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 in this report 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. IDWE generates
exclusively from IDWP’s diverse library of comic books and graphic novels.
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 stockholder’s 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 interntional 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 Incentive 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 Incentive 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 Incentive
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 Incentive 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 Incentive 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
Incentive 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 Incentive 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 Incentive 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 Incentive 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 Incentive 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 Incentive 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 Incentive 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 Incentive 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 Incentive 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 Incentive Plan, subject to adjustment. Incentives available under
the 2019 Incentive 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 Incentive Plan, subject to adjustment.
As of October 31, 2020, 126,487 shares remained available to be awarded under the 2019 Incentive 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 Incentive 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.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
5—Notes Payable (continued)
Future
maturities under the VIE bank loans are as follows:
Date
|
|
Amount
|
|
2021
|
|
$
|
14,204,000
|
|
Total
|
|
$
|
14,204,000
|
|
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.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
7 —Fair Value Measurement (continued)
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
|
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
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
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
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
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.
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.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019
Note
15- Discontinued Operations (continued)
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.
IDW MEDIA HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
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, 2019 and 2018, and
the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of
the two years in the period ended October 31, 2019, and the related notes (collectively referred to as the “consolidated
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, 2019 and 2018, and the results of its operations and its cash flows for
each of the two years in the period ended October 31, 2019, in conformity with accounting principles generally accepted in the
United States of America.
Restatement of 2019 and 2018
Financial Statements
As discussed in Note 2 and Note 18
to the consolidated financial statements, the consolidated financial statements as of October 31, 2019 and 2018 have been restated
to reflect the Company’s subsequently discontinued operations.
Basis for Opinion
These financial statements are the
responsibility of the entity’s management. Our responsibility is to express an opinion on the entity’s 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 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 financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/ Zwick & Banyai, PLLC
We have served as the Company’s auditor since 2010.
Southfield,
Michigan
January
27, 2020, except for Note 2 and Note 18, as to which the date is November 30, 2020
IDW MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
October
31,
2019
(as
restated)
|
|
|
October 31,
2018
(as
restated)
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,543
|
|
|
$
|
11,074
|
|
Trade accounts receivable, net
|
|
|
43,462
|
|
|
|
14,503
|
|
Inventory
|
|
|
3,313
|
|
|
|
3,610
|
|
Prepaid expenses
|
|
|
1,319
|
|
|
|
1,447
|
|
Current assets held for sale from discontinued operations
|
|
|
5,186
|
|
|
|
4,176
|
|
Total current assets
|
|
|
60,823
|
|
|
|
34,810
|
|
Property and equipment, net
|
|
|
562
|
|
|
|
572
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
Taxes receivable
|
|
|
513
|
|
|
|
513
|
|
Trade accounts receivable- non-current portion
|
|
|
-
|
|
|
|
408
|
|
Intangible assets, net
|
|
|
115
|
|
|
|
209
|
|
Goodwill
|
|
|
199
|
|
|
|
199
|
|
Television costs
|
|
|
9,388
|
|
|
|
37,915
|
|
Other assets
|
|
|
372
|
|
|
|
264
|
|
Non-current assets held for sale from discontinued
operations
|
|
|
5,165
|
|
|
|
5,449
|
|
Total assets
|
|
$
|
77,137
|
|
|
$
|
80,339
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
2,145
|
|
|
$
|
1,709
|
|
Accrued expenses
|
|
|
3,036
|
|
|
|
9,243
|
|
Deferred revenue
|
|
|
1,058
|
|
|
|
426
|
|
Bank loans payable – current portion
|
|
|
29,242
|
|
|
|
18,195
|
|
Related party loans payable – current portion
|
|
|
4,550
|
|
|
|
14,500
|
|
Income taxes payable
|
|
|
-
|
|
|
|
79
|
|
Other current liabilities
|
|
|
2,007
|
|
|
|
61
|
|
Current liabilities held for sale from discontinued
operations
|
|
|
3,344
|
|
|
|
3,907
|
|
Total current liabilities
|
|
|
45,382
|
|
|
|
48,120
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
Operating lease obligations – long term portion
|
|
|
-
|
|
|
|
-
|
|
Bank loans payable – long term portion
|
|
|
10,500
|
|
|
|
10,500
|
|
Related party loans payable – long term portion
|
|
|
4,500
|
|
|
|
4,500
|
|
Non-current liabilities held for sale from discontinued
operations
|
|
|
683
|
|
|
|
727
|
|
Total non-current liabilities
|
|
|
15,683
|
|
|
|
15,727
|
|
Total liabilities
|
|
$
|
61,065
|
|
|
$
|
63,847
|
|
Stockholders’ equity (see note 5):
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; authorized shares – 500; no
shares issued at October 31, 2019 and October 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
Class B common stock, $0.01 par value; authorized
shares – 12,000; 7,419 and 6,072 shares issued and 6,899 and 5,553 shares outstanding at October 31, 2019 and October
31, 2018, respectively
|
|
|
74
|
|
|
|
61
|
|
Class C common stock, $0.01 par value; authorized
shares – 2,500; 545 shares issued and outstanding at October 31, 2019 and 2018
|
|
|
5
|
|
|
|
5
|
|
Stock subscription receivable
|
|
|
(1,000
|
)
|
|
|
-
|
|
Additional paid-in capital
|
|
|
96,671
|
|
|
|
69,780
|
|
Accumulated other comprehensive loss
|
|
|
(60
|
)
|
|
|
(228
|
)
|
Retained deficit
|
|
|
(78,457
|
)
|
|
|
(51,930
|
)
|
Treasury stock, at cost, consisting
of 519 shares of Class B common stock at October 31, 2019 and 2018
|
|
|
(1,196
|
)
|
|
|
(1,196
|
)
|
Total IDW Media Holdings Inc. stockholders’
equity
|
|
|
16,037
|
|
|
|
16,492
|
|
Non-controlling interest
|
|
|
35
|
|
|
|
-
|
|
Total stockholders’ equity
|
|
|
16,072
|
|
|
|
16,492
|
|
Total liabilities and stockholders’ equity
|
|
$
|
77,137
|
|
|
$
|
80,339
|
|
See accompanying notes to consolidated financial statements.
IDW MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Three
Months Ended
October 31, (unaudited)
(as
restated)
|
|
|
Fiscal
Year Ended
October 31,
(as
restated)
|
|
(in thousands, except per share data)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
28,376
|
|
|
$
|
14,405
|
|
|
$
|
42,835
|
|
|
$
|
38,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of revenues
|
|
|
40,153
|
|
|
|
31,846
|
|
|
|
49,153
|
|
|
|
47,989
|
|
Selling, general and administrative
|
|
|
6,148
|
|
|
|
4,671
|
|
|
|
18,415
|
|
|
|
15,655
|
|
Depreciation and amortization
|
|
|
68
|
|
|
|
87
|
|
|
|
286
|
|
|
|
344
|
|
Bad debt expense
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
|
|
-
|
|
Total costs
and expenses
|
|
|
46,369
|
|
|
|
36,604
|
|
|
|
67,887
|
|
|
|
63,988
|
|
Loss from operations
|
|
|
(17,993
|
)
|
|
|
(22,199
|
)
|
|
|
(25,052
|
)
|
|
|
(25,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(11
|
)
|
|
|
(222
|
)
|
|
|
(173
|
)
|
|
|
(467
|
)
|
Other income (expense), net
|
|
|
(5
|
)
|
|
|
6
|
|
|
|
(15
|
)
|
|
|
7
|
|
Loss before income taxes
|
|
|
(18,009
|
)
|
|
|
(22,415
|
)
|
|
|
(25,240
|
)
|
|
|
(25,593
|
)
|
(Provision for) benefit from
income taxes
|
|
|
44
|
|
|
|
(3,141
|
)
|
|
|
42
|
|
|
|
(4,482
|
)
|
Net loss from continuing operations
|
|
|
(17,965
|
)
|
|
|
(25,556
|
)
|
|
|
(25,198
|
)
|
|
|
(30,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net
|
|
|
825
|
|
|
|
(3,291
|
)
|
|
|
(1,294
|
)
|
|
|
(5,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(17,140
|
)
|
|
|
(28,847
|
)
|
|
|
(26,492
|
)
|
|
|
(36,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interests
|
|
|
35
|
|
|
|
-
|
|
|
|
63
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to IDW Media
Holdings, Inc
|
|
$
|
(17,105
|
)
|
|
$
|
(28,847
|
)
|
|
$
|
(26,429
|
)
|
|
$
|
(36,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per
share (note 4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(2.40
|
)
|
|
$
|
(4.16
|
)
|
|
$
|
(3.71
|
)
|
|
$
|
(4.91
|
)
|
Discontinued operations, net
|
|
|
.11
|
|
|
|
(0.53
|
)
|
|
|
(0.19
|
)
|
|
|
(0.97
|
)
|
Net loss
|
|
$
|
(2.29
|
)
|
|
$
|
(4.69
|
)
|
|
$
|
(3.90
|
)
|
|
$
|
(5.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares used in the calculation
of basic and diluted loss per share:
|
|
|
7,444
|
|
|
|
6,153
|
|
|
|
6,768
|
|
|
|
6,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend declared per common share:
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
See accompanying notes to consolidated financial statements.
IDW MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
|
|
Three Months Ended
October 31, (unaudited)
|
|
|
Fiscal Years Ended
October 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(17,140
|
)
|
|
|
(28,847
|
)
|
|
$
|
(26,492
|
)
|
|
$
|
(36,022
|
)
|
Foreign currency translation adjustments
|
|
|
23
|
|
|
|
(33
|
)
|
|
|
168
|
|
|
|
(45
|
)
|
Comprehensive loss
|
|
|
(17,117
|
)
|
|
|
(28,880
|
)
|
|
|
(26,324
|
)
|
|
|
(36,067
|
)
|
Comprehensive loss attributable to non-controlling interest
|
|
|
35
|
|
|
|
-
|
|
|
|
63
|
|
|
|
-
|
|
Total comprehensive loss
|
|
$
|
(17,082
|
)
|
|
|
(28,880
|
)
|
|
$
|
(26,261
|
)
|
|
$
|
(36,067
|
)
|
See accompanying notes to consolidated financial statements
IDW Media Holdings, Inc.
Consolidated Stockholders’
Equity
Fiscal Years Ended October
31, 2019 and 2018
(in thousands)
|
|
Class B Common
Stock
|
|
|
Class C Common
Stock
|
|
|
Stock
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
Non-
|
|
|
Treasury
Stock, at Cost
|
|
|
Total
|
|
(in thousands)
(unaudited)
|
|
Number of
Shares
|
|
|
Amount
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
Subscriptions
Receivable
|
|
|
Paid In
Capital
|
|
|
Comprehensive
Loss
|
|
|
Retained
Deficit
|
|
|
Controlling
Interest
|
|
|
Number of
Shares
|
|
|
Amount
|
|
|
Shareholders’
Equity
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance October 31, 2017
|
|
|
6,085
|
|
|
|
61
|
|
|
|
545
|
|
|
|
5
|
|
|
|
-
|
|
|
|
66,694
|
|
|
|
(183
|
)
|
|
|
(15,908
|
)
|
|
|
-
|
|
|
|
519
|
|
|
|
(1,196
|
)
|
|
|
49,473
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,960
|
|
Stock rescinded
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Warrants issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,022
|
)
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
Total
comprehensive loss
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45
|
)
|
|
|
(36,022
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,067
|
)
|
Balance October
31, 2018
|
|
|
6,072
|
|
|
|
61
|
|
|
|
545
|
|
|
|
5
|
|
|
|
-
|
|
|
|
69,780
|
|
|
|
(228
|
)
|
|
|
(51,930
|
)
|
|
|
-
|
|
|
|
519
|
|
|
|
(1,196
|
)
|
|
|
16,492
|
|
See accompanying notes to consolidated financial statements.
IDW MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal
years ended October 31,
(in
thousands)
|
|
2019
(as
restated)
|
|
|
2018
(as restated)
|
|
Operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(26,492
|
)
|
|
|
(36,022
|
)
|
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,513
|
|
|
|
1,625
|
|
Bad debt expense
|
|
|
113
|
|
|
|
69
|
|
Warrants issued
|
|
|
118
|
|
|
|
126
|
|
Stock based compensation
|
|
|
3,123
|
|
|
|
2,960
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(28,960
|
)
|
|
|
1,233
|
|
Inventory
|
|
|
297
|
|
|
|
437
|
|
Prepaid expenses and other assets
|
|
|
(443
|
)
|
|
|
(26
|
)
|
Television costs
|
|
|
28,527
|
|
|
|
(12,608
|
)
|
Deferred taxes
|
|
|
-
|
|
|
|
10,391
|
|
Trade accounts payable, accrued expenses and other
liabilities
|
|
|
(3,501
|
)
|
|
|
(2,262
|
)
|
Deferred revenue
|
|
|
715
|
|
|
|
(3,137
|
)
|
Net cash used in operating
activities
|
|
|
(24,990
|
)
|
|
|
(37,214
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
Business acquisitions
|
|
|
(12
|
)
|
|
|
(28
|
)
|
Capital expenditures
|
|
|
(1,113
|
)
|
|
|
(911
|
)
|
Net cash used in investing
activities
|
|
|
(1,125
|
)
|
|
|
(939
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
22,663
|
|
|
|
-
|
|
Financing under capital leases
|
|
|
360
|
|
|
|
241
|
|
Repayments of capital lease obligations
|
|
|
(410
|
)
|
|
|
(432
|
)
|
Proceeds of related party loan
|
|
|
9,050
|
|
|
|
19,000
|
|
Proceeds of bank loans
|
|
|
19,382
|
|
|
|
34,314
|
|
Repayments of related party loans
|
|
|
(19,000
|
)
|
|
|
-
|
|
Repayments of bank loans
|
|
|
(9,378
|
)
|
|
|
(10,634
|
)
|
Net cash provided by financing
activities
|
|
|
22,667
|
|
|
|
42,489
|
|
Effect of exchange rate changes
on cash and cash equivalents
|
|
|
168
|
|
|
|
(45
|
)
|
Net increase (decrease) in
cash and cash equivalents
|
|
|
(3,280
|
)
|
|
|
4,291
|
|
Cash and cash equivalents at beginning of period
|
|
|
13,445
|
|
|
|
9,154
|
|
Cash and cash equivalents at
end of period
|
|
$
|
10,165
|
|
|
|
13,445
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of investing
and financing activities
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
228
|
|
|
|
551
|
|
Cash paid for income taxes
|
|
$
|
25
|
|
|
|
159
|
|
Purchases of property and equipment through capital
lease obligations
|
|
$
|
360
|
|
|
|
241
|
|
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,
2019 AND 2018
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.
Each reference below to a fiscal year refers
to the fiscal year ending in the calendar year indicated (e.g., fiscal 2019 refers to the fiscal year ended October 31, 2019).
The Company is a holding company consisting
of the following principal businesses:
IDW Publishing (“IDWP”),
a publishing company that creates comic books, graphic novels, digital content and games through its imprints IDW, IDW Games and
Top Shelf; and
IDW Entertainment (“IDWE”),
a company that leverages properties, principally those of IDWP, into television series developing, producing and distributing original
content worldwide;
and
CTM Media Group (“CTM”),
the Company’s brochure and digital distribution companies and other advertising-based product initiatives focused on small
to medium sized businesses.
Variable Interest Entities
The Company, through its subsidiary IDWE
has arrangements with five special-purpose entities (“SPEs”), formed for the sole purpose of providing production services
in Canada for the production of a television pilot and television series. 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 a part of these consolidated
financial statements.
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
Revenues from CTM’s brochure and
digital distribution services are recognized on a straight-line basis over the term of the relevant services arrangement, which
is typically between six months and one year. Brochure distribution services include distribution of marketing materials to display
stations and straightening and refilling of the stations. Digital distribution services include electronic distribution of marketing
materials to video touchscreen displays. Revenues from CTM’s printing services are recognized based on payment by customers
to the print vendor. Revenues from CTM’s publications are recognized over the term of the publication distribution dates.
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.
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.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 1—Basis of Presentation (continued)
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.
Direct Cost of Revenues
Direct cost of revenues excludes depreciation and amortization
expense. Direct cost of revenues for CTM consists primarily of distribution and fulfillment payroll, warehouse and vehicle distribution
expenses, and print and design expenses. 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. In addition, television series with greater market acceptance
are more likely to generate incremental revenues through the licensing of program rights worldwide to television distributors,
SVOD (subscription video on demand) services and in-home entertainment formats. Alternatively, poor ratings may result in cancellation
of the program, which would require an immediate write-down of any unamortized production costs. A significant decline in the advertising
market would also negatively impact our estimates. 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, vehicles 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; vehicles - 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
Customer lists, non-compete covenants,
location lists, licensing contracts and acquisition costs are recorded at cost and are amortized on a straight-line basis over
their contractual or estimated useful lives, whichever is shorter, which range as follows: customer lists, non-compete covenant,
location lists, licensing contracts and acquisition costs, 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,
2019 AND 2018
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 2019 and fiscal 2018, advertising expenses were approximately $189,000 and $89,000, 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. Gains or losses resulting from such
foreign currency translations are recorded in “Accumulated other comprehensive income” in the accompanying consolidated
balance sheets.
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.
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.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 1—Basis of Presentation (continued)
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)
|
|
2019
|
|
|
2018
|
|
Basic weighted-average number of shares
|
|
|
6,768
|
|
|
|
6,130
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Non-vested restricted common stock
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted-average number of shares
|
|
|
6,768
|
|
|
|
6,130
|
|
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.
During fiscal 2019 and 2018 fiscal years, IDWP used Penguin
Random House (“PRH”), as its leading distributor to mass market book stores in the United States.
Revenues from Diamond
Comic Distributors, Inc. (“Diamond”), IDWP’s direct market distributor, represented approximately 13.3%
and 15.1% of the total consolidated revenues for the fiscal years ended October 31, 2019 and 2018, respectively. The receivable
balances from this customer represented approximately 2.4% and 6.7% of consolidated trade accounts receivable at October 31, 2019
and 2018, respectively. Revenue and receivables from PRH amounted to 8.7% and 13.0% of consolidated revenue in fiscal 2019 and
2018, respectively and 3.8% and 6.1% of consolidated receivables in fiscal 2019 and 2018, 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 fiscal 2019 or fiscal 2018 or in the three months ended October 31, 2019 and 2018. This concentration
of customers increases the Company’s risk associated with nonpayment by those customers.
IDWE recognizes its revenue based on the completed episodes
it delivers, they had two major customers in fiscal 2019 and 2018. Netflix, a leading streaming video subscription service, that
represented 36.5% and 0% of consolidated revenue, and 50.5% and 10.5% of consolidated trade receivables for the fiscal years ended
October 31, 2019 and 2018, respectively. NBC Universal/SyFy, a major television network, which accounted for 0% and 10.8% of consolidated
revenue, and 0% and 2.4% of consolidated receivables for the fiscal years ended October 31, 2019 and 2018, respectively.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 1—Basis of Presentation (continued)
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,
2019 and 2018 were $36,311,000 and $19,407,000, respectively.
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 2019 and 2018 actual returns exceeded estimated
returns by approximately $8,000 and $67,000, 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
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales returns
|
|
$
|
160
|
|
|
$
|
2,077
|
|
|
$
|
(2,085
|
)
|
|
$
|
152
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for sales returns
|
|
$
|
227
|
|
|
$
|
2,343
|
|
|
$
|
(2,410
|
)
|
|
$
|
160
|
|
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.
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
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
27
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
29
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
13
|
|
|
$
|
14
|
|
|
$
|
-
|
|
|
$
|
27
|
|
(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.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 1—Basis of Presentation (continued)
At October 31, 2019 and 2018, the carrying
value of the Company’s trade accounts receivable, inventory, prepaid expenses, trade accounts payable, accrued expenses,
deferred revenue, bank loans payable- current portion, related party loans payable- current portion, income taxes payable, capital
lease obligations-current portion, and other current liabilities approximated fair value because of the short period of time to
maturity. At October 31, 2019 and 2018, the carrying value of the long- term portion of the Company’s capital lease
obligations 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
Clover Press, LLC (“Clover Press”)
is a joint venture of which the Company held an 80.5% ownership stake at October 31, 2019. The minority owners include 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. For the purposes of presentation Clover Press is included
in the IDWP reporting segment.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued an ASU
2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the right-of-use assets and liabilities
that arise from leases. Most leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No.
6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement
over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. This ASU is effective
for annual and interim periods beginning after December 15, 2018. The company will adopt this guideline prospectively for fiscal
year November 1, 2019. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee
have not significantly changed from previous GAAP. The Company is currently evaluating the effect this new guidance will have on
its consolidated financial statements.
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 May 2014, FASB issued ASU
No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), requiring revenue to be recognized in
an amount that reflects the consideration expected to be received in exchange for goods and services. This new revenue recognition
standard may be applied retrospectively to each prior period presented, or retrospectively with the cumulative effect recognized
as of the date of adoption. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers – Deferral
of the Effective Date (“ASU 2015-14”), which defers implementation of ASU 2014-09 by one year. Under such
deferral, the adoption of ASU 2014-09 became effective for us on November 1, 2018, including interim periods within that reporting
period. Our evaluation of the impact of the adoption of ASU 2014-09 on our consolidated financial statements is that it does
not have a material impact on the Company’s operations. The Company did implement changes to its processes related to revenue
recognition and the control activities within them. These included the development of new policies and/or modification of
existing policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements,
and gathering of information provided for disclosures. Management has completed its implementation process and no further significant
implementation matters remain. As a result, no changes were required to the accompanying financial statements.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 1—Basis of Presentation (continued)
In May 2017, the FASB issued 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 will adopt this guideline prospectively for the fiscal year beginning November 1, 2019. The Company has
evaluated this guidance and determined there will be no material effect on its 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 changes in this standard are effective
for the fiscal year beginning November 1, 2021, 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—Restatement of Previously
Issued Consolidated Financial Statements
The financial statements for the three
months and fiscal years ended October 31, 2019 and October 31, 2018, including the consolidated balance sheets, consolidated statements
of operations, consolidated statements of cash flows and financial statement notes thereto have been restated to reflect CTM as
a discontinued operation in accordance with ASC 855-10-25-4 and ASC 855-10-50-5 . Refer to the discontinued operations note 18.
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 Statement of Operations. Assets and liabilities are also separately reclassified
in the Balance Sheets for all periods presented. Cash flows from the 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, refer to the
discontinued operations note 18.
Note 3—Dividends
In 2016, the Company’s Board of Directors
suspended the Company’s quarterly dividend to provide additional cash for the Company’s acquisition initiatives and
its production schedule commitments further discussed in Management’s Discussion and Analysis of Financial Condition and
Results of Operations in this Company’s annual report to the OTC Markets Group for the fiscal year ended October 31, 2019.
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 4—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. The number of shares outstanding has been increased to include unvested restricted shares of the
Company’s Class B common stock; par value $0.01 per share (“Class B Common Stock”). 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 any potentially
dilutive shares. During the three months and fiscal years ended October 31, 2019 and October 31, 2018, there were no shares that
were potentially dilutive. As a result, basic earnings per share and diluted earnings per share were the same.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 5—Equity
Changes in the components of stockholders’ equity were
as follows:
(in thousands)
|
|
Year
Ended
October 31,
2019
|
|
Balance, October 31, 2018
|
|
$
|
16,492
|
|
|
|
|
|
|
Stock based compensation
|
|
|
3,123
|
|
Warrants issued
|
|
|
118
|
|
Issuance of stock options
|
|
|
58
|
|
Issuance of common stock
|
|
|
23,605
|
|
Subscriptions receivable
|
|
|
(1,000
|
)
|
Comprehensive loss:
|
|
|
|
|
Net loss
|
|
|
(26,492
|
)
|
Other comprehensive income
|
|
|
168
|
|
Total comprehensive loss
|
|
|
(26,324
|
)
|
|
|
|
|
|
Balance, October 31, 2019
|
|
$
|
16,072
|
|
Stock based compensation for continuing
operations included in selling, general and administrative expenses is $491 and $589 in the three months ended October 31, 2019
and 2018, respectively and $2,523 and $2,616 in the nine months ended October 31, 2019 and 2018, respectively.
On April 24, 2019, the Company closed the
initial round of a private placement offering of shares of its Class B Common Stock (the “Class B Common Stock”) to
certain existing stockholders (“the PPO”) at $18.00 per share. In connection with this round of the PPO, on April 24,
2019, the Company issued 767,630 shares of Class B Common Stock for gross proceeds of $13,817,337. Following that issuance, there
were a total of 6,321,511 shares of Class B Common Stock and 545,360 shares of Class C Common Stock issued and outstanding (excluded
from these numbers are 519,360 shares of Class B Common Stock held in treasury by the Company).
On May 7, 2019, the Company closed the
follow-on round of the PPO and issued 345,792 shares of Class B common Stock for gross proceeds of $5,186,885. The follow-on round
of the PPO involved participants in the initial round of the PPO who elected to participate in the purchase of unsubscribed shares
of Class B Common Stock at $15.00 per share. In the PPO, the Company issued a total of 1,113,422 shares of Class B Common
Stock and received total gross proceeds of $19,004,229. Following the PPO, there were a total of 6,679,841 shares of
Class B Common Stock and 545,360 shares of Class C Common Stock issued and outstanding (excluded from these numbers are 519,360
shares of Class B common stock held in treasury by the Company). The proceeds from the PPO are being used by the Company to (i)
provide additional funding on certain IDWE projects currently in development; (ii) invest in developing new properties at IDWP;
and (iii) working capital. The shares issued in the PPO are subject to a contractual restriction on transfer for six months following
the closing of the PPO, as well as other restrictions under applicable law.
In connection with a non-brokered private
placement offering, on June 15, 2019, the Company issued 210,898 shares of Class B Common Stock at a price of $17.07 per share
for an aggregate of approximately $3,600,000.
On April 17, 2019, the Company agreed to
grant to a consultant 5,000 shares of restricted Class B Common Stock (“Restricted Stock”) under the 2019 Incentive
Plan (as defined below) 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 scheduled to vest on January 1, 2020.
On March 14, 2019, the Company’s
Board of Directors adopted the 2019 Stock Option and Incentive Plan (the “2019 Incentive 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 Incentive Plan, subject to adjustment. Incentives
available under the 2019 Incentive Plan may include stock options, stock appreciation rights, limited stock appreciation rights,
restricted stock and deferred stock units. As of October 31, 2019, 292,000 shares were available to be awarded under the
2019 Incentive Plan.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 5—Equity (continued)
On December 24, 2018, an executive was
granted 1,370 shares of Class B Common Stock. In addition, in fiscal 2018, the Company agreed to grant this executive
15,000 shares of Restricted Stock pursuant to the Company’s 2009 Stock Option and Incentive Plan, as amended and restated
(the “2009 Incentive Plan”), with such shares scheduled vest in equal monthly installments over the 12-month period
beginning on October 15, 2018. This executive 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 shareholder/executive no longer being an employee of the Company.
On November 26, 2018, the Company agreed
to issue to an executive 3,030 shares of Restricted Stock under the 2009 Incentive Plan, which are scheduled to vest in equal monthly
installments until December 10, 2019. As of October 31, 2019, 2,526 of these 3,030 shares of Restricted Stock have vested.
In addition, 758 shares of fully vested Restricted Stock were granted to this same executive on March 14, 2019.
In fiscal 2018, the Company granted 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 scheduled to vest on September 20, 2019. On September 17, 2019, the vesting of 334 of such shares of Restricted
Stock was amended from September 20, 2019 to October 8, 2019 and, on October 7, 2019, the vesting of 334 of such shares of Restricted
Stock was further amended from October 8, 2019 to March 31, 2020. In fiscal 2019, the Company agreed to issue options to purchase
10,000 shares of Class B Common Stock under the 2009 Incentive Plan to this employee with the options scheduled to vest and become
exercisable as follows: 2,500 upon grant; 834 on April 1, 2019; 833 on May 1, 2019; 833 on June 1, 2019; 834 on July 1, 2019;
833 on August 1, 2019; 833 on September 1, 2019; 834 on October 1, 2019; 833 on November 1, 2019 and 833 on December 1, 2019.
As of October 31, 2019, 8,334 of these 10,000 options have vested.
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 consultant was granted under the 2019 Incentive Plan 750 fully vested
shares of Restricted Stock for service provided in the applicable month.
Effective January 10, 2017, the Company
granted 57,532 shares of Restricted Stock pursuant to the 2009 Incentive Plan to its former Chief Executive Officer, with 19,177
of such shares having vested on July 31, 2018 and 19,177 and 19,178 of such shares originally scheduled to vest on September 20,
2019 and March 31, 2020, respectively. On September 17, 2019, the vesting of 19,177 of such shares of Restricted Stock was amended
from September 20, 2019 to October 8, 2019.
Effective November 7, 2016, the Company
granted 116,458 shares of Restricted Stock pursuant to the 2009 Incentive Plan to the Company’s former Chief Operating Officer,
former Chief Financial Officer and selected management employees, with such shares originally scheduled to vest in three equal
installments on each of June 20, 2017, June 20, 2018 and September 20, 2019. During fiscal 2018 and fiscal 2019, 8,549
and 5,425, respectively, of such shares were forfeited. On September 17, 2019, the vesting of 29,125 of such shares of Restricted
Stock was amended from September 20, 2019 to October 8, 2019 and, on October 7, 2019, the vesting of 28,541 of such shares of Restricted
Stock was further amended from October 8, 2019 to March 31, 2020.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 5—Equity (continued)
On October 31, 2013, the Company’s
Board of Directors granted its Chairman, current Chief Executive Officer and majority stockholder, 38,796 (387,960 shares after
the Stock Split) shares of Restricted Stock with a value of $2,327,760 on the date of grant in lieu of a bonus for fiscal 2013
and a cash base salary for the period of October 14, 2014 to December 31, 2019. Total unrecognized compensation cost on the
date of grant was $2,277,760. The unrecognized compensation is recognized over the vesting period. The restricted shares
vest as follows:
|
|
|
|
|
Number of shares
|
|
Date
|
|
Number of shares
|
|
|
(after giving effect
to the 10 for 1 Stock Split)
|
|
10/31/13 through 9/30/19
|
|
|
36,447
|
|
|
|
364,470
|
|
12/31/19
|
|
|
2,349
|
|
|
|
23,490
|
|
On September 3, 2009, the Company’s
Compensation Committee ratified the 2009 Incentive Plan to provide incentives to executive officers, employees, directors and consultants
of the Company and/or its subsidiaries. The maximum number of shares of Class B Common Stock reserved for the grant of awards
under the 2009 Incentive Plan is 285,860 shares, subject to adjustment. Incentives available under the 2009 Incentive Plan
may include stock options, stock appreciation rights, limited stock appreciation rights, restricted stock and deferred stock units.
Pursuant to the 2009 Incentive Plan, new awards were not be issued pursuant to the 2009 Incentive Plan after August 6, 2019.
Note 6—Notes Payable and Lines
of Credit
Related party loans
On August 21, 2018, the Company entered
into a loan agreement with the Company’s Chairman of the Board of Directors and majority stockholder (“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. 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 outstanding amount at October 31, 2019 was $5,000,000. The warrant expires August 21, 2023.
On September 21, 2018, the Company entered
into a bridge loan facility agreement with its Chairman for up to $26,000,000. The interest is payable quarterly at the greater
of 10% or LIBOR plus 8%. The balance due under the facility was $4,000,000 at October 31, 2019. $8,000,000 of the loan facility
was paid off in connection with the 2019 rights offering. Balances due under the facility are due October 1, 2020. 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.
These notes were amended subsequently
to October 31, 2019, see subsequent event note 19 for further information.
Interest on the above loans for the three
months ended October 31, 2019 was $176,626 for the fiscal year ended October 31, 2019 was $1,204,403 was charged to production
cost.
The maturities under these loans are anticipated to be as follows:
Date
|
|
Amount
|
|
2020
|
|
$
|
4,500,000
|
|
2021
|
|
|
500,000
|
|
2022
|
|
|
4,000,000
|
|
Total
|
|
$
|
9,000,000
|
|
On April 4, 2019 Clover Press entered into
a loan agreement with two of the Company’s founders for $25,000 each, totaling $50,000 these loans are due upon demand.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 6—Notes Payable and Lines
of Credit (continued)
Bank Loans
On November 21, 2018, a 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, 2019, $17,264,000 was outstanding under the commitment.
On June 21, 2018, a 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 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, 2019, $22,479,000 was outstanding
under the commitment.
On November 1, 2017, an LLC (“LLC2”)
that is 100% owned by IDWE entered into a loan agreement with a bank that provides for a production financing commitment in the
amount of $4,103,000. The loan is secured by LLC2’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 March 1, 2020. On October 31, 2019, $0 was outstanding under the
commitment.
On July 31, 2015, as amended May 25, 2018,
IDWP entered into a loan agreement with the Company’s primary bank that provided for a $3,000,000 revolving line of credit,
renewable annually, with interest payable monthly. IDWP has pledged its fixed assets, inventory and receivables under the agreement,
which also required IDWP to maintain certain financial ratios, among other provisions. On May 25, 2018, IDWP renewed and extended
the line of credit through July 31, 2019. On April 23, 2019, the line of credit was paid down to $0 and the line of credit was
terminated.
Future maturities under the VIE bank loans
are as follows:
Date
|
|
Amount
|
|
10/31/2020
|
|
$
|
29,242,000
|
|
10/31/2021
|
|
|
10,500,000
|
|
Total
|
|
$
|
39,742,000
|
|
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 7—Business Segment Information
The Company has the following
three reportable business segments: Publishing, 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.
The operating segment of ‘Publishing’
which includes both IDWP and Clover Press. Clover Press is a joint venture of the Company and operates independently of IDWP however
due to their similar product lines and revenue streams they are included in the same operating segment as IDWP.
Operating results for the business segments of the Company are
as follows:
(in thousands) (unaudited)
|
|
Publishing (a)
|
|
|
IDWE
|
|
|
CTM
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(discontinued
operations)
|
|
|
|
|
Three months ended October 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,798
|
|
|
$
|
22,578
|
|
|
$
|
-
|
|
|
$
|
28,376
|
|
Loss from operations
|
|
|
(843
|
)
|
|
|
(17,150
|
)
|
|
|
-
|
|
|
|
(17,993
|
)
|
Net income from discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
825
|
|
|
|
825
|
|
Net (loss) income
|
|
|
(843
|
)
|
|
|
(17,122
|
)
|
|
|
825
|
|
|
|
(17,140
|
)
|
Total assets at October 31, 2019
|
|
|
10,994
|
|
|
|
55,792
|
|
|
|
10,351
|
|
|
|
77,137
|
|
Three months ended October 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,847
|
|
|
$
|
8,558
|
|
|
$
|
-
|
|
|
$
|
14,405
|
|
(Loss) income from operations
|
|
|
(823
|
)
|
|
|
(21,376
|
)
|
|
|
-
|
|
|
|
(22,199
|
)
|
Net loss from discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,291
|
)
|
|
|
(3,291
|
)
|
Net (loss) income
|
|
|
(830
|
)
|
|
|
(24,726
|
)
|
|
|
(3,291
|
)
|
|
|
(28,847
|
)
|
Total assets at October 31, 2018
|
|
|
12,736
|
|
|
|
57,978
|
|
|
|
9,625
|
|
|
|
80,339
|
|
(in thousands) (unaudited)
|
|
Publishing (a)
|
|
|
IDWE
|
|
|
CTM
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(discontinued
operations)
|
|
|
|
|
Fiscal year ended October 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
20,094
|
|
|
$
|
22,741
|
|
|
$
|
-
|
|
|
$
|
42,835
|
|
Loss from operations
|
|
|
(5,205
|
)
|
|
|
(19,847
|
)
|
|
|
-
|
|
|
|
(25,052
|
)
|
Net loss from discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,294
|
)
|
|
|
(1,294
|
)
|
Net loss
|
|
|
(5,187
|
)
|
|
|
(20,011
|
)
|
|
|
(1,294
|
)
|
|
|
(26,492
|
)
|
Total assets at October 31, 2019
|
|
|
10,994
|
|
|
|
55,792
|
|
|
|
10,351
|
|
|
|
77,137
|
|
Fiscal year ended October 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
21,927
|
|
|
$
|
16,928
|
|
|
$
|
-
|
|
|
$
|
38,855
|
|
Loss from operations
|
|
|
(3,354
|
)
|
|
|
(21,779
|
)
|
|
|
-
|
|
|
|
(25,133
|
)
|
Net loss from discontinued operations, net
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,947
|
)
|
|
|
(5,947
|
)
|
Net loss
|
|
|
(3,420
|
)
|
|
|
(26,655
|
)
|
|
|
(5,947
|
)
|
|
|
(36,022
|
)
|
Total assets at October 31, 2018
|
|
|
12,736
|
|
|
|
57,978
|
|
|
|
9,625
|
|
|
|
80,339
|
|
|
(a)
|
For further clarity
we have split the Publishing segment into two components; IDWP and Clover Press. There
is no prior year comparable since the Company commenced the Clover joint venture in the
third quarter of fiscal 2019.
|
(in
thousands) (unaudited)
|
|
IDWP
|
|
|
Clover Press
|
|
|
Publishing
Total
|
|
Three months ended October 31, 2019
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,715
|
|
|
$
|
83
|
|
|
$
|
5,798
|
|
Loss from operations
|
|
|
(666
|
)
|
|
|
(177
|
)
|
|
|
(843
|
)
|
Net loss
|
|
|
(666
|
)
|
|
|
(177
|
)
|
|
|
(843
|
)
|
Total assets at October 31, 2019
|
|
|
10,726
|
|
|
|
268
|
|
|
|
10,994
|
|
(in
thousands) (unaudited)
|
|
IDWP
|
|
|
Clover Press
|
|
|
Publishing
Total
|
|
Fiscal year ended October 31, 2019
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
19,981
|
|
|
$
|
113
|
|
|
$
|
20,094
|
|
Loss from operations
|
|
|
(4,883
|
)
|
|
|
(322
|
)
|
|
|
(5,205
|
)
|
Net loss
|
|
|
(4,865
|
)
|
|
|
(322
|
)
|
|
|
(5,187
|
)
|
Total assets at October 31, 2019
|
|
|
10,726
|
|
|
|
268
|
|
|
|
10,994
|
|
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 8—Trade Accounts Receivable
Trade accounts receivable consists of the following:
October 31 (in thousands)
|
|
2019
|
|
|
2018
|
|
Trade accounts receivable
|
|
$
|
43,643
|
|
|
$
|
14,690
|
|
Less allowance for sales returns
|
|
|
(152
|
)
|
|
|
(160
|
)
|
Less allowance for doubtful
accounts
|
|
|
(29
|
)
|
|
|
(27
|
)
|
|
|
|
43,462
|
|
|
|
14,503
|
|
Less non-current portion
|
|
|
-
|
|
|
|
-
|
|
Trade accounts receivable,
net
|
|
$
|
43,462
|
|
|
$
|
14,503
|
|
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.
Note 9—Accrued Expenses
Accrued expenses consist of the following:
October 31 (in thousands)
|
|
2019
|
|
|
2018
|
|
Royalties
|
|
$
|
813
|
|
|
$
|
831
|
|
Payroll & payroll taxes
|
|
|
803
|
|
|
|
851
|
|
Bonus
|
|
|
162
|
|
|
|
95
|
|
Production costs and participation
|
|
|
196
|
|
|
|
6,699
|
|
Other
|
|
|
1,062
|
|
|
|
767
|
|
Total
|
|
$
|
3,036
|
|
|
$
|
9,243
|
|
Note 10—Property and Equipment
Property and equipment consist of the following:
October 31 (in thousands)
|
|
2019
|
|
|
2018
|
|
Equipment
|
|
$
|
378
|
|
|
$
|
221
|
|
Vehicles
|
|
|
-
|
|
|
|
-
|
|
Furniture & Fixtures
|
|
|
100
|
|
|
|
95
|
|
Leasehold improvements
|
|
|
829
|
|
|
|
827
|
|
Computer software
|
|
|
20
|
|
|
|
13
|
|
|
|
|
1,327
|
|
|
|
1,156
|
|
Less accumulated depreciation and amortization
|
|
|
(765
|
)
|
|
|
(584
|
)
|
Property and equipment, net
|
|
$
|
562
|
|
|
$
|
572
|
|
Depreciation and amortization expense of all property and
equipment was $286,000 and $344,000 in fiscal 2019 and 2018, respectively.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
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, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Licensing Contracts
|
|
7 years
|
|
|
903
|
|
|
|
(788
|
)
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing Contracts
|
|
7 years
|
|
|
893
|
|
|
|
(684
|
)
|
|
|
209
|
|
Amortization expense of intangible
assets was $104,000 and $178,000 in fiscal 2019 and 2018, respectively.
Future estimated amortization expense as of October 31, 2019
is as follows:
2020
|
|
$
|
53
|
|
2021
|
|
|
45
|
|
2022
|
|
|
17
|
|
Total
|
|
$
|
115
|
|
The Company’s Goodwill is summarized
as follows:
Fiscal Year Ended October 31 (in thousands)
|
|
2019
|
|
|
2018
|
|
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,
2019 AND 2018
Note 12—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)
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Bad debt reserve
|
|
$
|
|
|
|
$
|
|
|
Accrued expenses
|
|
|
140
|
|
|
|
151
|
|
Exercise of stock options and lapsing of restrictions on restricted stock
|
|
|
1,459
|
|
|
|
746
|
|
Impairment
|
|
|
437
|
|
|
|
437
|
|
Amortization
|
|
|
3,581
|
|
|
|
4478
|
|
Net operating loss
|
|
|
8,760
|
|
|
|
2,140
|
|
Total deferred tax assets
|
|
|
14,377
|
|
|
|
7,952
|
|
Valuation allowance
|
|
|
(14,377
|
)
|
|
|
(7,952
|
)
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The (benefit from) provision for income taxes consists of the
following:
Fiscal Year ended October 31 (in thousands)
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(42
|
)
|
|
$
|
(506
|
)
|
State and local
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
$
|
(42
|
)
|
|
$
|
(506
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
3,870
|
|
State and local
|
|
|
-
|
|
|
|
1,118
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
|
|
|
$
|
4,988
|
|
(Benefit from) provision for income taxes
|
|
$
|
(42
|
)
|
|
$
|
4,482
|
|
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)
|
|
2019
|
|
|
2018
|
|
U.S. federal income tax at statutory rate
|
|
$
|
(5,300
|
)
|
|
$
|
(5,930
|
)
|
Change in valuation allowance
|
|
|
7,020
|
|
|
|
10,195
|
|
Foreign tax rate differential
|
|
|
-
|
|
|
|
-
|
|
State and local income tax, net of federal benefit
|
|
|
(1,747
|
)
|
|
|
(1,742
|
)
|
Refundable AMT
|
|
|
-
|
|
|
|
(513
|
)
|
Tax law change
|
|
|
(42
|
)
|
|
|
2,456
|
|
Non-deductible expenses
|
|
|
27
|
|
|
|
16
|
|
(Benefit from) provision for income taxes
|
|
$
|
(42
|
)
|
|
$
|
4,482
|
|
At October 31, 2019, the Company had federal
net operating loss carryforwards of approximately $32 million. These carry-forward losses are available to offset future U.S.
federal taxable income. The net operating loss carryforwards will start to expire in fiscal 2030 but the current year loss of
$29 million will not expire.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 12—Income Taxes (continued)
The change in the valuation allowance in fiscal 2019 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
|
|
$
|
7,952
|
|
|
$
|
7,020
|
|
|
$
|
595
|
|
|
$
|
14,377
|
|
On December 22, 2017, the U.S. government
enacted “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for
Fiscal Year 2018”, which is commonly referred to as “The Tax Cuts and Jobs Act” (the “Tax Act”).
The Tax Act provides for comprehensive tax legislation that reduces the U.S. federal statutory corporate tax rate from 35.0% to
21.0% effective January 1, 2018, broadens the U.S. federal income tax base, requires companies to pay a one-time repatriation tax
on earnings of certain foreign subsidiaries that were previously tax deferred (“transition tax”), and creates new taxes
on certain foreign sourced earnings.
The Company had completed its accounting
for the income tax effects of the enactment of the Tax Act in the prior year and recorded the adjustments.
The transition tax is based on total post-1986
earnings and profits which were previously deferred from U.S. income taxes. At December 31, 2017, the Company did not have
significant undistributed earnings of our foreign subsidiaries and will offset any tax with net operating losses resulting in no
tax being due. The Company completed its review of the impact of the global intangible low taxed income (“GILTI”) and
base erosion anti-abuse tax (“BEAT) and has not recorded any impact associated with either GILTI or BEAT.
The Company anticipates that its assumptions
and estimates may change as a result of future guidance and interpretation from the Internal Revenue Service, the SEC, the FASB,
and various other taxing jurisdictions. In particular, the Company anticipates that the U.S. state jurisdictions will continue
to determine and announce their conformity or decoupling from the Tax Act, either in its entirety or with respect to specific provisions.
Legislative and interpretive actions could result in adjustments to the Company’s provisional estimates when the accounting
for the income tax effects of the Tax Act is completed. The Company will continue to evaluate the impact of the Tax Act on its
financial statements and will record the effect of any reasonable changes in its estimates and adjustments.
At October 31, 2019, 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.
At October 31, 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 2019.
At October 31, 2019, the Company did not expect any changes in unrecognized income tax benefits in the next twelve months. The
Company did not record any interest and penalties on income taxes in fiscal 2019. At October 31, 2019, there was no accrued interest
included in income taxes payable.
The Company currently remains subject to
examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2016 to fiscal 2019, state and local tax returns
generally for fiscal 2015 to fiscal 2019 and foreign tax returns generally for fiscal 2015 to fiscal 2019.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 13—Commitments
Lease Commitments
The future minimum payments for capital
and operating leases are shown below as of the Company’s last fiscal year ended October 31, 2019:
(in thousands)
|
|
Operating
Leases
|
|
Fiscal years ending October 31:
|
|
|
|
2020
|
|
$
|
734
|
|
2021
|
|
|
697
|
|
2022
|
|
|
221
|
|
2023
|
|
|
0
|
|
2024
|
|
|
0
|
|
Thereafter
|
|
|
0
|
|
Total payments
|
|
$
|
1,652
|
|
Rent expense amounted to $800,000 and
$656,000 for the fiscal years ended October 31, 2019 and 2018, respectively.
Other Commitments
The Company, through a subsidiary, has entered into an agreement
to co-develop, co-produce, and co-finance a scripted television series and pilot based on IDW Publication properties. Net
of the Company’s contracted pre-sales pursuant to distribution agreements, the Company has a net financial obligation of
approximately $0 and $7,500,000 for the fiscal year ended October 31, 2019 and 2018.
Note 14—Labor Agreements
IDWE, the Company’s television production segment, 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.
Note 15—Related Party Transactions
On August 21, 2018, the Company entered
into a loan agreement with the Company’s Chairman of the Board of Directors and majority stockholder (“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. 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 outstanding amount at October 31, 2019 was $5,000,000. The warrant expires August 21, 2023.
On September 21, 2018, the Company entered
into a bridge loan facility agreement with its Chairman for up to $26,000,000. The interest is payable quarterly at the greater
of 10% or LIBOR plus 8%. The balance due under the facility was $4,000,000 at October 31, 2019. $8,000,000 of the loan facility
was paid off in connection with the 2019 rights offering. Balances due under the facility are due October 1, 2020. 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.
Interest on the above loans for the three
months ended October 31, 2019 was $176,626 for the fiscal year ended October 31, 2019 was $1,204,403 was charged to production
cost.
IDWE used a production company to manage
television productions through VIEs that utilized the services of companies owned by the one or more of the owners of the production
company. Amounts included in television production costs charged to the companies amounted to $0 in fiscal 2019 and $177,000 in
fiscal 2018 the balance owed to the companies was approximately $0 and $2,000 at October 31, 2019 and October 31, 2018, respectively.
IDW MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 31,
2019 AND 2018
Note 15—Related Party Transactions (continued)
On April 4, 2019 Clover Press entered into
a loan agreement with two of the Company’s founders for $25,000 each, totaling $50,000 these loans are due upon demand.
The Company is the sole member of IDW Media
Charitable Foundation, Inc., 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, 2019 and 2018.
Note 16—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
$108,000 and $109,000 for the fiscal years ended October 31, 2019 and October 31, 2018 respectively.
Note
17—Reclassification of prior year presentation
Certain
figures for the previous year were regrouped/reclassified, wherever necessary, to conform to current year’s presentation.
However, such reclassifications do not have any impact on the Company’s previously reported financial results.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2019 AND 2018
Note
18—Discontinued operations and financial statement restatement
The
financial statements for the three months and fiscal years ended October 31, 2019 and October 31, 2018 , including the consolidated
balance sheets, consolidated statements of operations, statements of cash flows and financial statement notes thereto have been
restated to reflect CTM as a discontinued operation in accordance with ASC 855-10-25-4 and ASC 855-10-50-5, refer to note 2 on
restatement of previously issued consolidated financial statements . The earnings per share and retained earnings have not changed
as a result of this restatement.
Following
is a summary of the Company’s results of discontinued operations for the three months and fiscal years ended for October
31, 2020 and 2019. A schedule of assets and liabilities from discontinued operations as of October 31, 2019 and October 31, 2018,
and total operating and investing cash flows of CTM operations for October 31, 2019 and October 31, 2018.
Results of discontinued operations
|
|
Three
months ended
October 31,
(unaudited)
|
|
|
Fiscal year ended,
October 31,
|
|
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,525
|
|
|
$
|
5,668
|
|
|
$
|
19,764
|
|
|
$
|
19,825
|
|
Direct cost of revenue
|
|
|
1,849
|
|
|
|
1,837
|
|
|
|
7,033
|
|
|
|
6,849
|
|
Selling, general and administrative
|
|
|
2,567
|
|
|
|
3,002
|
|
|
|
12,736
|
|
|
|
12,118
|
|
Depreciation and amortization
|
|
|
303
|
|
|
|
333
|
|
|
|
1,226
|
|
|
|
1,280
|
|
Bad Debt
|
|
|
32
|
|
|
|
37
|
|
|
|
80
|
|
|
|
69
|
|
Total costs and expenses
|
|
|
4,751
|
|
|
|
5,209
|
|
|
|
21,075
|
|
|
|
20,316
|
|
(Loss) income from operations
|
|
|
774
|
|
|
|
459
|
|
|
|
(1,311
|
)
|
|
|
(491
|
)
|
Interest expense, net
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(36
|
)
|
|
|
(58
|
)
|
Other income (expense), net
|
|
|
43
|
|
|
|
(7
|
)
|
|
|
56
|
|
|
|
5
|
|
Income (loss)before income taxes
|
|
|
810
|
|
|
|
452
|
|
|
|
(1,291
|
)
|
|
|
(544
|
)
|
(Provision for) benefit from income taxes
|
|
|
15
|
|
|
|
(3,743
|
)
|
|
|
(3
|
)
|
|
|
(5,403
|
)
|
Net (loss) income from discontinued operations
|
|
$
|
825
|
|
|
$
|
(3,291
|
)
|
|
$
|
(1,294
|
)
|
|
$
|
(5,947
|
)
|
Stock
based compensation for discontinued operations included in selling, general and administrative expenses is $114 and $83 in the
three months ended October 31, 2019 and 2018, respectively and $600 and $344 in the nine months ended October 31, 2019 and 2018,
respectively.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2019 AND 2018
Note
18—Discontinued operations and financial statement restatement (continued)
Assets
and liabilities of discontinued operations October 31,
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
2,622
|
|
|
$
|
2,371
|
|
Trade receivables, net
|
|
|
1,791
|
|
|
|
1,495
|
|
Prepaid expenses
|
|
|
773
|
|
|
|
310
|
|
Total current assets
|
|
|
5,186
|
|
|
|
4,176
|
|
Property and equipment, net
|
|
|
2,516
|
|
|
|
2,595
|
|
Intangibles assets, net
|
|
|
340
|
|
|
|
557
|
|
Goodwill
|
|
|
2,110
|
|
|
|
2,098
|
|
Other assets
|
|
|
199
|
|
|
|
199
|
|
Total Assets
|
|
$
|
10,351
|
|
|
$
|
9,625
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
|
479
|
|
|
|
441
|
|
Accrued expenses
|
|
|
1,138
|
|
|
|
873
|
|
Deferred revenue
|
|
|
1,197
|
|
|
|
1,114
|
|
Bank loans- current portion
|
|
|
-
|
|
|
|
1,043
|
|
Finance lease obligations- current portion
|
|
|
396
|
|
|
|
402
|
|
Income taxes payable & other current liabilities
|
|
|
134
|
|
|
|
34
|
|
Total current liabilities
|
|
|
3,344
|
|
|
|
3,907
|
|
Government loan- long term portion
|
|
|
-
|
|
|
|
-
|
|
Operating lease obligations – long term portion
|
|
|
-
|
|
|
|
-
|
|
Finance lease obligations – long term portion
|
|
|
683
|
|
|
|
727
|
|
Total non-current liabilities
|
|
|
683
|
|
|
|
727
|
|
Total Liabilities
|
|
$
|
4,027
|
|
|
$
|
4,634
|
|
Operating
and investing cash flows from discontinued operations for the fiscal year ended October 31,
(in thousands)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,294
|
)
|
|
$
|
(5,947
|
)
|
Depreciation and amortization
|
|
|
1,226
|
|
|
|
1,280
|
|
Bad debt
|
|
|
80
|
|
|
|
69
|
|
Trade accounts receivable
|
|
|
(215
|
)
|
|
|
(77
|
)
|
Prepaid expenses and other assets
|
|
|
(463
|
)
|
|
|
92
|
|
Trade accounts payable, accrued expenses and other current liabilities
|
|
|
402
|
|
|
|
(171
|
)
|
Deferred revenue
|
|
|
83
|
|
|
|
18
|
|
Net cash used in operating activities
|
|
$
|
(181
|
)
|
|
$
|
(4,736
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Business activities
|
|
|
(12
|
)
|
|
|
(26
|
)
|
Capital expenditure
|
|
|
(929
|
)
|
|
|
(866
|
)
|
Net cash used in investing activities
|
|
$
|
(941
|
)
|
|
$
|
(892
|
)
|
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2019 AND 2018
Note
19—Subsequent events
Management
has evaluated subsequent events through November 30, 2020, 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:
Investments
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.
Pending
Sale
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 “CTM Sale”) 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 transaction is still pending as at October 31, 2020 and is subject to parties receiving
consent to the transaction from the Small Business Administration and/or the lender of two loans made to CTM and a subsidiary
of CTM pursuant to the Payroll Protection Program. The Company expects the sale to close by the end of calendar 2020. The Company
does not expect to have significant continuing involvement with CTM after the sale closes.
Loans
On
December 1, 2019, the Company amended its two loan agreements with Howard S. Jonas, the Company’s Chairman of the Board
of Directors, then Chief Executive Officer and then controlling stockholder, the bridge loan facility agreement, dated September
21,2018 and amended on each of January 31, 2019 and March 25, 2019 and the loan agreement, dated August 21, 2018. The amendments
provide the Company with the option to pay up to 60% of the interest for each of the bridge loan facility and the loan with shares
of Class B Common Stock (and the remaining 40% 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. The interest is to be paid quarterly
on both loans. Pursuant to the applicable amendment, the maturity date of the bridge loan facility was extended to August 21,
2022. On July 13, 2020, $1,250,000 of the principle of the loan was converted into 314,070 shares of Class B Common Stock. $3.75 million of
the loan remains outstanding as at November 30, 2020, plus accrued interest. To date, the shares of Class B Common Stock issued by the
Company to pay the loan’s interest was 56,545.
On
March 9, 2020, the Company closed a private placement of shares of Class B Common Stock, inclusive in this was $4.0 million debt-to-equity
conversion by Howard S. Jonas. which paid off the remaining bridge loan facility balance. The shares of Class B common stock issued
by the Company from the loan amendment Dec 1, 2019 until March 9, 2020 to pay the bridge loan facility’s interest was 14,902.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2019 AND 2018
Note
19—Subsequent events (continued)
On
April 27, 2020, the Company 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 IDWMH PPP Loan
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, and certain amounts of the IDWMH PPP Loan may be forgiven if used for those qualifying expenses. The
Company believes that it has used the entire IDWMH PPP Loan proceeds for those qualifying expenses and intends to apply for full
forgiveness of the IDWMH PPP Loan.
Equity
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 Incentive Plan”), with such options scheduled to vest in substantially equal one-third
instalments 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 Incentive Plan, with such options scheduled to vest in substantially
equal one-third instalments 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 Incentive 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 its Class B common stock (“Class B Common Stock”), with a 10-year term and an exercise price of $3.98, under
the Company’s 2019 Stock Option and Incentive Plan (the “2019 Incentive Plan”), with such options scheduled
to vest in equal one-third instalments on July 14, 2021, July 14, 2022, and July 14, 2023.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2019 AND 2018
Note
19—Subsequent events (continued)
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.
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 Incentive Plan, to three employees of the Company with 20,000 of such options
scheduled to vest in approximately equal one-third instalments 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 instalments 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 of the applicable
former employee then leaving the employ of 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
Incentive Plan to a consultant of the Company with such shares of Restricted Stock scheduled to vest in equal one-third instalments
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 Incentive 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 instalments
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 Incentive Plan to five individuals
who provide legal services to the Company, with such shares scheduled to vest in approximately equal one-third instalments 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 Incentive 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 Separation Agreement, the scheduled vesting of these 13,699 shares of Restricted
Stock to 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.
IDW
MEDIA HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE FISCAL YEARS ENDED OCTOBER 31, 2019 AND 2018
Note
19—Subsequent events (continued)
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 Incentive Plan to an employee with the options scheduled to vest as follows: 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 Incentive 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.
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 Incentive 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.
2,051,002 Shares of
Class B Common Stock
Class B Common Stock
PROSPECTUS
March 1, 2021