This Annual Report 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 under Item 1A to Part I "Risk Factors" in this Annual Report. The
forward-looking statements are made as of the date of this Annual 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 Securities and Exchange Commission pursuant to the
Securities Act of 1933 and the Securities Exchange Act of 1934, including our
reports on Forms 10-Q and 8-K.
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in Item 8 of this Annual Report.
21
Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States
("GAAP"). 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 in this Annual
Report for a complete discussion of our significant accounting policies.
Results of Operations
We evaluate the performance of our operating business segments based primarily
on income (loss) from operations. Accordingly, the income and expense line items
below loss from operations are only included in our discussion of the
consolidated results of operations.
IDWP
(in thousands) Change
Fiscal Year ended October 31, 2022 2021 $ %
Revenues $ 25,839 $ 25,284 $ 555 2.2 %
Direct cost of revenues 13,993 13,682 311 2.3 %
Selling, general and administrative 13,458 12,169 1,289 10.6 %
Depreciation and amortization 285 203 82 nm
(Loss) income from operations $ (1,897 ) $ (770 ) $ (1,127 ) (146.4 )%
nm-not meaningful
Revenues. Revenues increased $555,000 in the fiscal year ended October 31, 2022,
compared to the fiscal year ended October 31, 2021, primarily due to an increase
in games revenue of $1,716,000 driven by fulfillment of the direct-to-consumer
games campaign for Batman Adventures, an increase in retailer exclusive revenue
of $1,200,000 predominately related to Sonic the Hedgehog and Transformers, an
increase in non-direct market publishing revenue of $603,000 driven by strong
Teenage Mutant Ninja Turtles: The Last Ronin and They Called Us Enemy sales, a
decrease in sales returns and discounts on book sales of $474,000, and an
increase in other licensing and royalty revenues of $44,000, partially offset by
a decrease in direct market publishing revenue of $3,055,000 due to fewer titles
being released during the period, and a decrease in digital sales of $427,000.
Sales returns for fiscal 2022 improved compared to the prior year due to
targeted incentives with accounts to reduce return rates, localization of
inventory management at Barnes & Noble, and COVID-19 related pressures in fiscal
2021.
Effective January 1, 2023, our licenses for Transformers and GI Joe titles have
been 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 our other key
licensed brands through new initiatives for Star Trek, Godzilla, Dungeons &
Dragons, and My Little Pony and an expansion of Teenage Mutant Ninja Turtles:
The Last Ronin. We expect these efforts to substantially offset any material
impact on our gross margin from the loss of the licensed titles.
During calendar 2021, we significantly wound down IDW Games and IDW Games is now
only backfilling already developed games. The decision to shut down games was
due to its lack of profitability, despite outliers like Batman Adventures, noted
above.
Direct cost of revenues. IDWP's direct cost of revenues increased by $311,000 in
the fiscal year ended October 31, 2022, compared to the fiscal year ended
October 31, 2021, primarily due to an increase in printing expenses and creative
costs for IDW Games of $430,000 which corresponds to the increase in revenue
from games noted above and an increase in publishing printing costs of $626,000,
offset by a decrease in royalty expenses of $558,000, a decrease in publishing
creative costs of $152,000, and a decrease in digital and licensing costs of
$35,000. Although costs were recognized for fulfillment of the Batman Adventures
game in the current year, future games costs will only be recognized with
individual customer orders. Royalty expense as a percentage of sales is
dependent on product and title mix as different revenue streams and titles have
different royalty rates.
22
Gross Margin. IDWP's gross margin for the fiscal year ended October 31, 2022 was
essentially flat at 45.8% compared to 45.9% for the fiscal year ended October
31, 2021.
Selling, General and Administrative. IDWP's selling, general and administrative
expenses increased by $1,289,000 in the fiscal year ended October 31, 2022,
compared to the fiscal year ended October 31, 2021, primarily due to increases
in marketing expenses of $847,000, IT costs of $481,000 related to the Company's
website for the focus on direct-to-consumer and dues and subscriptions, shipping
and direct-to-consumer costs of $188,000, salaries and benefits of $247,000, and
travel expenses of $220,000, partially offset by decreases in severance of
$400,000, overhead allocations of $79,000, legal fees of $85,000, occupancy
expenses of $66,000, bad debt of $30,000, insurance costs of $30,000, and other
net charges of $4,000. The increase in salary and benefits was comprised of an
overall increase of $683,000 offset by a $436,000 ERC as a result of the CARES
Act recorded as a reduction in payroll tax expense.
As a percentage of IDWP's revenues, selling, general and administrative expenses
in the fiscal year ended October 31, 2022, was 52.1% compared to 48.1% in the
fiscal year ended October 31, 2021.
IDWE
(in thousands) Change
Fiscal year ended October 31, 2022 2021 $ %
Revenues $ 10,255 $ 7,141 $ 3,114 43.6 %
Direct cost of revenues 2,511 8,101 (5,590 ) (69.0 )%
Selling, general and administrative 4,561 5,694 (1,133 ) (19.9 )%
Depreciation and amortization 34 36 (2 ) nm
Income (loss) from operations $ 3,149 $ (6,690 ) $ 9,839 147.1 %
nm-not meaningful
Revenues. IDWE revenues for the fiscal year ended October 31, 2022 increased by
$3,114,000 compared to the fiscal year ended October 31, 2021. Revenues in
fiscal year 2022, included revenue recognized due to the full delivery of Locke
& Key seasons two and three in an amount of $8,944,000, revenue from the full
delivery of season one of Surfside Girls of $1,149,000, the French-Canadian
license received for V Wars of $119,000, and revenue from optioned projects of
$43,000. In fiscal year 2021, revenues included recognition from delivered
episodes from Wynonna Earp of $3,496,000, tax credits for V Wars and October
Faction of $3,331,000, Lock & Key contingent compensation from season two of
$200,000, and foreign receipts from Dirk Gently of $114,000.
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 fiscal year ended October 31, 2022 decreased by
$5,590,000 compared to the fiscal year ended October 31, 2021. The amortized
television costs for fiscal year 2022, included costs related to delivered
episodes from Locke & Key seasons two and three of $1,875,000 and to full
delivery of season one of Surfside Girls of $100,000, executive producing fees
of $325,000, cost refinement from October Factionand V Wars of $78,000,
inventory write offs of $278,000, residuals of $467,000, agency commission fees
of $9,000, and cost of optioned projects of $6,000, offset by cost recoupment
from Wynonna Earp of $432,000 and tax credits for V Wars and October Factionof
$195,000. The amortized television costs for fiscal year 2021, included
delivered episodes from Wynonna Earp of $5,251,000, impairment charges of
$2,216,000, cost refinement from October Faction and V Wars of $586,000 and
other costs of $48,000.
Gross Margin. IDWE's gross margin for the fiscal year ended October 31, 2022 was
75.5% compared to negative 13.4% for the fiscal year ended October 31, 2021.
These gross margin figures are aligned with the explanations provided for
revenues and direct costs of revenues.
23
Selling, General and Administrative. Selling, general and administrative
expenses decreased by $1,133,000 during the fiscal year ended October 31, 2022,
compared to the fiscal year ended October 31, 2021. The decrease was driven by
decreases in consulting costs of $445,000, legal fees of $117,000, marketing of
$137,000, salary and benefits of $387,000, recruitment fees of $153,000,
professional services of $75,000, severance of $175,000, travel expenses of
$41,000 and other net changes of $87,000, offset by increases in overhead
allocation of $284,000 and non-cash compensation of $200,000. The decrease in
salary and benefits included a $87,000 ERC as a result of the CARES act recorded
as a reduction in payroll tax expense.
As a percentage of IDWE's revenues, selling, general and administrative expenses
in the fiscal year ended October 31, 2022, was 44.5% compared to 79.7% in the
fiscal year ended October 31, 2021.
IDWMH
(in thousands) Change
Fiscal year ended October 31, 2022 2021 $ %
Selling, general and administrative $ 1,914 $ 1,219 $ 695 57.0 %
Depreciation and amortization 23 6 17 nm
Loss from operations $ (1,937 ) $ (1,225 ) $ (712 ) (58.1 )%
nm-not meaningful
Selling, General and Administrative. Selling, general and administrative
expenses increased by $695,000 during the fiscal year ended October 31, 2022,
compared to the fiscal year ended October 31, 2021. The increase was driven by
increases in severance of $468,000, shareholder relations fees of $263,000,
insurance costs of $235,000, non-cash compensation of $218,000, travel expenses
of $113,000, and marketing expenses of $80,000, offset by decreases in overhead
allocation to operating segments of $483,000, legal fees of $131,000, salary and
benefits of $60,000, and other net changes of $8,000. The decrease in salary and
benefits included a $42,000 ERC as a result of the CARES act recorded as a
reduction in payroll tax expense.
Consolidated net loss IDW Media Holdings, Inc.
(in thousands) Change
Fiscal year ended October 31, 2022 2021 $ %
Loss from continuing operations $ (685 ) $ (8,685 ) $ 8,000 92.1 %
Interest (expense) income, net (10 ) 118 (128 ) (108.5 )%
Other (expense) income, net (53 ) 2,333 (2,386 ) (102.3 )%
Net loss from continuing operations (748 ) (6,234 ) 5,486 88 %
Loss from discontinued operations, net - (1,281 ) 1,281 100.0 %
Gain on sale of discontinued operations - 2,123 (2,123 ) (100.0 )%
Net loss
$ (748 ) $ (5,392 ) $ 4,644 86.1 %
Loss from operations. Loss from continuing operations decreased by $8,000,000 in
the fiscal year ended October 31, 2022, compared to the fiscal year ended
October 31, 2021, due to increased operating income from IDWE of $9,839,000,
offset by an increase in operating loss from IDWP of $1,127,000 and an increase
in corporate overhead of $712,000. These changes are described in the separate
segment analyses above.
Interest (expense) income, net. Interest (expense) income decreased by $128,000
to interest expense of $10,000 in the fiscal year ended October 31, 2022,
compared to interest income of $118,000 in the fiscal year ended October 31,
2021 due to interest income from CRA tax credits received in the fiscal year
ended October 31, 2021.
Other (expense) income, net. Other (expense) income decreased by $2,386,000 to
other expense of $53,000 in the fiscal year ended October 31, 2022, compared to
other income of $2,333,000 in the fiscal year ended October 31, 2021, primarily
due to PPP loan forgiveness received in the fiscal year ended October 31, 2021.
24
Loss from discontinued operations, net. Loss from discontinued operations was $0
for the fiscal year ended October 31, 2022, compared to a loss of $1,281,000 for
the fiscal year ended October 31, 2021, due to the sale of CTM which resulted in
CTM no longer being consolidated with the Company as of February 15, 2021.
Gain on sale of discontinued operations. Gain on sale of discontinued operations
decreased by $2,123,000 for the fiscal year ended October 31, 2022, compared to
the fiscal year ended October 31, 2021, as a result of the sale of CTM.
Liquidity and Capital Resources
General
At October 31, 2022, we had cash and cash equivalents of $10,014,000 and working
capital (current assets in excess of current liabilities) of $18,476,000.
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 October 31, 2022, which includes proceeds from the
offering closed on August 6, 2021, will be sufficient to sustain our operations
for at least the twelve months following the date of this report.
We satisfy our cash requirements primarily through cash provided by the
Company's operating and financing activities.
Fiscal years ended
October 31,
(in thousands) 2022 2021
Cash flows (used in) provided by:
Operating activities $ (6,618 ) $ 10,637
Investing activities (900 ) (1,734 )
Financing activities - (3,572 )
Effect of exchange rate changes on cash and cash equivalents - 39
Net increase in cash and cash equivalents $ (7,518 ) $ 5,370
Operating Activities
Cash flows used in operating activities was $6,618,000 for the fiscal year ended
October 31, 2022, compared to cash flows provided by operating activities of
$10,637,000 for the fiscal year ended October 31, 2021. For the fiscal year
ended October 31, 2022, net use of cash was primarily a result of the net loss
for the period of $748,000, adjusted for non-cash expenses of $2,712,000 and
cash outflow from changes in assets and liabilities of $8,548,000 as a result of
decreases to production costs payable and deferred revenue and increases in
trade accounts receivable, inventory, television costs, and prepaid expenses and
other assets. For the fiscal year ended October 31, 2021, the net cash provided
was primarily a result of cash inflow from changes in assets and liabilities of
$19,045,000 as a result of decreases in trade accounts receivable, inventory,
and increases in production costs payable, offset by a net loss in the period of
$5,392,000 adjusted for non-cash expenses of $8,421,000, cash outflow from
changes in assets and liabilities of $6,945,000 as a result of increases in
prepaid expenses and television costs and decreases in deferred revenue, and
adjustments for non-cash items of $4,515,000 related to the gain on the sale of
CTM and gain on the extinguishment of a PPP loan. Cash flows generated at IDWE
vary widely year to year due to timing of productions.
Investing Activities
Our capital expenditures were approximately $900,000 and $832,000 in the fiscal
years ended October 31, 2022, and 2021, respectively. The fiscal year ended
October 31, 2021 also included an unfavorable adjustment of $902,000 related to
the disposal of CTM.
Financing Activities
During the fiscal year ended October 31, 2021, IDW repaid bank loans in the
amounts of $14,204,000, partially offset by cash received for PPP loans of
$1,196,000, and net cash proceeds received of from the issuance of Class B
common stock of $9,551,000 in connection to our registered public offering.
25
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 consolidated financial statements
included in Item 8 of this Annual Report.
Changes in Trade Accounts Receivables and Allowance for Doubtful Accounts
Trade accounts receivable increased to approximately $6,448,000 at October 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 October 31, 2022 and
2021, reflecting the Company's collectible receivable experience.
Off- Balance Sheet Arrangements
We do not have any "off-balance sheet arrangements," as defined in relevant SEC
regulations that are reasonably likely to have a current or future effect on our
financial condition, results of operations, liquidity, capital expenditures or
capital resources.
Other Sources and Uses of Resources
On August 6, 2021, IDWMH closed a registered public offering of Class B common
stock and EF Hutton, as representative of the Underwriters exercised the
overallotment option included as part of the offering in full. The Company sold
an aggregate of 2,875,000 shares of the Company's Class B common stock for gross
consideration of $10,350,000 less Underwriters commissions of $724,500 and
Underwriters expenses of $75,000.
The Company is using the net proceeds we received from the offering principally
for the development of original IP and the purchase of associated publishing,
media, and related rights. Funds are also used for marketing spend for our IP
franchises, and additionally for technology investments and our website
development. The Company also seeks to pursue potential investment 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. We may find
it necessary or advisable to use the net proceeds from this offering for other
purposes. As a result, our management has and will retain broad discretion over
the allocation and application of the 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 impact on our business in past quarters
with regard to (a) issues related to increased costs of international printing,
shipping and cost rises, and (b) in 2021 we experienced production delays of
IDWE's television show Wynonna Earp. In the fiscal year 2022, our business as a
whole has not suffered any material adverse consequences. The extent of the
impact of the COVID-19 pandemic and resulting economic uncertainty could
adversely affect our liquidity and capital resources in the future, and cash
requirements may fluctuate based on the timing and extent of many factors
discussed above.
In the fourth quarter of fiscal 2020 we paid "pull down" costs pursuant to a
previously announced, multi-year agreement with Cineflix related to
international sales of Wynonna Earp. Specifically, under this agreement, IDWE
purchased the distribution rights to seasons one and two of Wynonna Earp from
the current licensor (Netflix) and had agreed to transfer those rights to
Cineflix. Cineflix is now the international distributor of all four seasons of
Wynonna Earp. Due to changes in competition as well as the COVID-19 pandemic,
the Cineflix deal did not contribute revenue and operating cash flow in fiscal
year 2021 at the levels originally anticipated at the inception of the deal,
however in the third quarter of 2022 we began recouping some of our cash
outlays.
26
Dividends
We have never declared or paid any cash dividends on our capital stock. The
Company does not currently anticipate paying any cash dividends in the
foreseeable future and is using cash flows to invest in the growth of the
business.
© Edgar Online, source Glimpses
IDW MEDIA HOLDINGS, INC. 
