or is available for immediate and unconditional delivery, the license period has
begun, the fee is fixed or determinable, and collection is reasonably assured. IDWE’s production activities included those provided
by Canadian SPEs, and some of those productions qualify for tax credits in Canada. These credits are recorded as reductions in production
cost when the SPE becomes entitled to the Canadian tax credits. These tax credits have been estimated and are currently being audited
by the Canada Revenue Agency and are subject to change. IDWE and IDWP revenues are product revenues and since CTM is disclosed as a discontinued
operation there are no service revenues.
Revenue
Recognition When Right of Return Exists
Sales
returns allowances represent a reserve for IDWP products that may be returned due to dating, competition or other marketing matters,
or certain destruction in the field. Sales returns are generally estimated and recorded based on historical sales and returns experience
and current trends that are expected to continue. Licensing revenues are recognized upon execution of the agreement for such rights,
and other creative revenues are recognized upon completion of services rendered on a contractual basis.
Deferred
Revenue
The
Company records deferred revenue upon invoicing for contracted commitments for products and services. Revenue is recognized on the date
such product or service is provided or delivered in accordance with the contract.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
Direct
Cost of Revenues
Direct
cost of revenues excludes depreciation and amortization expense. Direct cost of revenues for IDWP consists primarily of printing expenses
and costs of artist and writers. Direct cost of revenues for IDWE consists primarily of the amortization of production costs that were
capitalized during the production of the television episodes, accrued third party participation, and distribution fees directly related
to revenue.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Inventory
Inventory
consists of IDWP’s graphic novels and comic books (print), and costs related to IDWE productions (production costs). Inventory
is stated at the lower of cost or market determined by the first in, first out method for print.
IDWE
Television Costs - We expense television production, participation and residual costs over the applicable product life cycle based upon
the ratio of the current period’s revenues to the estimated remaining total revenues (Ultimate Revenues) for each production. If
our estimate of Ultimate Revenues decreases, amortization of film and television costs may be accelerated. Conversely, if our estimate
of Ultimate Revenues increases, film and television cost amortization may be slowed. For television series, Ultimate Revenues include
revenues that are expected to be earned within ten years from delivery of the first episode, or if still in production, five years from
delivery of the most recent episode, if later.
With
respect to television series or other television productions intended for broadcast, the most sensitive factors affecting estimates of
Ultimate Revenues are program ratings and the strength of the advertising market. Program ratings, which are an indication of market
acceptance, directly affect the Company’s ability to generate advertising revenues during the airing of the program. Television
development costs for projects that have been abandoned or have not been set for production within three years are generally written
off in the relevant period.
Property
and Equipment
Equipment,
furniture and fixtures, and computer software are recorded at cost and are depreciated on a straight-line basis over their estimated
useful lives, which range as follows: equipment - 5 & 7 years; furniture & fixtures- 5 years;; and computer software and digital
display equipment - 2, 3 & 5 years. Leasehold improvements are recorded at cost and are depreciated on a straight-line basis over
the term of the lease or their estimated useful lives, whichever is shorter.
Intangible
Assets
Licensing
contracts are recorded at cost and are amortized on a straight-line basis over their contractual or estimated useful lives, whichever
is shorter from 5 - 7 years.
Goodwill
Goodwill
is not amortized but is instead tested for impairment if events or changes in circumstances indicate that an impairment loss may have
occurred. In the impairment test, the carrying amount of the reporting unit, including goodwill, is compared to its fair value. When
the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment loss is recognized up to a maximum amount of
the recorded goodwill related to the reporting unit. Goodwill impairment losses are not reversed.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
Long-Lived
Assets
In
accordance with ‘ASC 360’ - Accounting for the Impairment or Disposal of Long-Lived Assets-, the Company tests the
recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying
value of the asset may not be recoverable. The Company tests 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, the Company will record
an impairment loss based on the difference between the estimated fair value and the carrying value of the asset. The Company generally
measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using
an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates and assumptions by management.
Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such
impairments could be material.
Advertising
Expense
Non-direct
response advertising is expensed as incurred. In fiscal 2020 and fiscal 2019, advertising expenses were approximately $274,000 and $127,000,
respectively.
Repairs
and Maintenance
The
Company charges the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial betterment,
to selling, general and administrative expenses as these costs are incurred.
Foreign
Currency Translation
Assets
and liabilities of foreign subsidiaries denominated in foreign currencies are translated to U.S. Dollars at end-of-period rates of exchange,
and their monthly results of operations are translated to U.S. Dollars at the average rates of exchange for that month.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between
the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization
of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning
strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured using the enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
The
Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The Company
determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not
recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge
of all relevant information. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount
of tax benefit to recognize in the financial statements or the amount of allowance against any previously recognized benefit. The tax
position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one
or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction
in a deferred tax asset, or an increase in a deferred tax liability.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
Commitments
and Contingencies
The
Company accrues for loss contingencies when both (a) information available prior to issuance of the financial statements indicates
that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can reasonably
be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company
records its best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues
the minimum amount in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible
that a loss may have been incurred.
Earnings
per Share
Basic
earnings per share is computed by dividing net income attributable to all classes of common stockholders by the weighted average number
of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same
manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of
forfeiture (non-vested) using the treasury stock method, unless the effect of such increase is anti-dilutive.
The
weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s
common stockholders consists of the following:
Fiscal
Year ended October 31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Basic
weighted-average number of shares
|
|
|
8,982
|
|
|
|
6,768
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Non-vested
restricted common stock
|
|
|
-
|
|
|
|
-
|
|
Diluted
weighted-average number of shares
|
|
|
8,982
|
|
|
|
6,768
|
|
Stock-Based
Compensation
The
Company accounted for stock-based compensation granted to its employees in accordance with the fair value recognition provisions of ‘ASC’
718 Share-Based Payment. Under ‘ASC’ 718, compensation costs are recognized based on the grant-date fair value. Stock-based
compensation is included in selling, general and administrative expense.
Vulnerability
Due to Certain Concentrations
Financial
instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, short
term investment and trade accounts receivable. The Company holds cash and cash equivalents at several major financial institutions, which
often exceed FDIC insurance limits. Historically, the Company has not experienced any losses due to such concentration of credit risk.
The Company’s temporary cash investments policy is to limit the dollar amount of investments with any one financial institution
and monitor the credit ratings of those institutions. While the Company may be exposed to credit losses due to the nonperformance of
its counterparties, the Company does not expect the settlement of these transactions to have a material effect on its results of operations,
cash flows or financial condition.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
IDWP
has two significant customers Diamond Comic Distributors, Inc. (“Diamond”) and Penguin Random House (“PRH”),
that pose a concentration risk.
Revenues
from Diamond, IDWP’s direct market distributor, represented 18.5 % and 19.1% of the total consolidated revenues for the fiscal
years ended October 31, 2020 and 2019, respectively. The receivable balances from this customer represented approximately 4.7% and 2.3%
of consolidated trade accounts receivable at October 31, 2020 and 2019, respectively.
Revenues
from PRH amounted to 38.4% and 6.8% of consolidated revenue in the fiscal years ended October 31, 2020 and 2019, respectively. The receivable
balances represented 10.5% and 2.7% of consolidated receivables at October 31, 2020 and 2019, respectively.
Diamond
and PRH in turn sell to their book market customers with right of return. No other single customer accounted for more than 10% of consolidated
revenues in the fiscal year ended October 31, 2020 or 2019. This concentration of customers increases the Company’s risk associated
with non-payment by those customers.
IDWE
has three significant customers Netflix, NBC Universal/SyFy and Cineflix that pose a concentration risk.
IDWE
recognizes its revenue based on the completed episodes it delivers. Netflix, a leading streaming video subscription service, that represented
10.6% and 53.3% of consolidated revenue in the fiscal years ended October 31, 2020 and 2019, respectively. The receivable balances from
this customer represented 15.3% and 52.6% of consolidated trade receivables at October 31, 2020 and 2019, respectively.
NBC
Universal/SyFy, a major television network, which accounted for 4.9% and 0% of consolidated revenue for the fiscal years ended October
31, 2020 and 2019, respectively. The accounts receivable accounted for 0% and 0% of consolidated receivables at October 31, 2020 and
2019, respectively.
Cineflix,
an international distributor accounted for 21.5% and 0% of consolidated revenue for the fiscal years ended October 31, 2020 and 2019,
respectively. The accounts receivable accounted for 6.8% and 0% of consolidated receivables at October 31, 2020 and 2019, respectively.
Collaborative
Agreements
IDWE
regularly enters into agreements for the production of its television shows. The agreements provide for the rights and obligations related
to the agreement including timing, delivery and payments. IDWE capitalizes the resulting production costs under the agreements in production
cost inventory as payments are made or when the products or services are delivered. Amortization of television costs during the fiscal
years ended October 31, 2020 and 2019 were $16,808,000 and $36,310,000, respectively.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
Discontinued
Operations
CTM
has met the criteria for discontinued operations and has been presented as such in the financial statements. In accordance with ASU 2014-08,
“Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity,” a disposal is categorized
as a discontinued operation if the disposal group is a component of an entity or group of components that meets the held for sale criteria,
is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on
an entity’s operations and financial results.
As
the discontinued operation is classified as held for sale, the pre-tax net income or loss, income tax or benefit, and gain or loss on
the disposal of assets held for sale are reclassified as a separate line item in the income statement. Assets and liabilities are also
separately reclassified in the balance sheet for all periods presented. Cash flows from a discontinued operation and the continuing business
are presented together without separate identification within cash flows from operating, investing and financing activities. However
total operating and investing cash flows for discontinued operations are disclosed separately for all periods presented.
Sales
Returns and Allowances
IDWP
offers its book market distributors, a right of return with no expiration date in accordance with general industry practices. These distributors
then offer this same right of return to their book market retail customers. IDWP records an estimate for sales return reserves from such
retailers based on historical sales and return experience and current trends that are expected to continue. In fiscal 2020 and 2019 actual
returns exceeded estimated returns by approximately $264,000 and $8,000, respectively.
The
change in the allowance for sales returns is as follows:
Fiscal
Year ended October 31 (in thousands)
|
|
Balance
at
beginning of
year
|
|
|
Additions
charged to
revenues
|
|
|
Actual
returns
|
|
|
Balance at
end of year
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for sales returns
|
|
$
|
152
|
|
|
$
|
2,493
|
|
|
$
|
(2,349
|
)
|
|
$
|
296
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts
receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales returns
|
|
$
|
160
|
|
|
$
|
2,077
|
|
|
$
|
(2,085
|
)
|
|
$
|
152
|
|
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance.
The allowance is determined based on known troubled accounts, historical experience and other currently available evidence.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
The
change in the allowance for doubtful accounts is as follows:
Fiscal
Year ended October 31 (in thousands)
|
|
Balance
at
beginning of
year
|
|
|
Additions
charged to
costs and
expenses
|
|
|
Deductions
(1)
|
|
|
Balance at
end of year
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from
accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
29
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts
receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful
accounts
|
|
$
|
27
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
29
|
|
(1)
|
Uncollectible
accounts written off, net of recoveries.
|
Fair
Value of Financial Instruments
The
estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting this data to develop estimates of fair value. Consequently, the estimates
are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
At
October 31, 2020 and 2019, the carrying value of the Company’s current assets of trade accounts receivable, inventory, prepaid
expenses, trade accounts payable, accrued expenses, deferred revenue, bank loans payable, related party loans payable, government loans,
operating lease obligations, and other current liabilities approximated fair value because of the short period of time to maturity. At
October 31, 2020 and 2019, the carrying value of the long-term portion of the Company’s operating lease obligations, related
party loans, government loans and bank loans approximate fair value as their contractual interest rates approximate market yields for
similar debt instruments.
Principles
of Consolidation
All
significant intercompany accounts and transactions have been eliminated in consolidation. All amounts in these Consolidated Financial
Statements and notes to the Consolidated Financial Statements are reflected on a consolidated basis for all periods presented.
Joint
Venture
As
of April 1, 2020 Clover Press, LLC (“Clover Press”) was no longer a joint venture as the Company only owns a 19.9%
ownership. However, prior to this IDWMH consolidated Clover Press into the IDWP reporting segment.
As
at the fiscal year ending October 31, 2019 Clover Press was joint venture of which the Company held an 80.5% ownership stake and consolidated
into its operations. The minority owners included former Company executives and IDWP founders, Ted Adams and Robbie Robbins.
The Company acquired its interest effective June 1, 2019 in exchange for funding commitments and other obligations. Clover Press
focuses on progressive projects, creator-owned endeavors, and celebration of classic works from authors and artists. Clover Press
will target the book market and direct-to-consumer prestige format publications as a progressive, eclectic, boutique publisher.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
Recently
Issued Accounting Pronouncements Adopted Subsequent to 2019 Fiscal Year End
In
February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, Leases (Topic 842), which
requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor
accounting under the standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The
Company adopted the standard effective November 1, 2019 using the modified retrospective adjustment transition method, which applies
the provisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following
practical expedients and elected the following accounting policies related to this standard update:
|
●
|
The
option to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for
leases that commenced prior to November 1, 2019;
|
|
●
|
Short-term
lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of
12 months or less;
|
|
●
|
The
option to not separate lease and non-lease components for certain equipment lease asset categories such as freight car, vehicles
and work equipment; and
|
|
●
|
The
package of practical expedients applied to all of its leases, including (i) not reassessing
whether any expired or existing contracts are or contain leases, (ii) not reassessing the
lease classification for any expired or existing leases, and (iii) not reassessing initial
direct costs for any existing leases.
|
Adoption
of this standard resulted in the recognition of operating lease right-of-use assets of $6,746,149 and lease liabilities of $6,980,233
on the consolidated balance sheet as of November 1, 2019. The Company’s accounting for finance leases remained substantially unchanged.
The standard did not materially impact operating results or liquidity. Disclosures related to the amount, timing and uncertainty of cash
flows arising from leases are included in Note 10, Commitments.
On
November 1, 2019 we adopted the FASB ASU 2018-07 to provide guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting. Pursuant to this ASU, an entity should account for the effects of a
modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement
method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement
method is used) of the original award immediately before the original award is modified (if the modification does not affect any of the
inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately
before and after the modification); (2) the vesting conditions of the modified award are the same as the vesting conditions of the original
award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or
a liability instrument is the same as the classification of the original award immediately before the original award is modified. The
company has adopted this guideline for the fiscal year beginning November 1, 2019. The Company has evaluated this guidance and determined
there is no material effect on the financial statements.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
1—Basis of Presentation (continued)
Recently
Issued Accounting Standard Not Yet Adopted
In
January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), which simplifies the measurement of goodwill
by eliminating the Step 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting
unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting
unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the
reporting unit when measuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment
tests in fiscal years beginning after December 15, 2019, though early adoption is permitted. The company will adopt this guideline prospectively
for fiscal year November 1, 2020. The Company does not believe that the adoption of this new accounting guidance will have any material
impact on its consolidated financial statements.
In
June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial
Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other
instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the
earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit
losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized
cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality
indicators and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. The new
guidance becomes effective in fiscal years beginning after December 15, 2019. We will adopt the new standard on November 1, 2020. We
are evaluating the impact that the new standard will have on our consolidated financial statements.
In
March 2019, the FASB issued ASU No. 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials.
ASU 2019-02 aligns the accounting for production costs of episodic television series with the accounting for production costs of films.
It also requires an entity to test a film or license agreement within the scope of Subtopic 920-350 for impairment at the film group
level, when the film or license agreement is predominantly monetized with other films and/or license agreements. The new guidance becomes
effective in fiscal years beginning after December 15, 2019. The changes in this standard are effective for the fiscal year beginning
November 1, 2020, with early adoption permitted. The Company is currently evaluating the impact the adoption of the prospective disclosure
requirements will have on its consolidated financial statements.
Note
2—Dividends
The
Company does not pay a regular dividend. The declaration of dividends will be at the discretion of our Board of Directors and will depend
on our financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination
by the Board that dividends are in the best interest of our stockholders at that time, subject to confirmation by the Company’s
management that there is sufficient surplus as of the proposed future payment dates and other circumstances existing at the relevant
times.
Note
3—Earnings Per Share
Basic
earnings per share is computed by dividing net income attributable to all classes of common stockholders by the weighted average number
of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same
manner as basic earnings per share except that the number of shares is increased to include restricted stock still subject to risk of
forfeiture (non-vested) using the treasury stock method, unless the effect of such increase would be anti-dilutive. The Company excluded
38,000 shares of unvested restricted stock from the calculation of diluted earnings per share as the effect would have been anti-dilutive.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
4—Equity
Non-cash
compensation included in selling, general and administrative expenses is $1,131,000 and $2,523,000 in the fiscal years ended October
31, 2020 and 2019, respectively.
On
September 30, 2020, the Company issued 9,710 shares of its Class B common stock (“Class B Common Stock”)to Howard S. Jonas,
the Company’s Chairman of the Board of Directors and former Chief Executive Officer, for payment of certain interest payable on
a loan made by Mr. Jonas to the Company.
On September 10, 2020, the Company granted to
its Chief Accounting Officer options to purchase 5,000 shares of its Class B Common Stock, with a 10-year term and an exercise price
of $3.35, under the Company’s 2019 Stock Option and Incentive Plan, as amended and restated (the “2019 Plan”), with
such options scheduled to vest in substantially equal one-third installments on September 10, 2021, September 10, 2022, and September
10, 2023.
On
each of May 12, 2020 and August 31, 2020, the Company cancelled 400 shares of unvested restricted shares of Class B Common Stock (“Restricted
Stock”) that were previously issued under the Company’s 2009 Stock Option and Incentive Plan, as amended and restated (the
“2009 Incentive Plan”), because of the applicable former employee then leaving the employ of the Company.
On August 19, 2020, the Company granted to an
employee of the Company options to purchase 5,000 shares of Class B Common Stock, with a 10-year term and an exercise price of $3.49,
under the 2019 Plan, with such options scheduled to vest in substantially equal one-third installments on August 19, 2021, August 19,
2022, and August 19, 2023.
On August 4, 2020, the Company granted to a former
employee of the Company 21,879 shares of Restricted Stock under the 2019 Plan, with such shares vesting in full upon grant.
On
July 16, 2020 IDWMH settled its intercompany payable to CTM totaling $6,982,305 and subsequently received a distribution of $6,800,000
from CTM. This transaction was booked into additional paid in capital with CTM and IDWMH to have a nil impact and did not trigger any
tax impacts.
On July 14, 2020, the Company granted to its
Chief Executive Officer and former Chief Financial Officer options to purchase 120,000 shares of Class B Common Stock, with a 10-year
term and an exercise price of $3.98, under the 2019 Plan, with such options scheduled to vest in equal one-third installments on July
14, 2021, July 14, 2022, and July 14, 2023.
On
July 13, 2020, the Company issued 314,070 shares of Class B Common Stock to Howard S. Jonas, the Company’s Chairman of the Board
of Directors and former Chief Executive Officer, pursuant to a Loan Modification Agreement in which Mr. Jonas and the Company agreed
to convert $1.25 million of indebtedness owed by the Company to Mr. Jonas to such 314,070 shares.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
4—Equity (continued)
On July 3, 2020, the Company granted options
to purchase an aggregate of 25,000 shares of Class B Common Stock, each with a 10-year term and an exercise price of $4.00, under the
2019 Plan, to three employees of the Company with 20,000 of such options scheduled to vest in approximately equal one-third installments
on June 25, 2021, June 25, 2022, and June 25, 2023 and 5,000 of such options scheduled to vest in approximately equal one-third installments
on July 1, 2021, July 1, 2022, and July 1, 2023. On November 5, 2020, an option to purchase 10,000 of these shares of Class B Common
Stock was cancelled because one of the employees left the Company.
On June 30, 2020, the Company issued 10,335 shares
of Class B Common Stock to Howard S. Jonas, the Company’s Chairman of the Board of Directors and former Chief Executive Officer,
for payment of certain interest payable on a loan made by Mr. Jonas to the Company.
On June 8, 2020, the Company granted 3,000 restricted
shares of Class B Common Stock (“Restricted Stock”) under the 2019 Plan to a consultant of the Company with such shares of
Restricted Stock scheduled to vest in equal one-third installments on March 15, 2021, March 15, 2022, and March 15, 2023.
On March 31, 2020, the Company issued 14,816
shares of Class B Common Stock to Howard S. Jonas, the Company’s Chairman of the Board of Directors and former Chief Executive
Officer, for payment of certain interest payable on loans made by Mr. Jonas to the Company.
On March 10, 2020, the Company granted options
to purchase 5,000 shares of Class B Common Stock, with a 10-year term and an exercise price of $6.40, and 2,500 shares of Restricted
Stock, each under the 2019 Plan, to each of two non-executive officers of the Company, with such options and shares of Restricted Stock
scheduled to vest in approximately equal one-third installments on March 15, 2021, March 15, 2022, and March 15, 2023.
On March 10, 2020, the Company granted an aggregate
of 25,000 shares of Restricted Stock under the 2019 Plan to five individuals who provide legal services to the Company, with such shares
scheduled to vest in approximately equal one-third installments on March 15, 2021, March 15, 2022, and March 15, 2023.
On March 9, 2020, the Company granted to an employee
of the Company 13,699 shares of Restricted Stock under the 2019 Plan, with such shares originally scheduled to vest in full on March
9, 2021. On June 2, 2020, pursuant to a Separation Agreement with the employee, the Company agreed to change the scheduled vesting of
these 13,699 shares of Restricted Stock to October 31, 2020. On July 13, 2020, pursuant to Amendment No. 1 to the Separation Agreement,
the scheduled vesting of these 13,699 shares of Restricted Stock vested on August 4, 2020.
On March 9, 2020, the Company closed a private
placement of shares of Class B Common Stock at $6.00 per share, pursuant to which the Company issued 2,051,002 shares of Class B Common
Stock for gross proceeds of approximately $12,300,000 inclusive of $4.0 million debt-to-equity conversion by the Company’s Chairman
of the Board of Directors and former Chief Executive Officer, Howard S. Jonas. The shares issued were subject to a contractual restriction
on transfer for six months following the closing of the placement and are subject to other restrictions under applicable law. The proceeds
from the issuance of common stock have been netted with $415,000 of costs related to the private placement.
On February 4, 2020, the Company granted options
to purchase 10,000 shares of Class B Common Stock, with a 10-year term and an exercise price of $9.99, under the 2019 Plan to an employee
with the options vesting: 1,667 upon grant, 834 on March 1, 2020, 833 on April 1, 2020, 833 on May 1, 2020, 834 on June 1, 2020, 833
on July 1, 2020, 833 on August 1, 2020, 834 on September 1, 2020, 833 on October 1, 2020, 833 on November 1, 2020 and 833 on December
1, 2020.
On
January 23, 2020, the Company granted to its then Chief Financial Officer and current Chief
Executive Officer options to purchase 25,000 shares of Class B Common Stock, with a 10-year
term and an exercise price of $10.50, pursuant to the 2019 Plan. Options with respect
to 10,000 shares vested on grant and the remainder are scheduled to vest as to 5,000 shares
on each of January 23, 2021, January 23, 2022 and January 23, 2023.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
4—Equity (continued)
On
January 23, 2020, the Company granted to its former Chief Strategy Officer options to purchase 42,735 shares of Class B Common Stock,
with a 10-year term and an exercise price of $10.50, pursuant to the 2019 Plan with such options vesting in full upon grant.
On
January 9, 2020, the Company issued 36,586 shares of Class B Common Stock to Howard S. Jonas, the Company’s Chairman of the Board
of Directors and former Chief Executive Officer, for payment of certain interest payable on loans made by Mr. Jonas to the Company.
On
April 24, 2019, the Company closed the initial round of a private placement of shares of Class B Common Stock to certain existing stockholders
at $18.00 per share. In connection with this initial round, on April 24, 2019, the Company issued 767,630 shares of Class B Common Stock
for gross proceeds of $13,817,337.
On
May 7, 2019, the Company closed the follow-on round of the placement and issued 345,792 shares of Class B Common Stock for gross proceeds
of $5,186,885. The follow-on round involved participants in the initial round of the placement who elected to participate in the purchase
of unsubscribed shares of Class B Common Stock at $15.00 per share. In the offering, the Company issued a total of 1,113,422
shares of Class B Common Stock and received total gross proceeds of $19,004,229. The shares issued in the offering were subject
to a contractual restriction on transfer for six months following the closing of the offering as well as other restrictions under applicable
law.
In
connection with a private placement offering, on June 15, 2019, the Company issued 269,478 shares of Class B Common Stock at a price
of $17.07 per share for aggregate proceeds of approximately $4,600,000.
On April 17, 2019, the Company agreed to grant
to a consultant 5,000 shares of Restricted Stock under the 2019 Plan on or about each of May 1, 2019, January 2, 2020 and January 2,
2021. On May 1, 2019, 5,000 shares of Restricted Stock were issued to the consultant, with such shares having vested on January 1, 2020.
On January 2, 2020, 5,000 shares of Restricted Stock were issued to the consultant, with such shares scheduled to vest on January 2,
2021.
On March 14, 2019, the Company’s Board
of Directors adopted the 2019 Plan to provide incentives to executive officers, employees, directors and consultants of the Company and/or
its subsidiaries. The Company reserved 300,000 shares of Class B Common Stock for the grant of awards under the 2019 Plan, subject
to adjustment. Incentives available under the 2019 Plan may include stock options, stock appreciation rights, limited stock appreciation
rights, restricted stock and deferred stock units. On July 13, 2020, the Board of Directors of the Company increased by 150,000, to 450,000,
the number of shares of Class B Common Stock reserved for the grant of awards under the 2019 Plan, subject to adjustment. As of
October 31, 2020, 126,487 shares remained available to be awarded under the 2019 Plan.
On
December 24, 2018, an employee was granted 1,370 shares of Class B Common Stock. In addition, in fiscal 2018, the Company agreed
to grant this employee 15,000 shares of Restricted Stock pursuant to the 2009 Incentive Plan, with such shares scheduled vest in
equal monthly installments over the 12-month period beginning on October 15, 2018. This employee left the employ of the Company on
February 13, 2019 and therefore only 5,000 shares of Restricted Stock vested on January 24, 2019, and the remaining 10,000 shares of
unvested Restricted Stock were cancelled due to the executive no longer being an employee of the Company.
On
November 26, 2018, the Company agreed to issue to an employee 3,030 shares of Restricted Stock under the 2009 Incentive Plan, which vested
in equal monthly installments ending on December 10, 2019. In addition, 758 shares of fully vested Restricted Stock were granted
to this same employee on March 14, 2019.
In
fiscal 2018, the Company granted to an employee 1,000 shares of Restricted Stock under the 2009 Incentive Plan, with 666 of such shares
vesting on June 20, 2018 and the remaining 334 shares originally scheduled to vest on September 20, 2019 and which are now scheduled
to vest on September 30, 2020. On March 20, 2019, the Company issue options to purchase 10,000 shares of Class B Common Stock,
with a 10-year term and an exercise price of $31.00, under the 2009 Incentive Plan to this employee with the options being fully vested
as of December 1, 2019.
In fiscal 2018, the Company agreed to grant to
a consultant 750 fully vested shares of Restricted Stock per month during the term of his consulting agreement. Accordingly, on
March 14, 2019, the consultant was granted under the 2009 Incentive Plan 3,000 fully vested shares of Restricted Stock, for service provided
in December 2018, January 2019, February 2019 and March 2019, and 750 fully vested shares of Restricted Stock on each of April 15, 2019
and May 15, 2019 for service provided in the applicable month. On each of June 15, 2019, July 15, 2019, August 15, 2019 and September
15, 2019, the Company granted to the consultant under the 2019 Plan 750 fully vested shares of Restricted Stock for service provided
in the applicable month.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
5—Notes Payable
Related
party loans
On
August 21, 2018, the Company entered into a loan agreement with the Company’s Chairman of the Board of Directors (who, at the time
was also the Company’s Chief Executive Officer and majority stockholder) (the “Chairman”) for $5,000,000. Interest
accrues at prime rate plus 1% and the loan matures August 20, 2022. Payment of principal and interest are payable from 70% of the Free
Cash Flow, as defined in the loan agreement, of the Company’s CTM Media Group Inc. subsidiary. All outstanding shares of CTM Media
Group Inc. stock are pledged as security under the agreement. On December 1, 2019, the Company amended the agreement providing that up
to 60% of the interest due may, at the option of the Company, be paid in shares of Class B common stock (and the remaining amount in
cash) with such shares valued based on the average closing prices for the Class B common stock on the ten trading days immediately prior
to the applicable interest due date. As at October 31, 2020 the shares issued in connection with the loan interest was 56,545. The interest
is to be paid quarterly on the loan. In conjunction with the loan, the Company issued the Chairman a warrant to purchase up to 89,243
shares of the Company’s Class B Common Stock at a price per share of $42.02. The warrant expires August 21, 2023. On July 13, 2020
$1,250,000 was converted into 314,070 shares of Class B Common Stock (Note 4- Equity). The outstanding amount at October 31, 2020 was
$3,750,000.
On
September 21, 2018, the Company entered into a bridge loan facility agreement with its Chairman for up to $26,000,000. The balance due
under the facility was $0 at October 31, 2020. The proceeds from the private placement offering on March 9, 2020 were used to pay off
the remaining $4,000,000 of the loan facility (Note 4- Equity). $8,000,000 of the loan facility was paid off in connection with the 2019
offering. As at October 31, 2020 the shares of Class B common stock issued by the Company was 14,902. In conjunction with the amendment
to the loan, the Company issued the Chairman a warrant to purchase up to 98,336 shares of the Company’s Class B Common Stock at
a price per share of $26.44. The warrant expires March 30, 2022.
For
the fiscal year ended October 31, 2020 interest on the above loans amounted to $406,000 and for the fiscal year October 31, 2019 interest
amounted to $1,204,403, which was charged to production cost.
The
maturities under the loan agreement are anticipated to be as follows:
Date
|
|
Amount
|
|
2021
|
|
$
|
-
|
|
2022
|
|
|
3,750,000
|
|
Total
|
|
$
|
3,750,000
|
|
Bank
loans
On
November 21, 2018, a Variable Interest Entity (the “VIE”) (see Note 1) controlled by IDWE entered into a loan agreement with
a bank that provides for a production financing commitment in the aggregate amount up to CAD 27,700,000. The loan is secured by the VIE’s
assets, rights in the related television production’s episodes and distribution agreements for the production and is repayable
from the assignment of proceeds of the related license agreements and tax credits, including interest based on the prime rate. The loan
matures on January 31, 2021. On October 31, 2020, $8,149,000 was outstanding under the commitment.
On
June 21, 2018, a VIE controlled by IDWE entered into a loan agreement with a bank that provides for a production financing commitment
in the aggregate amount up to CAD 23,521,000. The loan is secured by the VIE’s assets, rights in the related television production’s
episodes and distribution agreements for the production and is repayable from the assignment of proceeds of the related license agreements,
including interest based on the prime rate. The loan matures on January 31, 2021. On October 31, 2020 $6,055,000 was outstanding under
the commitment.
Future
maturities under the VIE bank loans are as follows:
Date
|
|
Amount
|
|
2021
|
|
$
|
14,204,000
|
|
Total
|
|
$
|
14,204,000
|
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
5—Notes Payable (continued)
Government
loans
On
April 27, 2020, the Company (inclusive of IDWP and IDWE) received loan proceeds of $1,195,679 (the “IDWMH PPP Loan”) from
Bank of America, N.A. pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act,
which was enacted March 27, 2020. The IDWMH PPP Loan, which was in the form of a Note dated April 15, 2020 issued by the Company,
matures on April 15, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 24, 2020. The Note may
be prepaid by the Company at any time prior to maturity with no prepayment penalties, and under the terms of the loan, payments can be
deferred for six months. Funds from the IDWMH PPP Loan may be used primarily for payroll costs and costs used to continue group health
care benefits, and, up to a limited extent, on mortgage payments, rent, utilities, interest and other expenses as described in the CARES
Act. Under the terms of the PPP, certain amounts of the IDWMH PPP Loans may be forgiven if they are used for those qualifying expenses. The
Company used the entire IDWMH PPP Loan amount for those qualifying expenses.
Note
6—Business Segment Information
The
Company has the following three reportable business segments: IDWP, IDWE and CTM.
The
Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The
operating results of these business segments are regularly reviewed by the Company’s chief decision making officers.
The
accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance
of its business segments based primarily on operating income. There are no other significant asymmetrical allocations to segments.
Operating
results for the business segments of the Company are as follows:
(in
thousands) (unaudited)
|
|
IDWP(a)
|
|
|
IDWE
|
|
|
CTM
|
|
|
IDWMH
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(discontinued
|
|
|
(unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
operations)
|
|
|
overhead)
|
|
|
|
|
Fiscal year ended October
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
23,850
|
|
|
$
|
14,312
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
38,162
|
|
Loss from operations
|
|
|
(103
|
)
|
|
|
(8,589
|
)
|
|
|
-
|
|
|
|
(632
|
)
|
|
|
(9,324
|
)
|
Loss from discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,110
|
)
|
|
|
-
|
|
|
|
(4,110
|
)
|
Net loss
|
|
|
(103
|
)
|
|
|
(8,589
|
)
|
|
|
(4,110
|
)
|
|
|
(996
|
)
|
|
|
(13,798
|
)
|
Total assets at October 31, 2020
|
|
|
15,189
|
|
|
|
22,091
|
|
|
|
11,171
|
|
|
|
6,207
|
|
|
|
54,658
|
|
Fiscal year ended October
31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
20,094
|
|
|
$
|
22,741
|
|
|
$
|
-
|
|
|
|
NA
|
(b)
|
|
$
|
42,835
|
|
Loss from operations
|
|
|
(5,205
|
)
|
|
|
(19,847
|
)
|
|
|
-
|
|
|
|
NA
|
(b)
|
|
|
(25,052
|
)
|
Loss from discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,294
|
)
|
|
|
-
|
|
|
|
(1,294
|
)
|
Net loss
|
|
|
(5,187
|
)
|
|
|
(20,011
|
)
|
|
|
(1,294
|
)
|
|
|
NA
|
(b)
|
|
|
(26,492
|
)
|
Total assets at October 31, 2019
|
|
|
10,994
|
|
|
|
55,792
|
|
|
|
10,351
|
|
|
|
NA
|
(b)
|
|
|
77,137
|
|
|
(a)
|
IDWP
includes Clover Press through March 31, 2020. As of April 1, 2020, Clover Press was valued
at the cost method and was no longer consolidated.
|
|
(b)
|
In
prior fiscal year 100% of IDWMH overhead was allocated to business segments.
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
7—Fair Value Measurement
In
determining fair value, the Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are
described below:
Level
l Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company
has the ability to access.
Level
2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level
3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The
asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the most conservative level
of input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and
minimize the use of unobservable inputs.
The
valuation methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective
of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result
in different fair value measurement at the reporting date.
The
following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of October 31, 2020 and
2019:
(in
thousands)
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Investments as of October
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Clover Press investment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25
|
|
|
$
|
25
|
|
Total Investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments as of October
31,2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total Investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Level
3 Gains and Losses
The
following table sets forth a summary of changes in the fair value of Level 3 assets:
(in thousands)
|
|
|
|
Beginning balance, October 31, 2019
|
|
$
|
-
|
|
Acquisition
|
|
|
25
|
|
Sales
|
|
|
-
|
|
Realized gains, net
|
|
|
-
|
|
Unrealized losses, net
|
|
|
-
|
|
Ending balance, October 31, 2020
|
|
$
|
25
|
|
The
investment in Clover Press does not have readily determined fair values and are valued at cost. There have been no events or changes
in circumstances to indicate any signs of impairment as at October 31, 2020. Due to the small nature of the investment a change in the
fair value would not be a significant impact to the Company’s performance or cash flows. There have not been any transfers between
investment levels.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
8—Trade Accounts Receivable and Deferred Revenue
Trade
accounts receivable consists of the following:
October
31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Trade accounts receivable
|
|
$
|
23,246
|
|
|
$
|
43,643
|
|
Less allowance for sales returns
|
|
|
(296
|
)
|
|
|
(152
|
)
|
Less allowance for doubtful
accounts
|
|
|
(29
|
)
|
|
|
(29
|
)
|
Trade accounts receivable,
net
|
|
$
|
22,921
|
|
|
$
|
43,462
|
|
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance.
The allowance is determined based on known troubled accounts, historical experience and other currently available.
Changes
in deferred revenue consist of the following:
(in thousands)
|
|
|
|
Beginning balance, October 31, 2019
|
|
$
|
1,058
|
|
Deferral of revenue
|
|
|
2,725
|
|
Recognition
of deferred revenue
|
|
|
(1,398
|
)
|
Ending balance, October 31, 2020
|
|
$
|
2,385
|
|
We
expect to recognize approximately 100% of this revenue over the next 12 months.
Note
9—Accrued Expenses
Accrued
expenses consist of the following:
October
31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Royalties
|
|
$
|
1,268
|
|
|
$
|
813
|
|
Payroll & payroll taxes
|
|
|
110
|
|
|
|
803
|
|
Bonus
|
|
|
333
|
|
|
|
162
|
|
Production costs and participation
|
|
|
1,495
|
|
|
|
196
|
|
Other
|
|
|
747
|
|
|
|
1,062
|
|
Total
|
|
$
|
3,953
|
|
|
$
|
3,036
|
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
10—Property and Equipment
Property
and equipment consist of the following:
October
31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Equipment
|
|
$
|
424
|
|
|
$
|
378
|
|
Furniture & Fixtures
|
|
|
105
|
|
|
|
100
|
|
Leasehold improvements
|
|
|
826
|
|
|
|
829
|
|
Computer software
|
|
|
20
|
|
|
|
20
|
|
|
|
|
1,375
|
|
|
|
1,327
|
|
Less accumulated depreciation
and amortization
|
|
|
(965
|
)
|
|
|
(765
|
)
|
Property and equipment,
net
|
|
$
|
410
|
|
|
$
|
562
|
|
Depreciation
expense of all property and equipment was $200,000 and $182,000 for the fiscal 2020 and 2019, respectively.
Note
11—Intangible Assets
The
tables below present information on the Company’s intangible assets and goodwill:
(in thousands)
|
|
Amortization
Period
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Balance
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing Contracts
|
|
|
7
years
|
|
|
|
893
|
|
|
|
(841
|
)
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing Contracts
|
|
|
7
years
|
|
|
|
903
|
|
|
|
(788
|
)
|
|
|
115
|
|
Amortization
expense of intangible assets was $52,000 and $104,000 in fiscal 2020 and 2019, respectively.
Future
estimated amortization expense as of October 31, 2020 is as follows:
(in
thousands)
|
|
|
|
2021
|
|
$
|
45
|
|
2022
|
|
|
7
|
|
Total
|
|
$
|
52
|
|
The
Company’s Goodwill is summarized as follows:
Fiscal
Year Ended October 31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Beginning balance
|
|
$
|
199
|
|
|
$
|
199
|
|
Additions – business acquisitions
|
|
|
-
|
|
|
|
-
|
|
Impairments
|
|
|
-
|
|
|
|
-
|
|
Total
goodwill
|
|
$
|
199
|
|
|
$
|
199
|
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
12—Commitments
Lease
Commitments
The
Company has various lease agreements with terms up to 4 years, including leases of office space, warehouses, and equipment. Some leases
include options to purchase, terminate or extend for one or more years. These options are included in the lease term when it is reasonably
certain that the option will be exercised.
The
assets and liabilities from operating leases are recognized at the commencement date based on the present value of remaining lease payments
over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term
leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The
Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based
on our incremental borrowing rate, which is determined using the Company’s interest rate on its line of credit.
The
Company’s weighted-average remaining lease term relating to its operating leases is 1.65 years, with a weighted-average discount
rate of 4.59%.
The
Company recognized lease expense for its operating leases of $618,109 for the fiscal year ended October 31, 2020, respectively. The cash
paid under operating leases during the fiscal year ended October 31, 2020 was $686,078.
At
October 31, 2020, the Company had a right-of-use-asset related to operating leases of $1,329,086, accumulated amortization related to
operating leases of $558,140 both of which are included as a component of right-of-use assets.
The
lease commitments for the continuing operations are presented below:
Maturity
of Lease Liability
(in
thousands)
|
|
Total
|
|
Fiscal years ending October 31:
|
|
|
|
2021
|
|
$
|
594
|
|
2022
|
|
|
354
|
|
2023
|
|
|
13
|
|
2024
|
|
|
7
|
|
2025
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total undiscounted operating
lease payments
|
|
$
|
968
|
|
Less: imputed interest
|
|
|
(38
|
)
|
Present value of operating
lease liabilities
|
|
$
|
930
|
|
Note
13—Income Taxes
Significant
components of the Company’s deferred tax assets and deferred tax liabilities consist of the following:
Fiscal
year Ended October 31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Bad debt reserve
|
|
$
|
8
|
|
|
$
|
-
|
|
Accrued expenses
|
|
|
303
|
|
|
|
140
|
|
Exercise of stock options and lapsing of restrictions
on restricted stock
|
|
|
1,360
|
|
|
|
1,459
|
|
Impairment
|
|
|
391
|
|
|
|
437
|
|
Amortization
|
|
|
2,686
|
|
|
|
3,581
|
|
Net operating loss
|
|
|
12,280
|
|
|
|
8,760
|
|
Total deferred tax assets
|
|
|
17,028
|
|
|
|
14,377
|
|
Valuation allowance
|
|
|
(17,028
|
)
|
|
|
(14,377
|
)
|
Net
Deferred Tax Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
13—Income Taxes (continued)
The
(benefit from) provision for income taxes consists of the following:
Fiscal
year ended October 31 (in thousands)
|
|
2020
|
|
|
2019
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
(42
|
)
|
State and local
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
(42
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State and local
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(Benefit
from) provision for income taxes
|
|
$
|
-
|
|
|
$
|
(42
|
)
|
The
differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:
Fiscal
year ended October 31 (in thousands)
|
|
2020
|
|
|
2019
|
|
U.S. federal income tax at statutory
rate
|
|
$
|
(2,034
|
)
|
|
$
|
(5,300
|
)
|
Change in valuation allowance
|
|
|
2,651
|
|
|
|
7,020
|
|
State and local income tax, net of federal
benefit
|
|
|
-
|
|
|
|
(1,747
|
)
|
Tax law change
|
|
|
(620
|
)
|
|
|
(42
|
)
|
Non-deductible expenses
|
|
|
3
|
|
|
|
27
|
|
(Benefit
from) provision for income taxes
|
|
$
|
-
|
|
|
$
|
(42
|
)
|
At
October 31, 2020, the Company had federal net operating loss carryforwards of approximately $44 million. These carry-forward losses are
available to offset future U.S. federal taxable income. The pre-fiscal year 2019 net operating loss carryforwards will start to expire
in fiscal 2030 and post 2019 losses of $36 million will not expire.
The
change in the valuation allowance in fiscal 2020 was as follows:
(in thousands)
|
|
Balance
at
beginning of
year
|
|
|
Additions
charged to
costs and
expenses
|
|
|
Deductions
|
|
|
Balance
at
end of year
|
|
Reserves deducted from deferred income taxes, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
$
|
14,377
|
|
|
$
|
2,651
|
|
|
$
|
-
|
|
|
$
|
17,028
|
|
At
October 31, 2018, the company performed an analysis of its deferred tax assets and determined that it is not more likely than not that
they will be utilized and has established a valuation allowance against the asset. The valuation allowance remains.
At
October 31, 2020 and 2019, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized
income tax benefits in fiscal 2020 and fiscal 2019. At October 31, 2020, the Company did not expect any changes in unrecognized income
tax benefits during the next twelve months. In fiscal 2020 and fiscal 2019, the Company did not record any interest and penalties on
income taxes. At October 31, 2020 and 2019, there was no accrued interest included in current income taxes payable.
The
Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2018 to fiscal 2020,
state and local tax returns generally for fiscal 2017 to fiscal 2020.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
14—Deconsolidation of Subsidiary
|
a.
|
Effective
April 1, 2020, the Company’s interest in Clover Press decreased to 19.9% and IDWMH no longer consolidates the operations of
Clover Press. Accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of Clover Press.
|
|
b.
|
Analysis
of assets and liabilities over which the Company lost control
|
(in thousands)
|
|
March
31,
2020
|
|
Current assets
|
|
|
|
Cash and cash
equivalents
|
|
$
|
215
|
|
Trade accounts receivable
|
|
|
1
|
|
Inventory
|
|
|
62
|
|
Other current assets
|
|
|
9
|
|
Noncurrent assets
|
|
|
|
|
Intangible assets, net
|
|
|
10
|
|
Right-of-use assets
|
|
|
226
|
|
Other noncurrent assets
|
|
|
64
|
|
Current liabilities
|
|
|
|
|
Trade accounts payable
|
|
|
(38
|
)
|
Operating lease obligation-
current
|
|
|
(64
|
)
|
Related party notes payable
|
|
|
(50
|
)
|
Non-current liabilities
|
|
|
|
|
Operating
lease obligations -long term
|
|
|
(169
|
)
|
Net assets deconsolidated
|
|
$
|
266
|
|
|
c.
|
Loss
on deconsolidation of subsidiary
|
(in
thousands) Fiscal year ended October 31, 2020
|
|
|
|
Fair value of interest retained
|
|
$
|
25
|
|
Consideration received
|
|
|
100
|
|
Carrying amount of interest retained:
|
|
|
|
|
Net assets deconsolidated
|
|
|
(266
|
)
|
Noncontrolling interests
|
|
|
106
|
|
Loss on deconsolidation
of subsidiary
|
|
$
|
(35
|
)
|
Loss
on deconsolidation of subsidiary was included in other expenses. The technique used to measure fair value was calculating the net present
value of future EBITDA projected over five years. The transaction was not with a related party. The continuing involvement consists of
19.9% ownership and an officer of IDWMH has one of three seats on the board.
|
d.
|
Net
cash outflow arising from deconsolidation of the subsidiary
|
(in
thousands)
|
|
Fiscal
Year
Ended
October 31,
2020
|
|
The balance
of cash and cash equivalents deconsolidated
|
|
$
|
(115
|
)
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
15—Discontinued Operations
As
a result of the economic downturn related to the outbreak of the COVID-19 virus, and the impact it had on small businesses in the tourist
markets, the Company decided to make a strategic shift to dispose of CTM and to focus on its entertainment and publishing businesses.
On
July 14, 2020, the Company and Howard S. Jonas, the Company’s Chairman of the Board of Directors and former Chief Executive Officer,
executed a share purchase agreement pursuant to which the Company agreed to sell all of the stock of CTM to Mr. Jonas or his assignee
(the “SPA”) for (i) the cancelation of $3.75 million of indebtedness owed to Mr. Jonas by the Company, (ii) a contingent
payment of up to $3.25 million based upon a recovery of quarterly revenues of CTM to 90% of its fiscal 2019 levels during the 18-month
period following the closing of the CTM Sale, and (iii) a contingent payment if CTM is sold within 36 months for more than $4.5 million.
Prior to executing the share purchase agreement, the Company obtained a third-party’s valuation of CTM and a fairness opinion that
stated the consideration being received by the Company in the CTM Sale was fair. In addition to the Company’s Board of Directors
approving the CTM Sale, the Audit Committee of the Board of Directors, which is comprised entirely of independent directors, approved
the CTM Sale in compliance with the Company’s Statement of Policy with respect to Related Person Transactions. The CTM Sale was
also approved by (1) stockholders representing a majority of the combined voting power of the Company’s outstanding capital stock
and (2) stockholders representing a majority of the combined voting power of the Company’s outstanding capital stock not held by
Mr. Jonas or Immediate family members of Mr. Jonas, including, without limitation, trusts or other vehicles for the benefit of any of
such immediate family members or entities under the control of such persons. The Company will no longer have significant
continuing involvement with CTM.
According
to ASC 205-20-45-9 general corporate overhead should not be allocated to discontinued operations. The Company did not allocate any corporate
overhead to CTM when it began being classified as held for sale in the third quarter of 2020 and continued to not allocate any expenses
for the quarter ending October 31, 2020. In the prior quarters in 2020 corporate allocated a specific percentage and in fiscal 2019 100%
of IDWMH overhead was allocated to business segments.
There
is no loss to recognize on the classification of CTM as held for sale since the sale price of $3.75 million is greater than the net assets
of $2.63 million.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
15—Discontinued Operations (continued)
Following
is a summary of the Company’s results of discontinued operations for the fiscal years ended for 2020 and 2019, a schedule of assets
and liabilities of discontinued operations as of October 31, 2020 and October 31, 2019, and total operating and investing cash flows
of CTM operations for October 31, 2020 and October 31, 2019.
Results
of discontinued operations
|
|
Fiscal
year ended,
October 31,
|
|
(in
thousands)
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
$
|
9,264
|
|
|
$
|
19,764
|
|
Direct cost of revenue
|
|
|
4,480
|
|
|
|
7,033
|
|
Selling, general and administrative
|
|
|
7,413
|
|
|
|
12,736
|
|
Depreciation and amortization
|
|
|
1,175
|
|
|
|
1,226
|
|
Bad Debt
|
|
|
680
|
|
|
|
80
|
|
Total costs and expenses
|
|
|
13,748
|
|
|
|
21,075
|
|
Loss from operations
|
|
|
(4,484
|
)
|
|
|
(1,311
|
)
|
Interest expense, net
|
|
|
(78
|
)
|
|
|
(36
|
)
|
Other income (expense),
net
|
|
|
452
|
|
|
|
56
|
|
Loss before income taxes
|
|
|
(4,110
|
)
|
|
|
(1,291
|
)
|
(Provision for) benefit
from income taxes
|
|
|
-
|
|
|
|
(3
|
)
|
Net
loss
|
|
$
|
(4,110
|
)
|
|
$
|
(1,294
|
)
|
Stock
based compensation for discontinued operations included in selling, general and administrative expenses is $0 and $600,000 in the fiscal
years ended October 31, 2020 and 2019, respectively.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
15—Discontinued Operations (continued)
Assets and liabilities of discontinued operations
|
|
|
|
|
|
|
October
31(in thousands)
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
1,621
|
|
|
$
|
2,622
|
|
Trade receivables, net
|
|
|
844
|
|
|
|
1,791
|
|
Prepaid expenses
|
|
|
368
|
|
|
|
773
|
|
Total
current assets*
|
|
|
|
|
|
|
5,186
|
|
Property and equipment,
net
|
|
|
1,274
|
|
|
|
2,516
|
|
Right-of-use assets,
net
|
|
|
4,649
|
|
|
|
-
|
|
Intangibles assets, net
|
|
|
142
|
|
|
|
340
|
|
Goodwill
|
|
|
2,110
|
|
|
|
2,110
|
|
Other assets
|
|
|
163
|
|
|
|
199
|
|
Total Assets
|
|
$
|
11,171
|
|
|
$
|
10,351
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
891
|
|
|
|
479
|
|
Accrued expenses
|
|
|
368
|
|
|
|
1,138
|
|
Deferred revenue
|
|
|
664
|
|
|
|
1,197
|
|
Government loan- current portion
|
|
|
1,125
|
|
|
|
-
|
|
Operating lease obligations-current portion
|
|
|
909
|
|
|
|
-
|
|
Finance lease obligations- current portion
|
|
|
342
|
|
|
|
396
|
|
Income taxes payable
& other current liabilities
|
|
|
71
|
|
|
|
134
|
|
Total
current liabilities*
|
|
|
|
|
|
|
3,344
|
|
Government loan- long term portion
|
|
|
684
|
|
|
|
-
|
|
Operating lease obligations – long term
portion
|
|
|
3,034
|
|
|
|
-
|
|
Finance lease obligations
– long term portion
|
|
|
452
|
|
|
|
683
|
|
Total
non-current liabilities*
|
|
|
4,170
|
|
|
|
683
|
|
Total
Liabilities
|
|
$
|
8,540
|
|
|
$
|
4,027
|
|
|
*
|
The
assets and liabilities of the disposal group classified as held for sale are all classified
as current on the October 31,2020 balance sheet since its probable the sale will occur and
proceeds will be collected within one year. Therefore, no sub totals between current and
non-current have been displayed.
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
15—Discontinued Operations (continued)
Operating
and investing cash flows from discontinued operations for the fiscal years ended October, 31
(in
thousands)
|
|
2020
|
|
|
2019
|
|
Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,110
|
)
|
|
$
|
(1,294
|
)
|
Depreciation and amortization
|
|
|
764
|
|
|
|
1,226
|
|
Bad debt
|
|
|
680
|
|
|
|
80
|
|
Amortization of finance lease
|
|
|
411
|
|
|
|
-
|
|
Amortization of right-of-use asset
|
|
|
1,329
|
|
|
|
-
|
|
Trade accounts receivable
|
|
|
266
|
|
|
|
(215
|
)
|
Prepaid expenses and other assets
|
|
|
441
|
|
|
|
(463
|
)
|
Trade accounts payable, accrued expenses and
other current liabilities
|
|
|
(606
|
)
|
|
|
402
|
|
Deferred revenue
|
|
|
(533
|
)
|
|
|
83
|
|
Operating lease liability
|
|
|
(970
|
)
|
|
|
-
|
|
Net cash used in operating
activities
|
|
$
|
(2,328
|
)
|
|
$
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Business activities
|
|
|
-
|
|
|
|
(12
|
)
|
Capital expenditure
|
|
|
(381
|
)
|
|
|
(929
|
)
|
Proceeds on disposition
of long lived assets
|
|
|
185
|
|
|
|
-
|
|
Net cash used in investing
activities
|
|
$
|
(196
|
)
|
|
$
|
(941
|
)
|
Note
16—Labor Agreements
IDWE
produces its television shows utilizing primarily union-based employees, whether through its own special purpose subsidiaries or through
independent production companies. Those unions represent employees that are subject to collective bargaining agreements and IDWE’s
costs and scheduling of production are subject to those agreements.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
17—Related Party Transactions
On
August 21, 2018, the Company entered into a loan agreement with the Company’s Chairman of the Board of Directors (who, at the time
was also the Company’s Chief Executive Officer and majority stockholder) (the “Chairman”) for $5,000,000. Interest
accrues at prime rate plus 1% and the loan matures August 20, 2022. Payment of principal and interest are payable from 70% of the Free
Cash Flow, as defined in the loan agreement, of the Company’s CTM Media Group Inc. subsidiary. All outstanding shares of CTM Media
Group Inc. stock are pledged as security under the agreement. On December 1, 2019, the Company amended the agreement providing that up
to 60% of the interest due may, at the option of the Company, be paid in shares of Class B common stock (and the remaining amount in
cash) with such shares valued based on the average closing prices for the Class B common stock on the ten trading days immediately prior
to the applicable interest due date. As at October 31, 2020 the shares issued in connection with the loan interest was 56,545. The interest
is to be paid quarterly on the loan. In conjunction with the loan, the Company issued the Chairman a warrant to purchase up to 89,243
shares of the Company’s Class B Common Stock at a price per share of $42.02. The warrant expires August 21, 2023. On July 13, 2020
$1,250,000 was converted into 314,070 shares of Class B Common Stock (Note 4- Equity). The outstanding amount at October 31, 2020 was
$3,750,000.
On
September 21, 2018, the Company entered into a bridge loan facility agreement with its Chairman for up to $26,000,000. The balance due
under the facility was $0 at October 31, 2020. The proceeds from the private placement offering on March 9, 2020 were used to pay off
the remaining $4,000,000 of the loan facility (Note 4- Equity). $8,000,000 of the loan facility was paid off in connection with the 2019
offering. As at October 31, 2020 the shares of Class B common stock issued by the Company was 14,902. In conjunction with the amendment
to the loan, the Company issued the Chairman a warrant to purchase up to 98,336 shares of the Company’s Class B Common Stock at
a price per share of $26.44. The warrant expires March 30, 2022.
For
the fiscal year ended October 31, 2020 interest on the above loans amounted to $406,000 and for the fiscal year October 31, 2019 interest
amounted to $1,204,403, which was charged to production cost.
On
July 14, 2020, the Company and Howard S. Jonas, the Company’s Chairman of the Board of Directors and former Chief Executive Officer,
executed a share purchase agreement pursuant to which the Company agreed to sell all of the stock of CTM to Mr. Jonas or his assignee
(the “SPA”) for (i) the cancelation of $3.75 million of indebtedness owed to Mr. Jonas by the Company, (ii) a contingent
payment of up to $3.25 million based upon a recovery of quarterly revenues of CTM to 90% of its fiscal 2019 levels during the 18-month
period following the closing of the CTM Sale, and (iii) a contingent payment if CTM is sold within 36 months for more than $4.5 million.
Prior to executing the share purchase agreement, the Company obtained a third-party’s valuation of CTM and a fairness opinion that
stated the consideration being received by the Company in the CTM Sale was fair. In addition to the Company’s Board of Directors
approving the CTM Sale, the Audit Committee of the Board of Directors, which is comprised entirely of independent directors, approved
the CTM Sale in compliance with the Company’s Statement of Policy with respect to Related Person Transactions. The CTM Sale was
also approved by (1) stockholders representing a majority of the combined voting power of the Company’s outstanding capital stock
and (2) stockholders representing a majority of the combined voting power of the Company’s outstanding capital stock not held by
Mr. Jonas or Immediate family members of Mr. Jonas, including, without limitation, trusts or other vehicles for the benefit of any of
such immediate family members or entities under the control of such persons. The Company will no longer have significant
continuing involvement with CTM.
The
Company is the sole member of CTM Media Charitable Foundation, an IRS Section 501(c)(3) non-profit corporation (the “Foundation”),
and the Company’s former COO and CFO are the directors and officers of the Foundation. There were no balances outstanding between
the Company and the Foundation as of October 31, 2020 and 2019.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
18—Defined Contribution Plans
The
Company has a 401(k) Plan that are available to all its employees meeting certain eligibility criteria. The 401(k) Plan permits participants
to contribute a portion of their salary with no minimum deferred required, not to exceed the limits established by the Internal Revenue
Code. The Plan provides for discretionary matching contributions as determined in the Company’s sole discretion, which vest either
immediately or over six years, depending upon the specific plan’s documents. All contributions made by participants vest immediately
into the participant’s account.
The
Company also has a 401(k) matching plan whereby the Company matches a percentage of employee 401(k) contributions, based on maximum employee
deferral rates of calendar year W-2 compensation, as defined in the plans. Funds are added to accounts of employees that are actively
employed in a given calendar year, as defined. Although the Company is fully committed to the plans, the company’s match and the
terms of the match are subject to cancellation and/or change, at any time, without notice.
The
Company contributed approximately $54,000 and $99,000 for the fiscal years ended October 31, 2020 and October 31, 2019 respectively.
For
union contractors, the company contributes to multiemployer pension plans jointly administered by industry and union representatives.
The risk of participating in U.S. multiemployer pension plans is different from single employer pension plans in the following aspects:
a)
Assets contributed to the multiemployer plan by one employer may be used to provide benefits of employment to other participating employers.
b)
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating
employers.
c)
If the Company stops participating in some of its multiemployer pension plans, it may be required to pay those plans an amount based
on the underfunded status of the entire plan, referred to as a withdrawal liability.
The
Company’s participation in these plans for the years ended October 31, 2020 and October 31, 2019 is outlined in the following table.
The information provided by the multi-employer plan is for the plan year 2019 from January 1,2019 to December 31, 2019. The Plan Protection
Act (“PPA”) zone status column ranks the funded status of multiemployer pension plans depending upon a plan’s current
and projected funding. The zone status is based on information that the Company received from the plan. Among other factors, the plan
is in the Red Zone (Critical) if it has a current funded percentage less than 65%. A plan is in the Yellow Zone (Endangered) or Orange
Zone (Seriously Endangered) if it has a current funded percentage of less than 80%, or projects a credit balance deficit within seven
years. A plan is in the Green Zone (Healthy) if it has a current funded percentage greater than 80% and does not have a projected credit
balance deficit within seven years. The Funding Improvement Plan (“FIP”)/Rehabilitation Plan (“RP”) status column
indicates plans for which a FIP or RP is either pending or in place. The following table contains information about the Company’s
multiemployer pension plans for the years ended October 31, 2020 and 2019:
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
18—Defined Contribution Plans (continued)
The
following table contains information about the Company’s multiemployer pension plans for the years ended October 31, 2020 and 2019.
Producer-Writer
Guild of American Pension Plan
Expiration
date of Collective Bargaining Agreement
|
NA
|
|
|
Employer
Identification Number
|
95-2216351
|
Plan
Number
|
001
|
PPA
Status 2020
|
NA
|
PPA
Status 2019
|
Green
|
FIP/RP
Status Pending/Implemented
|
NA
|
Company’s
Contributions 2020
|
$18,555
|
Company’s
Contribution 2019
|
$7,695
|
Center
Contributions > 5% 2020
|
NA
|
Center
Contributions > 5% 2019
|
No
|
Plan’s
year-end
|
Dec
31/2019
|
The
Company currently has no intention of withdrawing from any of the multiemployer pension plans in which they participate.
Note
19—Reclassification of prior year presentation
Certain
prior year amounts have been reclassified for consistency with the current year presentation.
Note
20—Subsequent events
Management
has evaluated subsequent events through January 25, 2021, the date on which the consolidated financial statements were available to be
issued. There were no material subsequent events that require recognition or additional disclosures in these consolidated financial statements,
except as follows:
On
December 24, 2020, the Company applied for forgiveness on the IDWMH PPP loan of $1,195,679. Forgiveness was applied for under SBA
form 3508, using the 24-week Alternative Payroll Covered Period. As 100% of the loan was used during this period for payroll and
related payroll expenses, it is anticipated that the IDWMH PPP loan will be forgiven in its entirety.
2,500,000 Shares of Class
B Common Stock
Class
B Common Stock
PROSPECTUS
Sole
Bookrunner
EF Hutton
division
of Benchmark Investments, Inc.
August 4,
2021
Through
and including August 29, 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation
to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.