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IDW MEDIA HOLDINGS, INC. - Quarter Report: 2022 April (Form 10-Q)

 

 

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

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED April 30, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

IDW MEDIA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   26-4831346
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)
     
520 Broad Street, Newark, New Jersey   07102
(Address of principal executive offices)   (Zip Code)

 

973-438-3385

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b)-2 of the Exchange Act:

 

Title of each Class   Trading Symbol   Name of exchange of which registered
Class B common stock, $0.01 par value; authorized shares   IDW   NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

  

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 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes      No  

 

As of June 14, 2022 the  registrant had the following shares outstanding:

 

Class B common stock, $0.01 par value: 13,534,148 shares (excluding 519,360 treasury shares)
Class C common stock, $0.01 par value: 545,360  shares

 

 

 

 

 

IDW MEDIA HOLDINGS, INC.

 

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION  
   
  Item 1. Financial Statements (Unaudited)  
       
    CONDENSED CONSOLIDATED BALANCE SHEETS 1
       
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 2
       
    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 3
       
    CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY 4
       
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 6
       
    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
       
  Item 3 Quantitative and Qualitative Disclosures About Market Risks 31
     
  Item 4 Controls and Procedures 31
       
PART II. OTHER INFORMATION  
       
  Item 1. Legal Proceedings 32
       
  Item 1A. Risk Factors 32
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
       
  Item 3. Defaults upon Senior Securities 32
       
  Item 4. Mine Safety Disclosures 32
       
  Item 5. Other Information 32
       
  Item 6. Exhibits 33
       
SIGNATURES 34

 

i

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

IDW MEDIA HOLDINGS, INC. 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(in thousands, except per share data) 

April 30,
2022

(unaudited)

  

October 31,
2021

 
Assets        
Current assets:        
Cash and cash equivalents  $13,681   $17,532 
Trade accounts receivable, net   4,758    5,431 
Inventory   3,291    3,090 
Prepaid expenses   2,226    2,270 
Total current assets   23,956    28,323 
Non-current assets          
Property and equipment, net   447    347 
Right-of-use assets, net   58    302 
Intangible assets, net   831    679 
Goodwill   199    199 
Television costs, net   1,538    1,487 
Other assets   84    61 
Total assets  $27,113   $31,398 
Liabilities and Stockholders’ Equity          
Current liabilities:          
Trade accounts payable  $1,565   $1,141 
Accrued expenses   3,315    3,786 
Production costs payable   72    2,010 
Deferred revenue   8    2,045 
Operating lease obligations – current portion   47    348 
Total current liabilities   5,007    9,330 
Non-current liabilities          
Operating lease obligations – long term portion   13    20 
Total liabilities  $5,020   $9,350 
Stockholders’ equity (see note 3):          
Preferred stock, $.01 par value; authorized shares – 500; no shares issued at April 30, 2022 and October 31, 2021   
-
    
-
 
Class B common stock, $0.01 par value; authorized shares – 20,000; 14,053 and 12,938 shares issued and 13,534 and 12,419 shares outstanding at April 30, 2022 and October 31, 2021, respectively   134    123 
Class C common stock, $0.01 par value; authorized shares – 2,500; 545 shares issued and outstanding at April 30, 2022 and October 31, 2021   5    5 
Additional paid-in capital   104,117    103,819 
Accumulated deficit   (80,967)   (80,703)
Treasury stock, at cost, consisting of 519 shares of Class B common stock at April 30, 2022 and October 31, 2021   (1,196)   (1,196)
Total stockholders’ equity   22,093    22,048 
Total liabilities and stockholders’ equity  $27,113   $31,398 

 

See accompanying notes to condensed consolidated financial statements.

 

1

 

 

IDW MEDIA HOLDINGS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

   Three Months Ended   Six Months Ended 
(in thousands, except per share data)  April 30,
2022
   April 30,
2021
   April 30,
2022
   April 30,
2021
 
                 
Revenues  $6,053   $10,140   $17,902   $18,552 
                     
Costs and expenses:                    
Direct cost of revenues   3,597    4,726    8,387    13,959 
Selling, general and administrative   4,600    4,921    9,591    9,160 
Depreciation and amortization   100    60    184    120 
Total costs and expenses   8,297    9,707    18,162    23,239 
(Loss) income from operations   (2,244)   433    (260)   (4,687)
                     
Interest income (expense), net   
-
    156    (10)   142 
Other(expense)  income, net   (9)   (12)   6    (13)
Net (loss) income from continuing operations   (2,253)   577    (264)   (4,558)
                     
Loss from discontinued operations, net   
-
    (159)   
-
    (1,280)
Gain on sale of discontinued operations   
-
    2,123    
-
    2,123 
Net gain on discontinued operations   
-
    1,964    
-
    843 
Net (loss) income  $(2,253)  $2,541   $(264)  $(3,715)
                     
Basic and diluted (loss) income per share (note 2):                    
Continuing operations  $(0.17)  $0.06   $(0.02)  $(0.45)
Discontinued operations, net   
-
    0.20         0.08 
Net (loss) income  $(0.17)  $0.25   $(0.02)  $(0.37)
                     
Weighted-average number of shares used in the calculation of basic and diluted (loss) income per share:   12,906    9,972    12,895    9,962 

 

See accompanying notes to condensed consolidated financial statements.

 

2

 

 

IDW MEDIA HOLDINGS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

 

   Three Months Ended   Six Months Ended 
(in thousands)  April 30,
2022
   April 30,
2021
   April 30,
2022
   April 30,
2021
 
Net (loss) income  $(2,253)   2,541   $(264)  $(3,715)
Foreign currency translation adjustments   
-
    51    
-
    39 
Sale of discontinued operations   
-
    21    
-
    21 
Total comprehensive (loss) income  $(2,253)   2,613   $(264)  $(3,655)

 

See accompanying notes to condensed consolidated financial statements

 

3

 

 

IDW Media Holdings, Inc.

 

Condensed Consolidated Statements of Stockholders’ Equity

Six Months Ended April 30, 2022 and 2021

(in thousands)

(Unaudited)

 

   Class B
Common Stock
   Class C
Common Stock
       Accumulated
Other
       Treasury Stock, at Cost   Total 
(in thousands)  Number of
Shares
   Amount   Number of
Shares
   Amount   Additional
Paid In Capital
   Comprehensive
Loss
   Accumulated
Deficit
   Number of
Shares
   Amount   Stockholders’
Equity
 
Balance October 31, 2021   12,938   $123    545   $5   $103,819   $
       -
   $(80,703)   519   $(1,196)  $22,048 
Stock based compensation                       309                        309 
Issuance of common stock   1,115    11    
-
    
-
    (11)   
-
    
-
    -    
-
    
-
 
Comprehensive loss        
 
         
 
    
 
    
 
    
 
         
 
    
 
 
Net Income   -    
-
    -    
-
    
-
    
-
    (264)   -    
-
    (264)
Total comprehensive loss   -    -    -    -    -    
-
    (264)   -    -    (264)
Balance April 30, 2022   14,053   $134    545   $5   $104,117   $
-
   $(80,967)   519   $(1,196)  $22,093 
                                                   
Balance October 31, 2020   9,987   $93    545   $5   $111,379   $(60)  $(91,996)   519   $(1,196)  $18,225 
Stock based compensation   -    
-
    -    
-
    159    
-
    
-
    -    
-
    159 
Issuance of common stock   37    1    
-
    
-
    24    
-
    
-
    -    
-
    25 
Comprehensive loss        
 
         
 
    
 
    
 
    
 
         
 
    
 
 
Sale of discontinued operations   -    
-
    -    
-
    (17,295)   21    17,274    -    
-
    
-
 
Net Loss   -    
-
    -    
-
    
-
    
-
    (3,715)   -    
-
    (3,715)
Other comprehensive income   -    
-
    -    
-
    
-
    39         -    
-
    39 
Total comprehensive loss   -    
-
    -    
-
    -    60    (3,715)   -    
-
    (3,655)
Balance April 30, 2021   10,024   $94    545   $5   $94,267   $
-
   $(78,437)   519   $(1,196)  $14,733 

 

See accompanying notes to condensed consolidated financial statements.

 

4

 

 

IDW Media Holdings, Inc.

 

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended April 30, 2022 and 2021

(in thousands)

(Unaudited)

 

   Class B
Common Stock
   Class C
Common Stock
       Accumulated
Other
       Treasury Stock, at Cost   Total 
(in thousands)  Number of
Shares
   Amount   Number of
Shares
   Amount   Additional
Paid In Capital
   Comprehensive
Loss
   Accumulated
Deficit
   Number of
Shares
   Amount   Stockholders’
Equity
 
Balance January  31, 2021   12,950   $123    545   $5   $103,963   $
-
   $(78,714)   519   $(1,196)  $24,181 
Stock based compensation   -    -    -    -    165    -    -    -    -    165 
Issuance of common stock   1,103    11    -    -    (11)   -    -    -    -    
-
 
Comprehensive loss        
 
         
 
    
 
    
 
    
 
         
 
    
 
 
Net Income   -    -    -    -    -    -    (2,253)   -    -    (2,253)
Total comprehensive loss   -    -    -    -    -    
-
    (2,253)   -    -    (2,253)
Balance April 30, 2022   14,053   $134    545   $5   $104,117   $
-
   $(80,967)   519   $(1,196)  $22,093 
                                                   
Balance January 31, 2021   10,008   $94    545   $5   $111,467   $(72)  $(98,252)   519   $(1,196)  $12,046 
Stock based compensation   -    -    -    -    95    -    -    -    -    95 
Issuance of common stock   16    -    -    -    -    -    -    -    -    
-
 
Comprehensive loss        
 
         
 
    
 
    
 
    
 
         
 
    
 
 
Sale of discontinued operations   -    
-
    -    
-
    (17,295)   21    17,274    -    
-
    
-
 
Net Income   -    -    -    -    -    -    2,541    -    -    2,541 
Other comprehensive income   -    -    -    -    -    51    -    -    -    51 
Total comprehensive income   -    
-
    -    
-
    -    72    2,541    -    
-
    2,613 
Balance April 30, 2021   10,024   $94    545   $5   $94,267   $
-
   $(78,437)   519   $(1,196)  $14,733 

 

See accompanying notes to condensed consolidated financial statements.

 

5

 

 

IDW MEDIA HOLDINGS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months Ended 
(in thousands)  April 30,
2022
   April 30,
2021
 
Operating activities:        
Net loss  $(264)  $(3,715)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   184    307 
Amortization of finance leases   -    108 
Bad debt recovery   -    (97)
Stock based compensation   309    159 
Amortization of right-of-use asset   244    513 
Gain on extinguishment of PPP Loans   -    (68)
Gain on sale of discontinued operations   -    (2,123)
Changes in operating assets and liabilities:          
Trade accounts receivable   673    847 
Inventory   (201)   88 
Prepaid expenses and other assets   21    (589)
Television costs   (51)   1,656 
Operating lease liability   (308)   (269)
Trade accounts payable, accrued expenses, production costs payable and other current liabilities   (1,985)   1,239 
Deferred revenue   (2,037)   (260)
Gain on disposal of ROU assets   -    (97)
Net cash used in operating activities   (3,415)   (2,301)
Investing activities:          
Disposal of discontinued operations   -    (902)
Capital expenditures   (436)   (72)
Net cash used in investing activities   (436)   (974)
Financing activities:          
Proceeds from issuance of common stock   -    25 
Repayments of finance lease obligations   -      
Proceeds from government loans   -    1,196 
Repayments of bank loans   -    (2,540)
Net cash used in financing activities   -    (1,319)
Effect of exchange rate changes on cash and cash equivalents   -    39 
Net decrease in cash and cash equivalents   (3,851)   (4,555)
Cash and cash equivalents at beginning of period   17,532    12,162 
Cash and cash equivalents at end of period  $13,681   $7,607 

 

See accompanying notes to condensed consolidated financial statements.

 

6

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

Overview

 

IDW Media Holdings, Inc. (“IDWMH”) together with its subsidiaries (collectively, the “Company”) is a diversified media company with operations in publishing and television entertainment. 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.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles 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. Certain information and footnote disclosures normally included in our annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted consistent with Article 8 of Regulation S-X. In the opinion of management, all adjustments (consisting principally of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto also included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All amounts in these condensed consolidated financial statements and notes to the condensed consolidated financial statements are reflected on a consolidated basis for all periods presented.

 

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 2021 refers to the fiscal year ended October 31, 2021).

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the World. The Company is actively monitoring the COVID-19 pandemic, the restrictive measures imposed to combat its spread and their potential impact on each of our operating segments. While we believe that through the first two quarters of fiscal 2022, there has been significant improvement due to global and domestic vaccination efforts, there is uncertainty around the duration and ongoing impact, if any, of COVID-19 related to both known and unknown risks, including future quarantines, closures and other restrictions resulting from the outbreak, and our operations and our customers and partners may continue to be impacted. The Company has considered information available to it as of the date of issuance of these condensed consolidated financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgements, or an adjustment to the carrying value of its assets or liabilities. The accounting estimates and other matters assessed include, but were not limited to, goodwill and other long-lived assets, and revenue recognition. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.

 

7

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Segment Information

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

 

The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Company (see Note 5).

 

Our principal business consists of the following segments:

 

  i.

IDWP Publishing (“IDWP”) creates comic books, graphic novels, digital content and games through its imprints IDW, Top Shelf Productions and Artist’s Editions; and

 

  ii.

IDW Entertainment (“IDWE”) acts as a production company and studio that develops, produces and distributes content based on IDWP’s original IP for a variety of formats including film and television.

 

Prior to February 15, 2021, we also owned 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 February 15, 2021, we consummated the sale of CTM to an assignee of Howard Jonas, the Company’s Chairman in exchange for (i) the cancelation of $3.75 million of indebtedness we owed to our Chairman’s designee, (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 sale, and (iii) a contingent payment if CTM is sold within 36 months of the sale for more than $4.5 million. As of July 31, 2020, CTM was reported as a discontinued operation and CTM’s operations have since been included in the condensed consolidated financial statements as discontinued operations (see Note 14).

 

Trade Accounts Receivable, Net

 

Trade accounts receivables are recorded at the invoiced amount and are generally unsecured as they are uncollateralized. The Company provides an allowance for doubtful accounts to reduce receivables to their estimated net realizable value. Judgement is exercised in establishing allowances and estimates are based on the tenants’ payment history and liquidity. Any amounts that were previously recognized as revenue and subsequently determined to be uncollectible are charged to bad debt expense included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The Company had an allowance for doubtful accounts of $0 as of April 30, 2022 and October 31, 2021.

 

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. IDWE capitalized cost of production and amortized it over the applicable product life cycle based upon the ratio of the current period’s revenues to the estimated remaining total Ultimate Revenues for each production. Advertising, marketing, and general and administrative costs are expensed as incurred.

 

Every quarter, the Company prepares analyses to support its content amortization expense. Critical assumptions used in determining content amortization include: (i) determining the grouping of contents (ii) the application of an ultimate revenue forecast model based on the contracts of televisions, (iii) gathering the schedules of delivered television episodes from the relative customers, (iv) calculating current period amortization, (v) assessing the accuracy of the Company’s forecasts. The Company continually reviews its estimates and contracts and revises its assumptions if necessary. Any material adjustments from the Company’s review of the amortization are applied prospectively in the period of the change for assets.

 

8

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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. 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.

 

Television costs are stated at the lower of cost less accumulated amortization or fair value. The Company evaluates impairment by the fair value of television costs at the individual level by considering expected future revenue generation, when an event or change in circumstances indicates a change in the expected revenue of the television costs or that the fair value of a film or film group may be less than unamortized costs.

 

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 three months ended April 30, 2022 and 2021 were $0 and $1,385,0000, respectively. Amortization of television costs during the six months ended April 30, 2022 and 2021 were $999,000 and $5,341,0000, respectively.

 

Variable Interest Entities

 

The Company, through its subsidiary IDWE has arrangements with seven special-purpose entities (“SPEs”) Some SPEs were formed for the sole purpose of providing production services of a television pilot and series in Canada, and other SPEs were formed for production and writing purposes. The SPEs are independently owned companies that are effectively controlled by IDWE and are parties to the related bank production financing arrangements. The Company has determined that SPEs are variable interest entities (“VIEs”) and that the Company is the primary beneficiary of the SPEs activities and was the obligor on the SPEs’ debt. All financial activity of the SPEs has been included in IDWE’s financial statements, which are part of these consolidated financial statements. IDWE is not obligated to provide any support to the VIE’s and therefore, potential losses are not foreseen. The SPEs have finished all of the productions and these shows have been delivered. The outstanding loans have been paid off. The carrying amounts and classification of the VIEs’ assets are presented below: 

 

(in thousands)  April 30,
2022
   October 31,
2021
 
Cash and cash equivalents  $75   $78 

 

Revenue Recognition

 

The Company applies the five-step approach as described in ASC 606, Revenue from Contracts with Customers, which consists of the following: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation.

 

IDWP generates revenue primarily from the sale and licensing of comic books, graphic novels, digital content, and games through IDWP’s imprints IDW Publishing, IDW Games, Top Shelf, and Artist’s Editions. Revenue from the direct sale of comic books, graphic novels and games is recognized, net of an allowance for estimated sales returns, at the time of shipment of its graphic novels, comic books and games by IDWP’s distributors to its customers. 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.

 

IDWE generates revenue primarily from the licensing and distribution of content across various platforms and formats to audiences globally including television series and films. 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.

 

9

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

IDWE enters into production agreements which provide for the rights and obligations related to the agreement including timing, delivery and payments. In certain productions in which IDWE is the distributor and IDWE has the obligation to pay artist, director and writer guilds for residuals for the creative writers of content. In addition, IDWE has the right to receive participation rights recoupment based on viewership of the cumulative production. The Company is unable to make an estimate as the recoupment is based on future viewership and therefore revenue will be recognized at a future date once the amount is known.

 

IDWE’s production activities included some of 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 SPEs becomes entitled to the Canadian tax credits. The Canada Revenue Agency (“CRA”) has completed the audit on these productions and the related tax refunds are no longer estimates. There are possible additional tax credits the Company may be eligible to receive, however due to the uncertainty of the receipt, the Company has not accrued for such credits.

 

The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the satisfaction of performance obligations, the Company records a contract liability on the balance sheets within deferred revenue until the performance obligations are satisfied.

 

In the ordinary course of business, the Company’s reportable segments enter into transactions with one another. The most common types of intersegment transactions include IDWE obtaining rights to produce television series based on content created by IDWP. All intersegment transactions are recorded into intercompany receivables or payables and therefore no revenue or inventory eliminations are required.

 

Revenue Recognition When Right of Return Exists

 

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. 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. As of April 30, 2022 and October 31, 2021, the Company’s estimated returns were $116,000 and $127,000, respectively.

 

Direct Cost of Revenues

 

Direct cost of revenues excludes depreciation and non-production cost 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.

 

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.

 

Concentration Risks

 

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, and trade accounts receivable. The Company holds cash and cash equivalents at major financial institutions, which often exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insurance limits. Historically, the Company has not experienced any losses due to such concentration of credit risk.

 

10

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

IDWP has two significant customers Penguin Random House Publisher Services (“PRHPS”) and Diamond Comic Distributors, Inc. (“Diamond”), that pose a concentration risk.

 

Revenues from PRHPS, IDWP’s non-direct market distributor, represented 40.5% and 23.1% of the total condensed consolidated revenue for the three months ended April 30, 2022 and 2021, respectively, and 28.0% and 25.4% of the total condensed consolidated revenues for the six months ended April 30, 2022 and 2021, respectively. The receivable balances from PRHPS represented 45.4% and 52.0% of the total condensed consolidated receivables at April 30, 2022 and October 31, 2021, respectively. On June 1, 2022, PRHPS replaced Diamond as IDWP’s distributor to the direct market.

 

Revenues from Diamond, IDWP’s direct market distributor, represented 38.5% and 25.7% of the total condensed consolidated revenue for the three months ended April 30, 2022, and 2021, respectively, and 23.0% and 26.5% of the total condensed consolidated revenues for the six months ended April 30, 2022 and 2021, respectively. The receivable balances from Diamond represented 28.5% and 20.0% of the total condensed consolidated receivables at April 30, 2022 and October 31, 2021, respectively.

 

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

 

Revenues from Netflix, a leading streaming video subscription service, represented 0.0% and 0.0% of condensed consolidated revenue for the three months ended April 30, 2022 and 2021, respectively, and 23.5% and 0.0% of the total condensed consolidated revenues for the six months ended April 30, 2022 and 2021, respectively.

 

Revenues from NBC Universal/SyFy, a major television network, represented 0.0% and 4.9% of condensed consolidated revenue for the three months ended April 30, 2022 and 2021, respectively, and 0.0% and 16.0% of the total condensed consolidated revenues for the six months ended April 30, 2022 and 2021, respectively.

 

Discontinued Operations

 

CTM met the criteria for discontinued operations and has been presented as such in the condensed consolidated 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.

 

During the period in which the discontinued operation was classified as held for sale, the net loss was reclassified as a separate line item in the Condensed Consolidated Statement of Operations. Assets and liabilities are also separately reclassified in the balance sheet for all periods presented, prior to the sale. CTM’s assets, liabilities, and cash flows are no longer reflected on the condensed consolidated financial statements for the periods following the CTM Sale Date. 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. CTM’s depreciation, amortization, capital expenditures and significant noncash operating and investing activities for the discontinued operation are presented separately.

 

Reclassification of prior year presentation

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications have not resulted in impacts to net loss. Stock options have been included with stock-based compensation on the Condensed Consolidated Statements of Stockholders’ Equity and Condensed Consolidated Statement of Cash Flows.

 

Revision of previously issued consolidated financial statements (in thousands)

 

During the quarter ended April 30, 2022, the Company identified errors that caused an understatement of previously reported current liabilities and accumulated deficit. Specifically, the error related to the lack of accrual for certain actor residuals related to Wynonna Earp incurred in 2016 and 2017. The correction of these errors increased accrued expenses and accumulated deficit each by $589 as of October 31, 2021. This error had no impact on net income or net cash provided by operating activities for the year ended October 31, 2021.

 

11

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In accordance with Staff Accounting Bulletin (“SAB”) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the errors and determined that the impact was not material to any of our previously issued financial statements.

 

The following table presents a summary of the impact by financial statement line item of the corrections as of October 31, 2021:

 

   As of October 31, 2021 ( in thousands) 
Consolidated Balance Sheet  As
Previously
Reported
   Adjustment   As Revised 
             
Accrued expenses  $3,197   $589   $3,786 
Total current liabilities  $8,741   $589   $9,330 
Total liabilities  $8,761   $589   $9,350 
                
Accumulated deficit  $(80,114)  $(589)  $(80,703)
Total stockholders’ equity  $22,637   $(589)  $22,048 

 

Recently Issued Accounting Pronouncements Adopted

 

In March 2019, the FASB issued Accounting Standard Update (“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 applied its provisions prospectively. In connection with this adoption the Company has evaluated this guidance and determined that were impairments (see Note 11) from substantively abandoned television costs which materially impacted the consolidated financial statements for the year ended October 31, 2021. These costs were recorded in direct cost of revenues.

 

In December 2019, the FASB issued ASC Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The purpose of Update No. 2019-12 is to continue the FASB’s Simplification Initiative to reduce complexity in accounting standards. The amendments in Update No. 2019-12 simplify the accounting for income taxes by removing certain exceptions related to the incremental approach for intra-period tax allocation, the requirement to recognize or derecognize deferred tax liabilities related to equity method investments that are also foreign subsidiaries, and the methodology for calculating income taxes in an interim period. The Company adopted the ASU on November 1, 2021, and adoption did not materially affect our condensed consolidated financial statements.

 

Recently Issued Accounting Standard Not Yet Adopted  

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), 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 guidance becomes effective for fiscal years beginning after December 15, 2022, though early adoption is permitted. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. The Company will adopt the new standard on November 1, 2023. The Company is evaluating the impact that the new standard will have on our condensed consolidated financial statements. 

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, 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, 2022, though early adoption is permitted. The Company will adopt this guideline prospectively for the fiscal year beginning November 1, 2023. The Company does not believe that the adoption of this new accounting guidance will have a material impact on its condensed consolidated financial statements. 

 

12

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 2—Earnings Per Share

 

Basic (loss) earnings per share is computed by dividing net (loss) 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 (loss earnings) per share is computed in the same manner as basic (loss) income per share except that the number of shares is increased to include additional shares that would have been outstanding had the potentially dilutive shares been issued, and reduced by the number of shares the Company could have repurchased with the proceeds from issuance of potentially dilutive shares using the treasury stock method, unless the effect of such increase would be anti-dilutive. The Company excluded 1,166,803 and 46,999, shares of unvested restricted Class B common stock, options to purchase 972,626 and 302,737 shares of Class B common stock, and warrants to purchase 187,579 and 187,579 shares of Class B common stock from the calculation of diluted loss per share for the three and six months ended April 30, 2022 and 2021, respectively, as the effect would have been anti-dilutive. Therefore, basic and diluted (loss) earnings per share are the same for the six months ended April 30, 2022 and 2021.

 

Note 3—Equity

 

On July 14, 2021, the number of authorized shares of the Company’s Class B common stock was increased from 12,000,000 to 20,000,000.

 

Voting Privileges and Protective Features

 

Each holder of outstanding shares of Class B common stock is entitled to cast the number of votes equal to one tenth of the whole shares of Class B common stock held by such holder. Each holder of outstanding shares of Class C common stock is entitled to cast the number of votes equal to three times the whole shares of Class C common stock held by such holder. Each series of preferred stock, if any are designated and issued, will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our Board of Directors, which may include, among others, dividends, voting rights, and liquidation preferences.

 

Restricted Stock

 

The fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on the grant date. Share awards generally vest on a graded basis over three years of service.

 

A summary of the status of the Company’s grants of restricted shares of Class B common stock is presented below:

 

   Number of
Non-vested
Shares
   Weighted
Average
Grant Date
Fair Value
 
Outstanding at October 31, 2021   85,999   $4.68 
Granted   1,116,568    1.81 
Vested   (34,264)   4.28 
Cancelled / Forfeited   

(1,500

)   

4.88

 
Non-vested restricted shares at April 30, 2022   1,166,803   $1.95 

 

On April 5, 2022, 1,104,972 restricted shares of the Company’s Class B common stock were issued to our Chairman, and have a vesting period of 5 years.

 

On April 30, 2022, there was $2,092,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, which is expected to be recognized over the next 5 years.

 

On December 31, 2020, 6,710 shares of Class B common stock were issued to our Chairman, for payment of interest on the loan agreement related to the related party loan that was paid off as of as part of the sale of CTM on February 15, 2021 (see Note 14).

 

Warrants

 

Detailed below are outstanding warrants issued to our Chairman associated with the two loans made by the Chairman to the Company, which have subsequently been repaid. The exercise price and expiration of these warrants were amended on March 29, 2022. The 98,336 shares had an original exercise price of $26.44 and were set to expire on March 30, 2022. The 89,243 shares had an original exercise price of $42.02. No additional compensation cost was incurred from the modification.

 

Number of Shares  Type of
Share
  Exercise
Price
   Expiration
98,336  Class B common stock  $1.94   August 21, 2023
89,243  Class B common stock  $1.94   August 21, 2023

 

13

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 4—Stock Based Compensation

 

2019 Incentive Plan

 

On March 14, 2019, the Company’s Board of Directors adopted the 2019 IDW Stock Option and Incentive Plan (“2019 Incentive Plan”) to provide incentives to executive officers, employees, directors and consultants of the Company and/or its subsidiaries and 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 the number of shares of Class B common stock reserved for the grant of awards under the 2019 Incentive Plan to 450,000, subject to adjustment.  On March 11, 2021, the Board of Directors of the Company increased the number of shares of Class B common stock reserved for the grant of awards under the 2019 Incentive Plan to 700,000, subject to adjustment. On November 8, 2021, the Board of Directors of the Company increased the number of shares of Class B common stock reserved for the grant of awards under the 2019 Incentive Plan to 1,350,000. The increase was approved on April 5, 2022 at the Company’s 2022 Annual Meeting of Stockholders. On January 13, 2022, the Board of Directors of the Company increased the number of shares of Class B common stock reserved for the grant of awards under the 2019 Incentive Plan to 2,550,000. The increase was approved on April 5, 2022 at the Company’s 2022 Annual Meeting of Stockholders. Options are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those options generally vest based on 3 years of continuous service and have 10-year contractual terms. As of April 30, 2022, 311,526 shares remained available to be awarded under the 2019 Incentive Plan.

 

The following table summarizes stock option activity during the six months ended April 30, 2022.

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
(in years)
   Aggregate
Intrinsic Value
(in thousands)
 
Outstanding at October 31, 2021   302,737   $5.69    8.32   $- 
Granted   698,222    2.39    9.62    - 
Exercised   -    -    -    - 
Cancelled / Forfeited   (28,333)   6.10    -    - 
Outstanding at April 30, 2022   972,626   $3.31    9.25   $- 
Exercisable at April 30, 2022   164,920   $6.17    8.40   $- 

 

At April 30, 2022, unamortized stock compensation for stock options was $1,055,000, which is expected to be recognized over the next 3 years.

 

Non-cash compensation for stock options issued to employees and restricted stock issued to employees and non-employees (see Note 3) included in selling, general and administrative expenses for continuing operations was $165,000 and $95,000 during the three months ended April 30, 2022 and 2021, respectively and $309,000 and $159,000 during the six months ended April 30, 2022 and 2021, respectively.

 

Note 5—Business Segment Information

 

The Company has the following reportable business segments: IDWP, 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 operating decision maker. The Company evaluates the performance of its business segments based primarily on operating income. The accounting policies of the segments are the same as the accounting policies of the Company as a whole.

 

Total Assets (in thousands)

 

At April 30, 2022 total assets are IDWP $13,271, IDWE $2,129, and IDWMH $11,713.

 

14

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

(in thousands)  IDWP    IDWE(a)       CTM   IDWMH   Total 
           (discontinued
operations)
   (unallocated
overhead)
     
Three months ended April 30, 2022                    
Revenues  $6,052   $1   $-   $-   $6,053 
Loss from operations   (267)   (1,676)   -    (301)   (2,244)
Net loss   (267)   (1,685)   -    (301)   (2,253)
Three months ended April 30, 2021                         
Revenues  $5,988   $4,152   $-   $-   $10,140 
(Loss) income from operations   (509)   1,216    -    (274)   433 
Loss from discontinued operations, net   -    -    (159)   -    (159)
Net (loss) income   (509)   1,382    (159)   1,827(b)   2,541 

 

(in thousands) (unaudited)  IDWP   IDWE(a)   CTM   IDWMH   Total 
           (discontinued
operations)
   (unallocated
overhead)
     
Six months ended April 30, 2022                    
Revenues  $13,583   $4,319   $-   $-   $17,902 
Income (loss) from operations   246    294    -    (800)   (260)
Net income (loss)   246    300         (810)   (264)
Six months ended April 30, 2021                         
Revenues  $11,636   $6,916   $-   $-   $18,552 
Loss from operations   (883)   (3,336)   -    (468)   (4,687)
Loss from discontinued operations, net   -    -    (1,280)   -    (1,280)
Net (loss) income   (883)   (3,171)   (1,280)   1,619(b)   (3,715)

 

(a)IDWE includes Thought Bubble LLC and Word Balloon LLC which consist of only television costs.

(b)The parent company, IDW Media Holdings, reported net income in the three and six months ended April 30, 2021 due to the sale of CTM.

 

Note 6—Trade Accounts Receivable and Deferred Revenue

 

Trade accounts receivable consists of the following:

 

(in thousands)  April 30,
2022
  

October 31,
2021

 
Trade accounts receivable  $4,874   $5,558 
Less allowance for sales returns   (116)   (127)
Trade accounts receivable, net  $4,758   $5,431 

 

Changes in deferred revenue consist of the following:

 

(in thousands)  Six months
ended
April 30,
2022
 
Beginning Balance  $2,045 
Deferral of revenue   108 
Recognition of deferred revenue   (2,145)
Ending Balance  $8 

 

The Company expects to satisfy its remaining performance obligations and recognize approximately 100% of this revenue over the next 12 months ending April 30, 2023.

 

15

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 7—Inventory

 

Inventory consists of the following:

 

(in thousands)  April 30,
2022
   October 31,
2021
 
Work in progress  $427   $495 
Finished goods   2,864    2,595 
Total  $3,291   $3,090 

 

Note 8—Prepaid Expenses

 

Prepaid expenses consist of the following:

 

(in thousands)  April 30,
2022
   October 31,
2021
 
Royalties and deposits  $1,313   $1,215 
Tradeshows   290    1 
Insurance   157    225 
Other prepaids   
466
    829 
Total  $2,226   $2,270 

 

Note 9—Property and Equipment

 

Property and equipment consist of the following:

 

 

(in thousands)

  April 30,
2022
   October 31,
2021
 
Equipment  $535   $557 
Furniture and Fixtures   241    106 
Leasehold improvements   833    827 
Computer software   24    24 
Total   1,633    1,514 
Less accumulated depreciation   (1,186)   (1,167)
Property and equipment, net  $447   $347 

 

Depreciation expense totaled $66,000 and $49,000 for the three months ended April 30, 2022 and 2021, respectively and $106,000 and $97,000  for the six months ended April 30, 2022 and 2021, respectively.

 

Note 10—Intangible Assets

 

Intangible assets consist of the following:

 

      April 30, 2022 
(in thousands)  Amortization
Period
  Gross
Carrying
Amount
   Additions   Impairments   Accumulated
Amortization
   Net Book
Value
 
Amortized intangible assets:                       
Licensing contracts  7 years  $893   $   $   $(893)  $- 
Software  5 years   704            (70)   634 
       1,597            (963)   634 
In-process intangible assets:                            
Software development costs      122    75            197 
       122    75            197 
                             
Total     $1,719   $75   $   $(963)  $831 

 

16

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

       October 31, 2021 
(in thousands)  Amortization
Period
   Gross
Carrying
Amount
   Additions   Impairments   Accumulated
Amortization
   Net Book
Value
 
Amortized intangible assets:                        
Licensing contracts   7 years   $893   $   $   $(886)  $7 
         893            (886)   7 
In-process intangible assets:                              
Software development costs            672            672 
             672            672 
                               
Total       $893   $672   $   $(886)  $679 

 

Amortization expense totaled $35,000 and $11,000 for the three months ended April 30, 2022 and 2021, respectively and $78,000 and $22,000 for the six months ended April 30, 2022 and 2021, respectively.

 

Note 11—Television costs and amortization

 

Television costs consist of the following:

 

(in thousands)  April 30,
2022
   October 31,
2021
 
In-development  1,538   $ 1,487 
Total  $1,538   $1,487 

   

   Three Months Ended   Six Months Ended 
(in thousands)  April 30,
2022
   April 30,
2021
   April 30,
2022
   April 30,
2021
 
Television cost amortization  $-   $1,385   $999   $5,341 
Television cost impairments   155    -    155    2,065 
Total  $155   $1,385   $1,154   $7,406 

 

17

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 12—Accrued Expenses

 

Accrued expenses consist of the following:

 

(in thousands)  April 30,
2022
  

October 31,
2021

 
Royalties  $1,291   $1,410 
Residuals   868    589 
Payroll, bonus, accrued vacation and payroll taxes   805    1,304 
Other   351    483 
Total  $3,315   $3,786 

 

Note 13—Commitments

 

Lease Commitments

 

The Company has various lease agreements with remaining terms up to 2.5 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 0.76 years, with a weighted-average discount rate of 4.59% as of April 30, 2022.

 

The Company recognized lease expense for its operating leases of $126,000 and $125,000 for the three months ended April 30, 2022, and 2021, respectively, and $251,000 and $250,000 for the six months ended April 30, 2022 and 2021, respectively. The cash paid under operating leases was $157,000 and $144,000 for the three months ended April 30, 2022 and 2021, respectively and $314,000 and $287,000 for the six months ended April 30, 2022 and 2021, respectively.

 

At April 30, 2022, the Company had a right-of-use-asset related to operating leases of $778,000, accumulated amortization related to operating leases of $720,000,  both of which are included as a component of right-of-use assets. On October 31, 2021, the Company had a right-of-use-asset related to operating leases of $1,037,000 and accumulated amortization related to operating leases of $735,000.

 

As of April 30, 2022, future minimum lease payments required under operating leases are as follows:

 

Maturity of Lease Liability

 

(in thousands)

  Total 
Fiscal years ending October 31:    
Rest of 2022  $42 
2023   13 
2024   7 
2025   - 
Thereafter   - 
Total minimum lease payments  62 
Less: imputed interest   (2)
Present value of future minimum lease payments  $60 

 

18

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 14—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 February 15, 2021, pursuant to a sales and purchase agreement (“SPA”) dated as of July 14, 2020 IDWMH sold all of the stock of CTM to an assignee of the Chairman in exchange for (i) the cancelation of $3.75 million of indebtedness owed by IDWMH to the Chairman’s designee, (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 CTM Sale Date, and (iii) a contingent payment if CTM is sold within 36 months the CTM Sale Date for more than $4.5 million. Prior to executing the SPA, 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 the Chairman or immediate family members of the Chairman, 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. Since the closing of the CTM Sale, the Company has not had any significant continuing involvement with CTM.

 

As of July 31, 2020, CTM was reported as a discontinued operation and CTM’s operations have since been included in the condensed consolidated financial statements as discontinued operations. On February 15, 2021, the Company closed the CTM Sale. The loan of $3,750,000 was forgiven in part of the sale and the Company recorded a gain of $2,123,219 based on CTM’s net asset value as of the CTM Sale Date. CTM’s assets are no longer reflected on the condensed consolidated financial statements for the periods following the CTM Sale Date and CTM’s operations are only consolidated in the Company’s condensed consolidated statements of operations results until the CTM Sale Date. There was no contingent gain recorded since there was no foreseeable contingent payments to the Company.

 

Pursuant 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.

  

The consolidated statements of operations include the following results related to CTM discontinued operations:

 

Results of discontinued operations

 

(in thousands)  Three months
ended,
April 30,
2021
   Six months
ended,
April 30,
2021
 
         
Revenue  $207   $1,427 
Direct cost of revenue   105    946 
Selling, general and administrative   227    1,649 
Depreciation and amortization   45    295 
Bad Debt   1    (109)
Total costs and expenses   378    2,781 
Loss from operations   (171)   (1,354)
Interest expense, net   19    6 
Other income (expense), net   (7)   68 
Loss before income taxes   (159)   (1,280)
(Provision for) benefit from income taxes   -    - 
Net loss  $(159)  $(1,280)

 

19

 

 

IDW MEDIA HOLDINGS, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

CTM’s depreciation and amortization, capital expenditures and notable activities for the discontinued operation include:

 

(in thousands)  Six months
ended,
April 30,
2021
 
     
Depreciation and amortization  $185 
Amortization of finance lease   109 
Amortization of right-of-use assets   282 
Capital expenditure   (22)
Gain on extinguishment of PPP loan   (68)

 

Note 15—Subsequent events

 

The Company has evaluated subsequent events through June 14, 2022, the date on which the condensed consolidated financial statements were available to be issued. There were no material subsequent events that require recognition or additional disclosures in these condensed consolidated financial statements, except as follows:

 

On April 5, 2022, the Company entered into a new lease agreement for IDWP in San Diego, California. The new lease has an initial term of 3.25 years and commenced on June 1, 2022. Base rent for the initial term is approximately $424,000. The Company has an option to extend the term of the lease for an additional 3 years exercisable only by written notice. The lease is subject to additional charges for common area maintenance and other costs.

 

20

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following information should be read in conjunction with the accompanying condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the related notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on January 20, 2022 (the “2021 Form 10-K”).

 

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

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed in the 2021 Form 10-K. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.

 

OVERVIEW

 

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

 

In 2009, IDT Corporation, our former parent corporation, completed a tax-free spinoff (the “Spin-Off”) of the Company through a pro rata distribution of our common stock IDT’s stockholders.

 

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 through its imprints IDW, Top Shelf Productions and Artist’s Editions; and

 

21

 

 

 

IDW Entertainment, or IDWE, a production company and studio that develops, produces and distributes content based on IDWP’s original IP for a variety of formats including film and television.

 

Prior to February 15, 2021, we also owned 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 February 15, 2021, we consummated the sale of CTM to an assignee of Howard Jonas, the Company’s Chairman in exchange for (i) the cancelation of $3.75 million of indebtedness we owed to our Chairman’s designee, (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 sale, and (iii) a contingent payment if CTM is sold within 36 months of the sale for more than $4.5 million. 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.

 

COVID-19: Overview of Impacts  

 

IDWMH: Received two PPP loans related to core IDWE and IDWP operations.

 

o$1,195,679 on April 27, 2020, subsequently forgiven on July 20, 2021

 

o$1,195,680 on April 2, 2021, subsequently forgiven on October 27, 2021

 

  IDWP: Although COVID-19 caused changes in direct-market returnability in 2020, effective in April 2021, the return policies have reverted back to pre-COVID-19 industry standard practices. Additionally, 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. Although the delay in comic releases continues to have an impact on the industry, the impact has been slowly decreasing and returning to pre-COVID-19 levels.

 

  IDWE: Industry-wide production suspensions halted filming and production of Wynonna Earp Season four after the completion of six of twelve episodes. IDWE continues its program to develop, package and pitch from its library on a largely remote basis. While there are some in-person writer’s rooms with strict COVID protocols, the majority of writer’s rooms, pitch scenarios and development conversations are all still happening remotely, with little to no impact on filming and production schedules.  

 

22

 

 

Business Description

 

IDW Publishing 

 

IDWP is an award-winning publisher of comic books, original graphic novels, and art books. Founded in 1999, IDWP has a long tradition of supporting original, powerful 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, Beau Smith’s Wynonna Earp, Alan Robert’s The Beauty of Horror adult coloring books, and Darwyn Cooke’s graphic novel adaptations of Richard Stark’s Parker novels are just a few of the hundreds of outstanding, award-winning titles published since its inception.

 

In 2015, IDWP acquired Top Shelf Productions, an award-winning critically acclaimed publisher of graphic novels, which continues to operate as a thriving imprint. Top Shelf Productions is renowned 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 and is the second most taught graphic novel in schools. In July 2019, Top Shelf Productions 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. Both titles are now perennial bestsellers and considered two of the finest non-fiction graphic novels ever made. Other iconic Top Shelf Productions titles include Kim Dwinell’s Surfside Girls, Jeff Lemire’s Essex County and The Underwater Welder, and Hannah Templer’s Cosmoknights.

 

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, Dungeons & Dragons and My Little Pony; Sega’s Sonic The Hedgehog; Paramount Global’s, Star Trek; Teenage Mutant Ninja Turtles and Toho’s Godzillas. These licensed titles bring with them diverse built-in audiences and build cache and retailer support for IDWP. With licensed franchises, IDWP’s strategy is to focus not only on licenses that 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 book publishers to co-publish certain titles, including Batman vs. Teenage Mutant Ninja Turtles and Locke & Key/The Sandman Universe: Hell & Gone (with DC Comics), Rick & Morty vs. Dungeons & Dragons (with Oni Press, Inc.) and Godzilla vs. Power Rangers (with Boom Studios).

 

IDWP’s focus is to expand and market its library of titles, from both creator-owned titles in our IDW and Top Shelf brands; and also, in partnership with our top-of-class creative partners under our IDW brand. IDWP works synergistically with IDWE to develop new titles and to support existing titles. 

 

IDW Originals is a line of original comic series and graphic novels for the direct comic market and the book trade market. Dedicated to cultivating a diverse lineup of content and creators across all genres and age groups, IDW Originals works with a variety of talent from New York Times Bestselling writers like Scott Snyder on “Dark Spaces: Wildfire,” Stephen Graham Jones on “Earthdivers,” and G. Willow Wilson on “The Hunger and the Dusk.” Plus up-and-coming talent creating the bestsellers of tomorrow. In addition to publishing great content, IDW Originals is also focused on creating IP that can be exploited across all media platforms.

 

IDWP is also home to Artist’s Editions, oversized deluxe hardcovers featuring scans of original art printed at the same size they were drawn with all the distinctive creative nuances that make original art unique. Some of the standout Artist’s Editions titles include Jim Lee’s X-Men, Mike Mignola’s Hellboy, David Mazzucchelli’s Daredevil Born Again and Jim Sterako’s Nick Fury Agent of SHIELD.

 

Many of IDWP’s titles are available worldwide through foreign licensing with 642 titles available in 62 territories in 24 languages. In 2020, IDW kicked off a major new initiative to release key titles as Spanish-language graphic novels in the North American market with the release of Spanish-language editions of They Called Us Enemy, Red Panda & Moon Bear, Locke & Key and Sonic the Hedgehog.

 

IDWP’s largest segment is the publication of comic book and trade paperback products. Its comics and graphic novels are primarily distributed through three channels: (i) to comic book specialty stores (the “direct market”); (ii) to traditional retail outlets, including bookstores and mass market stores, on a returnable basis (the “non-direct market”); and (iii) 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 webstore at idwpublishing.com. Through the direct market and non-direct market, IDWP, including its imprint Top Shelf Productions, sold over 4.8 million units in fiscal year 2021 and is regularly recognized as the fourth largest publisher in its category. Diamond served as IDWP’s distributor to the direct market, worldwide, and beginning June 1, 2022, PRHPS replaced Diamond as IDWP’s distributor to the direct market. IDWP’s non-direct market distributor is PRHPS. IDWP works together with PRHPS 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.

 

23

 

 

In September 2021, IDWP announced an exclusive worldwide multi-year sales and distribution agreement with PRHPS for IDW’s newly published and backlist comic book periodicals, trade collections, and graphic novels to the Direct Market comic shops beginning June 1, 2022.

 

In 2014, IDWP launched IDW Games to develop and publish card, board, and tabletop games. Similar to IDWP’s book content, IDW Games offered 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 were 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. In calendar 2021, the Company wound down IDW Games and, going forward, IDW Games is only backfilling final orders  and reproducing select existing products.

 

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.

 

To expand its business and outperform its industry competitors, IDWP continues to focus on launching new creator-owned titles and partnering with established brands to bring fan-favorite properties to the comics market. IDWP is 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.

 

IDWP’s revenues represented 100% and 59.1% of our consolidated revenues in the three months ended April 30, 2022 and 2021, respectively and 75.9% and 62.7% in the six months ended April 30, 2022 and 2021, respectively.  

 

IDW Entertainment

 

IDWE is a production company and studio that develops, produces and distributes content based on IDWP’s original IP for a variety of formats including film and television.

 

IDWE was formed on September 20, 2013 to leverage IDWP properties into television series, features and other forms of media by developing and producing original content. IDWE maintains a robust development slate of properties based on IDWP properties for the adult series/features marketplace as well as the kids, family and animation space. IDWE is in advanced conversations with various global studios, networks and streamers for their exploitation.  IDWE actively recruits and acquires new franchise material for exploitation primarily in the series format.

 

IDWE has developed and/or produced a number of series for television:

 

 

Wynonna Earp season four aired 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 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 was based upon Jonathan Maberry’s IDWP comic book series of the same name. The rights to IDWE’s streaming genre series V Wars reverts back to IDW in 2022; as a result we will be exploring opportunities to monetize the past season and potential opportunities to continue the story with a new partner.

 

 

October Faction premiered on Netflix on January 23, 2020. The 10-episode show was based on the IDWP comics 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.

 

24

 

 

 

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 published by IDWP.  Season two aired in October 2021 topping Netflix’s global TV charts in over 81 countries, and season three has been renewed by Netflix.

 

IDWE recently wrapped production on its original Apple TV+ series Surfside Girls, based on the Top Shelf graphic novel of the same name. The live-action 10-episode first season will premiere on Apple TV+ on August 19, 2022.

 

While in the past, IDWE focused solely on television development and financing production opportunities, a broadening of our strategic goals has evolved to focus on low to no-risk investments as well as developing IP for feature film and podcast opportunities. With more varied opportunities for our content/IP, we will be able to grow our brand, expand the perception of IDWE, increase revenue opportunities for the publishing side of the business and develop a more robust entertainment footprint.

 

IDWE’s revenues represented 0% and 40.9% of our consolidated revenues in the three months ended April 30, 2022 and 2021, respectively and 24.1% and 37.3% in the six months ended April 30, 2022 and 2021, respectively.   

 

CTM (Discontinued operations)

 

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.  Pursuant to a sales and purchase agreement (“SPA”) dated as of July 14, 2020, we sold all of the stock of CTM to an assignee of the Chairman in exchange for (i) the cancelation of $3.75 million of indebtedness owed by us to the Chairman’s designee, (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 CTM Sale Date, and (iii) a contingent payment if CTM is sold within 36 months of the CTM Sale Date for more than $4.5 million.  The CTM Sale closed on February 15, 2021 and CTM is only consolidated up until the sale date with the gain reflected separately in the consolidated statement of operations.

 

Results of Operations

 

We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below loss from operations are only included in our discussion of the consolidated results of operations.

 

IDWP  

 

(in thousands)          Change 
Three months ended April 30,  2022   2021   $   % 
                 
Revenues  $6,052   $5,988   $64    1.1%
Direct cost of revenues   3,150    3,333    (183)   (5.5)%
Selling, general and administrative   3,079    3,114    (35)   (1.1)%
Depreciation and amortization   90    50    40    80.0%
(Loss) income from operations  $(267)  $(509)  $242    47.5%

 

(in thousands)          Change 
Six months ended April 30,  2022   2021   $   % 
                 
Revenues  $13,583   $11,636   $1,947    16.7%
Direct cost of revenues   6,864    6,506    358    5.5%
Selling, general and administrative   6,312    5,914    398    6.7%
Depreciation and amortization   161    99    62    62.6%
Income (loss) from operations  $246   $(883)  $1,129    127.9%

 

25

 

 

Revenues. Revenues increased by $64,000 in the three months ended April 30, 2022, compared to the three months ended April 30, 2021, primarily due to an increase in direct-to-consumer revenue of $384,000 related to Sonic the Hedgehog 30th Anniversary, a decrease in sales returns and discounts on book sales of $210,000, and an increase in non-direct market publishing revenue of $108,000 driven by strong They Called Us Enemy sales, partially offset by a decrease in direct market publishing revenue of $275,000 due to fewer titles being released during the period, a decrease in games revenue of $114,000, a decrease in digital revenue of $110,000 due to an overall decrease in sales across all platforms, and a decrease in other revenue categories of $139,000.

 

Revenues increased by $1,947,000 in the six months ended April 30, 2022, compared to the six months ended April 30, 2021, primarily due to an increase in games revenue of $2,004,000 driven by the fulfillment of the direct-to-consumer games campaign for Batman Adventures, an increase in other publishing revenue of $462,000, a decrease in sales returns and discounts on book sales of $300,000, and an increase in non-direct market publishing revenue of 294,000, partially offset by a decrease in direct market publishing revenue of $796,000 due to fewer titles being released during the period, a decrease in digital sales of $285,000, and a decrease in licensing revenue of $32,000. Sales returns continue to improve compared to prior year due to targeted incentives with accounts to reduce return rates, localization of inventory management at Barnes & Noble, and Covid-related pressures in fiscal 2021. Digital sales are expected to remain below prior year as Covid-related restrictions end and people spend less time-consuming digital media. Direct market sales will likely remain lower for the year compared to prior year due to the release of multiple Teenage Mutant Ninja Turtles: The Last Ronin titles in fiscal 2021. 

 

Effective March 2023, our licenses for the Transformers and GI Joe titles will be terminated. While the cancellation of the licenses for Transformers and GI Joe are anticipated to decrease revenues by approximately $1.2 million in fiscal year 2023, IDWP plans to mitigate the loss of revenue by enhancing its other key licensed brands. Additionally, we expect revenues from IDW Originals to begin to materialize in July 2022 with an estimated five new IDW original titles spanning fiscal 2022 and a planned output of doubling quantities each progressing fiscal year. We expect those efforts to offset any material impact on our gross margin from the loss of the licensed titles.

 

During calendar 2021, we began to winddown IDW Games and, going forward, IDW Games is only backfilling already developed games. The decision to shut down games was due to its lack of profitability, despite outliers like Batman Adventures, noted above.

 

Direct cost of revenues. IDWP’s direct cost of revenues decreased by $183,000 in the three months ended April 30, 2022, compared to the three months ended April 30, 2021, primarily due to a decrease in printing expenses and creative costs for IDW Games of $219,000 and a net decrease in other direct costs such as costs of artists and writers of $83,000, offset by an increase in publishing printing costs of $119,000. IDWP’s direct cost of revenues increased by $358,000 in the six months ended April 30, 2022, compared to the six months ended April 30, 2021, primarily due to an increase in printing expenses and creative costs for IDW Games of $564,000 and an increase in publishing printing costs of $287,000, offset by a decrease in royalty expenses of $239,000, a decrease in publishing creative costs of $173,000, and a decrease in digital and licensing costs of $81,000. Although costs were recognized for fulfillment of the Batman Adventures game in the current year, future games costs will only be recognized with individual customer orders. Royalty expense as a percentage of sales is dependent on product and title mix as different revenue streams and titles have different royalty rates. 

 

Gross Margin. IDWP’s gross margin for the three months ended April 30, 2022 increased to 48.0% from 44.3% in the three months ended April 30, 2021. Gross margin for the six months ended April 30, 2022 increased to 49.5% from 44.1% in the six months ended April 30, 2021. These increases are principally due to the recognition of revenue for the fulfillment of the direct-to-consumer games campaign for Batman Adventures and a decrease in royalty expenses as a percentage of revenue.

 

Selling, General and Administrative. IDWP’s selling, general and administrative expenses decreased by $35,000 during the three months ended April 30, 2022, compared to the three months ended April 30, 2021. The decrease was driven by decreases in salary and benefits of $190,000 and overhead allocation of $70,000, partially offset by increases in consulting of $74,000, software costs of $133,000, and other net changes of $18,000. Consulting expenses of $70,000 were recorded as administrative expense in the three months ended April 30, 2022. These expenses were recorded as salary and benefits in the three months ended April 30, 2021. Additionally, a refund receivable for workers compensation insurance of $79,000 was recorded in salary and benefits in the three months ended April 30, 2022. Administration costs in the current fiscal year include costs related to the recently launched website of $122,000.

 

IDWP’s selling, general and administrative expenses increased by $398,000 during the six months ended April 30, 2022, compared to the six months ended April 30, 2021. The increase was driven by increases in consulting of $156,000, software costs of $142,000, severance of $40,000, and shipping and direct-to-consumer costs of $241,000, offset by decreases in salary and benefits of $174,000, and other net changes of $7,000. Expense categories include the various changes and differences described above. The overall increase from prior fiscal year relates to Batman Adventures fulfillment costs and costs related to the recently launched website.

 

As a percentage of IDWP’s revenues, selling, general and administrative expenses in the three months ended April 30, 2022, were 50.9% compared to 52.0% in the three months ended April 30, 2021, and 46.5% in the six months ended April 30, 2022, compared to 50.8% in the six months ended April 30, 2021.

 

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IDWE

 

(in thousands)          Change 
Three months ended April 30,  2022   2021   $   % 
                 
Revenues  $1   $4,152   $(4,151)   (100)%
Direct cost of revenues   447    1,393    (946)   (67.9)%
Selling, general and administrative   1,222    1,534    (312)   (20.3)%
Depreciation and amortization   8    9    (1)   nm
(Loss) income from operations  $(1,676)  $1,216   $(2,892)   (237.8)%

 

(in thousands)          Change 
Six months ended April 30,  2022   2021   $   % 
                 
Revenues  $4,319   $6,916   $(2,597)   (37.6)%
Direct cost of revenues   1,523    7,453    (5,930)   (79.6)%
Selling, general and administrative   2,484    2,781    (297)   (10.7)%
Depreciation and amortization   18    18    -    -
(Loss) income from operations  $294   $(3,336)  $3,630    108.8%

 

nm—not meaningful

 

Revenues. IDWE revenues for the three months ended April 30, 2022, decreased by $4,151,000 compared to the three months ended April 30, 2021. The revenues for the three months ended April 30, 2021, includes revenue from delivered episodes of Wynonna Earp of $820,000 and tax credits for V Wars and October Faction of $3,331,000.

 

IDWE revenues for the six months ended April 30, 2022, decreased by $2,597,000 compared to the six months ended April 30, 2021. Revenues in the six months ended April 30, 2022, included revenue recognized due to the full delivery of Locke & Key season two in an amount of $4,200,000 and the French-Canadian license received for V Wars of $119,000. In the six months ended April 30, 2021, revenues included recognition from delivered episodes from Wynonna Earp of $3,433,000, tax credits for V Wars and October Faction of $3,331,000, foreign receipts from Dirk Gently of $114,000 and other income of $38,000.

 

Direct costs of revenues. 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.

 

Direct costs of revenues for the three months ended April 30, 2022, decreased by $946,000 compared to the three months ended April 30, 2021. The amortized television costs for the three months ended April 30, 2022, consisted of inventory write offs of $155,000 and residuals of $292,000. The amortized television costs for the three months ended April 30, 2021, included delivered episodes of Wynonna Earp of $970,000 and cost refinements from October Faction and V Wars of $423,000.

 

Direct costs of revenues for the six months ended April 30, 2022, decreased by $5,930,000 compared to the six months ended April 30, 2021. The amortized television costs for the six months ended April 30, 2022, consisted of delivered episodes from Locke & Key season 2 of $999,000, cost refinement from October Faction and V Wars of $77,000, inventory write offs of $155,000, and residuals of $292,000. The amortized television costs for the six months ended April 30, 2021, included delivered episodes of Wynonna Earp of $4,918,000, impairment charges of $2,064,000, and cost refinements from October Faction and V Wars of $471,000

 

IDWE’s gross margin for the three months ended April 30, 2022, was 0.0% compared to 66.4% for the three months ended April 30, 2021. IDWE’s gross margin for the six months ended April 30, 2022, was 64.7% compared to negative 7.8% for the six months ended April 30, 2021. These gross margin figures are aligned with the explanations provided for revenues and direct costs of revenues.

 

Selling, General and Administrative. Selling, general and administrative expenses decreased by $312,000 during the three months ended April 30, 2022, compared to the three months ended April 30, 2021. The decrease was driven by decreases in consulting costs of $217,000, legal fees of $104,000, professional services of $73,000, marketing of $56,000, recruitment fees of $24,000, and other net changes of $22,000, offset by increases in overhead allocations of $125,000 and non-cash compensation of $59,000.

 

27

 

 

Selling, general and administrative expenses decreased by $297,000 during the six months ended April 30, 2022, compared to the six months ended April 30, 2021. The decrease was driven by decreases in consulting costs of $280,000, legal fees of $186,000, marketing of $108,000, salary and benefits of $21,000, recruitment fees of $90,000, professional services of $73,000 and other net changes of $13,000, offset by increases in overhead allocation of $381,000, and non-cash compensation of $93,000.

 

As a percentage of IDWE’s revenues, selling, general and administrative expenses in the six months ended April 30, 2022, was 100.0% compared to 52.0% in the three months ended April 30, 2021, and 57.5% in the six months ended April 30, 2022 compared to 40.2% in the six months ended April 30, 2021.

 

IDWMH

 

(in thousands)          Change 
Three months ended April 30,  2022   2021   $   % 
                 
Selling, general and administrative  $299   $273   $26    9.5%
Depreciation and amortization   2    1    1      nm 
Loss from operations  $(301)  $(274)  $(27)   9.9%

 

(in thousands)          Change 
Six months ended April 30,  2022   2021   $   % 
                 
Selling, general and administrative  $795   $465   330    71.0%
Depreciation and amortization   5    3    2    nm
Loss from operations  $(800)  $(468)  $332   70.9%

 

nm—not meaningful

 

Selling, General and Administrative. Selling, general and administrative expenses increased by $26,000 during the three months ended April 30, 2022, compared to the three months ended April 30, 2021. The increase was driven by increases in salary and benefits of $61,000 and shareholder relations of $35,000, offset by decreases in accounting fees of $35,000 and legal fees of $35,000. 

 

Selling, general and administrative expenses increased by $330,000 during the six months ended April 30, 2022, compared to the six months ended April 30, 2021. The increase was driven by increases in salary and benefits of $278,000, shareholder relations of $63,000, non-cash compensation of $19,000, and other net changes of $10,000, offset by decreases in legal fees of $40,000. 

 

Net (loss) income IDW Media Holdings, Inc.  

Consolidated

 

(in thousands)          Change 
Three months ended April 30,  2022   2021   $   % 
(Loss) income from continuing operations  $(2,244)  $433   $(2,677)   (618.2)%
Interest income, net   -    156    (156)   (100)%
Other expenses, net   (9)   (12)   3    nm 
Net (loss) income from continuing operations   (2,253)   577    (2,830)   (490.5)%
Loss from discontinued operations, net   -    (159)   159    100.0%
Gain on sale of discontinued operations   -    2,123    (2,123)   (100.0)%
Net (loss) income  $(2,253)  $2,541   $(4,794)   (188.7)%

 

(in thousands)          Change 
Six months ended April 30,  2022   2021   $   % 
Loss from continuing operations  $(260)  $(4,687)  $4,427    94.5%
Interest (expense) income, net   (10)   142    (152)   (107.0)%
Other income (expense), net   6    (13)   19    nm
Net loss from continuing operations   (264)   (4,558)   4,294    94.2%

Loss from discontinued operations, net

   -    (1,280)   1,280   100.0%
Gain on sale of discontinued operations   -    2,123    (2,123)   (100.0)%
Net loss  $(264)  $(3,715)  $3,451    92.9%

 

nm—not meaningful

 

28

 

 

(Loss) income from operations. Loss from operations increased by $2,677,000 in the three months ended April 30, 2022, compared to a income from operations in the three months ended April 30, 2021, due to increased operating losses from IDWE of $2,892,000 and an increase in corporate overhead of $28,000, offset by decreased operating losses from IDWP of $243,000. These changes are more fully described in the separate segment analyses above.

 

Loss from operations decreased by $4,427,000 in the six months ended April 30, 2022, compared to a loss from operations in the six months ended April 30, 2021, due to increased operating income from IDWP of $1,129,000 and from IDWE of $3,630,000 offset by an increase in corporate overhead of $332,000. These changes are more fully described in the separate segment analyses above.

 

Interest income (expense), net. Interest income decreased by $156,000 in the three months ended April 30, 2022, compared to the three months ended April 30, 2021, and by $152,000 in the six months ended April 30, 2022, compared to the six months ended April 30, 2021 due to interest income from CRA tax credits received in the three and six months ended April 30, 2021.

 

Loss from discontinued operations, net. Loss from discontinued operations was $0 for the three and six months ended April 30, 2022, compared a loss of $159,000 for the three months ended April 30, 2021 and a loss of $1,280,000 for the six months ended April 30, 2021, respectively, due to the sale of CTM which resulted in CTM no longer being consolidated with the Company as of February 15, 2021.

 

Gain on sale of discontinued operations decreased by $2,132,000 in the three and six months ended April 30, 2022 compared to the three and six months ended April 30, 2021, as a result of the sale of CTM.

 

Liquidity and Capital Resources  

 

General

 

At April 30, 2022, we had cash and cash equivalents of $13,681,000 and working capital (current assets in excess of current liabilities) of $18,949,000.

 

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 April 30, 2022, including proceeds from the offering closed on August 6, 2021, will be sufficient to sustain our operations for at least the next twelve months following the date of this report.

 

We satisfy our cash requirements primarily through cash provided by the Company’s operating and financing activities.

 

   Six months ended
April 30,
 
(in thousands)  2022   2021 
Cash flows used in:        
Operating activities  $(3,415)  $(2,301)
Investing activities   (436)   (974)
Financing activities   -    (1,319)
Effect of exchange rate changes on cash and cash equivalents   -    39 
Net decrease in cash and cash equivalents  $(3,851)  $(4,555)

 

Operating Activities

 

Cash flows used in operating activities was $3,415,000 for the six months ended April 30, 2022, and $2,301,000 for the six months ended April 30, 2021. For the six months ended April 30, 2022, the net use of cash is primarily a result of a net loss for the period and unfavorable changes in production cost payable and deferred revenues offset by favorable changes in accounts receivable. For the six months ended April 30, 2021, the net use of cash was primarily a result of a net loss in the period, an unfavorable adjustment for the gain on sale of CTM, and by an unfavorable change in deferred revenue, partially offset by favorable changes in trade accounts receivable, television costs and trade accounts payable, accrued expenses, production costs payable and other current liabilities.

 

Investing Activities

 

Our capital expenditures were approximately $436,000 and $72,000 in the six months ended April 30, 2022, and 2021, respectively. The six months ended April 30, 2021 also included an unfavorable adjustment of $902,000 related to the disposal of CTM.

 

29

 

 

Financing Activities

 

During the six months ended April 30, 2021, IDW repaid bank loans in the amount of $2,540,000. In the six months ended April 30, 2021, IDW received PPP loans of $1,196,000. In addition, IDW issued common stock for $25,000 in the six months ended April 30, 2021.

 

Critical Accounting Policies

 

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, goodwill, 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. See Note 1 to the consolidated financial statements included in our 2021 Form 10-K. 

 

Recent Accounting Pronouncements

 

For a description of recently issued accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Note 1 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

 

Changes in Trade Accounts Receivables and Allowance for Doubtful Accounts

  

Trade accounts receivable decreased to approximately $4,758,000 at April 30, 2022, compared to $5,431,000 at October 31, 2021 principally due to changes in the accruals and collection of IDWE 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% at April 30, 2022 and at October 31, 2021, reflecting our collectible receivable experience.

 

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.

 

Other Sources and Uses of Resources

 

On August 6, 2021, IDWMH closed a registered public offering of Class B common stock and EF Hutton, as representative of the Underwriters exercised the overallotment option included as part of the offering in full. The Company sold an aggregate of 2,875,000 shares of the Company’s Class B common stock for gross consideration of $10,350,000 less Underwriters commissions of $724,500 and Underwriters expenses of $75,000.

 

The Company is using the net proceeds we received from the offering principally for the development of original IP and the purchase of associated publishing, media, and merchandise rights to be used across multiple platforms (e.g., print, television, new media) as well as supplemental IP acquisition and marketing spend for these newly created IP franchises, and additionally for technology investment for our website, applications, data and business intelligence; talent investment as we look to expand our kids, middle grade, young adult, and family genres, and to further diversify into animation. The Company also seeks to pursue potential acqui-hire and/or bolt-on mergers and acquisition opportunities, should such opportunities arise.

 

We do not have any agreements at this time to potentially acquire other entities or businesses. The foregoing represents our current intentions based upon our present plans and business conditions to use and allocate the net proceeds of this offering. However, the nature, amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management has and will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. To the extent that the net proceeds we receive from this offering are not immediately used for the above purposes, we intend to invest our net proceeds in short-term, interest-bearing bank deposits or debt instruments.

 

30

 

 

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) the temporary closure of IDWP’s comic book distributor due to COVID-19 disruptions, and (b) production delays of IDWE’s television show Wynonna Earp. Its production schedule had been delayed which was a direct result of the COVID-19 pandemic that had affected virtually the entire filmed entertainment industry. This production delay had negatively impacted the delivery, which in turn pushed out our cash receipts.

 

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 had agreed to transfer those rights to Cineflix.  Cineflix is now 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 did not contribute revenue and operating cash flow in fiscal year 2021 at the levels originally anticipated at the inception of the deal.

 

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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risks  

 

There is a foreign currency exchange risk associated with IDWE’s arrangements with special-purpose entities, formed for the sole purpose of providing production services in Canada, as the value of assets denominated in CAD will fluctuate due to changes in exchange rates, which will affect our production costs.

 

Foreign Exchange Balances Held in CAD (in thousands)

  April 30,
2022 
    October 31,
2021
 
Cash and cash equivalents  $93   $85 

 

Item 4. Control and Procedures

 

Evaluation of Disclosure Controls and Procedures. 

 

Our management, with the participation of our Chief Executive Officer (“CEO”)and Chief Financial Officer (“CFO”) have evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2022 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our CEO and CFO have concluded that, as of April 30, 2022 our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting. 

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended April 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

31

 

 

Part II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None

 

Item 1A Risk Factors

 

There have been no material changes to the Risk Factors set forth in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, except for the following:

 

Item 1B. Unresolved Staff Comments.

 

None

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

Not applicable

 

Item 5. Other Information

 

None

  

32

 

 

Item 6. Exhibits

 

Exhibit
Number
  Description
     
31.1*   Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
     
101.INS*   Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
     
101.SCH*   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL*   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*   Inline XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104*   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

* Filed or furnished herewith.

  

33

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  IDW Media Holdings, Inc.
   
Date: June 14, 2022 By: /s/ Ezra Y. Rosensaft    
  Name:   Ezra Y. Rosensaft
  Title: Chief Executive Officer
     
Date: June 14, 2022 By: /s/ Brooke T. Feinstein
  Name:  Brooke T. Feinstein
  Title: Chief Financial Officer

 

 

34