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Idw Media Holdings, Inc. – ‘S-1/A’ on 4/5/21

On:  Monday, 4/5/21, at 7:50am ET   ·   Accession #:  1213900-21-20020   ·   File #:  333-249511

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 4/05/21  Idw Media Holdings, Inc.          S-1/A                  3:1.9M                                   EdgarAgents LLC/FA

Pre-Effective Amendment to Registration Statement (General Form)   —   Form S-1   —   SA’33
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Amendment No. 3 to Form S-1                         HTML    949K 
 2: EX-10.16    Distribution Agreement Between Penguin Random       HTML    102K 
                House Publisher Services and Idea and Design                     
                Works, LLC, Dated June 20, 2016                                  
 3: EX-23.1     Consent of Zwick & Banyai, Pllc                     HTML      5K 


‘S-1/A’   —   Amendment No. 3 to Form S-1
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Prospectus Summary
"Risk Factors
"Cautionary Note Regarding Forward-Looking Statements
"Use of Proceeds
"Market for Our Common Stock and Related Stockholder Matters
"Dividend Policy
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Business
"Management
"Executive Compensation
"Certain Relationships and Related Party Transactions
"Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
"Selling Stockholders
"Plan of Distribution
"Description of Share Capital
"Experts
"Legal Matters
"Where You Can Find More Information
"Index to Financial Statements
"Condensed Consolidated Balance Sheets as of January 31, 2021 (unaudited) and October 31, 2020
"Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended January 31, 2021 and 2020
"Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended January 31, 2021 and 2020
"Condensed Consolidated Statements of Stockholders' Equity (unaudited) for the Three Months Ended January 31, 2021 and 2020
"Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended January 31, 2021 and 2020
"Notes to Condensed Consolidated Financial Statements (unaudited) for the Three Months Ended January 31, 2021 and 2020
"Report of Independent Certified Public Accounting Firm on Consolidated Financial Statements
"Consolidated Balance Sheets as of October 31, 2020 and October 31, 2019
"Consolidated Statements of Operations for the Fiscal Years Ended October 31, 2020 and 2019
"Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended October 31, 2020 and 2019
"Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended October 31, 2020 and 2019
"Consolidated Statements of Cash Flows for the Fiscal Years Ended October 31, 2020 and 2019
"Notes to Consolidated Financial Statements

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As filed with the U.S. Securities and Exchange Commission on April 5, 2021

Registration No. 333-249511

 

 

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

 

Pre-Effective Amendment No. 3

 

to

 

FORM S-1

 

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

IDW MEDIA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   7812   26-4831346
(State of other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (IRS Employer
Identification Number)

 

520 Broad St.

Newark, NJ 07102
973-438-3385

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Ezra Rosensaft
Chief Executive Officer
IDW Media Holdings, Inc.
520 Broad St.

Newark, NJ 07102
973-438-4485

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copies to:

 

Dov Schwell, Esq.
Schwell Wimpfheimer & Associates LLP

37 West 39th Street Suite 505

New York, New York 10018
(646) 328-0795

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement is declared effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐    Smaller reporting company ☒
    Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

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CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to Be Registered   Amount to be Registered (1)     Proposed Maximum Offering Price Per Share(2)     Proposed Maximum Aggregate Offering
Price
    Amount of Registration Fee  
Class B common stock, par value $0.01 per share     2,051,002     $ 4.00     $ 8,204,002     $ 883.87 (3)
Total           $ 4.00     $ 8,204,002     $ 883.87 (3)

 

(1) The shares of Class B common stock being registered hereunder are being registered for resale by the selling stockholders named in the accompanying prospectus.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the “Securities Act)” based on the five-day average of the closing price of the Class B common stock on April 1, 2021 as reported on the OTC Pink Market.
(3) $883.87 was paid with pre-effective amendment no. 2 to the registration statement on Form S-1 filed with the Securities and Exchange Commission on March 1, 2021.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. 

 

 

 

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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED         April 5, 2021

 

 

 

IDW MEDIA HOLDINGS, INC.

 

Class B common stock

 

This prospectus relates to the sale, from time to time, by the selling stockholders identified in this Prospectus (the “Selling Stockholders”) of up to 2,051,002 shares of our Class B common stock, par value $0.01 per share, (the “Resale Shares”). All of the Resale Shares were purchased by the Selling Stockholders pursuant to those certain subscription agreements, dated March 2, 2020 through March 6, 2020.

 

The Resale Shares may be sold by the Selling Stockholders to or through underwriters or dealers, directly to purchasers or through agents designated from time to time. For additional information regarding the methods of sale you should refer to the section entitled “Plan of Distribution” beginning on page 49 of this Prospectus.

 

The Selling Stockholders may sell under this Prospectus some or all of their Resale Shares at a fixed price of $4.00 (the five-day average of the closing price from March 26, 2021 through April 1, 2021) for so long as our Class B common stock is quoted on OTC Pink Market whether into a public market or private sale, unless and until we achieve a listing of our Class B common stock on the NYSE American and maintain such listing at which time the Selling Stockholders may sell at market prices or at any price in privately negotiated transactions.  An amendment will be filed with the Commission at a later date if NYSE American listing is achieved.

 

The offering price bears no relationship to our assets, book value, earnings or any other customary investment criteria. We will not receive any proceeds from the sale of the Resale Shares by the Selling Stockholders. We will bear all costs relating to the registration of the Resale Shares. All selling and other expenses incurred by the Selling Stockholders will be borne by the Selling Stockholders.

 

Our Class B common stock is quoted on the OTC Pink Market under the trading symbol “IDWM”. We intend to apply to have our Class B common stock listed on the NYSE American and request the symbol “IDW.”

 

Holders of shares of Class B common stock are entitled to one-tenth of one vote for each share on all matters to be voted on by the stockholders. Holders of Class B common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor. There are no conversion or redemption rights or sinking fund provisions with respect to the Class B common stock.

 

The Company also has issued and outstanding shares of Class C common stock. Holders of shares of Class C common stock are entitled to three votes for each share on all matters to be voted on by the stockholders. Holders of Class C common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor. Each share of Class C common stock may be converted, at any time and at the option of the holder thereof, into one fully paid and non-assessable share of Class B common stock.

 

Our Class C common stock is not quoted on any market or listed on any exchange nor do we intend to quote or list shares of our Class C common stock.

 

Investing in our Class B common stock is highly speculative and involves a high degree of risk. See the section entitled “Risk Factors” beginning on page 4 of this Prospectus for a discussion of information that should be considered in connection with an investment in our securities.

 

You should rely only on the information contained in this Prospectus or any prospectus supplement or amendment thereto.  We have not authorized anyone to provide you with different information.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus is April 5, 2021

 

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TABLE OF CONTENTS

 

PROSPECTUS SUMMARY   1
RISK FACTORS   4
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   14
USE OF PROCEEDS   14
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS   15
DIVIDEND POLICY   15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   16
BUSINESS   30
MANAGEMENT   35
EXECUTIVE COMPENSATION   41
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   46
SELLING STOCKHOLDERS   48
PLAN OF DISTRIBUTION   49
DESCRIPTION OF SHARE CAPITAL   50
EXPERTS   54
LEGAL MATTERS   54
WHERE YOU CAN FIND MORE INFORMATION   54
INDEX TO FINANCIAL STATEMENTS   F-1

 

You should rely only on the information contained in this Prospectus. We have not, and the Selling Stockholders have not, authorized any person to provide you with different or additional information. If anyone provides you with different, additional or inconsistent information, you should not rely on it. This prospectus is not an offer to sell, nor is the Selling Stockholders seeking an offer to buy, securities in any state where the offer or solicitation is not permitted. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or of any sale of the common stock. Our business, financial condition, results of operations, and prospects may have changed since such date.

 

The distribution of this Prospectus and the issuance of the securities in certain jurisdictions may be restricted by law. Persons outside the United States who come into possession of this Prospectus must inform themselves about, and observe any restrictions relating to, the issuance of the securities and the distribution of this Prospectus outside the United States. This prospectus does not constitute, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy, the securities offered by this Prospectus by any person in any jurisdiction in which it is unlawful for such person to make such an offer or solicitation.

 

Unless otherwise indicated, information contained in this Prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market share, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. Our management estimates have not been verified by any independent source, and we have not independently verified any third-party information. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements.”

 

This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this Prospectus. This summary does not contain all of the information you should consider before investing in our Class B common stock. You should read this entire prospectus carefully, especially the “Risk Factors” section of this Prospectus and the financial statements and related notes appearing at the end of this Prospectus before making an investment decision.

 

Unless the context provides otherwise, all references in this Prospectus to “IDW” “we,” “us,” “our,” our company,” the “Company,” or similar terms, refer to IDW Media Holdings, Inc. and its wholly owned subsidiaries on a consolidated basis.

 

Overview

 

IDW Media Holdings, Inc., a Delaware corporation, is a holding company consisting of the following principal businesses:

 

IDW Publishing, or IDWP, creates comic books, graphic novels, digital content and games through its imprints IDW Publishing, IDW Games and Top Shelf; and

 

IDW Entertainment, or IDWE, leverages properties, including those of IDWP, into television series developing, producing and distributing original content worldwide.

 

IDWP is an award-winning publisher of comic books, original graphic novels, and art books as well as board and tabletop games. Founded in 1999, IDWP has a long tradition of supporting original, creator-driven titles. In 2002, IDWP published 30 Days of Night by Steve Niles and Ben Templesmith followed by other horror titles that kickstarted a resurgence in horror-comic publishing across the industry. Since then, IDWP has significantly diversified its publications. Joe Hill and Gabriel Rodríguez’s Locke & Key, Jonathan Maberry’s V Wars, Stan Sakai’s Usagi Yojimbo, Walter Simonson’s Ragnarök, Beau Smith’s Wynonna Earp, Chris Ryall and Ashley Wood’s Zombies vs Robots, Joe Hill and Martin Simmonds’ Dying is Easy are among the hundreds of award-winning titles published since IDWP’s inception.

 

IDWE is a production company and studio that develops and produces content and formats for global platforms and services.

 

Recent Developments

 

On April 2, 2021, the Company received loan proceeds in the amount of $1,195,680 from Bank of America, N.A. pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, as amended.

 

IDW Publishing

 

In January 2020, IDWP and the Smithsonian Institution announced a multi-year global publishing program, which will create a library of graphic novels built on the cultural and scientific knowledge of the world’s largest museum, educational, and research complex. The first product in the Smithsonian line was released in late November 2020 with an additional five titles scheduled for release in 2021.

 

In 2020, IDWP also announced a Spanish language initiative to bring graphic novels to Spanish speakers throughout North America. To launch the initiative, in June 2020 IDWP released a Spanish translation of George Takei’s best-selling memoir, They Called Us Enemy, which had been named the best graphic novel of 2019 by the Publisher’s Weekly Critics Poll, and which also won a 2020 Will Eisner Comic Industry Award for best reality-based work. 2020 Spanish translations included Sonic the Hedgehog and Redbone, with Locke & Key and additional Sonic the Hedgehog translations scheduled for 2021.

 

In March 2020, IDW Games, a division of IDWP, closed a Kickstarter campaign for Batman: The Animated Series Adventures at over $1.6 million. The game is scheduled for release in Summer 2021.

 

In October 2020, IDWP released the first issue of the long-anticipated Teenage Mutant Ninja Turtles: The Last Ronin series by creator Kevin Eastman. Additional issues, as well as a Director’s Cut, are scheduled to release in 2021.

 

IDWP has also announced the Star Wars: The High Republic Adventures series with the first issue released in February 2021 and additional issues released monthly throughout 2021.

 

IDW Entertainment

 

IDWE has developed and/or produced four series for television that premiered in 2019 and 2020:

 

  Wynonna Earp season four will air in two parts due to worldwide COVID-19 related production shutdowns. The first six episodes of season four premiered July 26, 2020 and the second half of season four began airing on March 5, 2021.  The show was created by Emily Andras and stars Melanie Scrofano and is based on the IDWP comics of Beau Smith. Season four’s twelve episodes are being produced by Seven24 Films and distributed by IDWE, in partnership with Syfy and CTV Sci-Fi. Cineflix Studios is the co-producer and global distributor for the series. Season one’s thirteen episodes aired in fiscal 2016. Season two’s twelve episodes aired in fiscal 2017, and Season three’s twelve episodes aired in fiscal 2018.

 

  V Wars, debuted on Netflix on December 5, 2019. The 10-episode vampire thriller stars Ian Somerhalder and was produced by High Park Entertainment. The series is based upon Jonathan Maberry’s IDWP’s comic book series of the same name.

 

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  October Faction premiered on Netflix January 23, 2020. The 10-episode show is based on the IDWP comic books of Steve Niles and Damien Worm and was adapted by showrunner Damian Kindler and starred Tamara Taylor and J.C. MacKenzie. It was also produced by High Park Entertainment.

 

  Locke & Key premiered on Netflix on February 7, 2020. The show is based on the critically acclaimed graphic novels of Joe Hill and Gabriel Rodriguez that are published by IDWP. Seasons two and three have been ordered by Netflix and production began in September 2020.

 

CTM

 

As a result of the economic downturn related to the COVID-19 pandemic, and the impact it had on the travel and tourist markets, we decided to make a strategic shift to sell our CTM Media Group, Inc., or CTM, subsidiary and focus on our entertainment and publishing business.  CTM substantially suspended operations in March 2020 as key clients closed and tourism halted in key markets and gradually resumed partial operation since June 2020 in accordance with and permitted by state and local COVID-19 regulations. In March 2020, CTM furloughed all non-essential personnel, approximately 90% of its workforce, and has gradually been growing its active personnel roster as needed in its resumption of operations.

 

On July 14, 2020, we and Howard S. Jonas, our Chairman of the Board, executed a share purchase agreement (the “SPA”) 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 from closing of the CTM Sale for more than $4.5 million. Prior to executing the SPA, we obtained a third-party’s valuation of CTM and a fairness opinion that stated the consideration being received by us in the CTM Sale was fair. The CTM Sale was approved by: (1) our Board of Directors; (2) a Special Committee of our Board of Directors comprised solely of independent directors; (3) the Audit Committee of the Board of Directors, which is comprised entirely of independent directors, in compliance with the Company’s Statement of Policy with respect to Related Person Transactions; (4) the holders of a majority of the voting power of outstanding shares of our capital stock; and (5) a majority of our Class B Common 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. On January 5, 2021, the right, title and interest to the SPA were assigned to The Brochure Distribution Trust, a South Dakota trust.  The CTM Sale closed on February 15, 2021 and we do not expect to have significant continuing involvement with CTM.

 

Our Strategy

 

We seek to improve our financial performance primarily by focusing on development of entertainment that can generate value across our intellectual property (“IP”) holdings and to increase coordination between IDWP and IDWE to enhance our development pipeline. IDWP and IDWE intend to jointly and synergistically develop and produce books and entertainment to allow us to capitalize on the global demand for original content from streaming services as well as traditional broadcast and other networks and other content services. To date, we have sold projects to Hulu, Syfy, BBC America, Netflix and Endeavor Content, while others are in active discussion. We believe that our potential projects would be attractive to a broad range of potential distribution channels and participants.

 

IDW’s IP, where we own “all rights”, affords the Company significant production-based fees supplemented by merchandising, games, video and other fandom-driven revenue opportunities.

 

As we have a diverse slate of content, we plan to develop new editorial directives to better suit the ever-changing needs of the publishing world. We have spent considerable time and financial resources in identifying and cultivating new audiences, additional markets, and interesting new channels of distribution. We plan to expand and implement our mission of creating, marketing, and releasing captivating new comic books and graphic novels to the world.

 

We continue to seek prospective upside from potential renewals of IDWE’s current line-up, from previously announced deals with Cineflix and SyFy for distribution of Wynonna Earp and renewal of seasons 2 and 3 of Locke & Key to new deals that IDWE is developing from IDWP’s growing library of content, where we have media and ancillary rights. We believe that our focus on monetization through merchandising, games, video on demand, and other fandom-driven channels coupled with the demand from streaming networks for fresh, innovative shows provides us with a tremendous market opportunity. We believe that our IP portfolio, strong relationships with renowned creators and holistic approach to development strategically positions us for both near and long-term growth.

 

Our Capital Stock

 

Holders of shares of Class B common stock are entitled to one-tenth of one vote for each share on all matters to be voted on by the stockholders. Holders of Class B common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor. There are no conversion or redemption rights or sinking fund provisions with respect to the Class B common stock.

 

The Company also has issued and outstanding shares of Class C common stock. Holders of shares of Class C common stock are entitled to three votes for each share on all matters to be voted on by the stockholders. Holders of Class C common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor. Each share of Class C common stock may be converted, at any time and at the option of the holder thereof, into one fully paid and non-assessable share of Class B common stock, which would cause dilution to the holders of Class B common stock. There are no mandatory conversion rights for our Class C common stock. There are no sunset provisions or intra-family transfers that would require the conversion of our Class C common stock.

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THE OFFERING

 

The following summary of the offering contains basic information about the offering and our Class B common stock and is not intended to be complete. It does not contain all the information that may be is important to you. For a more complete understanding of our Class B common stock, please refer to the section of this Prospectus entitled “Description of Capital Stock” on page 50.

 

Class B common stock offered by the Selling Stockholders:   2,051,002 shares of Class B common stock, par value $0.01 per share.
     
Class B common stock outstanding before this offering:   9,505,080
     
Class B common stock to be outstanding immediately after this offering:   9,505,080
   

The above does not include, as of March 31, 2021, the following:

 

●     up to 302,737 shares of Class B common stock issuable upon the exercise of outstanding options under our 2009 Stock Option and Incentive Plan and our 2019 Stock Option and Incentive Plan (the “2019 Plan”), with a weighted average exercise price of $6.65 per share;

 

●     up to 89,243 shares of Class B common stock at a price per share of $42.02 and up to 98,336 shares of Class B common stock at a price per share of $26.44 issuable upon exercise of outstanding warrants;

 

●     45,483 shares of Class B common stock reserved for future issuance under the 2019 Plan, plus an additional 250,000 shares of Class B common stock reserved for future issuance under the 2019 upon the approval of a majority of the voting power of the Company’s stockholders; and

 

●     up to 545,360 shares of Class B common stock upon conversion of the outstanding shares of Class C common stock, which are convertible into shares of our Class B common stock on a 1-for-1 basis.

     
Use of proceeds:  

This Prospectus relates to shares of our Class B common stock that may be offered and sold from time to time by the Selling Stockholders. We will not receive any proceeds from the sale of shares of our Class B common stock by the Selling Stockholders pursuant to this Prospectus.

 

Selling Stockholders:   See Selling Stockholders table on page 48 of this Prospectus.
     
Terms of the Offering:   The Selling Stockholders may sell under this Prospectus some or all of their Resale Shares at a fixed price of $4.00 (the five-day average of the closing price from March 26, 2021  through April 1, 2021) for so long as our Class B common stock is quoted on OTC Pink Market whether into a public market or private sale, unless and until we achieve a listing of our Class B common stock on the NYSE American and maintain such listing at which time the Selling Stockholders may sell at market prices or at any price in privately negotiated transactions.  An amendment will be filed with the Commission at a later date if NYSE American listing is achieved.
     
Risk Factors:   Investing in our Class B common stock is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in this Prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 4 of this Prospectus before deciding whether or not to invest in our common stock.
     

OTC Ticker Symbol:

 

Proposed NYSE American Listing

 

IDWM

 

We intend to apply for listing of our Class B common stock on the NYSE American and request the symbol “IDW.”

  

Business Address and Telephone Number

 

Our address is 520 Broad Street, Newark, New Jersey 07102, and our telephone number at such address is (973) 438-3385.

 

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Risk Factors

 

Investing in our Class B common stock involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” beginning on page 4 before making a decision to invest in our Class B common stock. The following is a summary of some of the principal risks we face:

 

RISK FACTORS

 

Investing in our Class B common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Prospectus, including our consolidated financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our Class B common stock. The occurrence of any of the following risks could have a material and adverse effect on our business, reputation, financial condition, results of operations and future growth prospects, as well as our ability to accomplish our strategic objectives. As a result, the trading price of our Class B common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the trading price of our Class B common stock. Certain statements contained in this section constitute forward-looking statements. See the information included in “Cautionary Note Regarding Forward-Looking Statements.”

 

Risks Associated with Our Business

 

Public health threats could have an adverse effect on the Company’s operations and financial results.

 

In early 2020, the spread of the COVID-19 virus resulted in a worldwide pandemic. We are actively monitoring the COVID-19 pandemic and its potential and actual impact on each of our operating segments. Due to both known and unknown risks, including future quarantines, closures and other restrictions resulting from the outbreak, our operations and our customers and partners may continue to be impacted.

 

In April 2020, as a result of the COVID-19 pandemic, IDWP’s direct-market distributor paused the release of new product, including IDWP’s; the direct-market distributor’s operations resumed in a limited capacity in late May 2020 and continue at an increasing rate as of the date of this Prospectus, and IDWP’s products have resumed being distributed. Many retailers experienced closures, reduced operations, or de-prioritization of entertainment products, such as books and games, throughout the COVID-19 pandemic resulting in decreased sales of certain of IDWP’s products. Additional closures, restrictions, or virus spikes could have a further negative impact on IDWP’s distribution channels and retail customers. We are unable to accurately predict the full impact that the COVID-19 pandemic will have on distributions, purchasing, sales, returns, cash receipts and overall revenue.

 

Due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities, we anticipate production of television shows of IDWE to be periodically suspended, or perhaps unexpectedly cancelled, for a significant time.

 

For all these reasons, the COVID-19 pandemic could have a material adverse impact on our business and financial results.

 

We have a history of continued operating losses at IDWE and IDWP and cannot be certain of our future profitability.

 

We had accumulated a net deficit through October 31, 2020 of approximately $92.0 millionPrior to the CTM Sale, which closed on February 15, 2021, and until the start of the COVID-19 pandemic in April 2020, we often used cash flows from CTM to partially provide funding for corporate overhead and for our IDWP and IDWE operations. In Fiscal 2020 IDW Media Holdings and IDWP generated positive cash flow of $8.0 million and $795,000, respectively, while IDWE and CTM generated negative cash flow of $5.8 million and $1.0 million, respectively. In Fiscal 2019, IDW Media Holdings and CTM generated positive cash flow of $7.2 million and $2.9 million, respectively, while IDWP and IDWE generated negative cash flow of $1.9 million and $11.6 million, respectively.

 

We expect to incur losses in the foreseeable future as we continue to seek financing for, and invest in, our IDWE and IDWP businesses and operations. While our Chairman of the Board has previously provided us with financing on favorable terms and conditions, there is no guarantee that we will be able to secure such financing from our Chairman of the Board in the future on favorable terms or at all. The time required for us to become profitable is uncertain, and there can be no assurance that we will obtain the financing required or achieve profitability on a sustained basis, if at all. We expect that our results of operations may also fluctuate significantly in the future as a result of a variety of factors, including, without limitation: the impact of the COVID-19 pandemic, the ability to finance television shows without great financial risks; our ability to attract, retain and motivate qualified personnel; specific economic conditions in the entertainment and publishing markets; and general economic conditions.

 

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Risks Related to IDW Publishing

 

IDWP depends on two distributors for its publications and such dependence subjects IDWP to the risk that such distributors may be unable to perform its obligations to IDWP.

 

IDWP depends on Diamond Comic Distributors, Inc., or Diamond, and Penguin Random House Publisher Services, or Penguin Random House, to distribute the vast majority of its publications. Diamond, which handles the vast majority of all comic book publishers’ direct market (i.e., comic book stores) distribution, distributes all of IDWP’s products for the direct market. As a result of the COVID-19 pandemic, IDWP offered full returns in the direct market through Diamond on comic titles through the end of February 2021 and then returns are being monitored on a month-by-month basis until the end of May 2021 when IDWP expects to return to its pre-pandemic return policy. While this is designed to reduce inventory risk for retailers, there is a possibility the marketplace could experience an irrecoverable downward trend that may trigger higher returns in a given month or quarter.

 

Penguin Random House distributes substantially all of IDWP’s products to non-direct market account (i.e., bookstores, libraries, mass market). Should either Diamond or Penguin Random House fail to perform under the applicable distribution agreement or if it were to experience financial difficulties that would hinder its performance, distribution to the direct or non-direct market, respectively, would be significantly impaired in the short term and/or long term, and IDWP’s ability to distribute and receive proceeds from its publications would be impaired which would have a material adverse impact on our business and financial results. In the first half of 2020, due to the COVID-19 pandemic, Diamond temporarily ceased distributing IDWP’s comic books but has since resumed distribution.

 

The inability or unwillingness of either Diamond or Penguin Random House to perform its distribution obligations to IDWP could have a material adverse effect on IDWP’s business, prospects and financial condition.

 

The loss of one of the two distributors IDWP depends on for its publications could have a material adverse effect on IDWP’s business, prospects and financial condition.

 

IDWP depends on Diamond and Penguin Random House to distribute the vast majority of its publications. IDWP’s Supply Agreement with Diamond has expired and the parties have been operating pursuant to the terms of the expired agreement. In the event Diamond terminates its relationship with IDWP or the parties enter into a new agreement not on as favorable terms as the terms the parties are currently operating under, IDWP’s business, prospects and financial condition could be materially adversely affected. The loss by IDWP of either Diamond or Penguin Random House as a distributor of its publications could have a material adverse effect on IDWP’s business, prospects and financial condition.

 

IDWP may not be able to respond to changing consumer preferences and its sales may decline.

 

IDWP operates in highly competitive markets that are subject to rapid change, including changes in customer preferences. There are substantial uncertainties associated with IDWP’s efforts to develop successful publications and products for its customers. New fads, trends, and shifts in popular culture could affect the type of creative media consumers will purchase. Content in which IDWP has invested significant resources may fail to attract significant consumer demand at the time it is published. IDWP regularly makes significant investments in new products that may not be profitable, or whose profitability may be significantly lower than IDWP has experienced historically. A loss in sales due to the foregoing could have a material adverse effect on IDWP’s business, prospects and financial condition.

 

Significant returns of IDWP sold to mass market bookstores may have a material impact on IDWP’s cash flow.

 

Through its distribution arrangement with Penguin Random House, IDWP sells its publications to mass market bookstores, such as Barnes & Noble, on a fully returnable basis and IDWP Games sells its products to mass market stores, such as Target. As a result, these customers can return publications to Penguin Random House or to game distributors for credit, which in turn is charged back to IDWP. There is no time limit on the customers’ right to return publications distributed to them. In addition to IDWP being charged back the wholesale cost of the publications, IDWP also incurs a return processing fee by Penguin Random House. Such returns and fees are credited against IDWP’s current sales revenue from Penguin Random House, which reduces IDWP’s cash flow and operating capital. Product returns are a normal part of book and games publishing and IDWP estimates and records a reserve for such returns based on its return history and current trends that are expected to continue. A significant over-estimation of demand for a publication by the mass market bookstores, however, could result in a larger-than-expected volume of returns that would significantly reduce IDWP’s cash flows and operating capital. Further, a general downturn in the economy may also result in significant returns as bookstores reduce their outstanding debts to improve their own cash flow. Any or all of these events that result in significant returns in excess of IDWP’s estimates could have a material adverse effect on IDWP’s revenue, cash flow and operating results.

 

IDWP’s publications may be less successful than anticipated.

 

IDWP cannot accurately predict the commercial success of any of its publications or games because the revenue derived from the distribution of a publication or game depends primarily upon its acceptance by the public, which cannot be accurately predicted. The commercial success of a publication also depends upon the public’s acceptance of competing publications, critical reviews, the availability of alternative forms of entertainment and leisure time activities, piracy and unauthorized distribution of publications, general economic conditions, and other tangible and intangible factors, none of which can be predicted with certainty. Additionally, if the movies or television programs that IDWP licenses are not successful, or if the characters that IDWP licenses lose some of their popularity, IDWP’s ability to sell publications based on such characters would decline could have a material adverse effect on IDWP’s business, prospects and financial condition.

 

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If IDWP fails to maintain positive relationships with its key licensors, authors, illustrators and other creative talent, as well as to develop relationships with new licensors and creative talent, its business could be adversely affected.

 

IDWP’s business is highly dependent on maintaining strong relationships with the entertainment companies that license their entertainment properties to IDWP, and with authors, illustrators and other creative talent who produce the products that are sold to IDWP’s customers. Any weakening of these relationships, or the failure to develop successful new relationships, could have an adverse impact on IDWP’s business and financial performance. IDWP depends on freelance artists who choose how to spend their time and utilize their talents. It is important for IDWP to maintain strong relationships with those freelance artists so they devote their time and talent to IDWP’s projects. IDWP’s inability to maintain and secure these relationships could have a material adverse effect on IDWP’s business, prospects and financial condition

 

IDWP cannot control certain publication delays and cancellations which could adversely affect IDWP’s sales and its ability to meet delivery obligations.

 

IDWP does not control the decision to proceed with the production of publications based on characters that it licenses from others, and it does not have full control of the timing of the releases of those publications, which are often the subject to long and inflexible schedules. Disruptions, delays or cancellations to those schedules could cause IDWP to incur additional costs, miss an anticipated publication date, endure long periods without publishing a publication or all of the above, which could hurt IDWP’s associated licensing programs and business.

 

IDWP depends on the internal controls of its distributors for its financial reporting and revenues.

 

Because of Diamond’s and Penguin Random House’s role as distributors of IDWP’s publications and the fact that much of IDWP’s inventory is held at its distributors’ facilities, IDWP depends on the distributors to implement internal controls over financial reporting and to provide IDWP with information related to those internal controls. Diamond’s and Penguin Random House’s internal controls might not be sufficient to allow IDWP to meet its internal control obligations or to allow IDWP’s management to properly assess those controls. The distributors may fail to cure any internal control deficiencies related to the publications that it distributes. IDWP may be unable to effectively create compensating controls to detect and prevent errors or irregularities in the distributors’ accounting to IDWP and others. Errors in properly tracking publication sales could also negatively impact IDWP’s revenues.

 

Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on IDWP’s operations.

 

IDWP is dependent on the continued services of key executives such as Nachie Marsham. The departure of key personnel without adequate replacement could severely disrupt IDWP’s business operations. Additionally, IDWP needs qualified managers and skilled employees with industry experience to operate its businesses successfully. From time to time there may be shortages of skilled labor which may make it more difficult and expensive for IDWP to attract and retain qualified employees. If IDWP is unable to attract and retain qualified individuals or its costs to do so increase significantly, its operations would be materially adversely affected.

 

IDWP might lose sales and revenue because of piracy of publications.

 

With technological advances, the piracy of publications has increased. Unauthorized and pirated copies of IDWP’s publications will reduce the revenue generated by those publications. If consumers can obtain illegal copies of IDWP’s publications and media, IDWP’s revenues will decline. IDWP may not be able to identify or enforce violations of its intellectual property rights and even if legal remedies are available, they could be costly and drain its financial resources. Accordingly, illegal copying of IDWP’s content could negatively affect its revenues and earnings.

 

IDWP’s dependence on printers outside the United States subjects it to the risks of international business.

 

IDWP’s publications are printed primarily outside the United States in South Korea, China and Canada. International manufacturing is subject to a number of risks, including fluctuations and volatility in currency exchange rates, transportation delays and interruptions, political and economic disruptions, the impositions of tariffs, import and export controls and changes in governmental policies. The impact of changes in currency rates has been especially heightened by current global economic conditions and significant devaluations of local currencies in comparison to the U.S. Dollar. Although to date, currency fluctuations have not materially adversely affected IDWP’s costs, such fluctuations could materially and adversely affect IDWP in the future. Further, added tariffs may be imposed on our printing activities outside the United States which could increase IDWP’s costs. Possible increases in costs and delays of, or interferences with, product deliveries could result in losses of revenues, higher costs, reduced profitability and reductions in the goodwill of IDWP’s customers. Additional factors that may adversely affect IDWP’s printing activities outside of the United States and therefore materially and adversely affect the business and financial results of IDWP include international political situations, uncertain legal systems and applications of law, prejudice against foreigners, corrupt practices, uncertain economic policies and potential political and economic instability that may be exacerbated in foreign countries.

 

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The competitive pressures IDWP faces in its business could adversely affect its financial performance and growth prospects.

 

IDWP is subject to significant competition, including from other publishers, many of which are substantially larger than IDWP and have much greater resources than it, such as Marvel Comics and DC Comics. To the extent IDWP cannot meet the challenges from existing or new competitors or develop new product offerings to meet customer preferences or needs, its revenues and profitability could be materially and adversely affected.

 

Risks Related to IDW Entertainment

 

The public health risk of COVID-19 and its impact on productions.

 

Multiple television productions of IDWE have been delayed due to the COVD-19 pandemic. IDWE intends to diversify into animation which can largely be worked on with minimal impacts from the COVID-19 pandemic, but the timeline for producing animation is often longer than live action and thus takes longer to recognize revenue. Live-action shows must be filmed and shot at locations with a sizeable crew. Given the public health risk of COVID-19 and related possible local, state and federal guidelines limiting the filming and production of our live-action shows, IDWE could be adversely affected and experience significant production delays or cancellations. Production costs of IDWE shows may also rise as additional safety protocols related to the COVID-19 pandemic are necessary on the set of these shows.

 

Increased costs for programming and other rights, as well as judgments we make on the potential performance of IDWE’s content, may adversely affect IDWE’s profits and balance sheet.

 

IDWE has produced a significant amount of original programming and other content and is continuing to invest in this area. IDWE’s core business involves the development and production of television shows, the costs of which are significant and involve complex negotiations with numerous third parties. Network buyers and larger studios are also continuing to drive up the cost of talent and in many cases, locking them to overall deals, which leaves IDWE with less access to high-level writers at a much higher cost of entry. These higher costs may not be recouped when the content is broadcast or distributed, and higher costs may lead to decreased profitability, losses or potential write- downs. Unfavorable currency rates both in the production and sale of television shows may also lead to increased costs. Further, rapid changes in consumer behavior have increased the risk associated with acquired programming, which typically is acquired pursuant to multi-year agreements.

 

We may not have sufficient capital to pursue the most profitable revenue models and finance or co-finance future television shows.

 

If IDWE continues to be successful in developing content suitable for successful television shows, it may not have sufficient capital to finance or co-finance these shows, which usually is the deal structure that offers the greatest control and potential upside but comes with the greatest risk. While IDWE has shifted its business model to substantially de-risk and diversify its deal structures by utilizing guaranteed fee structures (such as production company fees, producer fees, and back-end participation) whenever possible whereby the streaming platform cash-flows production costs, the potential requirement for financing or co-financing remains as part of the business. As a result of the structure of its production arrangements for its television shows, IDWE may not be able to maximize the benefits of its well-performing shows and may incur more losses of its poorly-performing shows, all of which would materially and adversely affect its business and results of operations.

 

Any loss of key personnel and the inability to attract and retain qualified employees could have a material adverse impact on IDWE’s operations.

 

IDWE is dependent on the continued services of key executives such as Lydia Antonini. The departure of key personnel without adequate replacement or temporary skilled coverage could severely disrupt IDWE’s business operations. Additionally, IDWE needs qualified managers and skilled employees with in-depth industry experience to operate its businesses successfully. From time to time there may be shortages of skilled labor which may make it more difficult and expensive for IDWE to attract and retain qualified employees. If IDWE is unable to attract and retain qualified individuals or its costs to do so increase significantly, its operations would be materially adversely affected.

 

The competitive pressures IDWE faces in its business could adversely affect its financial performance and growth prospects.

 

IDWE is subject to significant competition, including from other studios/producers/distributors many of which operate with significantly larger staffs and funding than IDWE. Competitors include (i) smaller independent studios such as Entertainment One, Blumhouse, Annapurna and Miramax, (ii) major independent studios such as Sony TV and Warner Bros TV; and (iii) vertically integrated studios such as Twentieth Television, Universal TV, CBS TV Studios and ABC Studios who develop, distribute and produce original television programming. To the extent IDWE cannot meet the challenges from existing or new competitors or develop new product offerings to meet customer preferences or needs, its revenues and profitability could be adversely affected.

 

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The concentration risk of IDWE’s shows currently airing primarily on Netflix and NBC Universal/SyFy could negatively affect IDWE’s business.

 

IDWE shows have primarily aired on Netflix and NBC Universal/SyFy. As such, IDWE has a concentration of customer risk related to Netflix and NBC Universal/SyFy. While IDWE does not intend to continue to have its shows aired solely on Netflix and NBC Universal/SyFy, it cannot control which companies may be interested to purchase and/or offer the best terms to finance its shows, nor control whether Netflix or NBC Universal/SyFy will remain a going concern.

 

Risks Related to Our Intellectual Property

 

The success of our businesses is highly dependent on the existence and maintenance of intellectual property rights in the publishing and entertainment products and services we create.

 

The value to us of our intellectual property rights is dependent on the scope and duration of our rights as defined by applicable laws in the United States and abroad and the manner in which those laws are construed. If those laws are drafted or interpreted in ways that limit the extent or duration of our rights, or if existing laws are changed, our ability to generate revenue from our intellectual property may decrease, or the cost of obtaining and maintaining rights may increase.

 

The unauthorized use of our intellectual property may increase the cost of protecting rights in our intellectual property or reduce our revenues. The unauthorized distribution and access to content generally continues to be a significant challenge for intellectual property rights holders. Inadequate laws or weak enforcement mechanisms to protect entertainment industry intellectual property in one country can adversely affect the results of the Company’s operations worldwide, despite the Company’s efforts to protect its intellectual property rights. COVID-19 may increase incentives and opportunities to access content in unauthorized ways, as negative economic conditions coupled with a shift in government priorities could lead to less enforcement. These developments may require us to devote substantial resources to protecting our intellectual property against unlicensed use and present the risk of increased losses of revenue as a result of unlicensed distribution of our content.

 

With respect to intellectual property developed by us and rights acquired by us from others, we are subject to the risk of challenges to our copyright, trademark and patent rights by third parties. Successful challenges to our rights in intellectual property may result in increased costs for obtaining rights or the loss of the opportunity to earn revenue from the intellectual property that is the subject of challenged rights.

 

Our intellectual property rights may not be protected, which could adversely affect our consolidated financial position and results of operations.

 

A substantial portion of our publications are protected by copyright, held either in our name, in the name of the author of the work, or in the name of a sponsoring professional society. Such copyrights protect our exclusive right to publish the work in many countries abroad for specified periods. Our ability to continue to achieve our expected results depends, in part, upon our ability to protect our intellectual property rights. Our consolidated financial position and results of operations may be adversely affected by lack of legal and/or technological protections for its intellectual property in some jurisdictions and markets.

 

Failure to adequately protect and enforce our intellectual property rights could substantially harm our business and operating results.

 

The success of our business depends in part on our ability to protect and enforce our trademarks, copyrights, trade secrets and other intellectual property rights. We attempt to protect our intellectual property under trademark, copyright and trade secret laws, and through a combination of confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection.

 

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From time to time, legal action by us may be necessary to enforce our trademarks and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the intellectual property rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results and financial condition. If we are unable to protect our intellectual property rights, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date. Any inability on our part to protect adequately our intellectual property may have a material adverse effect on our business, operating results and financial condition.

 

Risk Factors Generally Relating to Us and Our Class B Common Stock

 

Our Class B Common Stock may not be approved for listing on the NYSE American.

 

We intend to apply to have our Class B common stock traded on the NYSE American and we believe that we will satisfy all the requirements for that listing. However, our Class B common stock may not be approved for listing on the NYSE American or any other national securities exchange. We cannot predict how much investor interest in our Company will generate the adequate amount of liquidity in our stock to create an active trading market for our Class B common stock. It is possible that, even if our Class B common stock is eventually listed on the NYSE American, an active trading market will not develop or continue, and there can be no assurance as to the price at which our Class B common stock will trade. The initial share price of our Class B common stock listed on the NYSE American may not be indicative of prices that will prevail in any future trading market.

 

Although we do not intend to utilize the “controlled company” exemption that may now or in the future be afforded to us by the NYSE American, we may do so in the future which could limit or reduce the effectiveness of our corporate governance.

 

The Trusts (as defined below) collectively hold shares that represent approximately 67.9% of the combined voting power of our outstanding stock as of March 31, 2021. See “Eight trusts for the benefit of sons and daughters of Howard S. Jonas, our Chairman of the Board of Directors, hold shares that, in the aggregate, represent more than a majority of the combined voting power of our outstanding capital stock, which may limit the ability of other stockholders to affect our management”, below, and “Holders of our Class B common stock have significantly less voting power than holders of our Class C common stock”, below.

 

Although we do not believe it to be the case currently, as a result of our current ownership by the Trusts or otherwise we may now or in the future qualify for the exceptions from the NYSE American’s corporate governance listing requirements available to us because we are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide. Among other things, a “controlled company” may exempt itself from the requirement that (i) a majority of its directors be independent directors, (ii) its Compensation Committee, Corporate Governance Committee and/or Nominating Committee be comprised entirely of independent directors, and (iii) the Company not have a single Nominating/Corporate Governance Committee.

 

If we currently or in the future qualify as a “controlled company,” we do not intend to rely on any applicable exceptions from the NYSE American’s corporate governance listing requirements available to us because we are at that time a “controlled company.” However, there can be no assurance that we will not in the future, if at that time we are a “controlled company,” rely on any or all of the exceptions from the NYSE American’s corporate governance listing requirements available to us because we are a “controlled company.” If we do rely on any or all of the exceptions from the NYSE American’s corporate governance listing requirements because we are then a “controlled company,” the effectiveness of our corporate governance could be limited or reduced.

 

Our multi-class structure may render our shares ineligible for inclusion in certain stock market indices, and thus adversely affect the share price of our Class B common stock and its liquidity.

 

We have issuance and outstanding shares of Class B common stock and shares of Class C common stock and intend to apply to have our Class B common stock traded on the NYSE American. See “Our Class B Common Stock may not be approved for listing on the NYSE American,” above. Our multi-class structure may render our shares ineligible for inclusion in certain stock market indices, which may adversely affect the share price of our Class B Common Stock and its liquidity.

 

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There is a limited trading market for shares of our Class B common stock and stockholders may find it difficult to sell our shares.

 

Our Class B common stock is quoted on the Pink OTC Markets. As a result, an investor may find it difficult to sell, or to obtain accurate quotations as to the price of, shares of our Class B common stock. In addition, our Class B common stock may be subject to the penny stock rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors. The SEC regulations generally define a penny stock to be an equity that has a market price of less than $5.00 per share, subject to certain exceptions. Unless an exception is available, those regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions and high net worth individuals). In addition, the broker-dealer must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. Moreover, broker-dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to transactions prior to sale. Regulations on penny stocks could limit the ability of broker-dealers to sell our Class B common stock and thus the ability of purchasers of our Class B common stock to sell their shares in the secondary market.

 

We cannot predict the extent to which investor interest in us and our Class B common stock will lead to the development or continuance of an active trading market or how liquid that trading market for our Class B common stock might become. If an active trading market for our Class B common stock does not develop or is not sustained, it may be difficult for investors to sell shares, particularly large quantities, of our Class B common stock at a price that is attractive or at all.  As a result, an investment in our Class B common stock may be illiquid and investors may not be able to liquidate their investment readily or at all when they desire to sell.

 

There is limited liquidity in our Class B common stock, which may adversely affect your ability to sell your shares of our Class B common stock.

 

The market price of our Class B common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include, but are not limited to:

 

developments concerning intellectual property rights and regulatory approvals relating to us;

 

quarterly variations in our business and financial results or the business and financial results of our competitors;

 

the ability or inability of us to generate increases in revenue and profit;

 

the ability or inability of us to raise capital, and the terms and conditions associated with any such raising of capital;

 

developments in our industry and target markets;

 

the number of market makers who are willing to continue to make a market in our stock and the market or exchange on which they decide to make a market in our stock;

 

our ability to have our Class B common stock listed on the NYSE American;

 

the effects on the price and volume of our Class B common stock as a result of our planned one-for-two reverse stock split; and

 

general market conditions and other factors, including factors unrelated to our own operating performance.

 

In recent years, the stock market in general has experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme volatility in the price of shares of our Class B common stock, which could cause a decline in the value of our shares. Price volatility may be accentuated if trading volume of our Class B common stock is low, which historically has often been the case.  The volatility in our Class B stock may be combined with low trading volume.  Any or all of these above factors could adversely affect your ability to sell your shares of our Class B common stock or, if you are able to sell your shares, to sell your shares at a price that you determine to be fair or favorable.

 

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We have no future plans to pay dividends on our Class B common stock.

 

We do not pay, and do not intend to pay, cash dividends on our Class B common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of our current, as well as any future, financing agreements may preclude us from paying any dividends. As a result, capital appreciation, if any, of our Class B common stock will be investors’ sole source of potential gain for the foreseeable future.

 

We are a “smaller reporting company” and “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies and emerging growth companies will make our Class B common stock less attractive to investors.

 

We are a “smaller reporting company,” as defined in Rule 12b-2 under the Exchange Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including “emerging growth companies” such as, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Our status as a “smaller reporting company” is determined on an annual basis. We cannot predict if investors will find our Class B common stock less attractive or our company less comparable to certain other public companies because we will rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future financial results may not be as comparable to the financial results of certain other companies in our industry that adopted such standards. If some investors find our Class B common stock less attractive as a result, there may be a less active trading market for our Class B common stock and our stock price may be more volatile.

 

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

 

Under Section 404 of the Sarbanes-Oxley Act of 2002, a newly public company is not required to comply with either the management or the auditor reporting requirements related to internal control over financial reporting until its second annual report, if applicable.

 

Further, we intend to qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

  an extended transition period to comply with new or revised accounting standards applicable to public companies; and

 

  an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

 

We may take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of the filing of this registration statement, or such earlier time that we are no longer an emerging growth company and, if we do, the information that we provide stockholders may be different than you might receive from other public companies in which you hold equity. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our shares of common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

 

In addition, if we no longer qualify as an emerging growth company, as an accelerated filer, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

 

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our stock.

 

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Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

 

The requirements of being a reporting public company may strain our resources, divert management’s attention and affect our ability to attract and retain additional executive management and qualified board members.

 

As a reporting public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, making some activities more difficult, time-consuming or costly. This will put increased demand on our systems and resources, particularly after we are no longer a “smaller reporting company.” The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and results of operations. As a “smaller reporting company” and “emerging growth company”, as stated above, we receive certain reporting exemptions under The Sarbanes-Oxley Act.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure create uncertainty for public companies, which increases legal and financial compliance costs and time expenditures for internal personnel. These laws, regulations and standards are subject to interpretation, which in many cases due to their lack of specificity, their application in practice may evolve over time as regulators and governing bodies provide new guidance. These changes may result in continued uncertainty regarding compliance matters and may necessitate higher costs due to ongoing revisions to filings, disclosures and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate regulatory or legal proceedings against us and our business may be adversely affected.

 

As a public company under these rules and regulations, we expect that it may make it more expensive for us to hire external auditors to perform requisite outside audited financial statements, as well as obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee and could also make it more difficult to attract qualified executive officers.

 

As a result of disclosure of information in this Prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and results of operations.

 

Investors may suffer dilution as a result of future financing needs and the increase in our authorized shares.

 

We may engage in equity financing to fund our future operations and growth. If we raise additional funds by issuing equity securities, stockholders may experience significant dilution of their ownership interest (both with respect to the percentage of total securities held, and with respect to the book value of their securities) and such securities may have rights senior to those of the holders of our Class B common stock. Prior to listing on the NYSE American, we intend to increase the number of authorized shares of our Class B common stock and any future issuances of our Class B common stock or Class B common stock may cause dilution to our investors.

 

General economic conditions may negatively impact our operations.

 

Economic downturns may negatively affect our operations. These conditions may be widespread or isolated to one or more geographic regions in which we operate. Higher wages, related labor costs, printing costs, leasing costs, energy, insurance and fuel costs and the increasing cost trends in those markets may decrease our margins. Moreover, economic downturns present an additional challenge to us because a significant portion of our revenues are from sales through retail stores, which are more likely to close during economic downturns. In addition, decreases in travel and entertainment spending during economic downturns could impact our businesses, and thereby negatively impact our operations.

 

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We could find it difficult to raise additional capital in the future.

 

We may need to raise additional capital in order for stockholders to realize increased value on our securities. Given the current global economy, there can be no assurance that we would be able to obtain funding on commercially reasonable terms in a timely fashion. Failure to obtain additional funding, if necessary, could have a material adverse effect on our business, prospects and financial condition.

 

Holders of our Class B common stock have significantly less voting power than holders of our Class C common stock.

 

Holders of our Class B common stock are entitled to one-tenth of a vote per share on all matters on which our stockholders are entitled to vote, while holders of our Class C common stock are entitled to three votes per share. Because of their voting power, the holders of our Class C common stock would be able to control matters requiring approval by our stockholders, including the election of all of the directors, amendment of organizational documents and the approval of significant corporate transactions, including any merger, consolidation or sale of all or substantially all of our assets. As a result, the ability of any of the holders of our Class B common stock to influence our management may be limited. In addition, our dual class structure has an anti-takeover effect, and accordingly, the holders of the shares of Class C common stock have the ability to prevent any change in control transactions that may otherwise be in the best interest of stockholders

 

Eight trusts for the benefit of sons and daughters of Howard S. Jonas, our Chairman of the Board of Directors, hold shares that, in the aggregate, represent more than a majority of the combined voting power of our outstanding capital stock, which may limit the ability of other stockholders to affect our management.

 

Eight trusts for the benefit of sons and daughters of Howard S. Jonas (the “Trusts”), our Chairman of the Board, collectively have voting power over 1,733,750 shares of our common stock (which includes 545,360 shares of our Class C common stock (which is all the issued and outstanding shares of the Class C common stock), which are convertible into shares of our Class B common stock on a 1-for-1 basis, and 1,188,390 shares of our Class B common stock), representing approximately 67.9% of the combined voting power of our outstanding capital stock, as of March 31, 2021 (such percentage of the voting power will not change due to this offering). In addition, as of March 31, 2021, Howard S. Jonas beneficially holds 1,734,962 shares of our Class B common stock, warrants to purchase up to 89,243 shares of our Class B common stock at a price per share of $42.02 and warrants to purchase up to 98,336 shares of our Class B common stock at a price per share of $26.44. Each of the Trusts has a different, independent trustee.

 

Howard S. Jonas serves as our Chairman of the Board, which is not an officer position. However, he is our founder and served as an executive officer, including our Chief Executive Officer, for a very significant time period, and the members of the Board and management often look to him for guidance on major financial, operational and strategic matters.

 

Howard S. Jonas does not have the right to direct or control the voting of the shares of our common stock that is held by the Trusts, and the independent trustees hold sole voting and dispositive power over the common stock held by the Trusts. However, he is the trustor of the trusts and is the father of each of the beneficiaries of the Trusts and his views may be taken into account by the trustees and others related to the Trusts.

 

We are not aware of any voting agreement between or among any of the Trusts and/or Howard S. Jonas, but if such a voting agreement or other similar arrangement exists or were to be consummated, if all or several or all of the Trusts were to act in concert, or if we issued additional Class C common stock, certain or all of the Trusts and/or Howard S. Jonas along with holders of the Class C common stock would be able to control matters requiring approval by our stockholders, including the election of all of the directors, amendment of organizational documents and the approval of significant corporate transactions, including any merger, consolidation or sale of all or substantially all of our assets. As a result, the ability of any of our other stockholders to influence our management may be limited. In addition, our dual class structure has an anti-takeover effect, and accordingly, the holders of the shares of Class C common stock have the ability to prevent any change in control transactions that may otherwise be in the best interest of stockholders.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this Prospectus, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, timing and likelihood of success, plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Prospectus and are subject to a number of risks, uncertainties and assumptions described under the sections in this Prospectus entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. All of the forward-looking statements made in this report are qualified by these cautionary statements.

  

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of shares of our Class B common stock by the Selling Stockholders pursuant to this Prospectus.

 

We will pay for the expenses of this offering, except that the Selling Stockholders will pay any broker discounts or commissions or equivalent expenses and expenses of Selling Stockholders legal counsel applicable to any sale of the shares of Class B common stock. 

 

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MARKET FOR OUR CLASS B COMMON STOCK AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth the high and low sale prices for our Class B common stock for each quarterly period within the two most recent fiscal years.

 

On March 31, 2021, there were 141 holders of record of our Class B common stock and 8 holders of record of our Class C common stock, which is not quoted on the Pink OTC Markets. These numbers do not include the number of persons whose shares are in nominee or in “street name” accounts through brokers. On April 2, 2021, the last sales price reported on the Pink OTC Markets for our Class B common stock was $4.00 per share.

 

We were formed in May 2009 and do not pay cash dividends. We do not expect to pay any cash dividends for the foreseeable future. Our current policy is to retain all of our earnings to finance future growth. Any future declaration of dividends will be subject to the discretion of our Board of Directors.

 

The following table sets forth the high and low closing bid prices for our Class B common stock for the fiscal quarter indicated as reported on the Pink OTC Markets. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

    Fiscal 2021     Fiscal 2020     Fiscal 2019  
    High     Low     High     Low     High     Low  
First Quarter ended January 31   $ 5.99     $ 3.02     $ 13.25     $ 6.21     $ 40.40     $ 20.49  
Second Quarter ended April 30   *$ 4.90     *$ 3.71     $ 10.10     $ 4.50     $ 33.00     $ 20.12  
Third Quarter ended July 31                   $ 5.63     $ 3.50     $ 24.90     $ 14.34  
Fourth Quarter ended October 31                   $ 4.10     $ 3.00     $ 23.50     $ 9.53  

 

Through April 1, 2021.

 

DIVIDEND POLICY

 

We do not pay dividends on our Class B common stock, and currently do not intend to pay any cash dividends on our Class B common stock in the foreseeable future. In addition, we may incur debt financing in the future, the terms of which will likely prohibit us from paying cash dividends or distributions on our Class B common stock. Even if we are permitted to pay cash dividends in the future, we currently anticipate that we will retain all future earnings, if any, to fund the operation and expansion of our business and for general corporate purposes.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition or Plan of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. Important factors currently known to management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing for our products, and competition.

 

The following discussion provides information that management believes is relevant to an assessment and understanding of our past financial condition and plan of operations. The discussion below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Prospectus.

 

As used below, unless the context otherwise requires, the terms “IDWMH,” the Company,” “we,” “us,” and “our” refer to IDW Media Holdings, Inc., a Delaware corporation, and our subsidiaries

  

OVERVIEW

 

Our principal businesses consist of:

 

  i. IDW Media Publishing, or IDWP, is a publishing company that creates comic books, graphic novels, digital content and games through its imprints IDW, IDW Games and Top Shelf Productions.  In addition, since April 1, 2020, we own a 19.9% interest in Clover Press, a boutique publishing company that focuses on the book trade and direct market; since April 1, 2020, when our interest in Clover Press decreased to 19.9%, we no longer consolidate the operations of Clover Press but rather value our investment at cost.

 

  ii. IDW Entertainment, or IDWE, is a company that develops, produces, and distributes content across various platforms and formats to audiences globally. IDWE licenses its intellectual property primarily from IDWP, thereby gaining exclusive access to stories and characters from IDWP’s diverse library of comic books and graphic novels.

 

CTM Media, or CTM, is 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 United States and Canada. On July 14, 2020, we 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. The CTM Sale closed on February 15, 2021.

 

COVID-19: Overview of Impacts

 

The COVID-19 pandemic had the following impact on us and our business operations:

 

IDWMH: We received Paycheck Protection Program (“PPP”), which were established as part of the CARES Act, loan of $1,195,679 related to core IDWE and IDWP operations in the second quarter of 2020.

 

IDWE: Industry-wide production suspensions halted filming and production of Wynonna Earp Season four after the completion of six of twelve episodes.  IDWE continued its program to develop, package and pitch from its library on remote basis. Writer’s rooms have transitioned to virtual operations.

 

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IDWP: Direct market distribution was halted on April 1, 2020 by Diamond Comic Distributors Inc., the industry’s primary distributor, and IDWP subsequently furloughed approximately 25% of its workforce. Using the proceeds of PPP loans, IDWP was able to bring back 50% of the furloughed workforce. IDWP transitioned to focus on direct-to-consumer (“DTC”) and indirect market channels, and was able to offset the lost direct market sales. Diamond resumed partial operations on May 20, 2020. In recent months, direct market sales volumes have begun to increase, reaching pre-pandemic levels. Additionally, although most products sold through Diamond, a traditionally non-returnable market, have been made returnable, this has not resulted in a significant increase in returns and sales through Penguin Random House, a largely returnable market, have seen decreased overall returns. IDWP renegotiated the terms of one of its lease agreements due to COVID-19 impacts. Per ASC 842 guidance the lease liabilities were remeasured as of the modification dates as if the leases were new leases commencing at such time.  Accordingly, the Right-of-Use assets were adjusted by amounts equal to the adjustments to the lease liabilities.

 

CTM(discontinued operations): CTM received PPP loans of $1,710,977 and $68,270, for CTM and Ettractions, CEBA (Canada Emergency Business Account) of $47,000 and received non-refundable funding of $191,000 through the CEWS (Canada Emergency Wage Supplement) program. On January 27, 2021, the Ettractions PPP loan of $68,270 was forgiven and on March 12, 2021, the CTM PPP loan of $1,710,977 was forgiven. As a result of the COVID-19 pandemic, CTM had suspended operations in March 2020 as key clients closed and tourism slowed in certain markets and halted in other key markets.  CTM gradually resumed partial operations beginning June 2020 in accordance with, and permitted by, state and local COVID-19 regulations. In March 2020, CTM furloughed all non-essential personnel, approximately 90% of its workforce at the time, and has been gradually returning its personnel as needed as it resumes its operations.

 

REPORTABLE SEGMENTS

 

We have the following reportable business segments: IDWP and IDWE, and CTM as a discontinued operation.

 

IDWP

 

IDWP is an award-winning publisher of comic books, original graphic novels, and art books as well as board and tabletop games. In 2020, IDWP won prestigious Will Eisner Comic Industry Awards (“Eisner Awards”) for George Takei’s They Called Us Enemy and Stan Sakai’s Usagi Yojimbo. Other selected and notable Eisner Awards in the past 10 years are listed below:

 

Author   Title   Year   Award
James Kolchaka   Johnny Boo and the Ice Cream Computer   2019   Best early readers
John Lewis, Andrew Aydin and Nate Powell   March: Book Three   2017   Best reality-based work
John Lewis, Andrew Aydin and Nate Powell   March: Book Two   2016   Best reality-based work
Chris Samnee   Rocketeer: Cargo of Doom   2013   Best artist/penciller/inker
Darwyn Cooke   “The Seventh” in Richard Stark’s Parker: The Martini Edition   2012   Best short story
James Kolchaka   Dragon Puncher Island   2012   Best early readers
Joe Hill   Locke & Key   2011   Best writer

 

Founded in 1999, IDWP has a long tradition of supporting original, creator-driven titles. In 2002, IDWP published 30 Days of Night by Steve Niles and Ben Templesmith followed by other horror titles that kickstarted a resurgence in horror-comic publishing across the industry. Since then, IDWP has significantly diversified its publications. Joe Hill and Gabriel Rodríguez’s Locke & Key, Jonathan Maberry’s V Wars, Stan Sakai’s Usagi Yojimbo, Walter Simonson’s Ragnarök, Beau Smith’s Wynonna Earp, Chris Ryall and Ashley Wood’s Zombies vs Robots, and Joe Hill’s and Martin Simmonds’ Dying is Easy are among the hundreds of award-winning titles published by IDW. Titles such as Canto, Ghost Tree, Road of Bones and Mountainhead are in active development.

 

In 2015, IDWP acquired Top Shelf Productions, an award-winning, critically acclaimed publisher of graphic novels, which continues to operate as an imprint. Top Shelf is known for publishing works of literary significance including the #1 New York Times and Washington Post bestselling trilogy, March, by Congressman John Lewis, Andrew Aydin, and Nate Powell. March is the only graphic novel to have won the National Book Award. In July 2019, Top Shelf released George Takei’s graphic memoir, They Called Us Enemy, which debuted at #2 on the New York Times Paperback Nonfiction Best Sellers list and as a #1 bestseller on Amazon. They Called Us Enemy was named a “Best Book of the Year” by NPR, Amazon, Forbes, Publishers Weekly, School Library Journal, Kirkus Reviews, and the New York Public Library.

 

In addition to its core of creator-driven franchises, IDWP has also partnered with the owners of major licensed brands to publish many successful licensed titles, including: Hasbro’s Transformers, G.I. Joe, and My Little Pony; Sega’s Sonic The Hedgehog; CBS’s Star Trek; Sony’s Ghostbusters; Viacom’s Teenage Mutant Ninja Turtles; the Marvel Action’s line of middle-grade comic books designed for younger readers; Toho’s Godzilla; and Lucasfilm’s Star Wars Adventures. These licensed titles often bring with them diverse built-in audiences and also build cache and retailer support for IDWP. With licensed franchises, IDWP strategy is to focus on licenses that not only have eager, built-in fan followings but also ongoing licensor support through other channels, such as toys, animation, and film. This strategy enables IDWP to expand its audience reach and to pursue sub-license opportunities with foreign publishers. IDWP also collaborates with other comic publishers to co-publish certain titles, including Batman vs. Teenage Mutant Ninja Turtles (with DC Comics) and Rick & Morty vs. Dungeons and Dragons (with Oni Press, Inc.).

 

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IDWP’s largest segment is the publication of comic books and graphic novels, which are primarily distributed through three channels:

 

  to comic book specialty stores, non-returnable basis (the “direct market”), by Diamond Comic Distributors, Inc. Direct market sales have traditionally been non-returnable, in light of COVID-19 returnability is being offered on the majority of products sold to the direct market;

 

  to traditional retail outlets, including bookstores and mass market stores, on a returnable basis (the “non-direct market”), by Penguin Random House Publisher Services (“Penguin Random House”) to customers such as Amazon, Barnes & Noble, Baker & Taylor, Ingram, Follett, Target, and Walmart; and

 

  to Ebook distributors (“digital publishers”).

 

IDWP’s publications are widely available digitally through popular distributors such as Comixology, Amazon, Apple iTunes and iBooks, Google Play, Hoopla, Overdrive, and via IDWP’s own website (idwpublishing.com). Through the direct market and non-direct market, IDWP sold over 4 million units in fiscal year 2020 and is recognized as the fifth largest publisher based on units sold as calculated and reported by Diamond market share ratings, covering both comics and graphic novels in the direct market.

 

Data for Diamond’s sales charts — which includes the market shares and all top product charts — are compiled by Diamond Comic Distributors from sales made to thousands of comic book specialty shops located in North America and around the world. Additional sales made to online merchants and other specialty retailers may be included in the calculations as well. Unit and dollar market shares are calculated based upon orders for comic books, graphic novels, and magazines invoiced and shipped to Diamond customers during 2019, which comprises pre-orders, advance reorders, and reorders, minus any copies that are received back from a title marked as returnable.

 

IDWP publishes under specialized, acclaimed imprints that account for a smaller part of our revenue, including: (i) The Library of American Comics (publishing classic comic reprints); (ii) EuroComics (bringing foreign language comics to an English-speaking audience); (iii) Yoe! Books (specializing in creative historical comic collections); (iv) Artist’s Editions (publishing scans of original art printed at the same size they were drawn); and (v) Sunday Press (producing restorations of classic American comic strips while enhancing their visibility, reach of distribution and marketing).

 

Many of IDWP’s titles are available in a variety of languages worldwide through foreign licensing. In 2019, IDW also announced a major new initiative to release key titles as Spanish-language graphic novels in the North American market. This initiative kicked off in Summer 2020 with the release of Spanish-language editions of They Called Us Enemy, Red Panda & Moon Bear, and Sonic the Hedgehog.

 

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IDWP’s IDW Games develops and publishes card, board, and tabletop games. Similar to IDWP’s book content, IDW Games offers a mix of popular licensed titles, such as Dragon Ball Z and Batman the Animated Series, as well as creator-developed strategic hobby games, such as Towers of Arkhanos and Tonari. IDW Games’ products are sold to distributors worldwide and are available through retailers such as Gamestop, Barnes & Noble, Amazon, and independent games and comics stores, as well as the direct-to-consumer channel through its website and marketing campaigns.

 

To further expand and build creator-owned properties beyond publishing, IDWP works with IDWE, as well as other outside partners, to bring creator-owned franchises to television and film through licensing arrangements.

 

As a result of the COVID-19 pandemic, Diamond ceased the direct market distribution of our new comic books from April 1, 2020 through May 19, 2020. Accordingly, IDWP did not publish any new comic books during this period. Based upon distributor capacity, new comic book releases began following a reduced distribution schedule beginning May 20, 2020, with the capacity for new product increasing over the subsequent months. The delay in comic book releases will also have an impact on the publication dates of the related collections in all markets. During this period of reduced output, IDWP paused creative work on many projects, furloughed staff, and experienced a limited number of layoffs. With the receipt of PPP loans and direct market distribution coming back online, furloughed staff have since resumed working and creative work has recommenced.

 

In order to expand its business and counter a persistent industry-wide decline in direct market sales, IDWP continues to focus on launching new creator-owned titles and partnering with established brands to bring fan-favorite properties to the comic book market. IDWP is also expanding the reach of existing and new products through the development of specialty, library, and education markets; increased direct-to-consumer initiatives; and broadening the reach of creator-driven series through licensing opportunities.

 

In May 2019, IDWMH invested in a new publishing entity, Clover Press, established by Ted Adams and Robbie Robbins, co-founders of IDWP. Clover Press is a separate entity and operates independently from IDWP. Due to its size, and nature of the business, activity related to Clover Press was included with IDWP for presentation purposes while it was a consolidated entity. Effective April 1, 2020, IDWMH’s interest in Clover Press decreased to 19.9%, as a result it is now an investment valued at cost and no longer consolidated.

 

IDWP’s revenues represented 67.15% and 60.94% of our consolidated revenues in the three months ended January 31, 2021 and 2020, respectively.

 

IDWP’s revenues represented 62.5% and 46.9% of our consolidated revenues in the fiscal years ended October 31, 2020 and 2019, respectively.

 

IDWE

 

IDWE is a production company and studio that develops, produces and distributes content for global platforms and services.

 

IDWE has developed and/or produced four series for television that premiered in calendar 2019 and 2020:

  

  Wynonna Earp season four will air in two parts due to worldwide COVID-19 related production shutdowns. The first six episodes of season four premiered July 26, 2020 and the second half of season four began airing on March 5, 2021.  The show was created by Emily Andras and stars Melanie Scrofano and is based on the IDWP comics of Beau Smith. Season four’s twelve episodes are being produced by Seven24 Films and distributed by IDWE, in partnership with Syfy and CTV Sci-Fi. Cineflix Studios is the co-producer and global distributor for the series. Season one’s thirteen episodes aired in fiscal 2016. Season two’s twelve episodes aired in fiscal 2017, and Season three’s twelve episodes aired in fiscal 2018.

  

  V Wars, debuted on Netflix on December 5, 2019. The 10-episode vampire thriller stars Ian Somerhalder and was produced by High Park Entertainment. The series is based upon Jonathan Maberry’s IDWP’s comic book series of the same name.

 

  October Faction premiered on Netflix January 23, 2020. The 10-episode show is based on the IDWP comic books of Steve Niles and Damien Worm of the same name and was adapted by showrunner Damian Kindler and starred Tamara Taylor and J.C. MacKenzie. It was also produced by High Park Entertainment.

 

  Locke & Key premiered on Netflix on February 7, 2020. The show is based on the graphic novels of Joe Hill and Gabriel Rodriguez of the same name that are published by IDWP. Seasons two and three have been ordered by Netflix and production began in September 2020.

 

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Previously, IDWE and Ideate Media partnered with AMC Studios to license to BBC America the U.S. broadcast and streaming video on demand (SVOD) rights to Dirk Gently, a live-action series based on the Douglas Adams novels and related comic books on the same name published by IDWP,. Season one of the series premiered October 22, 2016 in the United States on BBC America. The second and final season aired on BBC America in 2017. Netflix currently streams both seasons worldwide.

 

IDWE’s revenues represented 32.85% and 39.06% of our consolidated revenues in the three months ended January 31, 2021 and 2020, respectively. 

 

IDWE’s revenues represented 37.5% and 53.1% of our consolidated revenues in the fiscal years ended October 31, 2020 and 2019, respectively.

 

CTM

 

As a result of the economic downturn related to the COVID-19 pandemic, and the impact it had on CTM, the Company decided to sell CTM and focus on our entertainment and publishing business.  On July 14, 2020, we 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. The CTM Sale closed on February 15, 2021.

 

CTM develops and distributes print-based advertising and information in targeted tourist markets.  Advertisers include entertainment venues, tourist attractions, and cultural sites as well as their related service providers including dining, lodging, and transport services.  CTM services its regional network and partner locations of more than 19,000 diverse locations to distribute printed brochures, magazines and rack cards to the traveling public.

 

CTM also develops and distributes digital advertising and information through its Ettractions’ website, www.visitorfun.com and its ExploreBoard network of interactive touch screen kiosks throughout its market areas.

  

CTM has grown both geographically and by developing related lines of business.  Geographic growth had been driven both by organic expansion to new territories and through selective purchases of regional businesses. For example, on October 9, 2017, CTM acquired the assets of an additional brochure distribution company in Cape Cod, Massachusetts which expanded CTM’s network and provided CTM with additional exposure within the marketplace.

 

CTM’s client base includes advertisers in 32 states and provinces in the United States and Ontario, Canada.  Its distribution territory in the United States includes the Northeast, Southeast, Mid-Atlantic and Midwestern states, as well as Southeast Florida.  CTM is a brochure distribution market leader in each of the following greater metropolitan areas: New York City, Boston, Toronto, Ottawa, Miami, Ft. Lauderdale, Philadelphia, Chicago, St. Louis, Kansas City, Minneapolis/St. Paul, Pittsburgh, Detroit, Milwaukee, Cleveland and Atlanta.

 

Throughout its operating region, CTM operates four integrated and complimentary business lines: Brochure Distribution, Digital Distribution, Publishing and VisitorFun Card (formerly RightCard).

 

CTM Discontinued Operations:

 

  On July 14, 2020, we 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. The CTM Sale closed on February 15, 2021.

  

  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.

 

The following unaudited pro forma consolidated balance sheet as of October 31, 2019 gives effect to the disposition of CTM in which the assets are classified as held for sale. The unaudited pro forma consolidated statement of operations for the three months ended and fiscal year ended October 31, 2019 give pro forma effect to the Company as if CTM was a discontinued operation during last fiscal year.

 

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IDW Media Holdings, Inc.

Pro Forma Consolidated Balance Sheet for the Period Ended October 31, 2019

(Unaudited)

 

(in thousands, except per share data)  Historical
IDWMH
(audited)
   Pro Forma
adjustments
(a)
   Pro Forma
Combined
 
Assets            
Current assets:            
Cash and cash equivalents  $10,165   $2,622   $7,543 
Trade accounts receivable, net   45,253    1,791    43,462 
Inventory   3,313    -    3,313 
Prepaid expenses   2,092    773    1,319 
Total current assets   60,823    5,186    55,637 
Property and equipment, net   3,078    2,516    562 
Non-current assets               
Taxes receivable   513    -    513 
Intangible assets, net   455    340    115 
Goodwill   2,309    2,110    199 
Television costs   9,388    -    9,388 
Other assets   571    199    372 
Total non-current assets   16,314    5,165    11,149 
Total assets  $77,137   $10,351   $66,786 
Liabilities and stockholders’ equity               
Current liabilities:               
Trade accounts payable  $2,625   $480   $2,145 
Accrued expenses   4,173    1,137    3,036 
Deferred revenue   2,255    1,197    1,058 
Bank loans payable – current portion   29,242    -    29,242 
Related party loans payable – current portion   4,550    -    4,550 
Income taxes payable   73    73    - 
Finance lease obligations – current portion   396    396    - 
Other current liabilities   2,068    61    2,007 
Total current liabilities   45,382    3,344    42,038 
Non-current liabilities               
Finance lease obligations – long term portion   683    683    - 
Bank loans payable – long term portion   10,500    -    10,500 
Related party loans payable – long term portion   4,500    -    4,500 
Total non-current liabilities   15,683    683    15,000 
Total liabilities  $61,065   $4,027   $57,038 
Stockholders’ equity (see note 3):               
Preferred stock, $.01 par value; authorized shares – 500; no shares issued at October 31, 2019   -    -    - 
Class B common stock, $0.01 par value; authorized shares – 12,000; 7,419 shares issued and 6,899 shares outstanding at October 31, 2019   74    -    74 
Class C common stock, $0.01 par value; authorized shares – 2,500; 545 shares issued and outstanding at October 31, 2019   5    -    5 
Stock subscription receivable   (1,000)   -    (1,000)
Additional paid-in capital (b)   96,671    43,404    53,267 
Accumulated other comprehensive loss   (60)   (60)   - 
Accumulated deficit   (78,457)   (37,020)   (41,437)
Treasury stock, at cost, consisting of 519 shares of Class B common stock at October 31, 2019   (1,196)   -    (1,196)
Total IDW Media Holdings Inc. stockholders’ equity   16,037    6,324    9,713 
Non-controlling interest   35    -    35 
Total stockholders’ equity   16,072    6,324    9,748 
Total liabilities and stockholders’ equity  $77,137   $10,351   $66,786 

 

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IDW Media Holdings, Inc.

Pro Forma Consolidated Statement of Operations

(Unaudited)

 

   Three Months Ended   Fiscal Year Ended 
   October 31, 2019   October 31, 2019 
(in thousands, except per share data)  Historical
IDWMH
(unaudited)
   Pro Forma
Adjustments
(a)
   Pro Forma
Combined
   Historical
IDWMH
(audited)
   Pro Forma
Adjustments
(a)
   Pro Forma
Combined
 
                         
Revenues  $33,901   $5,525   $28,376   $62,599   $19,764   $42,835 
Costs and expenses:                              
Direct costs   42,002    1,849    40,153    56,184    7,031    49,153 
Selling, general and administrative   8,718    2,570    6,148    31,152    12,737    18,415 
Depreciation and amortization   369    301    68    1,513    1,227    286 
Bad debt expense   31    31    -    113    80    33 
Total costs and expenses   51,120    4,751    46,369    88,962    21,075    67,887 
(Loss) income from operations   (17,219)   774    (17,993)   (26,363)   (1,311)   (25,052)
Interest expense, net   (17)   (6)   (11)   (208)   (35)   (173)
Other income (expense), net   39    44    (5)   41    56    (15)
(Loss) income before income taxes   (17,197)   812    (18,009)   (26,530)   (1,290)   (25,240)
(Provision for) benefit from income taxes   57    13    44    38    (4)   42 
Net (loss) income   (17,140)   825    (17,965)   (26,492)   (1,294)   (25,198)
Net (loss) income attributable to non-controlling interests   35    -    35    63    -    63 
Net (loss) income attributable to IDW Media Holdings, Inc  $(17,105)  $825   $(17,930)  $(26,429)  $(1,294)  $(25,135)
                               
Net loss per share  $(2.29)  $0.11   $(2.40)  $(3.90)  $(0.19)  $(3.71)
                               
Weighted-average number of shares used in the calculation of basic and diluted income per share:   7,444    7,444    7,444    6,768    6,768    6,768 

 

Notes to the unaudited pro forma statements:

 

(a) Reflects the elimination of 100% of the CTM segment in the Consolidated Balance Sheets and Consolidated Statements of Operations.

 

(b) Reflects the intercompany balance with CTM that has been settled and nets to $0.

 

PRESENTATION OF FINANCIAL INFORMATION

 

Basis of presentation

 

The condensed consolidated financial statements for the periods reflect our financial position, results of operations, and cash flows. The financial statements have been prepared using the historical basis for the assets and liabilities and results of operations.

 

CRITICAL ACCOUNTING POLICIES

 

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are described in Note 1 to the consolidated financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, intangible assets with indefinite useful lives, valuation of long-lived assets including intangible assets with finite useful lives and ultimate revenues for television costs. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 

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Net income IDW Media Holdings, Inc. 

 

(in thousands)               Change  
Three months ended January 31,   2021     2020     $     %  
Loss from operations   $ (5,121 )   $ (5,784 )   $ 663       (11.5 %)
Interest expense, net     (13 )     (9 )     (4 )     44.4 %
Other expense, net     -       (25 )     25       (100.0 %)
(Benefit from) provision for income taxes     -       -       -       -  
Net loss from continuing operations     (5,134 )     (5,818 )     684       (11.8 %)
Net loss from discontinued operations     (1,121 )     (1,054 )     (67 )     6.4 %
Net loss     (6,255 )     (6.872 )     617       (9.0 %)
Net income attributable to non-controlling interest     -       84       (84 )     (100.0 %)
Net loss attributable to IDW Media Holdings, Inc.   $ (6,255 )   $ (6,788 )   $ 533       (7.9 %)

 

Income from operations. The Company’s loss from operations decreased by $663,000 for the three months ended January 31, 2021 compared to the three months ended January 31, 2020 due to a decrease in operating losses from IDWE of $999,000 and decreases in corporate overhead of $129,000, offset by increases in losses at IDWP of ($465,000).  These changes are more fully described in the separate segment analyses below.

 

Income attributable to non-controlling interest. On May 15, 2019, the Company acquired a majority-ownership in Clover Press through capital funding. The minority owners include former IDWMH executives and IDWP founders, Ted Adams and Robbie Robbins.  As of April 1, 2020, IDWMH owns 19.9% ownership and does not consolidate and therefore does not have a non-controlling interest for the first quarter in fiscal 2021.

 

Net loss from discontinued operations. The Company’s net loss from discontinued operations increased by ($67,000) for the three months ended January 31, 2021 compared to the three months ended January 31, 2020 mostly due to the COVID-19 impacts on the travel and tourism industry.

 

IDWP

 

(in thousands) (unaudited)               Change  
Three months ended January 31,   2021     2020     $     %  
                         
Revenues   $ 5,649     $ 6,299     $ (650 )     (10.3 %)
Direct cost of revenues     3,173       3,527       (354 )     (10.0 %)
Selling, general and administrative     2,800       2,621       179       6.8 %
Depreciation and amortization     49       59       (10 )     (16.9 %)
Income (loss) from operations   $ (373 )   $ 92     $ (465 )     (505.4 %)

 

Included in the IDWP segment from June 1, 2019 through March 31, 2020 is Clover Press. As of April 1, 2020, Clover Press is no longer a consolidated entity and became a cost method investment. Therefore all the Clover Press changes noted below are a result of a nil balance in January 31, 2021.

 

Revenues. IDWP’s revenues decreased by ($650,000) in the three months ended January 31, 2021 compared to the three months ended January 31, 2020. Publishing revenue decreased ($75,000) with direct market sale increases offset by decreases in book market sales. Games revenue decreased ($866,000) due to fulfillment of a direct-to-consumer games campaign. Digital sales increased $281,000 due to continued strong sales on all major digital platforms. Foreign licensing revenue and royalty revenues decreased ($31,000). These cumulative decreases were offset by an overall decrease in sales returns and discounts of $113,000. Additionally, Clover Press revenues decreased by ($72,000) as it is no longer consolidated in the three months ended January 31, 2021.

 

Direct cost of revenues. Publishing direct cost of revenues decreased by ($354,000) in the three months ended January 31, 2021 compared to the three months ended January 31, 2020. IDWP direct cost of revenues consists primarily of printing expenses, costs of artists and writers, and royalties. IDWP direct costs of revenues decreased by ($325,000) in the three months ended January 31, 2021 compared to the three months ended January 31, 2020. Additionally, Clover Press direct cost of revenues decreased by ($29,000) as it is no longer consolidated in the three months ended January 31, 2021.

 

IDWP’s gross margin for the three months ended January 31, 2021 decreased to 43.8% from 44.0% for the three months ended January 31, 2020. The decrease is principally as a result of change in product mix and delayed new releases, which generally have a higher initial cost than backlist sales, in the current period.

 

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Selling, General and Administrative. IDWP selling, general and administrative expenses increased by $179,000 in the three months ended January 31, 2021, compared to the three months ended January 31, 2020 primarily due to increases in overhead allocations of $212,000, salaries and benefits of $269,000, employee recruitment of $31,000 and other net changes of $9,000. These were offset by decreases in marketing expenses of ($10,000), selling and distribution expenses of ($41,000), occupancy and related expenses of ($46,000). Additionally, Clover Press consolidated selling, general, and administrative decreased by ($245,000) as it is no longer consolidated in the three months ended January 31, 2021.

 

As a percentage of IDWP’s revenues, selling, general and administrative expenses in three months ended January 31, 2021 and January 31, 2020 were 49.6% and 41.6%, respectively.

  

IDWE

 

(in thousands) (unaudited)               Change  
Three months ended January 31,   2021     2020     $     %  
                         
Revenues   $ 2,764     $ 4,038     $ (1,274     (31.6 %)
Direct cost of revenues     6,059       8,089       (2,030     (25.1 %)
Selling, general and administrative     1,248       1,492       (244     (16.4 %)
Depreciation and amortization     10       9       1       11 .1%
Loss from operations   $ (4,553 )   $ (5,552 )   $ 999       (18.0 %)

 

Revenues. IDWE’s revenues decreased by ($1,274,000) in the three months ended January 31, 2021 compared to the three months ended January 31, 2020 due to the decrease of revenues from October Faction of ($4,032,000), partially offset by increases in revenues from Wynonna Earp of $2,758,000.

 

Direct Cost of Revenues. IDWE’s direct cost of revenues consists primarily of the amortization of production costs that were capitalized during the production of the television episodes and direct costs related to revenue recognized during related periods.

 

IDWE’s direct costs of revenues in the three months ended January 31, 2021 decreased by ($2,030,000) compared to the three months ended January 31, 2020. The change in direct cost of revenues for the periods related to the decrease of October Faction costs of ($7,724,000), V Wars production costs of ($327,000), net of increases in direct costs of Wynonna Earp of $3,957,000, and impairment of $2,064,000.

 

IDWE’s gross margin for the three months ended January 31, 2021 was (119.3%) compared to (100.3%) for the three months ended January 31, 2020. The decrease in gross margin is principally related to the production costs of episodes delivered and inventory impairment during the corresponding periods.

 

Selling, General and Administrative. IDWE’s selling, general and administrative expenses decreased by ($244,000) in the three months ended January 31, 2021 compared to the three months ended January 31, 2020. The decrease reflects the net increase in overhead allocation of $28,000, employee recruitment fee of $67,000 and salaries and benefits of $92,000. These decreases were offset by decreases in marketing ($152,000), professional fees of ($69,000), promotional production materials ($154,000), travel, lodging and meals of ($41,000), rent of ($10,000) and other net changes of ($5,000).

 

As a percentage of IDWE revenues, selling, general and administrative expenses in the three months ended January 31, 2020 were 45.2% compared to 36.9% for the three months ended January 31, 2020.

 

Net (loss) IDW Media Holdings, Inc.

 

(in thousands)               Change  
Fiscal year ended October 31,   2020     2019     $     %  
Loss from operations   $ (9,324 )   $ (25,052 )   $ 15,728       (62.8 %)
Interest income (expense), net     (46 )     (173 )     127       (73.4 %)
Other income (expense), net     (318 )     (15 )     (303 )     2020.0 %
(Benefit from) provision for income taxes     -       42       (42 )     (100.0 %)
Net loss from continuing operations     (9,688 )     (25,198 )     15,510       (61.6 %)
Net loss from discontinued operations     (4,110 )     (1,294 )     (2,816 )     217.6 %
Net loss     (13,798 )     (26,492 )     12,694       (47,9 %)
Net income (loss) income attributable to non-controlling interest     -       63       (63 )     (100.0 %)
Net loss attributable to IDW Media Holdings, Inc.   $ (13,798 )   $ (26,429 )   $ 12,631       (47.8 %)

 

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Loss from operations. The Company’s loss from operations decreased by $15,728,000 for the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019 due to decreases in operating losses from IDWP and IDWE in the amounts of $5,102,000, and $11,258,000. These changes were the result of lower costs and improved gross profits. Additionally, starting in the first quarter of 2020, IDWMH stopped allocating all of its costs to the operating segments thus reducing the operating losses at the segments and increasing the total operating loss by ($632,000) for the fiscal year ended October 31, 2020. These changes are more fully described in the separate segment analyses below.

 

Interest expense, net. Interest expense decreased by $127,000 for the fiscal year ended October 31, 2020, respectively, compared to corresponding periods in fiscal 2019, principally due to changes in the financing operations in the IDWE segment.

 

Other expenses. Other expenses increased by $303,000 for the fiscal year ended October 31, 2020, respectively, compared to corresponding periods in fiscal 2019 due to the AMT tax refund received by IDWMH and split with CTM.

 

Income tax expense. Income tax expense is nil as at October 31, 2020 as compared to October 31, 2019 which had a tax benefit resulting in a decrease of ($42,000).

 

Income attributable to non-controlling interest. On May 15, 2019, the Company acquired a majority ownership in Clover Press through capital funding. The minority owners include former IDWMH executives and IDWP founders, Ted Adams and Robbie Robbins. 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.

 

Net loss from discontinued operations. Net loss from discontinued operations increased by $2,816,000 for the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019 due to the COVID-19 impacts on the travel and tourism industry.

  

IDWP

 

(in thousands)               Change  
Fiscal year ended October 31,   2020     2019     $     %  
                         
Revenues   $ 23,850     $ 20,094     $ 3,756       18.7 %
Direct cost of revenues     12,663       12,842       (179 )     (1.4 %)
Selling, general and administrative     11,074       12,158       (1,084 )     (8.9 %)
Depreciation and amortization     216       265       (49 )     (18.5 %)
Bad debt expense     -       34       (34 )     (100.0 %)
Loss from operations   $ (103 )   $ (5,205 )   $ 5,102       (98.0 %)

 

Included in the IDWP’s segment from June 1, 2019 through March 31, 2020 are IDWP and Clover Press, two publishing entities which operate independently of one another. As of April 1, 2020, Clover Press is no longer a consolidated entity and became a cost method investment.

 

Revenues. IDWP’s revenues increased by $3,756,000 in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019.

 

IDWP’s revenues increased by $3,739,000 in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019. Strong holiday sales in the first quarter combined with continued robust book market sales and reduced returns in the following quarters led to a $2,705,000 increase in publishing revenue. Games revenue increased $155,000 largely related to the fulfillment of a direct to consumer games campaign in the current year. Digital sales increased $633,000 due to strong sales in the second through fourth quarters. An increase in foreign licensing revenue and royalty revenues related to titles co-published at other publishers led to a $428,000 increase in licensing & royalty revenue. These increases were offset by other net revenue changes of ($182,000) primarily related to decreased creative service revenue due to custom projects in 2019.

 

Clover Press consolidated revenues were $130,000 for the fiscal year ended October 31, 2020 and $113,000 for the fiscal year ended October 31, 2019. All sales pertained to book sales.

 

Direct cost of revenues. IDWP’s direct cost of revenues decreased by ($179,000) in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019.

 

IDWP direct cost of revenues consists primarily of printing expenses, costs of artists and writers, and royalties. IDWP direct costs of revenues decreased in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019 by ($219,000).

 

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Clover Press direct cost of revenues relate to publishing costs and were $55,000 and $15,000 for the fiscal years ended October 31, 2020 and October 31, 2019, respectively. A portion of inventory was donated by the owners for the start-up of the Company.

 

IDWP’s gross margin for the fiscal year ended October 31, 2020 increased to 46.9% from 36.1% for the fiscal year ended October 31, 2019. Increase principally as a result of higher revenues, change in product mix, and delayed new releases, which generally have a higher initial cost than backlist sales, in the current periods.

 

Selling, General and Administrative. IDWP’s selling, general, and administrative expenses decreased by ($1,084,000) in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019.

 

IDWP selling, general and administrative expenses decreased by ($979,000) in the fiscal year ended October 31, 2020, compared to the fiscal year ended October 31, 2019 due primarily to decreases in overhead allocations of ($618,000), salaries and benefits (including non-cash compensation) of ($301,000), and occupancy of ($114,000), and other net changes of ($27,000). Decreased expenses were partially offset by increases in marketing expenses of $20,000 and selling & distribution expenses of $61,000.

 

Clover Press consolidated selling, general, and administrative expenses were $315,000 and $420,000 for the fiscal years ended October 31, 2020 and October 31, 2019, respectively. These costs mostly relate to payroll and rent.

 

As a percentage of IDWP’s revenues, selling, general and administrative expenses in fiscal years ended October 31, 2020 and October 31, 2019 were 46.4% and 60.5%, respectively.

 

IDWE

 

(in thousands)               Change  
Fiscal year ended October 31,   2020     2019     $     %  
Revenues   $ 14,312     $ 22,741     $ (8,429 )     (37.1 %)
Direct cost of revenues     16,867       36,310       (19,443 )     (53.5 %)
Selling, general and administrative     5,568       6,256       (688 )     (11.0 %)
Depreciation and amortization     33       22       11       50.0 %
Bad debt expense     433       -       433       100.0 %
(Loss) income from operations   $ (8,589 )   $ (19,847 )   $ 11,258       (56.7 %)

 

Revenues. IDWE’s revenues decreased by ($8,429,000) in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019. The decrease is due to decreases in revenues from V Wars of ($13,437,000) and October Faction of ($5,072,000), partially offset by increases in revenues from Wynonna Earp of $5,421,000 Locke & Key of $4,000,000 and Dirk Gently of $659,000.

 

Direct costs of revenues. IDWE’s direct costs of revenues generally consist of film cost amortization as calculated per the guidelines of the individual film forecast method (IFF) as well as costs required to distribute the shows. Direct cost of revenues decreased by ($19,443,000) in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019. The change in direct cost of revenues for the periods relate principally to the decrease of V Wars production costs of ($16,647,000), October Faction pilot costs of ($7,415,000) and Dirk Gently of ($3,102,000), net of increases in direct costs of Wynonna Earp of $6,502,000, Locke & Key of $1,214,000, and other net changes of $5,000.

 

IDWE’s gross margin for the fiscal year ended October 31, 2020 was (17.9%) compared to (59.7%) for the fiscal year ended October 31, 2019. The increase in gross margin for fiscal year ended October 31, 2020 is a result of the higher production costs and overages associated with V Wars and October Faction in fiscal 2019.

 

Selling, General and Administrative. IDWE’s selling, general and administrative expenses decreased by ($688,000) in the fiscal year ended October 31, 2020 compared to the fiscal year ended October 31, 2019. The decrease reflects decreases in, SG&A allocation from the Company of ($991,000), non-cash comp of ($513,000), insurance of ($50,000), travel, lodging and meals of ($32,000), offset by increases in marketing of $93,000, compensation and benefits of $368,000, rent of $64,000, professional fees of $23,000, cost of capital of $287,000, office supplies and freight cost $46,000 and other net changes of $17,000.

 

As a percentage of IDWE’s revenues, selling, general and administrative expenses is 38.9% in the fiscal year ended October 31, 2020 compared to 27.5% in the fiscal year ended October 31, 2019.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

We satisfied our cash requirements primarily through cash provided by the Company’s financing activities and cash flows from operations at IDWP and CTM. As more fully discussed below, additional sources of financing will be needed to finance the growth of IDWE.

 

    Three months ended
January 31,
 
(in thousands) (unaudited)   2021     2020  
Cash flows provided (used in)  by:            
Operating activities   $ 886     $ (2,780 )
Investing activities     (55 )     (299 )
Financing activities     (3,126 )     (2,433 )
Effect of exchange rate changes on cash and cash equivalents     (12 )     (49 )
Net decrease in cash and cash equivalents   $ (2,307 )   $ (5,561 )

 

Operating Activities. Our cash flow from operations varies from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Cash flows were used in operating activities based on these factors amounting to approximately $886,000 and ($2,780,000) for the three months ended January 31, 2021 and 2020, respectively.

 

Investing Activities. Our capital expenditures were approximately $55,000 and $307,000 in the three months ended January 31, 2021 and 2020, respectively.

 

Financing Activities. During the three months ended January 31, 2021 and 2020 we repaid finance lease obligations in the amounts of $92,000 and $105,000, respectively, and repaid bank loans in the amounts of $3,076,000 and $4,507,000, respectively. We received funds from our lines of credit and bank loans in the amounts of $0 and $1,195,000 for the three months ended January 31, 2021 and 2020, respectively. In addition, we issued common stock for $25,000 and $783,000 in the three months ended January 31, 2021 and 2020, respectively.

 

   Fiscal year ended
October 31,
 
(in thousands)  2020   2019 
Cash flows (used in) provided by:        
Operating activities  $15,989   $(24,990)
Investing activities   (350)   (1,125)
Financing activities   (13,642)   22,667 
Effect of exchange rate changes on cash and cash equivalents   -   $168 
Net (decrease) increase in cash and cash equivalents  $1,997   $(3,280)

 

Operating Activities. Our cash flow from operations varies from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Cash flows were used in operating activities based on these factors amounting to approximately $15,989,000 and ($24,990,000) for the fiscal years ended October 31, 2020 and 2019, respectively.

 

Investing Activities. Our capital expenditures were approximately $420,000 and $1,113,000 in the fiscal years ended October 31, 2020 and 2019, respectively.

 

Financing Activities. During the fiscal year ended October 31, 2020 and 2019 we repaid finance/capital lease obligations in the amounts of $404,000 and $410,000, respectively, and repaid bank loans in the amounts of $26,559,000 and $9,378,000, respectively. We received funds from our bank loans in the amounts of $1,021,000 and $19,382,000 for the fiscal year ended October 31, 2020 and 2019, respectively. We repaid the loan facility with our Chairman in the amounts of $5,300,000 and $19,000,000 in the fiscal year ended October 31, 2020 and 2019, respectively. In March 2020, we issued common stock for proceeds of $8,306,000 net of financing costs in connection with a private placement offering. In April 2019, we issued common stock for net proceeds of $19,004,000 in connection with a rights offering.

 

CHANGES IN TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

Trade accounts receivable decreased to approximately $19,429,000 at January 31, 2021 compared to $22,921,000 at October 31, 2020 principally due to changes in the accruals and collection of IDW Entertainment revenue, as well as the timing of receipts of payments of other receivable balances. The allowance for doubtful accounts as a percentage of gross trade accounts receivable was 0.77% at January 31, 2021 compared to 1.9% at October 31, 2020, reflecting the decrease in receivable balances and our collectible receivable experience, principally related to CTM segment receivables.

 

Trade accounts receivable decreased to approximately $22,921,000 at October 31, 2020 compared to $43,462,000 at October 31, 2019 principally due to changes in the collection of IDWE revenue, as well as the timing of collections of other receivable balances. The allowance for doubtful accounts as a percentage of gross trade accounts receivable was 1.9% at October 31, 2020 compared to 0.07% at October 31, 2019, reflecting the decrease in receivable balances and our collectible receivable experience, principally related to CTM segment receivables.

 

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OTHER SOURCES AND USES OF RESOURCES

 

Where appropriate, we evaluate strategic investments and acquisitions to complement, expand, and/or enter into new businesses. In considering acquisitions and investments, we search for opportunities to profitably grow our existing businesses, to add qualitatively to the range of businesses in our portfolio and to achieve operational synergies. At this time, we cannot guarantee that we will be presented with acquisition opportunities that meet our return on investment criteria, or that our efforts to make acquisitions that meet our criteria will be successful.

 

The COVID-19 pandemic has had a negative financial impact on our business with regard to (a) significant losses of revenues and profits at CTM due to the significant decline of tourism in the United States and the closing of Broadway shows,(b) the temporary closure of IDW Publishing’s comic book distributor due to COVID-19 disruptions, and (c) production delays of IDWE’s television show Wynonna Earp. Its production schedule has been delayed which was a direct result of the COVID-19 pandemic that has affected virtually the entire filmed entertainment industry. This production delay has negatively impacted the delivery, which in turn will push out our cash receipts.

 

We anticipate that our expected cash inflows from operations during the next twelve months together with our working capital, including the balance of cash and cash equivalents held as of October 31, 2020 and proceeds from the private placement closed March 9, 2020, will be sufficient to sustain our next year of operations. However, to propel the Company forward and strategically align it for its highest attainable success the Company plans to raise additional funds in fiscal 2021.

 

While we anticipate that our expected cash balances, as well as cash flows from our operations, will be sufficient to meet our long-term operational liquidity needs, additional sources of financing may be required to meet the production plans of IDWE. The foregoing is based on a number of assumptions, including projected production timeframes and delivery of shows, which may be impacted by industry-wide effects beyond the Company’s control.  Failure to meet such timelines could adversely impact our ability to generate sufficient cash to ensure continuity of company-wide operations. 

 

In the fourth quarter of fiscal 2020 we paid “pull down” costs pursuant to a previously announced, multi-year agreement with Cineflix related to international sales of Wynonna Earp. Specifically, under this agreement, IDWE purchased the distribution rights to seasons one and two of Wynonna Earp from the current licensor (Netflix) and has agreed to transfer those rights to Cineflix.  Cineflix will be the international distributor of all four seasons of Wynonna Earp.  Due to changes in competition as well as the COVID-19 pandemic, the Cineflix deal is not expected to contribute as much as originally expected to IDW’s revenue and operating cash flow in fiscal years 2021 and 2022 as originally anticipated at the inception of the deal in 2019.

  

IDWMH

 

On April 27, 2020, IDWMH. (inclusive of IDWP and IDWE) received loan proceeds of $1,195,679 from Bank of America, N.A. pursuant to 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. 

 

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 January 31, 2021, the shares issued in connection with the loan interest was 63,255. 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. The outstanding amount at January 31, 2021 was $3,750,000.

 

The funds from this loan were used as bridge funding for part of IDWE’s slate of current productions, in advance of expected other usual sources of financing for these productions.

 

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IDWE

 

The two capital raises described assisted IDWE in achieving its long-term strategic plans.

 

The Company’s 2020 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 to pay down the remaining down bridge loan.

 

Total proceeds of the issuance of Class B Common Stock in the amount of $23,605,000 from the Company’s 2019 three rounds of offerings, in connection with the Company’s private placements, provided a portion of the funding for IDWE’s operations, in addition to the Company’s other working capital needs. $8,000,000 was used to partially payback the bridge loan.

 

Dividends

 

In light of the current growth initiatives of the Company, particularly the television property development of IDWE, the Board of Directors determined to continue the suspension of the payment of cash dividends.  Projects that have already been approved and commenced are placing demands on the Company’s resources, and management and the Board determined that it was in the best interests of the stockholders to utilize available cash resources for investment in these promising and exciting growth opportunities.  This position may continue depending on the timing of projects, the cash generation of the Company’s operations and any financing that the Company may consummate.  Decisions as to the payment of dividends in future periods will depend on the financial position, results of operations, prospects and current and projected competing demands for cash resources at the relevant time.  The Company continues its position of prudent and conservative cash management and is committed to using all of its resources to maximize shareholder value, balancing short, medium and long-term interests.

 

FOREIGN CURRENCY RISK

 

Beginning in 2018, IDWE is the obligor on Canadian loans. There is a foreign currency exchange risk, as the value of liabilities denominated in CAD will fluctuate due to changes in exchange rates, which will affect our production costs. These loans mature on May 31, 2021. IDWE holds accounts receivables from Canadian tax credits and cash balances.

 

Foreign Exchange Balances Held in CAD (in thousands)   January 31,
2021
    October 31,
2020
    October 31,
2019
 
                   
Cash and cash equivalents   $ 898     $ 937     $ 254  
Accounts receivable     16,335       16,355       20,645  
Bank loans     14,221       18,917       32,668  
Total   $ 31,454     $ 36,209     $ 53,567  

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

 

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BUSINESS

 

Overview

 

We were incorporated in the State of Delaware in May 2009.

 

On September 14, 2009, IDT Corporation, our former parent corporation, completed a tax-free spinoff (the “Spin-Off”) of us through a pro rata distribution of our common stock to its stockholders of record as of the close of business on August 3, 2009.

 

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 Productions;

 

IDW Entertainment (“IDWE”), a company that leverages properties, principally those of IDWP, into television series developing, producing and distributing original content worldwide; and

 

IDW Publishing

 

IDWP is an award-winning publisher of comic books, original graphic novels, and art books as well as board and tabletop games. Founded in 1999, IDWP has a long tradition of supporting original, creator-driven titles. In 2002, IDWP published 30 Days of Night by Steve Niles and Ben Templesmith followed by other horror titles that kickstarted a resurgence in horror-comic publishing across the industry. Since then, IDWP has significantly diversified its publications. Joe Hill and Gabriel Rodríguez’s Locke & Key, Jonathan Maberry’s V Wars, Stan Sakai’s Usagi Yojimbo, Walter Simonson’s Ragnarök, Beau Smith’s Wynonna Earp, Chris Ryall and Ashley Wood’s Zombies vs Robots, Joe Hill and Martin Simmonds’ Dying is Easy are among the hundreds of award-winning titles published since IDWP’s inception. Titles such as Canto, Ghost Tree, Road of Bones, Mountainhead, and others in active development now.

 

In 2015, IDWP acquired Top Shelf Productions, an award-winning, critically-acclaimed publisher of graphic novels, which continues to operate as an imprint. Top Shelf is known for publishing works of literary significance including the #1 New York Times and Washington Post bestselling trilogy, March, by Congressman John Lewis, Andrew Aydin, and Nate Powell. March is the only graphic novel to have won the National Book Award. In July 2019, Top Shelf released George Takei’s graphic memoir, They Called Us Enemy, which debuted at #2 on the New York Times Paperback Nonfiction Best Sellers list and as a #1 bestseller on Amazon. They Called Us Enemy was named a “Best Book of the Year” by NPR, Amazon, Forbes, Publishers Weekly, School Library Journal, Kirkus Reviews, and the New York Public Library.

 

In addition to its core of creator-driven franchises, IDWP has also partnered with the owners of major licensed brands to publish many successful licensed titles, including: Hasbro’s Transformers, G.I. Joe, and My Little Pony; Sega’s Sonic The Hedgehog; CBS’s Star Trek; Sony’s Ghostbusters; Viacom’s Teenage Mutant Ninja Turtles; the Marvel Action’s line of middle-grade comic books designed for younger readers; Toho’s Godzilla; and Lucasfilm’s Star Wars Adventures. These licensed titles often bring with them diverse built-in audiences and also build cache and retailer support for IDWP. With licensed franchises, IDWP strategy is to focus on licenses that not only have eager, built-in fan followings but also ongoing licensor support through other channels, such as toys, animation, and film. This strategy enables IDWP to expand its audience reach and to pursue sub-license opportunities with foreign publishers. IDWP also collaborates with other comic publishers to co-publish certain titles, including Batman vs. Teenage Mutant Ninja Turtles (with DC Comics) and Rick & Morty vs. Dungeons and Dragons (with Oni Press, Inc.).

 

IDWP’s largest segment is the publication of comic books and graphic novels, which are primarily distributed through three channels:

 

  (i) to comic book specialty stores non-returnable basis (the “direct market”), by Diamond Comic Distributors, Inc, which serves as IDWP’s distributor to the direct market, worldwide. Direct market sales have traditionally been non-returnable, in light of COVID-19 returnability is being offered on the majority of products sold to the direct market;

 

  (ii) to traditional retail outlets, including bookstores and mass market stores, on a returnable basis (the “non-direct market”), by IDWP’s non-direct market distributor, Penguin Random House. IDWP works hand-in-hand with Penguin Random House to sell-in and promote IDWP titles to buyers at non-direct market customers such as Amazon, Barnes & Noble, Baker & Taylor, Ingram, Follett, Target, Walmart, and more; and

 

  (iii) to Ebook distributors (“digital publishers”), where IDWP’s publications are widely available digitally through popular distributors such as Comixology, Amazon, Apple iTunes and iBooks, Google Play, Hoopla, Overdrive, and via IDWP’s own website, idwpublishing.com.

 

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IDWP’s agreement with Penguin Random House has a three-year term and automatically renews for another three years unless terminated earlier.  Pursuant to the agreement, Penguin Random House is the exclusive worldwide distributor for all IDWP products other than periodical comic books for the non-direct market channel, and provides of the following services: warehousing, customer service, order fulfilment, shipping, returns processing, billing/collections, customer credit management, sales, sales reporting, stock control and Web-access to sales and inventory information.  In addition, to the non-direct market channel, IDWP’s agreement allows for Penguin Random House to provide distribution on a non-exclusive basis for the direct-to-consumer channel through Penguin Random House online consumer sites in the United States and Canada.

 

The agreement obligates Penguin Random House to, among other things, use reasonable skill and care in accordance with its usual practice in providing the services; and maintain a reserve against future returns. The agreement provides for the allocation of risk related to the products to be distributed between the IDWP and Penguin Random House and related to collection of amounts owing.

 

The agreement provides that both IDWP and Penguin Random House will not be liable to each other for failure to perform any obligation under the agreement to the extent that and so long as the failure is caused matters beyond their control.

 

The agreement also provides that either party may terminate the agreement upon a material or persistent uncured breach by the other party, or, on six months’ notice following a change of control of either party or either party’s parent.

 

The agreement also contains customary indemnification and confidentiality provisions.

 

IDWP’s publications are widely available digitally through popular distributors such as Comixology, Amazon, Apple iTunes and iBooks, Google Play, Hoopla, Overdrive, and via IDWP’s own website (idwpublishing.com). Through the direct market and non-direct market, IDWP sold over 4 million units in fiscal year 2020 and is recognized as the fifth largest publisher based on units sold as calculated and reported by Diamond market share ratings, covering both comics and graphic novels in the direct market. Data for Diamond’s sales charts — which includes the market shares and all top product charts — are compiled by Diamond Comic Distributors from sales made to thousands of comic book specialty shops located in North America and around the world.  Additional sales made to online merchants and other specialty retailers may be included in the calculation as well. Unit and dollar market shares are calculated based upon orders for comic books, graphic novels, and magazines invoiced and shipped to Diamond customers during 2019, which comprises pre-orders, advance reorders, and reorders, minus any copies that are received back from a title marked as returnable. 

 

IDWP publishes under specialized, acclaimed imprints that account for a smaller part of our revenue, including: (i) The Library of American Comics (publishing classic comic reprints); (ii) EuroComics (bringing foreign language comics to an English-speaking audience); (iii) Yoe! Books (specializing in creative historical comic collections); (iv) Artist’s Editions (publishing scans of original art printed at the same size they were drawn); and (v) Sunday Press (producing restorations of classic American comic strips while enhancing their visibility, reach of distribution and marketing).

 

Many of IDWP’s titles are available in a variety of languages worldwide through foreign licensing. In 2019, IDW also announced a major new initiative to release key titles as Spanish-language graphic novels in the North American market. This initiative kicked off in Summer 2020 with the release of Spanish-language editions of They Called Us Enemy, Red Panda & Moon Bear, and Sonic the Hedgehog

 

In 2014, IDWP launched the IDW Games imprint to develop and publish card, board, and tabletop games. Similar to IDWP’s book content, IDW Games offers a mix of popular licensed titles, such as Dragon Ball Z and Batman the Animated Series, as well as creator developed strategic hobby games, such as Towers of Arkhanos and Tonari. IDW Games’ products are sold to distributors worldwide and are available through retailers such as Gamestop, Barnes & Noble, and Amazon, independent games and comics stores, as well as the direct-to-consumer channel through its website and marketing campaigns.

 

To further expand and build creator-owned properties beyond publishing, IDWP works with IDWE, as well as other outside partners, to bring creator-owned franchises to television and film through licensing arrangements.

 

As a result of the COVID-19 pandemic, Diamond ceased the direct market distribution of our new comic books from April 1, 2020 through May 19, 2020. Accordingly, IDWP did not publish any new comic books during this period. Based upon distributor capacity, new comic book releases began following a reduced distribution schedule beginning May 20, 2020, with the capacity for new product increasing over the subsequent months. The delay in comic book releases will also have an impact on the publication dates of the related collections in all markets. Additionally, sales made through Diamond, a traditionally non-returnable market, have been made returnable, this has not resulted in a significant increase in returns. During this period of reduced output, IDWP paused creative work on many projects, furloughed staff, and experienced a limited number of layoffs. With the receipt of PPP loans and direct market distribution coming back online, furloughed staff have since resumed working and creative work has recommenced.

 

In order to expand its business and counter a persistent industry-wide decline in direct market sales, IDWP continues to focus on launching new creator-owned titles and partnering with established brands to bring fan-favorite properties to the comic book market. IDWP is also expanding the reach of existing and new products through the development of specialty, library, and education markets; increased direct-to-consumer initiatives; and broadening the reach of creator-driven series through licensing opportunities.

 

In May 2019, we invested in a new publishing entity, Clover Press, established by Ted Adams and Robbie Robbins, co-founders of IDWP. Clover Press is a separate entity and operates independently from IDWP.

 

IDWP’s revenues represented 67.15% and 60.94% of our consolidated revenues in the three months ended January 31, 2021 and 2020, respectively.

 

IDWP’s revenues represented 62.5% and 46.9% of our consolidated revenues in the fiscal years ended October 31, 2020 and 2019, respectively.

 

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IDW Entertainment

 

IDWE is a production company and studio that develops, produces and distributes content for global platforms and services.

 

IDWE has developed and/or produced four series for television that premiered in calendar 2019 and 2020:

 

  Wynonna Earp season four will air in two parts due to worldwide COVID-19 related production shutdowns. The first six episodes of season four premiered July 26, 2020 and the second half of season four began airing on March 5, 2021.  The show was created by Emily Andras and stars Melanie Scrofano and is based on the IDWP comics of Beau Smith. Season four’s twelve episodes are being produced by Seven24 Films and distributed by IDWE, in partnership with Syfy and CTV Sci-Fi. Cineflix Studios is the co-producer and global distributor for the series. Season one’s thirteen episodes aired in fiscal 2016. Season two’s twelve episodes aired in fiscal 2017, and Season three’s twelve episodes aired in fiscal 2018.

  

  V Wars, debuted on Netflix on December 5, 2019. The 10-episode vampire thriller stars Ian Somerhalder and was produced by High Park Entertainment. The series is based upon Jonathan Maberry’s IDWP’s comic book series of the same name.

 

  October Faction premiered on Netflix January 23, 2020. The 10-episode show is based on the IDWP comic books of Steve Niles and Damien Worm of the same name and was adapted by showrunner Damian Kindler and starred Tamara Taylor and J.C. MacKenzie. It was also produced by High Park Entertainment.

 

  Locke & Key premiered on Netflix on February 7, 2020. The show is based on the graphic novels of Joe Hill and Gabriel Rodriguez of the same name that are published by IDWP. Seasons two and three have been ordered by Netflix and season two began production in September 2020.

  

Previously, IDWE and Ideate Media partnered with AMC Studios to license to BBC America the U.S. broadcast and streaming video on demand (SVOD) rights to Dirk Gently, a live-action series based on the Douglas Adams novels and related comic books on the same name published by IDWP,. Season one of the series premiered October 22, 2016 in the United States on BBC America. The second and final season aired on BBC America in 2017. Netflix currently streams both seasons worldwide.

 

IDWE’s revenues represented 32.85% and 39.06% of our consolidated revenues in the three months ended January 31, 2021 and 2020, respectively.

 

IDWE’s revenues represented 37.5% and 53.1% of our consolidated revenues in the fiscal years ended October 31, 2020 and October 31, 2019, respectively.

 

CTM (Discontinued operations)

 

As a result of the economic downturn related to the outbreak of the COVID-19 pandemic, and the impact it had on small businesses in the tourist markets, the Company decided to make a strategic shift to sell CTM and focus on our entertainment and publishing business. 

 

CTM develops and distributes print-based advertising and information in targeted tourist markets.  Advertisers include entertainment venues, tourist attractions, and cultural sites as well as their related service providers including dining, lodging, and transport services.  CTM services its regional network and partner locations of more than 19,000 diverse locations to distribute printed brochures, magazines and rack cards to the traveling public.

 

CTM also develops and distributes digital advertising and information through its affiliate Ettractions Inc.’s website, visitorfun.com, which was renamed from ettractions.com in December 2017 to be more easily searched and accessed, and its ExploreBoard network of interactive touch screen kiosks throughout its market areas.

 

In January 2018, CTM launched a refreshed branding and marketing platform to ensure its communications with customers and host partners accurately reflected the audience and value their services deliver. As CTM has entered its 35th year of business, it has leveraged the re-branding to communicate its position in the marketplace as a current and impactful media company.  Management believes that the changes made will better connect CTM with current and potential customers and enhance their selling position.

 

CTM has grown both geographically and by developing related lines of business.  Geographic growth had been driven both by organic expansion to new territories and through selective purchases of regional businesses.

 

On October 9, 2017, CTM acquired the assets of an additional brochure distribution company in Cape Cod, Massachusetts which expanded CTM’s network and provided CTM with additional exposure within the marketplace.

 

CTM’s client base includes advertisers in 32 states and provinces in the United States and Ontario, Canada.  Its distribution territory in the United States includes the Northeast, Southeast, Mid-Atlantic and Midwestern states, as well as Southeast Florida.  CTM is a brochure distribution market leader in each of the following greater metro areas: New York City, Boston, Toronto, Ottawa, Miami, Ft. Lauderdale, Philadelphia, Chicago, St. Louis, Kansas City, Minneapolis/St. Paul, Pittsburgh, Detroit, Milwaukee, Cleveland and Atlanta.

 

Throughout its operating region, CTM operates four integrated and complimentary business lines: Brochure Distribution, Digital Distribution, Publishing and VisitorFun Card (formerly RightCard).

 

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Our Strategy 

 

We seek to improve our financial performance by primarily focusing on development of entertainment that can generate value from our intellectual property and to increase coordination between IDWP and IDWE to improve our development pipeline. IDWP and IDWE will seek to jointly and synergistically develop and produce books and entertainment so as to allow us to capitalize on the global demand for original content from streaming services as well as traditional broadcast and other networks and other content services. To date, we have sold projects to Hulu, Syfy, BBC America, Netflix and Endeavor Content, while others are in active discussion. We believe that our potential projects would be attractive to a broad range of potential distribution channels and participants.

 

We seek to own “all rights” to intellectual property (“IP”) of our content in order to, afford us significant production-based fees supplemented by merchandising, games, video and other fandom-driven revenue opportunities.

 

We believe that our key strategic points of differentiation include:

 

  IP creation, control and ownership through a creator-friendly (e.g., Steve Niles, Joe Hill) publishing engine and high-value licenses (e.g. Hasbro, Marvel).

 

  TV and film development, production and distribution (e.g., Locke & Key, V Wars) through “cost plus” business model amidst content arms race.

 

  Merchandise via partnerships and direct-to-consumer sales

 

Given recent developments surrounding COVID-19, IDWP has revised its ongoing release schedule to better align with the needs and capacity of the changing retail marketplace. IDWP continues to serve both the direct and non-direct markets through its distribution partners and has added an increased focus on direct to consumer, digital initiatives, and development of merchandise. Content generation remains a key priority for IDWP as we continue to launch new creator-owned titles and expand partnerships with established brands to bring fan-favorite properties to the comics, graphic novel, and games markets. During the market slowdown, IDWP was able to quickly reduce ongoing content production to better suit the needs of the organization at the time, picking back up as the market showed signs of recovery.

 

In an effort to manage the risks associated with COVID-19, IDWE is diversifying its development slate to focus on both kids and adult animation projects which minimize the effects of COVID-19 through remote work-from-home initiatives. IDWE can shift into work-from-home protocols seamlessly thanks to our centralized filing and workflow systems. Though television will remain the core business, we are also expanding into podcasts, and other digital content as a way to increase the creation of IP.

 

Competition

 

IDWP competes most directly with both public and privately held companies that publish or license for publishing comic books and graphic novels, and further develop their franchises through digital media including shows and feature films. Public company competitors for IDWP include Disney (Marvel) and ATT/Time Warner (DC), as well as smaller capitalized companies such as Wildbrain. Privately held competitors include Skybound Entertainment, Oni Press, Legendary Entertainment, Dark Horse and Image Comics.

 

IDWE competes with all forms of entertainment. A significant number of companies produce and/or distribute television shows and films, and provide pay television and SVOD programming services. IDWE also competes to obtain creative talents and story properties that are essential to the success of our IDWE business.

 

The success of our operations is heavily dependent upon public taste and preferences. In addition, operating results fluctuate due to the timing and performance of releases in the television and book markets. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods.

 

Intellectual Property

 

There are two primary sources of the content that IDWP develops, publishes, and exploits across a range of distribution channels:

 

  Original, creator-owned material that marks its debut to the consuming public via IDWP’s published products (“Creator Content”); and

 

  Content that has already been successfully exploited in other media (“Licensed Content”).

 

IDWP enters into publishing agreements with owners of both Creator Content and Licensed Content pursuant to which IDWP licenses the right to exploit such content (“Publishing Agreements”).

 

IDWP’s Publishing Agreements grant to IDWP exclusive, long term, worldwide rights to publish and sell the licensed content in all languages via traditional channels such as print and digital comics, graphic novels, and trade collections, and niche channels such as board games, coloring books, audio on demand, and high-end limited edition publications (“Publishing Rights”).

 

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A smaller percentage of Publishing Agreements cover a more limited range of licensed rights in order to accommodate pre-existing products and markets already established by licensors such as foreign publishers seeking to have IDWP publish an English only version, licensed content owners seeking expansion into niche markets that can be more successfully exploited by IDWP, and establish authors who have already enjoyed publishing success prior to partnering with IDWP.

 

Many of IDWP’s Creator Content Publishing Agreements also grant to IDWP exclusive film, television, merchandising, and other ancillary worldwide rights in all formats, languages, and current and future media and delivery technologies (“Ancillary Rights”) that can then be exploited through IDWE or otherwise. 

 

IDWP exploits the Publishing Rights via sales to comic book specialty stores, traditional retail outlets, and direct to consumers, and via sublicenses to digital distribution platforms and foreign territory sub-publishers.

 

IDWP exploits the Ancillary Rights primarily via its relationship with IDWE, but also through other third-party buyers.

 

IDWP owns or co-owns the copyright to certain published products that were developed pursuant to Publishing Agreements with first time authors, but most copyrights filed by IDWP are registered in the name of the licensor.

 

IDWP has registered and owns domain names that it uses to digitally promote and sell its products. It also has trademarked its name and logo, as well as the name and logo of its Top Shelf Productions imprint, and Micro Fun Packs product.

 

IDWP has developed game mechanics for certain of its game products that it treats as proprietary intellectual property in its Publishing Agreements.

 

Regulation

 

The County of Los Angeles, in the state of California, has been subject to regulatory protocols associated with reopening the music, television and film production industries, which were closed as a result of COVID-19. Effective June 12, 2020, the County of Los Angeles Department of Public Health adopted a staged approach, supported by science and public health expertise, to allow music, television and film production to resume. These protocols, which are required to be adhered, cover (1) workplace policies and practices to protect employee health; (2) measures to ensure physical distancing; (3) measures to ensure infection control; (4) communication with employees and the public; and (5) measures to ensure equitable access to critical services. We are complying with all regulatory protocols associated with the County of Los Angeles Department of Public Health.

 

Employees

 

As of April 2, 2021, the Company had 75 full-time United States employees, including 58 at IDWP, 11 at IDWE, and 6 at IDW Media Holdings.

 

Properties

 

IDW Media Holdings is headquartered at 520 Broad St, Newark, New Jersey, fourth floor. The term of the lease commenced on December 1, 2018 and is month-to-month with 30 days written notice upon termination. Currently, the annual rent expense is $19,200.

 

IDWP is headquartered in 18,344 square feet of leased space at 2765/2785 Truxtun Road, San Diego, CA. In addition, IDWP leases 18,000 square feet of warehouse space at 4937 Market Street, San Diego CA this lease expires May 2022 and the fiscal 2020 rent is $164,998.

 

IDWE is headquartered at 11969 Ventura Blvd., Suite 100, Studio City, CA. The annual rent for fiscal 2020 is $129,117 and the lease term expires May 31, 2022.

  

Legal Proceedings

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings, the adverse outcome of which, in our management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or financial position. There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial holder of more than 5% of our Class B common stock is an adverse party or has a material interest adverse to our interest.

 

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MANAGEMENT

 

Directors, Executive Officers and Named Executive Officer

  

Set forth below is certain information with respect to the individuals who are our directors, executive officers and key employees as of the date of this Prospectus:

 

Name   Age   Position
Ezra Y. Rosensaft   49   Chief Executive Officer and Named Executive Officer
Karina M. Fedasz   48   Chief Financial Officer
Brooke T. Feinstein   31   Chief Accounting Officer and Named Executive Officer
Howard S. Jonas   64   Chairman of the Board, Former Chief Executive Officer and Named Executive Officer
Perry Davis   72   Director
Allan I. Grafman   67   Director
Irwin Katsof   66   Director
Marc E. Knoller   60   Director, Former Interim Chief Executive Officer and Named Executive Officer  
Chris McGurk   64   Director
Lydia Antonini   45   Key Employee, President, IDW Entertainment
Nachie Marsham   44   Key Employee, Publisher, IDW Publishing

  

Ezra Y. Rosensaft, CFA, has been the Company’s Chief Executive Officer since July 2020. He was previously our Chief Financial Officer from August 2018 until September 2020, and prior to that, the Executive Vice President of Finance of the Company’s IDW Entertainment division from November 2017 until August 2018. Immediately prior to joining the Company, Mr. Rosensaft worked in the Corporate Development and Financial Planning & Analysis groups of Genie Energy (NYSE: GNE) from 2016 to 2017. From 2002 to 2015, Mr. Rosensaft served as SVP of Financial Planning & Analysis at HBO, a division of Time Warner, now Warner Media owned by AT&T (NYSE: T; previously, NYSE: TWX), and was responsible for HBO’s finance and strategy functions, overseeing budgets, long-term plans, financial operations for content and original programming, theatrical output deals, corporate development, competitive analysis, investor relations with parent company, Time Warner, and creating innovative business models such as HBO’s over-the-top strategy (HBO OTT). Mr. Rosensaft was integrally involved in the financial oversight and growth of HBO’s Emmy-award winning original programming slate including shows such as Curb Your Enthusiasm, Sex and the City, Sopranos, and Game of Thrones. Prior to his tenure at HBO, Mr. Rosensaft held positions at Primedia (NYSE: PRM), a B2B and B2C media company, and KPMG LLP. Mr. Rosensaft holds a BSc in Accounting from Yeshiva University, an MBA in Finance from Fordham University and is a CFA charterholder.

 

Karina M. Fedasz has been the Company’s Chief Financial Officer since January 2021. She was previously a consultant to the Company from August 2019 to January 2021. Prior to joining the Company, Ms. Fedasz was the Chief Financial Officer for MOCEAN from 2018 to 2019, where she managed the strategic plan including goals around strategy, operations, human capital, and the financial objectives and KPI’s around those. From 2013 to 2017, she served in a variety of leadership roles and consulting opportunities involving operations, sales, and business development. From 2009 to 2012, she served as the Chief Financial Officer of Machinima, Inc., the premier online entertainment network for the video game generation, which was subsequently acquired by Warner Bros. Digital Networks. She has also previously served as Senior Director of Business Development at Technicolor (NYSE: TMS) during momentous change, where she was responsible for corporate development including several international deals, as well as promoting the video game services work that leveraged existing creative pipelines. Her early career was spent at JPMorgan in M&A, and at Deloitte as an auditor. Ms. Fedasz holds a B.A. from UCLA (Phi Beta Kappa honors), an MBA in finance from Columbia Business School and a CPA (inactive) from the state of California. She is currently a Director on the Board of the WISH Charter Schools in Los Angeles and serves as Board President of its supporting organization, WISHForward Educational Foundation.

 

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Brooke T. Feinstein has been the Company’s Chief Accounting Officer since July 2020 and immediately prior to that she was our Controller since November 2018.  Before joining the Company, she worked as a Supervisor in the auditing and accounting quality control department at Buchbinder Tunick & Company LLP from 2016 to 2018.  From 2012 to 2015, Mrs. Feinstein worked at Grant Thornton LLP as a Senior Accountant obtaining international experience in both GAAP and IFRS. Mrs. Feinstein has her BBA from Wilfrid Laurier University; she is a Certified Public Accountant (CPA) and also is a Charted Professional Accountant (CPA)/Charted Accountant (CA) in Canada.

 

Board of Directors

 

Howard S. Jonas has served as our Chairman of the Board since our inception and served as our Chief Executive Officer from February 2019 through April 2020. Mr. Jonas founded IDT Corporation in August 1990, and has served as its Chairman of the Board of Directors since its inception. Mr. Jonas served as Chief Executive Officer of IDT from October 2009 through December 2013 and from December 1991 until July 2001. IDT spun off the Company to its stockholders in September 2009. Mr. Jonas is also the founder and has been President of Jonas Media Group (formerly Jonas Publishing) since its inception in 1979. From January 2014 until November 2017, Mr. Jonas served as the Chief Executive Officer of Genie Energy Ltd., a former subsidiary of IDT that was spun off to stockholders in October 2011, and has served as Chairman of the board of directors of Genie Energy since the spin-off. From June 2016 to November 2016, Mr. Jonas served as the Chairman of the Board of Zedge, Inc., a former subsidiary of IDT that was spun off to stockholders in June 2016. Mr. Jonas has served as the Vice Chairman of Zedge, Inc. since November 2016. Mr. Jonas has served as the Chief Executive Officer of Rafael Holdings, Inc., a former subsidiary of IDT since it was spun off to stockholders in March 2018, and has served as Chairman of the Board of Directors of since the spin-off. Mr. Jonas has been a director of Rafael Pharmaceuticals, Inc. (f/k/a Cornerstone Pharmaceuticals) since April 2013 and was appointed Chairman of the Board in April 2016. Mr. Jonas received his B.A. in Economics from Harvard University.

 

Key Attributes, Experience and Skills:

 

As founder of the Company and Chairman of the Board since its inception, Mr. Jonas brings to the Board significant knowledge of all aspects of our Company and each of the industries in which it operates. In addition, having Mr. Jonas on the Board provides our Company with effective leadership.

 

Perry Davis has been a director of the Company since August 2009. Mr. Davis is a partner at Perry Davis Associates, Inc. (PDA), an international consulting firm providing management and development assistance to non-profit organizations. Mr. Davis is a founder of PDA and has been its President since 1986. Mr. Davis received his B.A. in Political Science from Yeshiva College and his Ph.D. in Public Law and Government from Columbia University.

 

Key Attributes, Experience and Skills:

 

Mr. Davis has extensive experience providing management advice to entities of different sizes and provides input to the Company’s management on organizational and other matters. His long tenure with the Company provides important perspective on the Company’s future development.

 

Allan I. Grafman has been a director of the Company since May 2019. Mr. Grafman has served since 1996 as founder and Chief Executive Officer of All Media Ventures, which provides executive, board and advisory services to media and technology companies. Since July 2020, Mr. Grafman has served on the Board of HappyNest REIT, Inc., a real estate investment trust. Mr. Grafman served as Chairman of the Board of Majesco from 2007 to 2014. From 2005 to 2013, Mr. Grafman served as Operating Partner of Mercury Capital. From 2003 to 2005, Mr. Grafman served as President of Archie Comics. Previous executive roles included those at Hallmark Entertainment, Tribune Entertainment and CCB/ABC/Disney. He has served on 10 boards of companies that are either publicly traded or private equity/venture capital-sponsored. Mr. Grafman received his B.A. in Russian Language and literature from Indiana University (Phi Betta Kappa), his Masters in International Affairs from Columbia University (International Fellow) and his MBA in Finance from Columbia University (Beta Gamma Sigma).

 

Key Attributes, Experience and Skills:

 

As having previously served on 9 boards of directors of both public and private companies, Mr. Grafman brings significant experience as a board member in addition to his experiences as a media operating executive and investment banker for growth, turnaround, VC and PE portfolio companies. Mr. Grafman is an innovator known for monetizing content, brands and intellectual property for investors and companies, domestic and international, public and private.

 

Irwin Katsof has been a director of the Company since October 2010. Mr. Katsof is the founder and the President of Katsof Consulting. In 2014, Mr. Katsof formed TradeMissions.Org, which has organized more than 30 international trade missions in partnership with the U.S. Department of Commerce to countries including Brazil, Canada, Switzerland, Germany, Israel, Singapore, India, the United Kingdom, Sweden, and Hong Kong. From 2010 to present, Mr. Katsof has also been Executive Director of America’s Voices In Israel, which arranges weeklong, all-expense paid trips to Israel for celebrities and athletes, including from broadcast shows such as House MD, Scandal, Grey’s Anatomy, Hawaii Five-O and athletes such as NFL Quarterback Deshaun Watson and NBA Hall of Famer Ray Allen. Mr. Katsof received his B.A. in Psychology and Organizational Development from Loyola College – Concordia University, Montreal and his Rabbinical Ordination from Yeshivat Aish Hatorah, Jerusalem.  Mr. Katsof also completed his Series 7 exams.

 

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Key Attributes, Experience and Skills:

 

Mr. Katsof’s breadth of experience brings important perspectives to the Company’s Board. He has important contacts in the entertainment, publishing and other industries as well as in the public sector. His skills in interpersonal relationships and working with disparate groups is useful in enabling the Company’s business units to work in a collaborative and mutually beneficial manner.

 

Marc E. Knoller has been a director of the Company since our inception. Mr. Knoller has served as the Chief Executive Officer of CTM Media Group, Inc. since its inception. Mr. Knoller served as the Company’s Interim Chief Executive Officer from March 2020 to July 2020, the Company’s Chief Executive Officer and President from inception to March 2015, and as Chief Operating Officer from March 2015 through December 2018. Prior to the Spin- Off, Mr. Knoller had served as an Executive Vice President of IDT since December 1998 and served as a director of IDT from March 1996 to August 2007. Mr. Knoller joined IDT as a Vice President in March 1991 and also served as a director of its predecessor. Mr. Knoller has served as Vice President of Jonas Media Group (f/k/a Jonas Publishing) since 1991. Mr. Knoller received his B.B.A. from Baruch College.

 

Key Attributes, Experience and Skills:

 

Mr. Knoller’s long experience with the Company and his past service as CEO and COO provide him with institutional knowledge about all of the Company’s businesses. His perspective on past efforts is important in developing and overseeing growth plans for the Company.

 

Chris McGurk has been a director of the Company since December 2019. Mr. McGurk has served as Chairman of the Board and Chief Executive Officer of Cinedigm Corp., NASDAQ-listed digital distribution and streaming channel company, since 2011. Mr. McGurk currently serves on the Strategic Advisory Board of LIVX, a NASDAQ-listed music streaming Company. Mr. McGurk also serves on the Board of Directors of the Creative Coalition and ASPIRE (Academy for Special Purpose in Responsible Entertainment). Mr. McGurk was the founder and CEO of Overture Films from 2006 until 2010 and was also CEO of Anchor Bay Entertainment, which distributed Overture Films’ product to the home entertainment industry. From 1999 to 2005, McGurk was Vice Chairman of the Board and Chief Operating Officer of Metro-Goldwyn-Mayer Inc. (“MGM”), acting as the company’s lead operating executive until MGM was sold for approximately $5 billion to a consortium of investors. Mr. McGurk joined MGM from Universal Pictures, where he served in various executive capacities, including President and Chief Operating Officer, from 1996 to 1999. From 1988 to 1996, McGurk served in several senior executive roles at The Walt Disney Studios, including Studios CFO and President of The Walt Disney Motion Picture Group. McGurk has previously served on the boards of BRE Properties, Inc., DivX Inc., DIC Entertainment, Pricegrabber.com, LLC and MGM Studios, Inc. Mr. McGurk received his B.S. (summa cum laude) from Syracuse University School of Management, and his MBA from the University of Chicago Graduate School of Business.

 

Key Attributes, Experience and Skills:

 

In addition to Mr. McGurk’s service on the board of directors of six major corporations, Mr. McGurk has had a long and successful career in the film and television industry which provides invaluable guidance and oversight for IDW Entertainment business.

 

Key Employees

 

Lydia Antonini is the President of IDW Entertainment. Prior to IDW Entertainment, Ms. Antonini was a freelance consultant and producer. Ms. Antonini is a recognized leader in the digital entertainment industry, having worked with entertainment and technology companies such as Xbox, Fusion, Fullscreen, and Warner Bros. Studios. In addition to strategic consulting and creative leadership, Ms. Antonini was the Executive Producer of the award-winning Halo: Forward Unto Dawn. While at Warner Bros., Ms. Antonini was the studio executive on multi-platform digital series for DC Comics (Batman, Superman, Watchmen), Mortal Kombat, Charles Schulz’s Peanuts as well as original projects with H+, One Eskimo and Aim High. Ms. Antonini has been recognized with the Next TV Women in Digital Leadership Award 2014 by Broadcasting & Cable Magazine, and was named to the Hollywood Reporter’s Next Generation (35 Under 35).

 

Nachie Marsham is the Publisher of IDW Publishing overseeing all publishing operations, and has been working in publishing since 1997. Prior to IDW Publishing, Mr. Marsham was Executive Editor at Disney Publishing Worldwide from 2015 to 2020, overseeing editorial teams working with various creative divisions of The Walt Disney Company, working on books including original and extension content for a variety of franchises, and working on new IP development for best-selling series from Disney. From 2018 to 2020, Mr. Marsham led the Marvel Press imprint of Disney Publishing Worldwide, editing and providing creative direction for prose and picture books, in addition to asset creation for both the vertical publishing division and the licensed business. Previous to his time at Disney Publishing, Mr. Marsham spent over eight years in editorial at DC Comics across a wide variety of titles and age ranges, and before that spent years in different positions within Wizard Entertainment.

 

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CORPORATE GOVERNANCE

 

Director Independence

 

The Corporate Governance Guidelines adopted by the Board of Directors provide that a majority of the members of the Board of Directors, and each member of the Audit and Compensation Committees, must meet the independence requirements set forth therein. The full text of the Corporate Governance Guidelines, including the independence requirements, is available for your review in the Governance section of our website at https://idwmediaholdings.com/investor-relations/corporate-governance/governance-documents. For a director to be considered independent, the Board of Directors must determine that a director meets the Independent Director Qualification Standards set forth in the Corporate Governance Guidelines, and upon our intended listing on the NYSE American which we expect to be in conjunction with the effectiveness of this Registration Statement, will comply with the NYSE American Company Guide definitions of independent, and is free from any material relationship with the Company and its executive officers. The Board of Directors considers all relevant facts and circumstances known to it in making an independence determination, and not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation or significant financial interest. In addition to considering all relevant information available to it, the Board of Directors uses the following categorical Independent Director Qualification Standards in determining the “independence” of its directors:

 

Director Selection Process

 

The Nominating Committee considers candidates suggested by its members, other directors, senior management and stockholders in anticipation of upcoming elections and actual or expected board vacancies. The Nominating Committee has not adopted a formal diversity policy or established specific minimum criteria or qualifications because from time to time the needs of the Board and the Company may change. All candidates, including those recommended by stockholders, are evaluated on the same basis in light of the entirety of their credentials and the needs of the Board of Directors and the Company. Of particular importance is the candidate’s wisdom, integrity, ability to make independent analytical inquiries, understanding of the business environment in which the Company operates, as well as his or her potential contribution to the diversity of the Board of Directors and his or her willingness to devote adequate time to fulfill his or her duties as a director. The Nominating Committee will consider director candidates recommended by the Company’s stockholders. Stockholders may recommend director candidates by contacting the Chairman of the Board as provided under the heading “Communications with the Board of Directors.”

 

Board Leadership Structure

 

Our Board of Directors has no formal policy with respect to separation of the positions of Chairman of the Board and Chief Executive Officer or with respect to whether the Chairman should be a member of management or an independent director, and believes that these are matters that should be discussed and determined by the Board from time to time based on the position and direction of the Company and the membership of the Board. The Board has determined that having Howard S. Jonas, although not considered independent due to his former position as Chief Executive Officer, serve as Chairman is in the best interest of the Company’s stockholders at this time due to his extensive knowledge of the Company and its industries.

 

Risk Management

 

Our Board of Directors believes that risk management is an important component of the Company’s corporate strategy.  While the Board assesses specific risks at its committee levels, the Board, as a whole, oversees our risk management process, and discusses and reviews with management major policies with respect to risk assessment and risk management. The Board is regularly informed through its interactions with management and committee reports about risks we currently face, as well as the most likely areas of future risk, in the course of our business including economic, financial, operational, legal and regulatory risks.

 

Committees of the Board of Directors

 

Our Board of Directors has established an Audit Committee, a Nominating Committee, a Compensation Committee, and, prior to any listing on the NYSE American, will establish a Corporate Governance Committee. All members of the Audit and Compensation Committees meet the criteria for independence as established by our Corporate Governance Guidelines and under the Sarbanes-Oxley Act of 2002. Each of the Committees is described in greater detail below. The Board of Directors has established written charters for each of the Committees, which are available on our website in the Corporate Governance section located at https://idwmediaholdings.com/investor-relations/corporate-governance/committees and which are also available in print to any stockholder upon request to the Corporate Secretary. Any changes to the charters are promptly reflected on our website.

 

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Audit Committee

 

Messrs. Davis, Grafman (Chairman), and Katsof have been designated as members of our Audit Committee. The principal duties of the Audit Committee under its written charter include: (i) responsibilities associated with our external and internal audit staffing and planning; (ii) accounting and financial reporting issues associated with our financial statements and filings with the SEC; (iii) financial and accounting organization and internal controls; (iv) auditor independence and approval of non-audit services; and (v) “whistle-blower” procedures for reporting questionable accounting and audit practices.

 

The Audit Committee charter requires that the Committee be comprised of at least two directors, both of whom must be independent under our Corporate Governance Guidelines and the Sarbanes-Oxley Act of 2002. In addition, each member of the Audit Committee is financially literate within the meaning of our Corporate Governance Guidelines, and our Board of Directors has determined that Mr. Grafman has sufficient accounting or financial management expertise to qualify as an “audit committee financial expert,” in accordance with SEC rules.

 

Nominating Committee

 

Messrs. Jonas (Chairman) and Knoller have been designated as members of our Nominating Committee. The principal duties of the Nominating Committee under its charter include: (i) developing the criteria and qualifications for membership on the Board of Directors; (ii) recommending candidates to fill new or vacant positions on the Board of Directors; and (iii) conducting appropriate inquiries into the backgrounds of potential candidates.

 

Compensation Committee

 

Messrs. Davis, Grafman and Katsof (Chairman) have been designated as members of our Compensation Committee. The principal duties of the Compensation Committee under its charter include: (i) ensuring that a succession plan for the Chief Executive Officer is in place; (ii) reviewing management’s recommendations for executive officers and making recommendations to the Board of Directors; (iii) approving the compensation for the Chief Executive Officer; (iv) reviewing and approving compensation policies and practices for other executive officers including their annual salaries; (v) reviewing and approving major changes in employee benefit plans; (vi) reviewing short and long-term incentive plans and equity grants; and (vii) recommending to the full Board of Directors changes to the compensation of the independent members of the Board of Directors, such as retainers, committee and other fees, stock option, restricted stock and other stock awards, and other similar items as deemed appropriate. The Compensation Committee confers with our executive officers when making the above determinations. The Compensation Committee charter requires that the Committee be comprised of at least two directors, both of whom must be independent under our Corporate Governance Guidelines.

  

Governance Practices

 

We observe corporate governance practices and have adopted principal governance documents which are designed to ensure that we maximize stockholder value in a manner that is consistent with both the legal requirements applicable to us and a business model that requires our employees to conduct business with the highest standards of integrity. Our Board of Directors has adopted and adheres to corporate governance principles which the Board of Directors and senior management believe promote this purpose, are sound and represent best practices, and will review these governance practices, the corporate laws of the State of Delaware under which we are incorporated and the regulations of the SEC, as well as best practices recognized by governance authorities to benchmark the standards under which it operates. Our principal governance documents are as follows:

 

  Corporate Governance Guidelines;

 

  Board of Directors committee charters, including:

 

  Audit Committee charter;

 

  Nominating Committee charter; and

 

  Compensation Committee charter.

 

  Code of Business Conduct and Ethics.

 

Our governance documents are available on our website at www.idwmediaholdings.com.

 

Our Board of Directors, with assistance from its Corporate Governance Committee if formed, will regularly assess our governance practices in light of legal requirements and governance best practices.

 

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Executive Director Sessions

 

Under our Corporate Governance Guidelines, the non-employee directors meet in regularly scheduled executive sessions without management.

 

Communications with the Board of Directors

 

Stockholders and other interested persons seeking to communicate directly with the Board of Directors, the independent directors as a group or any of the Audit, Compensation, Nominating or Corporate Governance Committees (if formed) of the Board of Directors, should submit their written comments c/o Corporate Secretary, Karina M. Fedasz, Stockholder Communications at our principal executive offices at 520 Broad Street, Newark, New Jersey 07102 and should indicate in the address whether the communication is intended for the Chairman of the Board, the Independent Directors or a Committee Chair. The Chairman of the Board will review any such communication at the next regularly scheduled Board of Directors meeting unless, in his or her judgment, earlier communication to the Board of Directors is warranted.

 

If a stockholder communication raises concerns about our ethical conduct of the ethical conduct of our management, it should be sent directly to our Corporate Secretary at our principal executive offices. The Corporate Secretary will promptly forward a copy of any such communication to the Chairman of the Audit Committee and, if appropriate, our Chairman of the Board, and take such actions as they authorize to ensure that the subject matter is addressed by the appropriate committee of the Board of Directors, by management and/or by the full Board of Directors.

 

At the direction of the Board of Directors, we reserve the right to screen all materials sent to its directors for potential security risks, harassment purposes or routine solicitations.

 

Code of Business Conduct and Ethics

 

Our Board of Directors has adopted a Code of Business Conduct and Ethics which applies to our directors, Chief Executive Officer, Chief Financial Officer and other employees.

 

Review of Related Person Transactions

 

Our Board of Directors has adopted a Statement of Policy with Respect to Related Person Transactions which is administered by our Audit Committee. This policy applies to any transaction or series of transactions in which (i) the Company or a subsidiary is a participant, (ii) the amount involved exceeds the lesser of $120,000 or 1% of the average of the Company’s total assets at year-end for the last two completed fiscal years and (iii) a Related Person has a direct or indirect material interest. Related Persons include directors, director nominees, executive officers, any beneficial holder of more than 5% of any class of the Company’s voting securities, and any immediate family member of any of the foregoing persons. Under the Policy, the Company’s legal department will determine whether a transaction meets the requirements of a Related Person Transaction requiring review by the Audit Committee. Transactions that fall within this definition will be referred to the Audit Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Audit Committee will decide whether or not to approve such transaction and will approve only those transactions that are in the best interests of the Company and its stockholders. If the Company becomes aware of an existing Related Person Transaction that has not been approved under this Policy, the matter will be referred to the Audit Committee. The Audit Committee will evaluate all options available, including ratification, revision or termination of such transaction.

 

Compensation Committee Interlocks and Insider Participation

 

None of our executive officers has served as a member of a compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served as one of our directors.

 

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EXECUTIVE COMPENSATION

 

Summary Compensation Table 

 

The following table sets forth information concerning the total compensation received by, or earned by, during Fiscal 2019 and Fiscal 2020 our named executive officers, Ezra Y. Rosensaft, our Chief Executive Officer and former Chief Financial Officer, Brooke T. Feinstein, our chief accounting officer (Fiscal 2020 only), Howard S. Jonas, our former Chief Executive Officer, Marc E. Knoller, our former Interim Chief Executive Officer (Fiscal 2020 only), and Davidi Jonas, our former Chief Strategy Officer (collectively, the “Named Executive Officers”).

 

Name and Principal Position   Fiscal Year   Salary
($)(1)
     Bonus
($)(1)
     Share Awards
($)(2)  
    Option Awards
($)(3)  
    All other Compensation
($)
    Total
($)
 
Ezra Y. Rosensaft   2020     310,000       213,000 (5)           357,763 (6)     60,330 (7)     941,093  
Chief Executive Officer and former Chief Financial Officer(4)   2019     220,000       80,000 (8)                       300,000  
                                                     
Brooke T. Feinstein   2020     132,250       20,000 (10)           7,500 (11)           159,750  
Chief Accounting Officer(9)                                                    
                                                     
Howard S. Jonas   2020     0                                
Former Chief Executive Officer(12)   2019     0                                
                                                     
Marc E. Knoller
Former Interim Chief Financial Officer(13)
  2020     371,077       60,000 (14)                       421,077  
                                                     
Davidi Jonas   2020                       240,212 (16)           240,212  
Former Chief Strategy Officer(15)    2019                                    

  

(1) The amounts shown in these columns reflect salary and annual performance-based bonus for performance during the relevant period irrespective of when such salary and bonus was paid.
(2) The amounts shown in this column reflect the aggregate grant date fair value of restricted share awards computed off the average common stock price on the grant date in accordance with FASB ASC Topic 718.
(3) The amounts shown in this column reflect the aggregate grant date fair value of option awards computed off the average common stock price on the grant date in accordance with FASB ASC Topic 718.
(4) Ezra Rosensaft has served as Chief Executive Officer since July 2020 and served as Chief Financial Officer from August 2018 until September 2020.
(5) Consists of (i) a cash bonus of $75,000 paid to Ezra Rosensaft on or about February 7, 2020,  (ii) a cash bonus of $50,000 paid to Mr. Rosensaft on or about July 16, 2020, and (iii) a cash bonus of $88,000 paid to Mr. Rosensaft on or about January 21, 2021 for services performed in fiscal 2020.
(6) Consists of the value of (i) a grant to Ezra Rosensaft on January 23, 2020 of an option to purchase up to 25,000 shares of Class B Common Stock, which has a 10-year term, an exercise price of $10.50 per share and the following vesting schedule:  10,000 immediately upon grant and 5,000 on each of January 23, 2021, January 23, 2022 and January 23, 2023, and (ii) a grant to Ezra Rosensaft on July 14, 2020 of an option to purchase up to 120,000 shares of Class B Common Stock, which has a 10-year term, an exercise price of $3.98 per share and the following vesting schedule:  40,000 on each of July 14, 2021, July 14, 2022 and July 14, 2023.    
(7) Consists of payments to Mr. Rosensaft for unused and accrued paid time off.
(8) Consists of (i) a cash bonus of $50,000 paid to Ezra Rosensaft on or about March 8, 2019, and (ii) a cash bonus of $30,000 paid to Mr. Rosensaft on or about September 11, 2019.
(9) Brooke Feinstein has served as Chief Accounting Officer since July 2020 and served as the Company’s Controller since November 2018.
(10) Consists of a cash bonus paid to Brooke Feinstein of $20,000 paid on or about January 21, 2021 for services performed in fiscal 2020.

 

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(11) Consists of the value of a grant to Brooke Feinstein on September 10, 2020 of an option to purchase up to 5,000 shares of Class B Common Stock, which has a 10-year term, an exercise price of $3.35 per share and vests as follows:  1,667 on each of September 10, 2021 and September 10, 2022 and 1,666 on September 10, 2023.
(12) Howard S. Jonas served as Chief Executive Officer from February 2019 through April 2020.
(13) Mr. Knoller served as the Interim Chief Executive Officer from March 2020 to July 2020, the Chief Executive Officer and President from inception to March 2015, and as Chief Operating Officer from March 2015 through December 2018.
(14) Consists of a cash bonus paid to Marc E. Knoller on or about November 25, 2020 for services performed in Fiscal 2020.
(15) Davidi Jonas served as the Chief Strategy Officer from December 2018 to January 2020.
(16) Consists of the value of a grant to Davidi Jonas on January 23, 2020 of an option to purchase up to 42,735 shares of Class B Common Stock, which was fully vested upon grant, has a 10-year term and an exercise price of $10.50 per share.   

 

Narrative Disclosure Regarding Summary Compensation Table

 

Employment Agreements

 

We have not entered into any employment agreements with any of our Named Executive Officers or directors.

 

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 subsidiariesThe Company reserved 450,000 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 March 31, 2021, 45,483 shares remained available to be awarded under the 2019 Incentive Plan.

 

During Fiscal 2020, the Company made the following equity grants to its Named Executive Officers:

 

  On January 23, 2020, we granted to our current Chief Executive Officer and former Chief Financial Officer options to purchase 25,000 shares of Class B common stock with a 10-year term at an exercise price of $10.50 per share pursuant to the 2019 Incentive Plan with such options vesting as follows: 10,000 immediately and 5,000 on each of January 23, 2021, January 23, 2022 and January 23, 2023.
     
  On July 14, 2020, we granted to our current Chief Executive Officer and former Chief Financial Officer options to purchase 120,000 shares of Class B Common Stock with a 10-year term at an exercise price of $3.98 per share pursuant to the 2019 Incentive Plan with such options vesting as follows:  40,000 on each of July 14, 2021, July 14, 2022 and July 14, 2023.
     
  On January 23, 2020, we granted to our former Chief Strategy Officer options to purchase 42,735 shares of Class B common stock with a 10-year term at an exercise price of $10.50 per share pursuant to the 2019 Incentive Plan with such options vesting in full upon grant.
     
  On September 10, 2020, we granted to our Chief Accounting Officer options to purchase 5,000 shares of Class B Common Stock with a 10-year term at an exercise price of $3.35 per share pursuant to the 2019 Incentive Plan with such options vesting as follows:  1,667 on each of September 10, 2021 and September 10, 2022 and 1,666 on September 10, 2023.

  

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The following table presents certain data for our 2019 Stock Option and Incentive Plan as of October 31, 2020.

 

Plan   Total shares of
Class B
common stock
reserved
under plan
    Shares
available
for future grants
under plan
    Aggregate
number of
options
exercised
    Aggregate
number of
options
outstanding
    Weighted
average
exercise
price of
options
outstanding
 
2019 Stock Option and Incentive Plan     450,000       126,487       0       242,735     $ 6.13  

 

The following table presents certain data for our 2009 Stock Option and Incentive Plan as of October 31, 2020.

 

Plan  Total shares of
Class B
common stock
reserved
under plan
   Shares available
for future grants
under plan
   Aggregate
number of
options
exercised
   Aggregate
number of
options
outstanding
   Weighted
average
exercise
price of
options
outstanding
 
2009 Stock Option and Incentive Plan   285,860    94,656(1)   0    10,000   $31.00 

 

(1) Pursuant to the terms and conditions of the 2009 Stock Option and Incentive Plan, grants may no longer be awarded under this plan.

 

Outstanding Equity Awards at 2020 Fiscal Year-End

 

The following table provides information on the current holdings of stock options and unvested Restricted Stock by our Named Executive Officers at October 31, 2020.

 

        Option Awards   Stock Awards  
Name   Option
Grant
Date
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
  Number
of Shares
or Units of
Stock That Have
Not
Vested (#)
    Market
Value of Shares or
Units of
Stock That
Have Not
Vested(1)
($)
 
Ezra Y. Rosensaft   01/23/2020     10,000       15,000       10.50     01/22/2030            
    07/14/2020           120,000       3.98     07/13/2030                
Brooke T. Feinstein   09/10/2020           5,000       3.35     09/09/2030            
Howard S. Jonas                                  
Marc E. Knoller                                  
Davidi Jonas   01/23/2020     42,735             10.50     01/22/2030            

 

Potential Payments upon Termination or Change-in-Control

 

There are no potential payments to any of our Named Executive Officers upon termination or change-in-control.

   

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Director Compensation

 

Until March 11, 2021, each non-employee director of the Company who attended at least 75% of the meetings of the Board of Directors during a calendar year received an annual cash retainer of $12,000. Such payment was made in January of the calendar year following attendance of at least 75% of the Board of Directors meetings during the preceding year, and is pro-rated for non-employee directors who join the Board of Directors or depart from the Board of Directors during the prior year, if such director attended 75% of the applicable Board of Directors meetings for such partial year. The Company’s Chief Executive Officer may, in his discretion, waive the requirement of 75% attendance by a director to receive the annual retainer in the case of mitigating circumstances. The Compensation Committee periodically reviews our director compensation practices.

 

On March 11, 2021, the Compensation Committee (1) increased the above-described $12,000 cash retainer to $18,000 effective immediately, resulting in the payment to be made in January 2022 to each non-employee director to be $18,000 instead of $12,000, (2) authorized the grant to each non-employee director of fully vested restricted shares of our Class B common stock issued pursuant to the Company’s 2019 valued at $6,000 based on the closing stock trading price of our Class B common stock on March 10, 2021, resulting in 1,500 shares being issued to each non-employee director, for service to be provided in 2021, and (3) effective January 5, 2022, each non-employee will receive a grant of fully vested restricted shares of our Class B common stock issued pursuant to the Company’s 2019 valued at $6,000 based on the average of the high and low stock trading price of our Class B common stock on the business day immediately prior to the grant date, for service to be provided in forthcoming calendar year.

 

The Compensation Committee believes that our director compensation is fair and appropriate in light of the responsibilities and obligations of our directors.

 

Fiscal 2020 Director Compensation Table

 

The following table lists the Fiscal 2020 compensation for each person who served as a non-employee director during fiscal 2020. This table does not include compensation to Howard S. Jonas and Marc E. Knoller, who serve as directors now and served as directors during fiscal 2020. Each of Messrs. Jonas and Knoller is a Named Executive Officer, as neither received compensation for his service as a director during fiscal 2020. Each of Messrs. Jonas’ and Knoller’s compensation is set forth in the Executive Compensation section of this Prospectus. Mr. Knoller is Chief Executive Officer of CTM Media Group, Inc, a former subsidiary of the Company, and was Interim Chief Executive Officer from March 2020 until July 2020.

 

Name   Dates of
Board Service
During Fiscal 2019
  Fees
Earned or
Paid in
Cash
($)
    Fees
Earned or
Paid in
Stock
($)
    Stock
Awards
($)
    All Other Compensation ($)     Total
($)
 
Perry Davis   11/01/2019 – 10/31/2020     24,500 (1)           —             —             —       24,500  
Allan I. Grafman   11/01/2019 – 10/31/2020     37,000 (2)                       37,000  
Irwin Katsof   11/01/2019 – 10/31/2020     12,000 (3)                       12,000  
Chris McGurk    12/09/2019 – 10/31/2020     24,500 (1)                       24,500  

 

(1) Consists of (a) $12,000, which represents the annual Board of Directors retainer earned in Fiscal 2020 and (b) $12,500, which represents the fee earned in Fiscal 2020 for service on the Special Committee Regarding the Potential Sale of CTM Media (“CTM Sale Committee”).
(2) Consists of (a) $12,000, which represents the annual Board of Directors retainer earned in Fiscal 2020, (b) $12,500, which represents the fee earned in Fiscal 2020 for service on the CTM Sale Committee, and (c) $12,500, which represents the fee earned in Fiscal 2020 for service as the Chairman of the CTM Sale Committee. 
(3) Represents the annual Board of Directors retainer earned in Fiscal 2020.

 

Compensation Committee Interlocks and Insider Participation

 

None of the members of the Compensation Committee has served as an officer or employee of the Company or has any relationship with the Company that is required to be disclosed under the heading “Related Person Transactions.” No executive officer of the Company served or serves on the compensation committee (or other board committee performing equivalent functions) of any company that employed or employs as an executive officer any member of the Company’s Compensation Committee.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Certain Relationships and Related Party Transactions

 

Transactions with Related Persons, Promoters and Certain Control Persons

 

On August 21, 2018, the Company entered into a loan agreement with Howard Jonas, 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. The shares issued in connection with the loan interest was 63,255. The interest was 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. As a result of the CTM sale on February 15, 2021 the Company has wrote down the loan of $3,750,000 to a nil balance.

 

On September 21, 2018, the Company entered into a bridge loan facility agreement with Howard Jonas for up to $26,000,000. 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. Pursuant to the applicable amendment, the maturity date of the bridge loan facility was extended to August 21, 2022.To date, the shares issued in connection with the loan interest was 14,902. The interest is to be paid quarterly on the loan. 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. $8,000,000 of the loan facility was paid off in connection with the 2019 offering. The balance due under the facility was $0 at October 31, 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 on March 30, 2022.

 

For the three months ended January 31, 2021, interest on the above loan amounted to $27,000 and for the three months ended January 31, 2020, interest amounted to $177,000, which was charged to production cost.

 

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.

 

CTM has an arrangement with ETR Brochure Distributors (“ETR”) to manage all aspects of its brochure distribution operations, principally located in the Washington D.C area. ETR is a company owned by the Chairman. The arrangement provides for a split of revenue and costs of brochure and advertising media distribution in the areas presently serviced by ETR and expands both the CTM and ETR distribution networks.

 

In fiscal 2020 and 2019, CTM billed ETR $5,000 and $18,000, respectively and ETR billed CTM approximately $54,000 and $110,000 for distribution services, respectively. ETR purchased management services from CTM for the fiscal years ended October 31, 2020 and October 31, 2019 in the amounts of approximately $59,000 and $111,000, respectively. The balance owed by ETR to CTM was approximately $140,000 and $130,000 as of October 31, 2020 and 2019, respectively.

 

On July 14, 2020, the Company and Howard Jonas 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 from the closing of the CTM Sale 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 closed on February 15, 2021, and we do not expect to have significant continuing involvement with CTM.

  

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  

The following table sets forth certain information regarding the beneficial ownership of the Company’s Class B common stock (“Class B Common Stock”) and the Company’s Class C common stock (“Class C Common Stock”) by (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of the Class B Common Stock or Class C Common Stock, (ii) each of the Company’s directors, and Named Executive Officers, and (iii) all directors and executive officers of the Company as a group. Unless otherwise noted in the footnotes to the table, to the best of the Company’s knowledge, the persons named in the table have sole voting and investing power with respect to all shares indicated as being beneficially owned by them and except as otherwise noted, the address of the referenced individual is c/o IDW Media Holdings, Inc. 520 Broad Street, Newark, New Jersey 07102.

 

Unless otherwise noted, the security ownership information provided below is given as of March 31, 2021 and all shares are owned directly. Percentage ownership information is based on 9,505,080 shares of Class B Common Stock issued and outstanding and 545,360 shares of Class C Common Stock issued and outstanding.  In computing the number of shares of Class B Common Stock beneficially owned by a person and the percentage ownership of that person, we considered shares of Class B Common Stock subject to options and warrants held by that person that are currently exercisable or exercisable within sixty days of March 31, 2020.

 

Name   Number of Shares of Class C
Common Stock
    Percentage of
Ownership of Class C
Common Stock
    Number of Shares of Class B
Common Stock
    Percentage of
Ownership of Class B
Common Stock
    Percentage of
Aggregate Voting Power δ
 
                               
Howard S. Jonas, 520 Broad Street Newark, NJ 07102                     1,922,541 (1)     19.8 %     6.7 %
The Liora Jonas Stein 2020 Florida Trust, Alan Grayson, Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,549       1.6 %     8.5 %
The Michael Jonas 2020 New Jersey Trust, Mark Berger, Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,549       1.6 %     8.5 %
The Miriam Jonas 2020 New Jersey Trust, Liore Alroy, Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,549       1.6 %     8.5 %
The Samuel Jonas 2020 New Jersey Trust, Jason Cyrulnik, Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,549       1.6 %     8.5 %
The Jonathan Jonas 2020 South Dakota Trust, Bridgeford Trust Company, Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,549       1.6 %     8.5 %
The Joseph Jonas 2020 Alaska Trust, Peak Trust Company – Ak, Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,549       1.6 %     8.5 %
The Rachel Jonas 2020 Nevada Trust, Premier Trust, Inc., Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,548       1.6 %     8.5 %
The Tamar Jonas 2020 Nevada Trust, Peak Trust Company – Nv, Trustee, dd. 04/06/2020(2)     68,170       12.5 %     148,548       1.6 %     8.5 %
Entities affiliated with Nantahala Capital Management, LLC, 130 Main Street 2nd Floor, New Canaan, CT 06840                     1,242,243 (3)     13.1 %     4.8 %
Raging Capital Master Fund, Ltd., 10 Princeton Avenue, Rocky Hill, NJ 08553                     1,354,248 (4)     14.2 %     5.2 %
Ezra Y. Rosensaft                     17,002 (5)       *         *  
Brooke T. Feinstein                     0         *        *  
Davidi Jonas                     42,375 (6)       *        *  
Perry Davis                     1,500         *        *  
Allan I. Grafman                     4,500         *        *  
Irwin Katsof                     1,500         *        *  
Marc E. Knoller                     105,434       1.1 %      *  
Chris McGurk                     1,500         *        *  
All directors, Named Executive Officers and executive officers as a group (10 persons)                     2,096,878       21.5 %     7.2 %

 

* Less than 1%.
δ Voting power represents combined voting power of our Class C Common Stock (three votes per share) and our Class B Common Stock and Preferred Stock (one-tenth of one vote per share). Excludes stock options and warrants.

 

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(1) Consists of (i) 26,755 shares of Class B Common Stock held by Mr. Howard Jonas, directly, (ii) 1,675,957 shares of Class B Common Stock held by the HSJ 2020 IDW-Zedge Annuity Trust, (iii) 32,000 shares of Class B Common Stock owned by the Jonas Foundation, (iv) an aggregate of 250 shares of Class B Common Stock beneficially owned by a custodial account for the benefit of a child of Mr. Howard Jonas (of which Mr. Howard Jonas is the custodian), and (v) warrants to purchase up to 89,243 shares of Class B Common Stock at a price per share of $42.02 and up to 98,336 shares of Class B Common Stock at a price per share of $26.44. Does not include (a) an aggregate of 1,766,511 shares of Class B Common Stock beneficially owned by trusts for the benefit of the children of Mr. Howard Jonas, as Mr. Howard Jonas does not exercise or share investment control of these shares and (b) 105,550 shares of Class B Common Stock owned by the Howard S. & Deborah Jonas Foundation, as Mr. Howard Jonas does not beneficially own these shares.
(2) Shares of Class B Common Stock and Class C Common Stock held by the trusts for the benefit of Mr. Howard Jonas’ children were transferred from Mr. Howard Jonas on April 6, 2020 and Mr. Howard Jonas is the trustor of the trusts with the power to replace the trustee.
(3) Amounts include the shares of Class B Common Stock held by managed funds and/or separate accounts affiliated with Nantahala Capital Management, LLC.  Nantahala Capital Management, LLC is a registered investment adviser and has been delegated the legal power to vote and/or direct the disposition of such shares as a general partner or investment manager and would be considered the beneficial owner of such shares. The above shall not be deemed to be an admission by the record owners that they are themselves beneficial owners of these securities for purposes of Section 13(d) of the Exchange Act or any other purpose. Wilmot Harkey and Daniel Mack are managing members of Nantahala Capital Management, LLC and may be deemed to have voting and dispositive power over the reported shares.
(4) Includes 19,342 shares owned by William Martin directly, who has investment and voting control over the shares of Raging Capital Master Fund, Ltd.
(5) Consist of (i) 2,002 shares of Class B Common Stock held directly, and (ii) options to purchase 15,000 shares of Class B Common Stock that are currently exercisable or exercisable within sixty days of March 31, 2021.
(6) Consist of options to purchase 42,375 shares of Class B Common Stock, all of which are currently exercisable.

 

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SELLING STOCKHOLDERS

 

This prospectus relates to the resale, from time to time, by the selling stockholders identified in this Prospectus (the “Selling Stockholders”), of up to 2,051,002 shares of our Class B common stock, par value $0.01 per share (the “Resale Shares”). All of the Resale Shares are being offered for sale by the Selling Stockholders.

 

We are registering the shares hereby pursuant to the terms of our agreement with the Selling Stockholders. The Selling Stockholders identified in the table below may offer all or part of the Resale Shares from time to time. However, the Selling Stockholders are under no obligation to sell all or any portion of such shares nor is the Selling Stockholders obligated to sell any Resale Shares immediately upon effectiveness of this Prospectus.

 

The table below sets forth certain information regarding the Selling Stockholders and the Resale Shares offered by them in this Prospectus as of March 1, 2021. The Selling Stockholders have not had a material relationship with us within the past three years other than as described in the footnotes to the table below or as a result of their acquisition of our shares or other securities. To our knowledge, subject to community property laws where applicable, each person named in the table has sole voting and investment power with respect to the shares of Class B common stock set forth opposite such person’s name. Except where indicated, the mailing address of the Selling Stockholders is c/o IDW Media Holdings, Inc., 520 Broad Street, Newark, New Jersey 07102.

 

   

Number of Shares

Beneficially Owned

Prior to this Offering

    Number of
Shares
Being Sold
   

Number of Shares

Beneficially Owned

After this Offering

 
Selling Stockholders   Number     Percent     Offered     Number (1)     Percent  
Howard Jonas     1,916,831       19.9       666,667       1,250,164       13  
Nantahala Capital Partners II Limited Partnership (2)     226,089       2.4       190,199       35,890       *  
Nantahala Capital Partners Limited Partnership (2)     83,639       *       54,368       29,271       *  
NCP QR LP (2)     93,432       *       93,432       0       *  
Nantahala Capital Partners SI, LP (2)     603,175       6.4       520,653       82,522       *  
Blackwell Partners LLC -Series A (2)     178,526       1.9       110,711       67,815       *  
Silver Creek CS SAV, LLC (2)     57,382       *       30,637       26,745       *  
Rangeley Capital Partners LP     81,830       *       81,830       0       *  
Rangeley Capital Partners II, LP     56,780       *       56,780       0       *  
Rangeley Capital Special Opportunities LP     28,390       *       28,390       0       *  
Raging Capital     1,334,906       14.1       50,000       1,284,906       13.6  
David S. Nagelberg 2003 Revocable Trust     56,000       *       50,000       6,000       *  
Tim McCollum     152,216       1.6       50,000       102,216       1.1  
Osher Capital (Ari Kluger)     20,000       *       20,000       0       *  
Jeff Benton     20,000       *       20,000       0       *  
Bill Martin     19,342       *       16,667       2,675       *  
Allan I. Grafman (3)     3,000       *       3,000       0       *  
William Ulrey(4)     8,500       *       2,000       6,500       *  
Ezra Y. Rosensaft (5)     2,002       *       1,001       1,001       *  
Joyce Mason (6)     6,620       *       1,000       5,620       *  
Karina M. Fedasz (7)     167       *       167       0       *  

 

*Less than one percent.

 

(1) Assumes that all the shares purchased in the private placement are sold.
(2) Nantahala Capital Management, LLC is a Registered Investment Adviser and has been delegated the legal power to vote and/or direct the disposition of such securities on behalf of the Selling Stockholder as a General Partner or Investment Manager and would be considered the beneficial owner of such securities. The above shall not be deemed to be an admission by the record owners or the Selling Stockholder that they are themselves beneficial owners of these securities for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or any other purpose. Wilmot Harkey and Daniel Mack are managing members of Nantahala Capital Management, LLC and may be deemed to have voting and dispositive power over the shares held by the Selling Stockholder. 
(3) Mr. Grafman has served as a director of the Company since May 2019.
(4) Mr. Ulrey has served as a consultant to the Company since February 2020.
(5) Mr. Rosensaft has served as the Company’s Chief Executive Officer since July 2020. Mr. Rosensaft was previously the Company’s Chief Financial Officer from August 2018 until September 2020, and prior to that, served as the Executive Vice President of Finance of the Company’s IDW Entertainment division from November 2017 until August 2018.
(6) Ms. Mason has served as the Company’s Assistant Corporate Secretary since September 2019.
(7) Ms. Fedasz has served as a consultant to the Company since August 2019.

 

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PLAN OF DISTRIBUTION

 

This prospectus relates to the resale of an aggregate of 2,051,002 shares of our Class B common stock, par value $0.01 per share by the Selling Stockholders.

 

The Selling Stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of the shares of our Class B common stock covered by this Prospectus on the over-the-counter market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. The Selling Stockholders may sell under this Prospectus some or all of their Resale Shares at a fixed price of $4.00 (the five-day average of the closing price from March 26, 2021  through April 1, 2021) for so long as our Class B common stock is quoted on OTC Pink Market whether into a public market or private sale, unless and until we achieve a listing of our Class B common stock on the NYSE American and maintain such listing at which time the Selling Stockholders may sell at market prices or at any price in privately negotiated transactions.  An amendment will be filed with the Commission at a later date if NYSE American listing is achieved. A Selling Stockholders may use any one or more of the following methods when selling securities:

 

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
     
  block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
     
  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
     
  an exchange distribution in accordance with the rules of the applicable exchange;
     
  privately negotiated transactions;
     
  in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;
     
  through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
     
  a combination of any such methods of sale; or
     
  any other method permitted pursuant to applicable law.

 

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, if available, rather than under this Prospectus.

 

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as may be set forth in a supplement to this Prospectus, in the case of an agency transaction, not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

 

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out such short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities that require the delivery to such broker-dealer or other financial institution of securities offered by this Prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this Prospectus (however, in such case, we must file a prospectus supplement or an amendment to this registration statement under applicable provisions of the Securities Act amending it to include such successors in interest as Selling Stockholders under this Prospectus).

 

The Selling Stockholders might not sell any, or all, of the shares of our Class B common stock offered pursuant to this Prospectus. In addition, we cannot assure you that the Selling Stockholders will not transfer the shares of our Class B common stock by other means not described in this Prospectus.

 

The Selling Stockholders and any brokers, dealers, agents or underwriters that participate with the Selling Stockholders in the distribution of our common stock pursuant to this Prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In this case, any commissions received by these broker-dealers, agents or underwriters and any profit on the resale of our common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any profits realized by the Selling Stockholders may be deemed to be underwriting commissions. If the Selling Stockholders and any brokers, dealers, agents or underwriters that participate with the Selling Stockholders in the distribution of our common stock pursuant to this Prospectus are deemed to be an underwriter, the Selling Stockholders and such other participants in the distribution may be subject to certain statutory liabilities and would be subject to the prospectus delivery requirements of the Securities Act in connection with sales of shares of our common stock.

 

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The Resale Shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of securities of the common stock by the Selling Stockholders or any other person. We will make copies of this Prospectus available to the Selling Stockholders and will inform them of the need to deliver a copy of this Prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

  

DESCRIPTION OF CAPITAL STOCK

 

The Company’s authorized capital stock consists of Class B Common Stock, Class C Common Stock and Preferred Stock. As of October 1, 2020, there were 12,000,000 shares of Class B Common Stock authorized, 2,500,000 shares of Class C Common Stock authorized and 500,000 shares of Preferred Stock authorized.

 

Class B Common Stock

 

Holders of shares of Class B Common Stock are entitled to one-tenth of one vote for each share on all matters to be voted on by the stockholders. Holders of Class B Common Stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor. There are no conversion or redemption rights or sinking fund provisions with respect to the Class B Common Stock.

 

Class C Common Stock

 

Holders of shares of Class C common stock are entitled to three votes for each share on all matters to be voted on by the stockholders. Holders of Class C common stock are entitled to share ratably in dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor. Each share of Class C common stock may be converted, at any time and at the option of the holder thereof, into one fully paid and non-assessable share of Class B common stock. In the event a holder of shares of Class C common stock transfers such shares to a transferee other than to a Permitted Transferee, upon transfer, each share of Class C common stock is automatically converted into one fully paid and non-assessable share of Class B common stock.

 

A Permitted Transferee is defined in our Third Restated Certificate of Incorporation as follows:

 

  (i) In the case of any stockholder, the Corporation or any one or more of its directly or indirectly wholly owned subsidiaries;
     
  (ii) In the case of a stockholder who is a natural person:

 

The spouse of such stockholder (the “Spouse”), any lineal ancestor of such stockholder or of the Spouse, and any person who is a lineal descendant of a grandparent of such stockholder or of the Spouse, or a spouse of any such lineal descendent or such lineal ancestor (collectively, the “Family Members”);

 

A trust (including a voting trust) exclusively for the benefit of one or more of (x) such stockholder, (y) one or more of his or her Family Members or (z) an organization to which contributions are deductible under 501(c)(3) of the Internal Revenue Code of 1986, as amended, or any successor provision (the “Internal Revenue Code”) or for estate or gift tax purposes (a “Charitable Organization”); provided that such trust may include a general or special power of appointment for such stockholder or Family Members (a “Trust”); provided, further, that if by reason of any change in the beneficiaries of such Trust, such Trust would not have qualified, at the time of the transfer of Class C common stock to such Trust (for purposes of this sub-paragraph (B), the “Transfer Date”), as a Permitted Transferee, all shares of Class C common stock so transferred to such Trust shall, effective on the date of such change of beneficiary, be automatically converted, without further act on anyone’s part, into an equal number of shares of Class B common stock, and the stock certificates formerly representing such shares of Class C common stock shall thereupon and thereafter be deemed to represent the like number of shares of Class B Stock;

 

A Charitable Organization established solely by one or more of such stockholder or a Family Member;

 

An Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, of which such stockholder is a participant or beneficiary, provided that such stockholder has the power to direct the investment of funds deposited into such Individual Retirement Account and to control the voting of securities held by such Individual Retirement Account (an “IRA”);

 

A pension, profit sharing, stock bonus or other type of plan or trust of which such Stockholder is a participant or beneficiary and which satisfies the requirements for qualification under Section 401(k) of the Internal Revenue Code, provided that such Stockholder has the power to direct the investment of funds deposited into such plan or trust and to control the voting of securities held by such plan or trust (a “Plan”);

 

 

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Any corporation or partnership directly or indirectly controlled, individually or as a group, only by such stockholder and/or any of his Permitted Transferees as determined under this clause (ii); provided, that if by reason of any change in the direct or indirect control of such corporation or partnership, such corporation or partnership would not have qualified, at the time of the Transfer of Class C common stock to such corporation or partnership, as a Permitted Transferee of such stockholder, all shares of Class C common stock so transferred to such corporation or partnership shall, effective on the date of such direct or indirect change in control, be automatically converted, without further act on anyone’s part, into an equal number of shares of Class B common stock, and the stock certificates formerly representing such shares of Class C common stock shall thereupon and thereafter be deemed to represent the like number of shares of Class B common stock; and

 

The estate, executor, executrix or other personal representative, custodian, administrator or guardian of such Stockholder.

 

  (iii) In the case of a stockholder holding the shares of Class C common stock in question as trustee of an IRA, a Plan or a Trust, “Permitted Transferee” means (x) the person who transferred Class C common stock to such IRA, such Plan or such Trust, (y) any Permitted Transferee of any such person determined pursuant to this Section 2(e) and (z) any successor trustee or trustees in such capacity of such IRA, such Plan or such Trust;
     
  (iv) In the case of a stockholder which is a partnership, “Permitted Transferee” means any other person, directly or indirectly controlling, controlled by or under direct or indirect common control with such partnership, provided that, if by reason of any change in the direct or indirect control of such person, such person would not have qualified, at the time of the transfer of the Class C common stock to such person, as a Permitted Transferee of such partnership, all shares of Class C common stock so transferred to such person shall, effective on the date of such direct or indirect change in control, be automatically converted, without further act on anyone’s part, into an equal number of shares of Class B common stock, and the stock certificates formerly representing such shares of Class C common stock shall thereupon and thereafter be deemed to represent the like number of shares of Class B common stock;
     
  (v) In the case of a stockholder which is a corporation (other than a Charitable Organization) “Permitted Transferee” means any other person directly or indirectly controlling, controlled by or under direct or indirect common control with such corporation; provided that if by reason of any change in the direct or indirect control of such person, such person would not have qualified, at the time of the Transfer of the Class C common stock to such person, as a Permitted Transferee of such corporation, all shares of Class C common stock so transferred to such person shall, effective on the date of such direct or indirect change in control be automatically converted, without further act on anyone’s part, into an equal number of shares of Class B common stock, and the stock certificates formerly representing such shares of Class C common stock shall thereupon and thereafter be deemed to represent the like number of shares of Class B common stock; and
     
  (vi) In the case of a stockholder which is the estate of a deceased stockholder or who is the executor, executrix or other personal representative, custodian or administrator of such stockholder, or guardian of a disabled or adjudicated incompetent Stockholder or which is the estate of a bankrupt or insolvent stockholder, which owns the shares of Class C common stock in question, “Permitted Transferee” means a Permitted Transferee of such deceased, or adjudicated incompetent, disabled, bankrupt or insolvent stockholder as otherwise determined pursuant to this Section 2(e).

 

To the extent issued and outstanding shares of Class C common stock are converted to Class B common stock or in the event shares of Class C common stock are issued in the future and subsequently converted to Class B common stock, holders of our Class B common stock may suffer dilution.

 

As of March 31, 2021, there were 9,505,080 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 we hold in treasury)

 

Preferred Stock

 

The Board of Directors has the authority to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders.  

 

As of March 31, 2021, no shares of Preferred Stock were outstanding.

 

Options

 

As of March 31, 2021, we had options to purchase 292,735 Class B common stock outstanding pursuant to the 2009 and 2019 Plans with a weighted average exercise price of $6.74 per share.

 

Warrants

 

As of March 31, 2021, the Company has outstanding warrants issued to Howard Jonas to purchase up to (i) 89,243 shares of Class B common stock, par value $0.01 per share at a price of $42.02 per share and (ii) 98,336 shares of Class B common stock, par value $0.01 per share at a price of $26.44 per share.  The warrants have a term of five and three years, respectively.

 

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Anti-Takeover Effects of Our Charter and By-Laws

 

Some provisions of Delaware law and our Certificate of Incorporation and By-Laws could make the following more difficult:

 

  acquisition of us by means of a tender offer;

 

  acquisition of us by means of a proxy contest or otherwise; or

 

  removal of our incumbent officers and directors.

 

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions also are designed to encourage persons seeking to acquire control of us to first negotiate with our Board of Directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us and outweigh the disadvantages of discouraging those proposals because negotiation of them could result in an improvement of their terms.

 

Certificate of Incorporation; By-Laws

 

Our Certificate of Incorporation and By-Laws contain provisions that could make more difficult the acquisition of us by means of a tender offer, a proxy contest or otherwise. These provisions are summarized below.

 

Undesignated Preferred Stock. The authorization of our undesignated preferred stock makes it possible for our Board of Directors to issue our preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes of control of our management.

 

Size of Board and Vacancies. Our Certificate of Incorporation provides that the number of directors on our Board of Directors will be fixed exclusively by our Board of Directors. Newly created directorships resulting from any increase in our authorized number of directors or any vacancies in our Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled solely by the vote of our remaining directors in office.

 

Stockholder Meetings. Under our By-Laws, only our (i) Chairman of the Board, (ii) Chief Executive Officer, or (iii) Secretary may call special meetings of our stockholders.

 

Indemnification and Limitation of Liability of Directors and Officers

 

Our Certificate of Incorporation provides that, to the fullest extent permitted by the Delaware General Corporate Law (“DGCL”), our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Section 102(7) of the DGCL, however, states that such a provision may not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, relating to unlawful dividends, distributions or the repurchase or redemption of stock or (iv) for any transaction from which the director derives an improper personal benefit.

 

Our By-Laws provide we shall indemnify and hold harmless, to the fullest extent permitted by the DGCL, any person against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with any threatened, pending or completed legal proceedings in which such person is involved by reason of the fact that he is or was a director or officer of ours if he acted in good faith and in a manner that he reasonably believed to be in or not opposed to our best interests, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe that his conduct was unlawful. If the legal proceeding, however, is by or in our right, such director or officer may not be indemnified in respect of any claim, issue or matter as to which he shall have been adjudged to be liable to us unless a court determines otherwise.

 

We may enter into agreements to indemnify our directors and officers in addition to the indemnification provided for in our Certificate of Incorporation. Such agreements, among other things, would indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in our rights, on account of services as our director or officer or as a director or officer of any subsidiary of ours, or as a director or officer of any other company or enterprise to which the person provides services at our request.

 

We obtain directors and officers’ liability insurance providing coverage to our directors and officers.

 

Registration Rights Agreements

 

Pursuant to substantially similar Registration Rights Agreements (the “RRAs”) entered into between the Company and each of the purchasers of 2,051,002 shares of Class B Common Stock (the “Resale Shares”) on or about March 2, 2020, the Company agreed to file, as soon as reasonably practicable following the closing of the sale by the Company of the Resale Shares, with the Securities and Exchange Commission (the “SEC”) a registration statement covering the resale of the Resale Shares; provided, however, that with respect to 66,667 of the Resale Shares, the Company agreed to use commercially reasonable best efforts to file the Registration Statement with the SEC as soon as reasonably practicable but in any event no later April 20, 2020. The Company agreed to pay all expenses related to such registration. Pursuant to the RRAs, the Company and each of the purchasers agreed to indemnify and hold harmless the other party with certain conditions.

 

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Pursuant to the RRAs, the Company also agreed to, as expeditiously as possible:

 

(a) use commercially reasonable efforts to cause the applicable Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities, covered by such Registration Statement, as amended from time to time, have been sold, and (ii) the date on which all Registrable Securities may be sold pursuant to Rule 144 of the Securities Act without volume or manner of sale restrictions (“Registration Period”);

 

(b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the Registration Period and to comply with the provisions of the Securities Act and the Exchange Act with respect to the distribution of all Registrable Securities;

 

(c) furnish to each Stockholder and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company (but not later than four (4) business days after the filing date, receipt date or sending date, as the case may be), a reasonable number of copies of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Stockholder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Stockholder;

 

(d) immediately notify each Stockholder, at any time when a Prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and at the request of any Stockholder, promptly prepare and furnish to such Stockholder a reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities;

  

(e) with a view to making available to the Stockholder the benefits of Rule 144 promulgated under the Securities Act and other rules and regulations of the SEC that may at any time permit a Stockholder to sell securities of the Company to the public without registration, the Company covenants that it will (i) file in a timely manner all reports and other documents required, if any, to be filed by it under the Securities Act and the Exchange Act and (ii) make available information necessary to comply with Rule 144, if available with respect to resales of the Registrable Securities under the Securities Act, at all times, all to the extent required from time to time to enable a Stockholder without registration under the Securities Act within the limitation of the exemptions provided by (x) Rule 144 promulgated under the Securities Act (if available with respect to resales of the Registrable Securities), as such rules may be amended from time to time or (y) any other rules or regulations now existing or hereafter adopted by the SEC. Upon the reasonable request of a Stockholder, the Company will deliver to such Stockholder a written statement as to whether it has complied with such information;

 

(f) use commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness and, if such order is issued, obtain the withdrawal of any such order at the earliest possible moment;

 

(g) cause all Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which the Company Class B Common Stock is then listed;

 

(h) in the case of certificated Registrable Securities, cooperate with the Stockholder to facilitate the timely preparation and delivery of certificates representing Registrable Securities sold pursuant to a Registration Statement;

 

(i) provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities that are Company Class B Common Stock from and after the effective date of the applicable Registration Statement; and

 

(j) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the Securities Act and the Exchange Act, and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder.

 

Certain of the RRAs were amended on or about March 25, 2020 to extend the deadline to file the Registration Statement with the SEC as soon as reasonably practicable but in any event no later than September 2020 or September 1, 2020, as applicable.

 

Listing

 

Our Class B common stock is quoted on OTC Pink Market under the trading symbol “IDWM”. We intend to apply to have our Class B common stock listed on the NYSE American and request the symbol “IDW.”

 

Transfer Agent

 

American Stock Transfer & Trust Company will serve as our transfer agent and registrar. Its address is 59 Maiden Lane Plaza Level, New York, New York 10038, and its telephone number is (800) 937-5449.

 

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INTERESTS OF NAMED EXPERTS AND COUNSEL

 

No experts or counsel to the Company have been hired on a contingent basis and none of them will receive a direct or indirect interest in the Company. However, attorneys at Schwell Wimpfheimer & Associates own shares of the Company’s Class B Common Stock with an aggregate value of $100,000 as of March 31, 2021.

 

EXPERTS

 

Our financial statements for the fiscal years ended October 31, 2020 and 2019 have been audited by Zwick & Banyai PLLC, an independent registered public accounting firm as set forth in its report and are included in reliance upon such report given on the authority of such firm as experts in accounting.

 

LEGAL MATTERS

 

Schwell Wimpfheimer & Associates LLP., New York, New York, will pass upon the validity of the shares of our Class B common stock to be sold in this offering.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities we are offering to sell. This prospectus, which constitutes part of the registration statement, does not include all of the information contained in the registration statement and the exhibits, schedules and amendments to the registration statement. For further information with respect to us and our securities, we refer you to the registration statement and to the exhibits and schedules to the registration statement. Statements contained in this Prospectus about the contents of any contract, agreement or other document are not necessarily complete, and, in each instance, we refer you to the copy of the contract, agreement or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

 

You may read and copy the registration statement of which this Prospectus is a part at the SEC’s public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. You can request copies of the registration statement by writing to the Securities and Exchange Commission and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s public reference room. In addition, the SEC maintains a website, which is located at www.sec.gov, that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this Prospectus is a part at the SEC’s website.

 

Upon effectiveness of this registration statement, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, and we will file reports, proxy statements and other information with the SEC. All documents filed with the SEC are available for inspection and copying at the public reference room and website of the SEC referred to above. We maintain a website at www.precisionopinion.com. You may access our reports, proxy statements and other information free of charge at this website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The information on such website is not incorporated by reference and is not a part of this Prospectus.

 

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QUARTERLY REPORT OF IDW MEDIA HOLDINGS, INC.

FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

 

Item 4 Interim Financial Statements

 

IDW MEDIA HOLDINGS, INC.

 

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Condensed Consolidated Balance Sheets as of January 31, 2021 (unaudited) and October 31, 2020   F-2
     
Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended January 31, 2021 and 2020   F-3
     
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended January 31, 2021 and 2020   F-4
     
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three Months Ended January 31, 2021 and 2020   F-5
     
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended January 31, 2021 and 2020   F-6
     
Notes to Condensed Consolidated Financial Statements (unaudited) for the Three Months Ended January 31, 2021 and 2020   F-7 - F-22

  

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IDW MEDIA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

(in thousands, except per share data)   January 31,
2021 (unaudited)
    October 31,
2020
 
Assets            
Current assets:            
Cash and cash equivalents   $ 8,733     $ 10,541  
Trade accounts receivable, net     19,429       22,921  
Inventory     3,596       3,754  
Prepaid expenses     1,646       1,361  
Current assets held for sale from discontinued operations     9,976       11,171  
Total current assets     43,380       49,748  
Property and equipment, net     396       410  
Right-of-use assets, net     656       771  
Non-current assets                
Investments     -       25  
Intangible assets, net     41       52  
Goodwill     199       199  
Television costs, net     1,087       2,926  
    Other assets     541       527  
Total assets   $ 46,300     $ 54,658  
Liabilities and stockholders’ equity                
Current liabilities:                
Trade accounts payable   $ 912     $ 1,406  
Accrued expenses     6,288       3,953  
Deferred revenue     1,850       2,385  
Bank loans payable – current portion     11,127       14,204  
Government loans- current portion     994       793  
Operating lease obligations – current portion     584       562  
Other current liabilities     110       69  
Current liabilities held for sale from discontinued operations     8,223       8,540  
Total current liabilities     30,088       31,912  
Non-current liabilities                
Operating lease obligations – long term portion     214       368  
Government loans – long term portion     201       403  
Related party loans payable – long term portion     3,750       3,750  
Total non-current liabilities     4,165       4,521  
Total liabilities   $ 34,253     $ 36,433  
Stockholders’ equity (see note 3):                
Preferred stock, $.01 par value; authorized shares – 500; no shares issued at January 31, 2021 and October 31, 2020     -       -  
Class B common stock, $0.01 par value; authorized shares – 12,000; 10,008 and 9,987 shares issued and 9,489 and 9,467 shares outstanding at January 31, 2021 and October 31, 2020, respectively     94       93  
Class C common stock, $0.01 par value; authorized shares – 2,500; 545 shares issued and outstanding at January 31, 2021 and October 31, 2020     5       5  
Additional paid-in capital     111,467       111,379  
Accumulated other comprehensive loss     (72 )     (60 )
Accumulated deficit     (98,251 )     (91,996 )
Treasury stock, at cost, consisting of 519 shares of Class B common stock at January 31, 2021 and October 31, 2020     (1,196 )     (1,196 )
Total stockholders’ equity     12,047       18,225  
Total liabilities and stockholders’ equity   $ 46,300     $ 54,658  

 

See accompanying notes to condensed consolidated financial statements.

 

 C: 

F-2

 

 

IDW MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three months ended
January 31,
 
(in thousands, except per share data)   2021     2020  
             
Revenues   $ 8,413     $ 10,336  
                 
Costs and expenses:                
Direct cost of revenues     9,233       11,616  
Selling, general and administrative     4,242       4,436  
Depreciation and amortization     59       68  
Bad debt expense     -       -  
Total costs and expenses     13,534       16,120  
Loss from operations     (5,121 )     (5,784 )
                 
Interest expense, net     (13 )     (9 )
Other expense, net     -       (25 )
Loss before income taxes     (5,134 )     (5,818 )
(Provision for) benefit from income taxes     -       -  
Net loss from continuing operations     (5,134 )     (5,818 )
                 
Loss from discontinued operations, net     (1,121 )     (1,054 )
                 
Net loss     (6,255 )     (6,872 )
                 
Net income attributable to non-controlling interests     -       84  
                 
Net loss attributable to IDW Media Holdings, Inc   $ (6,255 )   $ (6,788 )
                 
Basic and diluted loss per share (note 2):                
Continuing operations   $ (0.51 )   $ (0.78 )
Discontinued operations, net     (0.11 )     (0.14 )
Net loss   $ (0.62 )   $ (0.92 )
                 
Weighted-average number of shares used in the calculation of basic and diluted loss per share:     9,992       7,455  
                 
Dividend declared per common share:   $ 0.00     $ 0.00  

 

See accompanying notes to condensed consolidated financial statements

 

 C: 

F-3

 

 

IDW MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

   

Three Months Ended

January 31,

 
(in thousands)   2021     2020  
             
Net loss   $ (6,255 )   $ (6,872 )
Foreign currency translation adjustments     (12 )     (49 )
Comprehensive loss     (6,267 )     (6,921 )
Comprehensive loss attributable to non-controlling interest     -       84  
Total comprehensive loss attributable to IDW Media Holdings, Inc.   $ (6,267 )   $ (6,837 )

  

See accompanying notes to condensed consolidated financial statements

 

 C: 

F-4

 

 

IDW MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended January 31, 2021 and 2020

(Unaudited)

 

    Class B Common Stock     Class C Common Stock                                   Treasury Stock, at Cost        
(in thousands)   Number of Shares     Amount     Number of Shares     Amount     Stock Subscriptions Receivable     Additional Paid In Capital     Accumulated Other Comprehensive Loss     Retained Deficit     Non- Controlling Interest (“NCI”)     Number of Shares     Amount     Total
Shareholders’
Equity
 
Balance October 31, 2020     9,987       93       545       5       -       111,379       (60 )     (91,996 )     -       519       (1,196 )     18,225  
Stock based compensation                                             26                                               26  
Issuance of common stock     21       1                               24                                               25  
Issuance of stock options                                             38                                               38  
Comprehensive loss                                                                                                
Net Loss                                                             (6,255 )                             (6,255 )
Other comprehensive income                                                     (12 )                                     (12 )
Total comprehensive loss                                                     (12 )     (6,255 )     -                       (6,267 )
Balance January 31, 2021     10,008       94       545       5       -       111,467       (72 )     (98,251 )     -       519       (1,196 )     12,047  
                                                                                                 
Balance October 31, 2019     7,419       74       545       5       (1,000 )     96,671       (60 )     (78,457 )     35       519       (1,196 )     16,072  
Stock based compensation                                             341                                               341  
Issuance of common stock     41       1                               282                                               283  
Subscriptions receivable                                     500                                                       500  
Issuance of stock options                                             304                                               304  
NCI divestment in subsidiary                                             201               (50 )     50                       201  
Comprehensive loss                                                                                                
Net Loss                                                             (6,788 )     (84 )                     (6,872 )
Other comprehensive income                                                     (49 )                                     (49 )
Total comprehensive loss     -       -       -       -       -       -       (49 )     (6,788 )     (84 )     -       -       (6,921 )
Balance January 31, 2020     7,460       75       545       5       (500 )     97,799       (109 )     (85,295 )     1       519       (1,196 )     10,780  

 

See accompanying notes to condensed consolidated financial statements

 

 C: 

F-5

 

 

IDW MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

Three months ended January 31,

(in thousands)

  2021     2020  
Operating activities:            
Net loss   $ (6,255 )   $ (6,872 )
Adjustments to reconcile net income to net cash (used in) provided by operating activities:                
Depreciation and amortization     218       316  
Amortization of finance lease     92       104  
Bad debt expense     (109 )     51  
Stock based compensation     26       341  
Stock options     38       304  
Amortization of right-of-use asset     358       434  
Changes in assets and liabilities:                
Trade accounts receivable     3,786       (1,107 )
Inventory     159       (269 )
Prepaid expenses and other assets     (229 )     (193 )
Television costs     1,839       6,359  
Trade accounts payable, accrued expenses and other current liabilities     2,091       (1,660 )
Deferred revenue     (693 )     (172 )
Gain on extinguishment of PPP loan     (68 )     -  
Gain on sale of long lived assets     -       (8 )
Operating lease liability     (367 )     (408 )
Net cash provided by (used in) operating activities     886       (2,780 )
Investing activities:                
Capital expenditures     (55 )     (307 )
Proceeds on disposition of long lived assets     -       8  
Net cash used in investing activities     (55 )     (299 )
Financing activities:                
Proceeds from issuance of common stock     25       783  
Non-controlling interest investment in subsidiary     -       201  
Repayments of finance lease obligations     (92 )     (105 )
Proceeds of bank loans     17       1,195  
Repayments of bank loans     (3,076 )     (4,507 )
Net cash used in financing activities     (3,126 )     (2,433 )
Effect of exchange rate changes on cash and cash equivalents     (12 )     (49 )
Net decrease in cash and cash equivalents     (2,307 )     (5,561 )
Cash and cash equivalents at beginning of period     12,162       10,165  
                 
Cash and cash equivalents at end of period   $ 9,855     $ 4,604  
                 
Supplemental schedule of investing and financing activities                
Cash paid for interest   $ 11     $ 19  

 

See accompanying notes to condensed consolidated financial statements.

 

 C: 

F-6

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

 

The accompanying unaudited condensed consolidated financial statements of IDW Media Holdings, Inc. (the “Company”) have been prepared by Company management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting principally of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended January 31, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending October 31, 2021. The balance sheet at October 31, 2020 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

 

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.

 

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. Refer to Note 13- Subsequent Events on the closing of the sale transaction.

 

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 condensed 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:

 

(in thousands)   January 31,
2021
    October 31,
2020
 
Cash and cash equivalents   $ 704     $ 732  
Accounts receivable     12,797       12,420  
Bank loans     11,127       14,204  
Total   $ 24,628     $ 27,356  

 

 C: 

F-7

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 1—Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

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.

 

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.

 

Concentration Risks

 

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 27.3 % and 19.4% of the total consolidated revenues for the three months ended January 31, 2021 and 2020, respectively. The receivable balances from this customer represented approximately 4.9% and 1.6% of consolidated trade accounts receivable at January 31, 2021 and January 31, 2020, respectively.

 

Revenues from PRH amounted to 28.4% and 27.1% of consolidated revenue in the three months ended January 31, 2021 and 2020, respectively. The receivable balances represented 8.9% and 3.3% of consolidated receivables at January 31, 2021 and January 31, 2020, respectively.

 

IDWE has two significant customers Netflix and NBC Universal/SyFy that pose a concentration risk.

 

Netflix is a leading streaming video subscription service, represented 0% and 39.0% of consolidated revenue in the three months ended January 31, 2021 and 2020, respectively. The receivable balances from this customer represented 0% and 52.6% of consolidated trade receivables at January 31, 2021 and January 31, 2020, respectively.

 

NBC Universal/Syfy is a major television network, accounted for 29.4% and 0% of consolidated revenue for the three months ended January 31, 2021 and 2020, respectively. The accounts receivable accounted for 5.1% and 0% of consolidated receivables at January 31, 2021 and January 31, 2020, respectively.

 

 C: 

F-8

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 1—Basis of Presentation and Summary of Significant Accounting Policies (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.

 

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.

 

Recently Issued Accounting Pronouncements Adopted Subsequent to 2020 Fiscal Year End 

 

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 Company adopted this ASU on November 1, 2020 and is applying its provisions prospectively. In connection with this adoption the Company has evaluated this guidance and determined that there are $2,064,509 worth of impairments from substantively abandoned television costs which materially impacted the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.

 

Recently Issued Accounting Standard Not Yet Adopted

 

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. We will adopt the new standard on November 1, 2023. We are evaluating the impact that the new standard will have on our 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, 2023. The Company does not believe that the adoption of this new accounting guidance will have any material impact on its consolidated financial statements.

 

 C: 

F-9

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 2—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 48,000 shares of unvested restricted stock and stock options from the calculation of diluted earnings per share as the effect would have been anti-dilutive.

 

Note 3—Equity

 

Non-cash compensation included in selling, general and administrative expenses was $65,000 and $645,000 in the three months ended January 31, 2021 and 2020, respectively.

 

On January 26, 2021, the Company granted to its Chief Financial Officer options to purchase 50,000 shares of its Class B common stock (“Class B Common Stock”), with a 10-year term and an exercise price of $4.285, 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 February 15, 2022, February 15, 2023, and February 15, 2024

 

On January 21, 2021, the Company granted to an employee options to purchase 10,000 shares of Class B Common Stock, with a 10-year term and an exercise price of $4.10, under the 2019 Incentive Plan, with such options scheduled to vest in substantially equal one-third installments on February 15, 2022, February 15, 2023, and February 15, 2024

 

On January 21, 2021 the Company granted to an individual who provided legal services to the Company 10,000 unvested restricted shares of Class B Common Stock (“Restricted Stock”) under the 2019 Incentive Plan, with such shares scheduled to vest in approximately equal one-third installments on January 21, 2022, January 21, 2023, and January 21, 2024.

 

On December 31, 2020, the Company issued 6,710 shares of 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 30, 2020, the Company issued 9,710 shares of 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 Class B Common Stock, with a 10-year term and an exercise price of $3.35, under 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 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.

 

 C: 

F-10

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 3—Equity (continued)

 

On July 16, 2020, the Company 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.

 

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 each of November 5, 2020 and December 31, 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 shares of 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 scheduled vesting of these 13,699 shares of Restricted Stock was modified to October 31, 2020. On July 13, 2020, pursuant to Amendment No. 1 to the Separation Agreement, the vesting of these 13,699 shares of Restricted Stock occurred on August 4, 2020.

 

 C: 

F-11

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 3—Equity (continued)

 

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, with options with respect to 10,000 shares having vested on grant, options with respect to 5,000 shares having vested on January 23, 2021 and the remainder are scheduled to vest as to 5,000 shares on each of 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

 

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 having vested on January 2, 2021.  On January 2, 2021, 5,000 shares of Restricted Stock were issued to the consultant, with such shares scheduled to vest on January 2, 2022.

 

 C: 

F-12

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 3—Equity (continued)

 

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 subsidiariesThe 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 January 31, 2021, 71,487 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.

 

Note 4—Loans

 

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 January 31, 2021 the cumulative shares issued in connection with the loan interest was 63,255. 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 3- Equity). The outstanding amount at January 31, 2021 was $3,750,000.  

 

For the three months ended January 31, 2021, interest on the above loan amounted to $27,000 and for the three months ended January 31, 2020, interest amounted to $177,000, which was charged to production cost.

 

The maturities under this loan are anticipated to be as follows:

 

Date   Amount  
2022     3,750,000  
Total   $ 3,750,000  

 

 C: 

F-13

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 4—Loans (continued)

 

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. IDWE is the guarantor on the loan. The loan matures on May 31, 2021. As at January 31, 2021, $4,965,000 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. IDWE is the guarantor on the loan. This loan was refinanced on January 4, 2021 with Royal Bank of Canada for a credit facility of CAD 7,868,000 for the purpose of interim financing certain receivables. The loan matures on May 31, 2021.As at January 31, 2021 $6,162,000 was outstanding under the commitment.

 

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.

 

On December 24, 2020, the Company applied for forgiveness on the IDWMH PPP loan.  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, the Company anticipates that the IDWMH PPP loan will be forgiven in its entirety. 

 

 C: 

F-14

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 5—Business Segment Information

 

The Company has the following three reportable business segments: Publishing, IDWE and CTM (discontinued operations).

 

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)   Publishing(a)     IDWE(b)     CTM     IDW Media Holdings     Total  
                (discontinued operations)     (unallocated overhead)        
Three months ended January 31, 2021                              
Revenues   $ 5,649     $ 2,764     $ -     $ -     $ 8,413  
Loss from operations     (373 )     (4,553 )     -       (195 )     (5,121 )
Loss from discontinued operations, net     -       -       (1,121 )     -       (1,121 )
Net loss     (373 )     (4,553 )     (1,121 )     (208 )     (6,255 )
Total assets at January 31, 2021     13,144       18,108       9,976       5,072       46,300  
Three months ended January 31, 2020                                        
Revenues   $ 6,299     $ 4,037     $ -     $ -     $ 10,336  
(Loss) income from operations     92       (5,551 )     -       (325 )     (5,784 )
Loss from discontinued operations, net     -       -       (1,054 )     -       (1,054 )
Net (loss) income     92       (5,551 )     (1,054 )     (359 )     (6,872 )
Total assets at January 31, 2020     11,738       44,787       14,405       1,989       72,919  

 

(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) Included in IDWE is Thought Bubble LLC in which consist of only television costs.

 

 C: 

F-15

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 6—Trade Accounts Receivable and Deferred Revenue

 

Trade accounts receivable consists of the following:

 

(in thousands)   January 31,
2021
    October 31,
2020
 
Trade accounts receivable   $ 19,579     $ 23,246  
Less allowance for sales returns     (121 )     (296 )
Less allowance for doubtful accounts     (29 )     (29 )
Trade accounts receivable, net   $ 19,429     $ 22,921  

 

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.

 

Changes in deferred revenue consist of the following:

 

(in thousands)      
Beginning balance, October 31, 2020   $ 2,385  
Deferral of revenue     117  
Recognition of deferred revenue     (163 )
Return of previously collected funds     (489 )
Ending balance, January 31, 2021   $ 1,850  

 

We expect to recognize approximately 100% of this revenue over the next 12 months.

 

Note 7—Television costs and amortization

 

(in thousands)   January 31,
2021
    October 31,
2020
 
In-production   $ 154     $ 435  
In-development     933       2,491  
Total   $ 1,087     $ 2,926  

 

    Three Months Ended
January 31,
 
(in thousands)   2021     2020  
Television cost amortization   $ 3,956     $ 8,089  
Television cost impairments     2,065       -  
Total   $ 6,021     $ 8,089  

 

Amortization expense for television costs are expected to be $1,204,000 over the next twelve months.

 

 C: 

F-16

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 8—Accrued Expenses

 

Accrued expenses consist of the following:

 

(in thousands)   January 31,
2021
    October 31,
2020
 
Royalties   $ 859     $ 1,268  
Payroll & payroll taxes     476       110  
Bonus     100       333  
Production costs and participation     4,041       1,495  
Other     812       747  
Total   $ 6,288     $ 3,953  

 

Note 9—Property and Equipment

 

Property and equipment consist of the following:

 

(in thousands)   January 31,
2021
    October 31,
2020
 
Equipment   $ 454     $ 424  
Furniture & Fixtures     105       105  
Leasehold improvements     827       826  
Computer software     23       20  
      1,409       1,375  
Less accumulated depreciation and amortization     (1,013 )     (965 )
Property and equipment, net   $ 396     $ 410  

 

Depreciation expense of all property and equipment was $59,000 and $68,000 for the three months ended January 2021 and 2020, respectively.

 

 C: 

F-17

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 10—Commitments

 

Lease Commitments

 

The Company has various lease agreements with terms up to 10 years, including leases of office space, warehouses, vehicles, and various 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 and finance 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 was 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 1.41 years, with a weighted-average discount rate of 4.59%.

 

The Company recognized lease expense for its operating leases of $124,960 and $178,830 for the quarter ended January 31, 2021 and 2020, respectively. The cash paid under operating leases was $142,516 and $166,913 for the quarter ended January 31, 2021 and 2020.

 

At January 31, 2021, the Company had a right-of-use-asset related to operating leases of $1,037,434, accumulated amortization related to operating leases of $381,269, both of which are included as a component of right-of-use assets. At October 31, 2020, the Company had a right-of-use-asset related to operating leases of $1,037,434 and accumulated amortization related to operating leases of $266,488.

 

The following table presents information about the amount and timing of cash flows arising from the Company’s operating leases as of January 31, 2021.

 

Maturity of Lease Liability
(in thousands)
  Total  
       
Fiscal years ending October 31:      
2021   $ 451  
2022     354  
2023     13  
2024     7  
Thereafter     -  
Total undiscounted operating lease payments   $ 825  
Less: imputed interest     (28 )
Present value of operating lease liabilities   $ 797  

 

 C: 

F-18

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 11—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)      
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)      
The balance of cash and cash equivalents deconsolidated   $ (115 )

 

 C: 

F-19

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 12—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.  On December 15, 2020, the right, title and interest to the SPA were assigned to The Brochure Distribution Trust, a South Dakota trust.    The Company does not expect to have significant continuing involvement with CTM after the sale closes. Refer to Note 13 Subsequent Events.

 

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 January 31, 2021. 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 $1.75 million.

 

Following is a summary of the Company’s results of discontinued operations for the three months ended January 31, 2021 and 2020, a schedule of assets and liabilities of discontinued operations as of January 31, 2021 and October 31, 2020, and total operating and investing cash flows of CTM operations for the three months ended January 31, 2021 and 2020.

 

Results of discontinued operations   Three months ended
January 31,
 
(in thousands)   2021     2020  
             
Revenue   $ 1,219     $ 3,808  
Direct cost of revenue     840       1,691  
Selling, general and administrative (i)     1,422       2,848  
Depreciation and amortization     250       271  
Bad Debt     (109 )     51  
Total costs and expenses     2,403       4,861  
Loss from operations     (1,184 )     (1,053 )
Interest expense, net     (13 )     (9 )
Other income (expense), net     76       8  
Loss before income taxes     (1,121 )     (1,054 )
(Provision for) benefit from income taxes     -       -  
Net loss   $ (1,121 )   $ (1,054 )

 

(i) Stock based compensation for discontinued operations included in selling, general and administrative expenses is $0 in both the three months ended January 31, 2021 and 2020, respectively.

 

 C: 

F-20

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 12—Discontinued Operations (continued)

 

Assets and liabilities of Discontinued Operations   January 31,     October 31,  
(in thousands)   2021     2020  
             
Assets            
Cash   $ 1,122     $ 1,621  
Trade receivables, net     659       844  
Prepaid expenses     322       368  
Total current assets*                
Property and equipment, net     1,184       1,274  
Right-of-use assets, net     4,322       4,649  
Intangibles assets, net     95       142  
Goodwill     2,109       2,110  
Other assets     163       163  
Total Assets   $ 9,976     $ 11,171  
Liabilities                
Trade accounts payable     1,004       891  
Accrued expenses     465       368  
Deferred revenue     508       664  
Government loan- current portion     1,354       1,125  
Operating lease obligations-current portion     897       909  
Finance lease obligations- current portion     312       342  
Income taxes payable & other current liabilities     70       71  
Total current liabilities*                
Government loan- long term portion     403       684  
Operating lease obligations – long term portion     2,816       3,034  
Finance lease obligations – long term portion     394       452  
Total non-current liabilities*                
Total Liabilities   $ 8,223     $ 8,540  

 

* The assets and liabilities of the disposal group classified as held for sale are all classified as current on Assets and Liabilities of Discontinued Operations since it’s 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.

 

 C: 

F-21

 

 

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 2021 AND 2020

(Unaudited)

 

Note 12—Discontinued Operations (continued)

 

Operating and investing cash flows from discontinued operations for the three months ended January, 31

(in thousands)   2021     2020  
             
Operating Activities:            
Net loss   $ (1,121 )   $ (1,054 )
Depreciation and amortization     158       167  
Bad debt     (109 )     51  
Amortization of finance lease     92       104  
Amortization of right-of-use asset     242       313  
Trade accounts receivable     294       (175 )
Prepaid expenses and other assets     46       276  
Trade accounts payable, accrued expenses and other current liabilities     210       (1 )
Deferred revenue     (156 )     344  
Operating lease liability     (236 )     (242 )
Gain on sale of long lived assets     -       (8 )
Gain on extinguishment of PPP loan     (68 )     -  
Net cash used in operating activities     (648 )     (225 )
Investing Activities:                
Capital expenditure     (22 )     (214 )
Proceeds on disposition of long lived assets     -       8  
Net cash used in investing activities   $ (22 )   $ (206 )

 

Note 13—Reclassification of prior year presentation

 

Certain prior year amounts have been reclassified for consistency with the current year presentation.

 

Note 14—Subsequent events

 

Management has evaluated subsequent events through March 15, 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 February 15, 2021 (the” CTM Sale Date”), the Company closed the previously announced CTM Sale. As of July 31, 2020, CTM was reported as a discontinued operation and  CTM’s operations have since been included in the financial statements as discontinued operations (Note 12- Discontinued Operations).  The Company will write down the loan of $3,750,000 and record a gain or loss based on CTM’s net asset value as of the CTM Sale Date. CTM’s assets will no longer be reflected on the financial statements for the fiscal periods following the CTM Sale Date and CTM’s operations will be consolidated in the Company’s second quarter results until the CTM Sale Date.

 

 C: 

F-22

 

 

ANNUAL REPORT OF IDW MEDIA HOLDINGS, INC.

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Item 4   Annual Financial Statements

 

IDW MEDIA HOLDINGS, INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Certified Public Accounting Firm on Consolidated Financial Statements F-24
   
Consolidated Balance Sheets as of October 31, 2020 and October 31, 2019 F-25
   
Consolidated Statements of Operations for the Fiscal Years Ended October 31, 2020 and 2019 F-26
   
Consolidated Statements of Comprehensive Loss for the Fiscal Years Ended October 31, 2020 and 2019 F-27
   
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended October 31, 2020 and 2019 F-28
   
Consolidated Statements of Cash Flows for the Fiscal Years Ended October 31, 2020 and 2019 F-29
   
Notes to Consolidated Financial Statements F-30 - F-57
   
Management’s Discussion and Analysis of Financial Condition and Results of Operations 16-29

 

 C: 

F-23

 

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Stockholder

IDW Media Holdings, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of IDW Media Holdings, Inc. and its Subsidiaries (the “Company”) as of October 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended October 31, 2020 and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. the Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

ZWICK & BANYAI, PLLC

 

We have served as the Company’s auditor since 2010.

 

Southfield, Michigan

January 25, 2021

 

 C: 

F-24

 

 

IDW MEDIA HOLDINGS, INC.

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands, except per share data)   October 31,
2020
    October 31,
2019
 
Assets            
Current assets:            
Cash and cash equivalents   $ 10,541     $ 7,543  
Trade accounts receivable, net     22,921       43,462  
Inventory     3,754       3,313  
Prepaid expenses     1,361       1,319  
Current assets held for sale from discontinued operations     11,171       5,186  
Total current assets     49,748       60,823  
Property and equipment, net     410       562  
Right-of-use assets, net     771       -  
Non-current assets                
Taxes receivable     -       513  
Investments     25       -  
Intangible assets, net     52       115  
Goodwill     199       199  
Television costs, net     2,926       9,388  
Other assets     527       372  
Non-current assets held for sale from discontinued operations     -       5,165  
Total assets   $ 54,658     $ 77,137  
Liabilities and stockholders’ equity                
Current liabilities:                
Trade accounts payable   $ 1,406     $ 2,145  
Accrued expenses     3,953       3,036  
Deferred revenue     2,385       1,058  
Bank loans payable – current portion     14,204       29,242  
Related party loans payable – current portion     -       4,550  
Government loans- current portion     793       -  
Operating lease obligations – current portion     562       -  
Other current liabilities     69       2,007  
Current liabilities held for sale from discontinued operations     8,540       3,344  
Total current liabilities     31,912       45,382  
Non-current liabilities                
Operating lease obligations – long term portion     368       -  
Bank loans payable – long term portion     -       10,500  
Government loans – long term portion     403       -  
Related party loans payable – long term portion     3,750       4,500  
Non-current liabilities held for sale from discontinued operations     -       683  
Total non-current liabilities     4,521       15,683  
Total liabilities   $ 36,433     $ 61,065  
Stockholders’ equity (see note 4):                
Preferred stock, $.01 par value; authorized shares – 500; no shares issued at October 31, 2020 and October 31, 2019     -       -  
Class B common stock, $0.01 par value; authorized shares – 12,000; 9,987 and 7,419 shares issued and 9,467 and 6,899 shares outstanding at October 31, 2020 and October 31, 2019, respectively     93       74  
Class C common stock, $0.01 par value; authorized shares – 2,500; 545 shares issued and outstanding at October 31, 2020 and October 31, 2019     5       5  
Stock subscription receivable     -       (1,000 )
Additional paid-in capital     111,379       96,671  
Accumulated other comprehensive loss     (60 )     (60 )
Accumulated deficit     (91,996 )     (78,457 )
Treasury stock, at cost, consisting of 519 shares of Class B common stock at October 31, 2020 and October 31, 2019     (1,196 )     (1,196 )
Total IDW Media Holdings Inc. stockholders’ equity     18,225       16,037  
Non-controlling interest     -       35  
Total stockholders’ equity     18,225       16,072  
Total liabilities and stockholders’ equity   $ 54,658     $ 77,137  

 

 C: 

F-25

 

 

IDW MEDIA HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Fiscal Years Ended
October 31,
 
(in thousands, except per share data)   2020     2019  
             
Revenues   $ 38,162     $ 42,835  
                 
Costs and expenses:                
Direct cost of revenues     29,530       49,153  
Selling, general and administrative     17,270       18,415  
Depreciation and amortization     252       286  
Bad debt expense     434       33  
Total costs and expenses     47,486       67,887  
Loss from operations     (9,324 )     (25,052 )
                 
Interest expense, net     (46 )     (173 )
Other income (expense), net     (318 )     (15 )
Loss before income taxes     (9,688 )     (25,240 )
(Provision for) benefit from income taxes     -       42  
Net loss from continuing operations     (9,688 )     (25,198 )
                 
(Loss) income from discontinued operations, net     (4,110 )     (1,294 )
                 
Net loss     (13,798 )     (26,492 )
                 
Net income attributable to non-controlling interests     -       63  
                 
Net loss attributable to IDW Media Holdings, Inc   $ (13,798 )   $ (26,429 )
                 
Basic and diluted income (loss) per share (note 3):                
Continuing operations   $ (1.08 )   $ (3.71 )
Discontinued operations, net     (0.46 )     (0.19 )
Net loss   $ (1.54 )   $ (3.90 )
                 
Weighted-average number of shares used in the calculation of basic and diluted loss per share:     8,982       6,768  
                 
Dividend declared per common share:   $ 0.00     $ 0.00  

 

See accompanying notes to consolidated financial statements.

 

 C: 

F-26

 

 

IDW MEDIA HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

   

Fiscal Years Ended

October 31, 

 
(in thousands)   2020     2019  
Net loss   $ (13,798 )   $ (26,492 )
Foreign currency translation adjustments     -       168  
Comprehensive loss     (13,798 )     (26,324 )
Comprehensive loss attributable to non-controlling interest     -       63  
Total comprehensive loss   $ (13,798 )   $ (26,261 )

 

See accompanying notes to consolidated financial statements

 

 C: 

F-27

 

 

IDW Media Holdings, Inc.

Consolidated Stockholders’ Equity

Fiscal Years Ended October 31, 2020 and 2019

(in thousands)

 

    Class B Common Stock     Class C Common Stock     Stock     Additional      Accumulated
Other
          Non- 
Controlling
    Treasury Stock, at Cost     Total  
    Number of           Number of           Subscriptions     Paid     Comprehensive     Retained       Interest     Number of           Shareholders’  
    Shares     Amount     Shares     Amount     Receivable     In Capital     Loss     Deficit     (“NCI”)     Shares     Amount     Equity  
Balance October 31, 2019     7,419       74       545       5       (1,000 )     96,671       (60 )     (78,457 )     35       519       (1,196 )     16,072  
Stock based compensation                                             722                                               722  
Issuance of common stock     2,568       19                               13,566                                               13,585  
Subscriptions receivable                                     1,000       11                                               1,011  
Issuance of stock options                                             409                                               409  
NCI divestment in subsidiary                                                             259       (35 )                     224  
Comprehensive loss                                                                                             -  
Net Loss                                                             (13,798 )                             (13,798 )
Other comprehensive income                                                     -                                       -  
Total comprehensive loss                                                     -       (13,798 )     -                       (13,798 )
Balance October 31, 2020     9,987       93       545       5       -       111,379       (60 )     (91,996 )     -       519       (1,196 )     18,225  
                                                                                                 
Balance October 31, 2018     6,072       61       545       5       -       69,780       (228 )     (51,930 )             519       (1,196 )     16,492  
Stock based compensation                                             3,123                                               3,123  
Issuance of common stock     1,347       13                               23,592                                               23,605  
Subscriptions receivable                                     (1,000 )                                                     (1,000 )
Issuance of warrants                                             118                                               118  
Issuance of stock options                                             58                                               58  
Acquisition of subsidiary                                                             (98 )     98                       -  
Comprehensive loss                                                                                                
Net Loss                                                             (26,429 )     (63 )                     (26,492 )
Other comprehensive income                                                     168                                       168  
Total comprehensive loss     -       -       -       -       -       -       168       (26,429 )             -       -       (26,261 )
Balance October 31, 2019     7,419       74       545       5       (1,000 )     96,671       (60 )     (78,457 )     35       519       (1,196 )     16,072  

 

See accompanying notes to consolidated financial statements.

 C: 

F-28

 

 

IDW MEDIA HOLDINGS, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Fiscal years ended October 31,            
(in thousands)   2020     2019  
Operating activities:            
Net loss   $ (13,798 )   $ (26,492 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation and amortization     1,017       1,513  
Amortization of finance leases     411       -  
Bad debt expense     680       113  
Stock based compensation     722       3,123  
Stock options     409       -  
Warrants issued     -       118  
Amortization of right-of-use asset     1,557       -  
Loss on deconsolidation of subsidiary     35       -  
Changes in assets and liabilities:                
Trade accounts receivable     20,807       (28,960 )
Inventory     (442 )     297  
Prepaid expenses and other assets     760       (443 )
Investment     (25 )     -  
Television costs     6,462       28,527  
Operating lease liability     (1,597 )     -  
Trade accounts payable, accrued expenses and other liabilities     (2,108 )     (3,501 )
Deferred revenue     795       715  
Deconsolidation of subsidiary     304       -  
Net cash provided by (used in) operating activities     15,989       (24,990 )
Investing activities:                
Business acquisitions     -       (12 )
Proceeds on disposition of long lived assets     185       -  
Disposition of subsidiary, net of cash received     (115 )     -  
Capital expenditures     (420 )     (1,113 )
Net cash used in investing activities     (350 )     (1,125 )
Financing activities:                
Proceeds from issuance of common stock     14,596       22,663  
Financing under capital leases     -       360  
Repayments of capital lease obligations     -       (410 )
Repayments of finance lease obligation     (404 )     -  
Proceeds of related party loans     -       9,050  
Proceeds of government loans     3,004       -  
Proceeds of bank loans     1,021       19,382  
Repayments of related party loans     (5,300 )     (19,000 )
Repayments of bank loans     (26,559 )     (9,378 )
Net cash (used in) provided by financing activities     (13,642 )     22,667  
Effect of exchange rate changes on cash and cash equivalents     -       168  
Net increase (decrease) in cash and cash equivalents   $ 1,997     $ (3,280
Cash and cash equivalents at beginning of period     10,165       13,445  
Cash and cash equivalents at end of period   $ 12,162     $ 10,165  
                 
Supplemental schedule of investing and financing activities                
Cash paid for interest   $ 200     $ 228  
Cash paid for income taxes   $ 98     $ 25  
Purchases of property and equipment through capital lease obligations   $ -     $ 360  
Received from sale of long lived assets   $ 154     $ -  

 

The effect of exchange rate changes on cash and cash equivalents is not material.

 

See accompanying notes to consolidated financial statements.

 

 C: 

F-29

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Note 1—Basis of Presentation

 

The accompanying consolidated financial statements of IDW Media Holdings, Inc. and its subsidiaries (the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the opinion of management, all adjustments (consisting principally of normal recurring accruals) considered necessary for a fair presentation have been included. Any reference to quarterly information is unaudited.

 

The Company’s fiscal year ends on October 31st. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2020 refers to the fiscal year ended October 31, 2020).

 

Description of Business and Segment Information

IDW Media Holdings, Inc. together with its subsidiaries is a diversified media company with operations in publishing, television entertainment and media distribution.

 

The terms “Company,” “we,” “us,” and “our” are used 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.

 

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.

 

 C: 

F-30

 

 

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.

 

 C: 

F-31

 

 

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.

 

 C: 

F-32

 

 

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.

 

 C: 

F-33

 

 

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.

 

 C: 

F-34

 

 

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.

 

 C: 

F-35

 

 

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.

 

 C: 

F-36

 

 

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.

 

 C: 

F-37

 

 

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.

 

 C: 

F-38

 

 

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.

 

 C: 

F-39

 

 

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.

  

 C: 

F-40

 

 

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.

 

 C: 

F-41

 

 

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 subsidiariesThe 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.  

 

 C: 

F-42

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Note 5—Notes Payable

 

Related party loans

 

On August 21, 2018, the Company entered into a loan agreement with the Company’s Chairman of the Board of Directors (who, at the time was also the Company’s Chief Executive Officer and majority stockholder) (the “Chairman”) for $5,000,000. Interest accrues at prime rate plus 1% and the loan matures August 20, 2022. Payment of principal and interest are payable from 70% of the Free Cash Flow, as defined in the loan agreement, of the Company’s CTM Media Group Inc. subsidiary. All outstanding shares of CTM Media Group Inc. stock are pledged as security under the agreement. On December 1, 2019, the Company amended the agreement providing that up to 60% of the interest due may, at the option of the Company, be paid in shares of Class B common stock (and the remaining amount in cash) with such shares valued based on the average closing prices for the Class B common stock on the ten trading days immediately prior to the applicable interest due date. As at October 31, 2020 the shares issued in connection with the loan interest was 56,545. The interest is to be paid quarterly on the loan. In conjunction with the loan, the Company issued the Chairman a warrant to purchase up to 89,243 shares of the Company’s Class B Common Stock at a price per share of $42.02. The warrant expires August 21, 2023. On July 13, 2020 $1,250,000 was converted into 314,070 shares of Class B Common Stock (Note 4- Equity). The outstanding amount at October 31, 2020 was $3,750,000.

 

On September 21, 2018, the Company entered into a bridge loan facility agreement with its Chairman for up to $26,000,000. The balance due under the facility was $0 at October 31, 2020. The proceeds from the private placement offering on March 9, 2020 were used to pay off the remaining $4,000,000 of the loan facility (Note 4- Equity). $8,000,000 of the loan facility was paid off in connection with the 2019 offering. As at October 31, 2020 the shares of Class B common stock issued by the Company was 14,902. In conjunction with the amendment to the loan, the Company issued the Chairman a warrant to purchase up to 98,336 shares of the Company’s Class B Common Stock at a price per share of $26.44. The warrant expires March 30, 2022.

 

For the fiscal year ended October 31, 2020 interest on the above loans amounted to $406,000 and for the fiscal year October 31, 2019 interest amounted to $1,204,403, which was charged to production cost.

 

The maturities under the loan agreement are anticipated to be as follows:

 

Date  Amount 
2021  $- 
2022   3,750,000 
Total  $3,750,000 

 

Bank loans

 

On November 21, 2018, a Variable Interest Entity (the “VIE”) (see Note 1) controlled by IDWE entered into a loan agreement with a bank that provides for a production financing commitment in the aggregate amount up to CAD 27,700,000. The loan is secured by the VIE’s assets, rights in the related television production’s episodes and distribution agreements for the production and is repayable from the assignment of proceeds of the related license agreements and tax credits, including interest based on the prime rate. The loan matures on January 31, 2021. On October 31, 2020, $8,149,000 was outstanding under the commitment.

 

On June 21, 2018, a VIE controlled by IDWE entered into a loan agreement with a bank that provides for a production financing commitment in the aggregate amount up to CAD 23,521,000. The loan is secured by the VIE’s assets, rights in the related television production’s episodes and distribution agreements for the production and is repayable from the assignment of proceeds of the related license agreements, including interest based on the prime rate. The loan matures on January 31, 2021. On October 31, 2020 $6,055,000 was outstanding under the commitment.

 

Future maturities under the VIE bank loans are as follows:

 

Date   Amount  
2021   $ 14,204,000  
Total   $ 14,204,000  

 

 C: 

F-43

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Note 5—Notes Payable (continued)

 

Government loans

 

On April 27, 2020, the Company (inclusive of IDWP and IDWE) received loan proceeds of $1,195,679 (the “IDWMH PPP Loan”) from Bank of America, N.A. pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The IDWMH PPP Loan, which was in the form of a Note dated April 15, 2020 issued by the Company, matures on April 15, 2022 and bears interest at a rate of 1% per annum, payable monthly commencing on November 24, 2020. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties, and under the terms of the loan, payments can be deferred for six months. Funds from the IDWMH PPP Loan may be used primarily for payroll costs and costs used to continue group health care benefits, and, up to a limited extent, on mortgage payments, rent, utilities, interest and other expenses as described in the CARES Act. Under the terms of the PPP, certain amounts of the IDWMH PPP Loans may be forgiven if they are used for those qualifying expenses. The Company used the entire IDWMH PPP Loan amount for those qualifying expenses.

 

Note 6—Business Segment Information

 

The Company has the following three reportable business segments: IDWP, IDWE and CTM.

 

The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief decision making officers.

 

The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments based primarily on operating income. There are no other significant asymmetrical allocations to segments.

 

Operating results for the business segments of the Company are as follows:

 

(in thousands) (unaudited)   IDWP(a)     IDWE     CTM     IDWMH     Total  
                (discontinued   (unallocated        
                operations)   overhead)        
Fiscal year ended October 31, 2020                            
Revenues   $ 23,850     $ 14,312     $ -     $ -     $ 38,162  
Loss from operations     (103 )     (8,589 )     -       (632 )     (9,324 )
Loss from discontinued operations, net     -       -       (4,110 )     -       (4,110 )
Net loss     (103 )     (8,589 )     (4,110 )     (996 )     (13,798 )
Total assets at October 31, 2020     15,189       22,091       11,171       6,207       54,658  
Fiscal year ended October 31, 2019                                        
Revenues   $ 20,094     $ 22,741     $ -       NA (b)    $ 42,835  
Loss from operations     (5,205 )     (19,847 )     -       NA (b)     (25,052 )
Loss from discontinued operations, net     -       -       (1,294 )     -       (1,294 )
Net loss     (5,187 )     (20,011 )     (1,294 )     NA (b)     (26,492 )
Total assets at October 31, 2019     10,994       55,792       10,351       NA (b)     77,137  

 

(a)IDWP includes Clover Press through March 31, 2020. As of April 1, 2020, Clover Press was valued at the cost method and was no longer consolidated.

 

(b)In prior fiscal year 100% of IDWMH overhead was allocated to business segments.

 

 C: 

F-44

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Note 7—Fair Value Measurement

 

In determining fair value, the Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are described below:

 

Level l Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the most conservative level of input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The valuation methods described below may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different fair value measurement at the reporting date. 

 

The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of October 31, 2020 and 2019:

 

(in thousands)   Level 1     Level 2     Level 3     Total  
                         
Investments as of October 31, 2020                        
Clover Press investment   $   -   $   -   $25   $25  
Total Investments   $-   $-   $25   $25  
                                 
Investments as of October 31,2019                                
Investments   $ -     $ -     $ -     $ -  
Total Investments   $ -     $ -     $ -     $ -  

 

Level 3 Gains and Losses

 

The following table sets forth a summary of changes in the fair value of Level 3 assets:

 

(in thousands)      
Beginning balance, October 31, 2019   $ -  
Acquisition     25  
Sales     -  
Realized gains, net     -  
Unrealized losses, net     -  
Ending balance, October 31, 2020   $ 25  

 

The investment in Clover Press does not have readily determined fair values and are valued at cost. There have been no events or changes in circumstances to indicate any signs of impairment as at October 31, 2020. Due to the small nature of the investment a change in the fair value would not be a significant impact to the Company’s performance or cash flows. There have not been any transfers between investment levels.

 

 C: 

F-45

 

 

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  

 

 C: 

F-46

 

 

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  

 

 C: 

F-47

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Note 12—Commitments

 

Lease Commitments

 

The Company has various lease agreements with terms up to 4 years, including leases of office space, warehouses, and equipment. Some leases include options to purchase, terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.

 

The assets and liabilities from operating leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

 

The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the Company’s interest rate on its line of credit.

 

The Company’s weighted-average remaining lease term relating to its operating leases is 1.65 years, with a weighted-average discount rate of 4.59%.

 

The Company recognized lease expense for its operating leases of $618,109 for the fiscal year ended October 31, 2020, respectively. The cash paid under operating leases during the fiscal year ended October 31, 2020 was $686,078.

 

At October 31, 2020, the Company had a right-of-use-asset related to operating leases of $1,329,086, accumulated amortization related to operating leases of $558,140 both of which are included as a component of right-of-use assets.

 

The lease commitments for the continuing operations are presented below:

 

Maturity of Lease Liability

(in thousands)

  Total  
Fiscal years ending October 31:      
2021   $ 594  
2022     354  
2023     13  
2024     7  
2025     -  
Thereafter     -  
Total undiscounted operating lease payments   $ 968  
Less: imputed interest     (38 )
Present value of operating lease liabilities   $ 930  

 

Note 13—Income Taxes

 

Significant components of the Company’s deferred tax assets and deferred tax liabilities consist of the following:

 

Fiscal year Ended October 31 (in thousands)   2020     2019  
Deferred tax assets:            
Bad debt reserve   $ 8     $ -  
Accrued expenses     303       140  
Exercise of stock options and lapsing of restrictions on restricted stock     1,360       1,459  
Impairment     391       437  
Amortization     2,686       3,581  
Net operating loss     12,280       8,760  
Total deferred tax assets     17,028       14,377  
Valuation allowance     (17,028 )     (14,377 )
Net Deferred Tax Assets   $ -     $ -  

 

 C: 

F-48

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Note 13—Income Taxes (continued)

 

The (benefit from) provision for income taxes consists of the following:

 

Fiscal year ended October 31 (in thousands)   2020     2019  
Current:            
Federal   $ -     $ (42 )
State and local     -       -  
Foreign     -       -  
    $ -     $ (42 )
Deferred:                
Federal   $ -     $ -  
State and local     -       -  
Foreign     -       -  
    $ -     $ -  
(Benefit from) provision for income taxes   $ -     $ (42 )

 

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:

 

Fiscal year ended October 31 (in thousands)   2020     2019  
U.S. federal income tax at statutory rate   $ (2,034 )   $ (5,300 )
Change in valuation allowance     2,651       7,020  
State and local income tax, net of federal benefit     -       (1,747 )
Tax law change     (620 )     (42 )
Non-deductible expenses     3       27  
(Benefit from) provision for income taxes   $ -     $ (42 )

 

At October 31, 2020, the Company had federal net operating loss carryforwards of approximately $44 million. These carry-forward losses are available to offset future U.S. federal taxable income. The pre-fiscal year 2019 net operating loss carryforwards will start to expire in fiscal 2030 and post 2019 losses of $36 million will not expire.

 

The change in the valuation allowance in fiscal 2020 was as follows:

 

(in thousands)   Balance at
beginning of
year
    Additions
charged to
costs and
expenses
    Deductions     Balance at
end of year
 
Reserves deducted from deferred income taxes, net:                        
Valuation allowance   $ 14,377     $ 2,651     $ -     $ 17,028  

 

At October 31, 2018, the company performed an analysis of its deferred tax assets and determined that it is not more likely than not that they will be utilized and has established a valuation allowance against the asset. The valuation allowance remains.

 

At October 31, 2020 and 2019, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 2020 and fiscal 2019. At October 31, 2020, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 2020 and fiscal 2019, the Company did not record any interest and penalties on income taxes. At October 31, 2020 and 2019, there was no accrued interest included in current income taxes payable.

 

The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2018 to fiscal 2020, state and local tax returns generally for fiscal 2017 to fiscal 2020.

 

 C: 

F-49

 

 

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 )

 

 C: 

F-50

 

 

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.

 

 C: 

F-51

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2020 AND 2019

 

Note 15—Discontinued Operations (continued)

 

Following is a summary of the Company’s results of discontinued operations for the fiscal years ended for 2020 and 2019, a schedule of assets and liabilities of discontinued operations as of October 31, 2020 and October 31, 2019, and total operating and investing cash flows of CTM operations for October 31, 2020 and October 31, 2019.

 

Results of discontinued operations   Fiscal year ended,
October 31,
 
(in thousands)   2020     2019  
             
Revenue   $ 9,264     $ 19,764  
Direct cost of revenue     4,480       7,033  
Selling, general and administrative     7,413       12,736  
Depreciation and amortization     1,175       1,226  
Bad Debt     680       80  
Total costs and expenses     13,748       21,075  
Loss from operations     (4,484 )     (1,311 )
Interest expense, net     (78 )     (36 )
Other income (expense), net     452       56  
Loss before income taxes     (4,110 )     (1,291 )
(Provision for) benefit from income taxes     -       (3 )
Net loss   $ (4,110 )   $ (1,294 )

 

Stock based compensation for discontinued operations included in selling, general and administrative expenses is $0 and $600,000 in the fiscal years ended October 31, 2020 and 2019, respectively.

 

 C: 

F-52

 

 

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.

 

 C: 

F-53

 

 

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.

 

 C: 

F-54

 

 

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.

 

 C: 

F-55

 

 

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:

 

 C: 

F-56

 

 

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.

 

 C: 

F-57

 

 

 

 

 

 

 

 

 

 

 

 

2,051,002 Shares of Class B Common Stock

 

 

 

 

 

 

Class B Common Stock

 

PROSPECTUS
 

April 5, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 C: 

 

 

  

Part II

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. Other Expenses of Issuance and Distribution

 

The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered.  None of the following expenses are payable by the Selling Stockholders.  All of the amounts shown are estimates, except for the SEC registration fee.

  

Securities and Exchange Commission Registration Fee   $ 834.64  
Accountants’ fees and expenses*        
Legal fees and expenses*        
Miscellaneous*        
Total*   $    

 

* To be provided by amendment

 

ITEM 14. Indemnification of Directors and Officers

 

Our Third Restated Certificate of Incorporation (our Certificate of Incorporation) provides that, to the fullest extent permitted by the Delaware General Corporate Law (“DGCL”), our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Section 102(7) of the DGCL, however, states that such a provision may not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, relating to unlawful dividends, distributions or the repurchase or redemption of stock or (iv) for any transaction from which the director derives an improper personal benefit.

 

Our By-Laws provide that we shall indemnify and hold harmless, to the fullest extent permitted by the DGCL, any person against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with any threatened, pending or completed legal proceedings in which such person is involved by reason of the fact that he is or was a director or officer of ours if he acted in good faith and in a manner that he reasonably believed to be in or not opposed to our best interests, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe that his conduct was unlawful. If the legal proceeding, however, is by or in our right, such director or officer may not be indemnified in respect of any claim, issue or matter as to which he shall have been adjudged to be liable to us unless a court determines otherwise.

 

We may enter into agreements to indemnify our directors and officers in addition to the indemnification provided for in our Certificate of Incorporation. Such agreements, among other things, would indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in our rights, on account of services as our director or officer or as a director or officer of any subsidiary of ours, or as a director or officer of any other company or enterprise to which the person provides services at our request.

 

We have directors’ and officers’ liability insurance providing coverage to our directors and officers within the limits and subject to the limitations of the policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions, suits or proceedings to which they are parties by reason of being or having been such directors or officers.

 

 C: 

II-1

 

 

ITEM 15. Recent Sales of Unregistered Securities

 

On January 26, 2021, we granted to its Chief Financial Officer options to purchase 50,000 shares of our Class B common stock (“Class B Common Stock”), with a 10-year term and an exercise price of $4.285, 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 February 15, 2022, February 15, 2023, and February 15, 2024

 

On January 21, 2021, we granted to an employee options to purchase 10,000 shares of Class B Common Stock, with a 10-year term and an exercise price of $4.10, under the 2019 Incentive Plan, with such options scheduled to vest in substantially equal one-third installments on February 15, 2022, February 15, 2023, and February 15, 2024

 

On January 21, 2021, we granted to an individual who provided legal services to us 10,000 unvested restricted shares of Class B Common Stock (“Restricted Stock”) under the 2019 Incentive Plan, with such shares scheduled to vest in approximately equal one-third installments on January 21, 2022, January 21, 2023, and January 21, 2024.

 

On December 31, 2020, we issued 6,710 shares of Class B Common Stock to Howard S. Jonas, our 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 30, 2020, we issued 9,710 shares of Class B Common Stock to Howard S. Jonas, our 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 Class B Common Stock, with a 10-year term and an exercise price of $3.35, under 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 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 14, 2020, we granted to our Chief Executive 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.

 

 C: 

II-2

 

 

On July 13, 2020, we issued 314,070 shares of Class B Common Stock to Howard S. Jonas, our 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 us to Mr. Jonas to such 314,070 shares.

 

On July 3, 2020, we 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 June 30, 2020, we issued 10,335 shares of Class B Common Stock to Howard S. Jonas, our 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 us.

 

On June 8, 2020, we granted 3,000 shares of 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, we issued 14,816 shares of Class B Common Stock to Howard S. Jonas, our Chairman of the Board of Directors and former Chief Executive Officer, for payment of certain interest payable on loans made by Mr. Jonas to us.

 

On March 10, 2020, we 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 nonexecutive 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, we granted an aggregate of 25,000 shares of Restricted Stock under the 2019 Incentive Plan to five individuals who provide legal services to us, 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, we granted to an employee 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, we 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 vesting of these 13,699 shares of Restricted Stock occurred on August 4, 2020.

 

On March 9, 2020, we closed a private placement of shares of Class B Common Stock at $6.00 per share, pursuant to which we 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 our 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.

 

 C: 

II-3

 

 

On February 4, 2020, we 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 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, we granted our former 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 having vested on grant, options with respect to 5,000 shares having vested on January 23, 2021 and the remainder are scheduled to vest as to 5,000 shares on each of January 23, 2022 and January 23, 2023.

 

On January 23, 2020, we 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, we issued 36,586 shares of Class B Common Stock to Howard S. Jonas, our Chairman of the Board of Directors and former Chief Executive Officer, for payment of certain interest payable on loans made by Mr. Jonas to us.

 

On April 24, 2019, we closed the initial round of a private placement offering 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, we issued 767,630 shares of Class B Common Stock for gross proceeds of $13,817,337.

 

On May 7, 2019, we 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, we 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 non-brokered private placement offering, on June 15, 2019, we issued 240,187 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, we 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 having vested on January 2, 2021. On January 2, 2021, 5,000 shares of Restricted Stock were issued to the consultant, with such shares scheduled to vest on January 2, 2022.

 

On March 14, 2019, our Board of Directors adopted the 2019 Incentive Plan to provide incentives to our executive officers, employees, directors and consultants and/or our subsidiaries. We 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, our Board of Directors 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 January 31, 2021, 71,487 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, we agreed to grant this employee 15,000 shares of Restricted Stock pursuant to our 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 employee left our employ 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.

 

 C: 

II-4

 

 

On November 26, 2018, we 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, we 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 vested on September 30, 2020. On March 20, 2019, the Company issued 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, we 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, we granted to the consultant under the 2019 Incentive Plan 750 fully vested shares of Restricted Stock for service provided in the applicable month.

 

Exemptions

 

The sales of the above-described securities were deemed to be exempt from registration under the Securities Act because they were made in reliance upon the exemption from registration provided under Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

The grants of options and restricted shares described above were made in reliance upon the exemption from registration under the Securities Act under Regulation S or Section 4(a)(2), or under Rule 701 of the Securities Act as transactions pursuant to written compensatory plans or pursuant to a written contract relating to compensation.

 

No underwriters were employed in connection with the securities issuances set forth in this Item 15.

 

ITEM 16. Exhibits and Financial Statement Schedules.

 

(a) Exhibits.

 

The exhibits to the registration statement are listed in the Exhibit Index to this registration statement and are incorporated by reference herein.

 

(b) Financial Statement Schedules.

 

All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.

  

ITEM 17. Undertakings.

 

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

 C: 

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The undersigned registrant hereby undertakes that:

 

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

 

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

The undersigned registrant hereby undertakes:

 

(1) To file, during any period in which offers, or sales are being made, a post-effective amendment to this registration statement:

 

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

 

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

 C: 

II-6

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newark, New Jersey on April 5, 2021.

 

  IDW MEDIA HOLDINGS, INC.
   
  By: /s/ Ezra Y. Rosensaft
    Name:   Ezra Y. Rosensaft
    Title: Chief Executive Officer

 

POWER OF ATTORNEY

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Ezra Y. Rosensaft   Chief Executive Officer   April 5, 2021
Ezra Y. Rosensaft   (principal executive officer)    
         
/s/ Karina M. Fedasz   Chief Financial Officer   April 5, 2021
Karina M. Fedasz   (principal financial officer)    
         
/s/ Brooke T. Feinstein   Chief Accounting Officer   April 5, 2021
Brooke T. Feinstein   (principal accounting officer)    
         
*   Director       April 5, 2021

Howard S. Jonas

 

       
*   Director   April 5, 2021
Perry Davis        
         
*   Director   April 5, 2021
Allan I. Grafman        
         
*   Director   April 5, 2021
Irwin Katsof        
         
*   Director   April 5, 2021
Marc E. Knoller        
         
*   Director   April 5, 2021
Christopher McGurk        

 

* By:  /s/ Joyce J. Mason  
  Joyce J. Mason, Attorney-in-fact  

 

 C: 

II-7

 

  

EXHIBIT INDEX

 

Exhibit No.   Description of Exhibit
3.1**   Third Restated Certificate of Incorporation of IDW Media Holdings, Inc.
3.2**   Second Amended and Restated Bylaws of IDW Media Holdings, Inc.
4.1***   Form of Certificate for Common Stock of IDW Media Holdings, Inc.
4.2**   Warrant to Purchase IDW Media Holdings, Inc. Class B Common Stock issued to Howard S. Jonas, dated August 21, 2018.
4.3**   Warrant to Purchase IDW Media Holdings, Inc. Class B Common Stock issued to Howard S. Jonas, dated March 30, 2019.
5.1***   Legal Opinion of Schwell Wimpfheimer and Associates LLP.
10.1**#   IDW Media Holdings, Inc. 2009 Stock Option and Incentive Plan.
10.2**#   IDW Media Holdings, Inc. 2019 Stock Option and Incentive Plan.
10.3**#   Form of Option Agreement
10.4**#   Form of Restrictive Stock Agreement
10.5**   Form of Registration Rights Agreement between the Company and Stockholders, dated on or about March 2, 2020.
10.6**   Registration Rights Agreement between the Company and Raging Capital, Master Fund, Ltd. dated as of March 5, 2020.
10.7**   Amendment to Registration Rights Agreement, dated March 25, 2020.
10.8**   Paycheck Protection Program Promissory Note in favor of Bank of America, NA dated April 15, 2020.
10.9**   Share Purchase Agreement between IDW Media Holdings, Inc. and Howard S. Jonas, dated as of July 14, 2020.
10.10**   Loan Agreement between IDW Media Holdings, Inc. and Howard S. Jonas, dated as of August 21, 2018.
10.11**   Bridge Loan Facility Agreement between IDW Media Holdings, Inc. and Howard S. Jonas, dated as of September 21, 2018.
10.12**   Loan and Security Agreement between High Park/V-Wars Production, Inc. and Bank Leumi USA, dated June 19, 2018.
10.13**   Royal Bank of Canada Demand credit Facility in favour of Highland Park/October Faction Production Inc., dated November 21, 2018.
10.14**±   The Supply Agreement between Idea and Design Works, LLC and Diamond Comic Distributors, Inc., dated September 30, 2013.
10.15**±   Amendment to the Supply Agreement between Idea and Design Works, LLC and Diamond Comic Distributors, Inc., dated March 1, 2016.
10.16*±   Distribution Agreement between Penguin Random House Publisher Services and Idea and Design Works, LLC, dated June 20, 2016.
23.1*   Consent of Zwick & Banyai, PLLC.
23.2***   Consent of Schwell Wimpfheimer & Associates LLP (included in Exhibit 5.1).

 

* Filed herewith.
** Previously filed.
*** To be filed by amendment.

 

± Denotes that fees, payment terms and other business terms have been redacted in accordance with Item 601(b)(10)(iv) of Regulation S-K.
# Denotes management compensation plan or contract.

 

 

II-8

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘S-1/A’ Filing    Date    Other Filings
2/15/24
1/21/24
11/1/23
9/10/23
8/21/23
8/19/23
7/14/23
7/1/23
6/25/23
3/15/23
2/15/23
1/23/23
1/21/23
9/10/22
8/21/22
8/20/22
8/19/22
7/14/22
7/1/22
6/25/22
5/31/22
4/15/22
3/30/22
3/15/22
2/15/22
1/23/22
1/21/22
1/5/224
1/2/22
10/31/2110-K
9/10/21
8/19/21
7/14/218-K
7/1/213,  EFFECT
6/25/21
5/31/21
Filed on:4/5/21CORRESP
4/2/21
4/1/21
3/31/21
3/26/21
3/15/21
3/12/21
3/11/21
3/10/21
3/9/21
3/5/21
3/1/21CORRESP,  S-1/A
2/15/21
1/31/21
1/27/21
1/26/21
1/25/21
1/23/21
1/21/21
1/5/21
1/4/21
1/2/21
12/31/20
12/24/20
12/15/20
12/1/20
11/25/20
11/24/20
11/5/20
11/1/20
10/31/20
10/1/20
9/30/20
9/10/20
9/1/20
8/31/20
8/19/20
8/4/20
8/1/20
7/31/20
7/26/20
7/16/20
7/14/20
7/13/20
7/3/20
7/1/20
6/30/20
6/12/20
6/8/20
6/2/20
6/1/20
5/20/20
5/19/20
5/12/20
5/1/20
4/27/20
4/20/20
4/15/20
4/6/20
4/1/20
3/31/20
3/27/20
3/25/20
3/10/20
3/9/20
3/6/20
3/2/20
3/1/20
2/7/20
2/4/20
1/31/20
1/23/20
1/9/20
1/2/20
1/1/20
12/31/19
12/15/19
12/10/19
12/5/19
12/1/19
11/1/19
10/31/19
9/20/19
9/15/19
9/11/19
8/15/19
7/15/19
6/15/19
6/1/19
5/15/19
5/7/19
5/1/19
4/24/19
4/17/19
4/15/19
3/20/19
3/14/19
3/8/19
2/13/19
1/24/19
12/24/18
12/1/18
11/26/18
11/21/18
10/31/18
10/15/18
9/21/18
8/21/18
6/21/18
6/20/18
10/9/17
10/22/16
9/14/094
8/3/09UPLOAD
 List all Filings 


7 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 1/19/23  Idw Media Holdings, Inc.          10-K       10/31/22  100:5.9M                                   EdgarAgents LLC/FA
 1/20/22  Idw Media Holdings, Inc.          10-K       10/31/21  111:7M                                     EdgarAgents LLC/FA
 7/27/21  Idw Media Holdings, Inc.          S-1/A                  4:3.2M                                   EdgarAgents LLC/FA
 7/20/21  Idw Media Holdings, Inc.          S-1/A                  2:2.9M                                   EdgarAgents LLC/FA
 7/06/21  Idw Media Holdings, Inc.          S-1                    2:2.9M                                   EdgarAgents LLC/FA
 6/21/21  Idw Media Holdings, Inc.          S-1/A                  2:2.7M                                   EdgarAgents LLC/FA
 5/11/21  Idw Media Holdings, Inc.          S-1/A                  4:2.4M                                   EdgarAgents LLC/FA


2 Previous Filings that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/01/21  Idw Media Holdings, Inc.          S-1/A                  4:2M                                     EdgarAgents LLC/FA
10/16/20  Idw Media Holdings, Inc.          S-1                   19:44M                                    EdgarAgents LLC/FA
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