IDW MEDIA HOLDINGS, INC. - Quarter Report: 2022 January (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 JANUARY 31, 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)

973-438-3385

(Registrant’s telephone number, including area code)

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

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.

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 March 14, 2022 the registrant had the following shares outstanding:

IDW MEDIA HOLDINGS, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

IDW MEDIA HOLDINGS, INC. 

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

IDW MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

IDW MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

See accompanying notes to condensed consolidated financial statements

IDW Media Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended January 31, 2022 and 2021

(in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

IDW MEDIA HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

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 10 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 31^st. 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 United States. 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 in fiscal 2021 through the first quarter 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.

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 consist of the following segments:

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 (Note 14 Discontinued Operations).

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 January 31, 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, if later. 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, 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.

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. Program ratings, which are an indication of market acceptance, directly affect the Company’s ability to generate advertising revenues during the airing of the program. Television development costs for projects that have been abandoned or have not been set for production within three years are generally written off in the relevant period.

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 January 31, 2022 and 2021 were $999,000 and $3,956,0000, respectively.

Variable Interest Entities

The Company, through its subsidiary IDWE has arrangements with seven special-purpose entities (“SPEs”), some formed for the sole purpose of providing production services in Canada for the production of a television pilot and television series, others for production and writing purposes. The SPEs are independently owned companies that are effectively controlled by IDWE 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 obligor on the SPEs’ debt. All financial activity of the SPEs have been included IDWE’s financial statements, which are part of these consolidated financial statements. IDWE does not need to provide any support to the VIE’s and therefore there are no foreseen potential losses associated. They 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:

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 and Top Shelf. 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 distributor 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.

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, IDWE chooses to have the obligation to pay the Writers Guild of America (“WGA”) residuals for the creative writers of content. These extend to 25 years after distribution and are recorded in the consolidated statements of operations as a direct cost of revenue. 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 they have not been accrued for.

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. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues are eliminated in consolidation and, therefore, do not affect consolidated results.

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 January 31, 2022 and October 31, 2021, the Company’s accrual for estimated returns were $91,000 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, short term investment and trade accounts receivable. The Company holds cash and cash equivalents at several major financial institutions, which often exceed FDIC insurance limits. Historically, the Company has not experienced any losses due to such concentration of credit risk. The Company’s temporary cash investments policy is to limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions. While the Company may

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

be exposed to credit losses due to the nonperformance of its counterparties, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows or financial condition.

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 21.7% and 28.2% of condensed consolidated revenue for the three months ended January 31, 2022 and 2021, respectively. The receivable balances from PRHPS represented 52.9% and 52.0% of condensed consolidated receivables at January 31, 2022 and October 31, 2021, respectively. Beginning June 1, 2022, PRHPS will replace Diamond as IDWP’s distributor to the direct market.

Revenues from Diamond, IDWP’s direct market distributor, represented 15.0% and 27.3% of condensed consolidated revenue for the three months ended January 31, 2022 and 2021, respectively. The receivable balances from Diamond represented 18.9% and 20.0% of condensed consolidated receivables at January 31, 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 35.4% and 0.0% of condensed consolidated revenue for the three months ended January 31, 2022 and 2021, respectively.

Revenues from NBC Universal/SyFy, a major television network, represented 0% and 29.4% of condensed consolidated revenue for the three months ended January 31, 2022 and 2021, respectively.

Discontinued Operations

CTM meets 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 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. Cash flows of 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.

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 is applying its provisions prospectively. In connection with this adoption the Company has evaluated this guidance and determined that there are impairments (Note 11) from substantively abandoned television costs which materially impacted the consolidated financial statements. These costs were recorded in direct cost of revenues.

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. 

Note 2—Earnings Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to all classes of common stockholders by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings (loss) per share is computed in the same manner as basic income (loss) 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 the potentially dilutive shares using the treasury stock method, unless the effect of such increase would be anti-dilutive. The Company excluded 77,665 and 48,000 shares of unvested restricted Class B common stock, options to purchase 930,959 and 242,735 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 months ended January 31, 2022 and 2021, respectively, as the effect would have been anti-dilutive. Therefore, basic and diluted earnings per share are the same for the three months ended January 31, 2022 and 2021.

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:

At January 31, 2022, there was $301,000 of total unrecognized compensation cost related to non-vested stock-based compensation arrangements, which is expected to be recognized over the next 3 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. (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 loans have subsequently been repaid):

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 subject to stockholder approval 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, subject to stockholder approval 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 January 31, 2022, 1,459,998 shares remained available to be awarded under the 2019 Incentive Plan.

The following table summarizes stock option activity during the three months ended January 31, 2022.

At January 31, 2022, unamortized stock compensation for stock options was $1,087,987.

Non-cash compensation for stock options and restricted stock issued to employees and non-employees included in selling, general and administrative expenses for continuing operations was $144,000 and $64,000 during the three months ended January 31, 2022 and 2021, respectively.

Note 5—Business Segment Information

The Company has the following three 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)

January 31, 2022 for IDWP $12,788, IDWE $2,230 and IDWMH $13,845

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 6—Trade Accounts Receivable and Deferred Revenue

Trade accounts receivable consists of the following:

Changes in deferred revenue consist of the following:

The Company expects to satisfy its remaining performance obligations and recognize approximately 100% of this revenue over the next 12 months ending January 31, 2023.

Note 7—Inventory

Inventory consists of the following:

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8—Prepaid Expenses

Prepaid expenses consist of the following:

Note 9—Property and Equipment

Property and equipment consist of the following:

Depreciation expense totaled $40,000 and $48,000 for the three months ended January 31, 2022 and 2021, respectively.

Note 10—Intangible Assets

Intangible assets consist of the following:

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Amortization expense totaled $43,000 and $11,000 for the three months ended January 31, 2022 and 2021, respectively.

Note 11—Television costs and amortization

Television costs consist of the following:

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

Note 12—Accrued Expenses

Accrued expenses consist of the following:

Note 13—Commitments

Lease Commitments

The Company has various lease agreements with remaining terms up to 3 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 0.549 years, with a weighted-average discount rate of 4.59% as of January 31, 2022.

The Company recognized lease expense for its operating leases of $125,000 for the three months ended January 31, 2022 and 2021. The cash paid under operating leases was $157,000 and $143,000 for the three months ended January 31, 2022 and 2021, respectively.

At January 31, 2022, the Company had a right-of-use-asset related to operating leases of $1,037,000, accumulated amortization related to operating leases of $856,000, both of which are included as a component of right-of-use assets. At 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 January 31, 2022, future minimum lease payments required under operating leases are as follows:

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.

IDW MEDIA HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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

Note 15—Subsequent events

The Company has evaluated subsequent events through March 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.

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:

COVID-19: Overview of Impacts  

Business Description

Our principal business consist of the following segments:

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.

IDW Publishing

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. 

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; CBS’s Star Trek; Viacom’s Teenage Mutant Ninja Turtles; Toho’s Godzilla; and Lucasfilm’s Star Wars Adventures. 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 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”). Diamond serves as IDWP’s distributor to the direct market, worldwide and beginning June 1, 2022, PRHPS will replace Diamond as IDWP’s distributor to the direct market. Although returnability was offered temporarily on products sold to the direct market in light of COVID-19, most products have reverted back to pre-COVID-19 non-returnability; (ii) to traditional retail outlets, including bookstores and mass market stores, on a returnable basis (the “non-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; 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.

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.

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 63.6% and 67.1% of our consolidated revenues in the three months ended January 31, 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 and networks 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:

While in the past IDWE focused solely on TV development and production opportunities, a broadening of our strategic goals has evolved to focus on the building of a film slate and podcast opportunities. With more varied opportunities for our content and IP, we will be able to grow our brand, expand the perception of what IDWE does, and ultimately grow revenue and opportunities as an entertainment production/studio in the comic book/graphic novel space.

IDWE’s revenues represented 36.4% and 32.9% of our consolidated revenues in the three months ended January 31, 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

Revenues. Revenues increased by $1,882,000 in the three months ended January 31, 2022 compared to the three months ended January 31, 2021, primarily due to an increase in games revenue of $2,118,000 driven by the fulfillment of the direct-to-consumer games campaign for Batman Adventures, an increase in non-direct market and other publishing revenue of $361,000, a decrease in sales returns and discounts on book sales of $89,000, and an increase in licensing and royalty revenues of $10,000. This was offset by a decrease in direct market publishing revenue of $521,000 due to less titles being released in the three months ended January 31, 2022 than in the three months ended January 31, 2021 and a decrease in digital sales of $175,000 in the three months ended January 31, 2022 compared to the three months ended January 31, 2021 due to an overall decrease in sales across all platforms.

In October 2021, Hasbro informed us that 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 current key licensor brands. Additionally, revenues from originals editorial will begin to materialize in July 2022 with an estimated six new IDW original titles spanning fiscal 2022 and a planned output of doubling quantities each progressing fiscal year. With the combination of these, we do not expect a material impact on our gross margin.

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. However, the outlier is Batman Adventures, noted above.

Direct cost of revenues. IDWP direct cost of revenues increased by $541,0000 in the three months ended January 31, 2022 compared to the three months ended January 31, 2021, primarily due to an increase in printing expenses and creative costs for games of $783,000 and a net increase in other direct costs such as costs of artists and writers of $31,000, offset by a decrease in royalty expenses of $273,000.

IDWP’s gross margin for the three months ended January 31, 2022 increased to 50.7% from 43.8% for the three months ended January 31, 2021. The increase is principally due to the recognition of revenue for the fulfillment of the direct-to-consumer games campaign for Batman Adventures

Selling, General and Administrative. IDWP’s selling, general and administrative expenses increased by $433,000 during the three months ended January 31, 2022, compared to the three months ended January 31, 2021. The increase was driven by increases in salary and benefits of 38,000, severance of $40,000, shipping and direct-to-consumer costs of $230,000, overhead allocations of $58,000, consulting of 81,000, and other net changes of $4,000, offset by decreases in recruitment fees of $18,000.

As a percentage of IDWP’s revenues, selling, general and administrative expenses in the three months ended January 31, 2022, were 42.9% compared to 49.6% in the three months ended January 31, 2021.

IDWE

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Revenues. IDWE revenues for the three months ended January 31, 2022 increased by $1,554,000 compared to the three months ended January 31, 2021. Revenues in the three months ended January 31, 2022, included full delivery of Locke & Key season two in an amount of $4,200,000 and the French Canadian license received for V Wars of $118,000. In the three months ended January 31, 2021, revenues included delivered episodes from Wynonna Earp of $2,764,000.

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 January 31, 2022 decreased by $4,983,000 compared to the three months ended January 31, 2021. The amortized television costs for the three months ended January 31, 2022, consisted of delivered episodes from Locke & Key season 2 of $999,000 and cost refinement from October Faction and V Wars of $77,000. The amortized television costs for the three months ended January 31, 2021, included delivered episodes of Wynonna Earp of $3,954,000, impairment charges of $2,065,000, and other costs of $40,000.

IDWE’s gross margin for the three months ended January 31, 2022, was 75.1% compared to negative 119.2% for the three months ended January 31, 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 increased by $15,000 during the three months ended January 31, 2022, compared to the three months ended January 31, 2021. The increase was driven by increases in overhead allocations of $256,000, non-cash compensation of $34,000 and other net changes of $2,000, offset by decreases in salary and benefits of $18,000, recruitment fees of $66,000, consulting fees of $63,000, marketing of $47,000, and legal of $83,000.

As a percentage of IDWE’s revenues, selling, general and administrative expenses in the three months ended January 31, 2022, was 29.2% compared to 45.2% in the three months ended January 31, 2021.

IDWMH

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Selling, General and Administrative. Selling, general and administrative expenses increased by $303,000 during the three months ended January 31, 2022, compared to the three months ended January 31, 2021. The increase was driven by increases in salary and benefits of $206,000, accounting fees of $41,000, shareholder relations of $27,000, non-cash compensation of $14,000, insurance fees of $10,000, and other net changes of $5,000.

Net income (loss) IDW Media Holdings, Inc.

Consolidated

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Income (loss) from operations. Income from operations increased by $7,105,000 in the three months ended January 31, 2022, compared to a loss from operations in the three months ended January 31, 2021, due to increased operating income from IDWE of $6,523,000 and from IDWP of $885,000, offset by an increase in corporate overhead of $303,000. These changes are more fully described in the separate segment analyses above.

Loss from discontinued operations, net. Loss from discontinued operations was $0 for the three months ended January 31, 2022, compared to $1,121,000 for the three months ended January 31, 2021, due to the sale of CTM as of as of February 15, 2021.

Liquidity and Capital Resources

General

At January 31, 2022, we had cash and cash equivalents of $16,997,000 and working capital (current assets in excess of current liabilities) of $21,608,000.

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 January 31, 2022 and proceeds from the offering closed on August 6, 2021 will be sufficient to sustain our next year of operations.

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

Operating Activities

Cash flows used in operating activities was $331,000 for the three months ended January 31, 2022 and cash flows provided by operating activities was $886,000 for the three months ended January 31, 2021. For the three months ended January 31, 2022 the net use of cash is primarily a result of unfavorable changes in production cost payable and deferred revenues offset by favorable changes in accounts receivable and net income. For the three months ended January 31, 2021 the cash provided is primarily a result of favorable changes in production cost payable, accounts receivable, and television costs offset by net loss.

Investing Activities

Our capital expenditures were approximately $204,000 and $55,000 in the three months ended January 31, 2022, and 2021, respectively.

Financing Activities

During the three months ended January 31, 2021, we received proceeds from the CTM division which was subsequently sold of $17,000 and net cash proceeds of $25,000 from the issuance of Class B common stock. The Company repaid bank loans in the amount of $3,076,000 and repaid its finance lease obligation of $92,000.

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 $3,989,000 at January 31, 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 January 31, 2022 and October 31, 2021, reflecting the decrease in receivable balances and 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 for the following purposes: most heavily 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; 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; and 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.

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 has 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 will 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 has agreed to transfer those rights to Cineflix.  Cineflix will be the international distributor of all four seasons of Wynonna Earp.  Due to changes in competition as well as the COVID-19 pandemic, the Cineflix deal 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.

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 January 31, 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 January 31, 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 January 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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

Item 6. Exhibits

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.

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