See accompanying notes to condensed consolidated
financial statements.
See accompanying notes to condensed consolidated
financial statements.
See accompanying notes to condensed consolidated
financial statements.
See accompanying notes to condensed consolidated
financial statements.
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.
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.
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.
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.
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.
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.
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 |
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.
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.
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 | |
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 | |
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 | |
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 | ) |
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.