IDW MEDIA HOLDINGS, INC. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended October 31, 2022.

or

☐ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.

Commission File Number: 001-34355

IDW MEDIA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

520 Broad Street, Newark, New Jersey 07102

(Address of principal executive offices, zip code)

323-433-6670

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based on the closing price on April 29, 2022 (the last business day of the registrant’s most recently completed second fiscal quarter) of the Class B common stock of $1.70 per share, as reported on the New York Stock Exchange, was approximately $17.1 million.

The number of shares outstanding of the registrant’s common stock as of January 17, 2023 was:

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders, to be held March 30, 2023, is incorporated by reference into Part III of this Form 10-K to the extent described therein.

Index
IDW MEDIA HOLDINGS, INC.
Annual Report on Form 10-K

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.

Our business is subject to numerous risks as described in this section. Some of these risks include:

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

We will likely need additional capital to sustain our operations and will likely need to seek further financing to accelerate our growth, which we may not be able to obtain on acceptable terms or at all. If we are unable to raise additional capital, as needed, the future growth of our business and operations would be severely limited.

IDWP depends on one main distributor for its direct market and non-direct market publications and such dependence subjects IDWP to the risk that such distributor may be unable to perform its obligations to IDWP.

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

IDWP’s publications may be less successful than anticipated.

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

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

IDWE does not control the decisions to produce shows and relies on outside streamers/studios for greenlighting, and if an insufficient number of our properties are put into production, our profitability will be significantly impacted.

Reduction in budgets for content could impact our ability to sell television shows which could materially impact revenue and operating results at IDWE.

There can be no assurances that our Class B common stock will not be subject to potential delisting if we do not continue to maintain the listing requirements of the NYSE American.

Part I

As used in this Annual Report, unless the context otherwise requires, the terms the “Company,” “IDW Media Holdings,” “we,” “us,” and “our” refer to IDW Media Holdings, Inc., a Delaware corporation, and its subsidiaries, collectively. Each reference to a fiscal year in this Annual Report refers to the fiscal year ending in the calendar year indicated (for example, fiscal 2022 refers to the fiscal year ended October 31, 2022).

Item 1. Business.

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 of the Company through a pro rata distribution of our common stock to IDT’s stockholders.

Our principal businesses include:

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 helped kickstart 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, Scott Snyder’s Dark Spaces line, Stephen Graham Jones’s Earthdivers, 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 award-winning titles published since IDWP’s inception.

IDWE leverages IDWP original IP into television series, features, and other forms of media by developing and producing original content. IDWE maintains a development slate of properties based on IDWP properties for the adult series/features marketplace and the kids, family, and animation spaces. 

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 United States and Canada. On February 15, 2021 (“CTM Sale Date”), we consummated the sale of CTM to an entity associated with Howard Jonas, our Chairman and Chairman of the Board, in exchange for (i) the cancelation of $3.75 million of indebtedness the Company owed to Mr. Jonas’ 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 (which condition was not met), and (iii) a contingent payment if CTM is sold within 36 months of the sale for more than $4.5 million (“CTM Sale”). As of July 31, 2020, CTM was reported as a discontinued operation and CTM’s operations has since been included in the consolidated financial statements as discontinued operations. As of October 31, 2022, the 18-month period for the contingent payment based upon recovery of quarterly revenue has lapsed and no payment is owed.

Financial information by segment is presented in Note 5 in the Notes to our Consolidated Financial Statements in Item 8 of this Annual Report.

Our headquarters are located at 520 Broad Street, Newark, New Jersey 07102. The main telephone number at our headquarters is (323) 433-6670 and our corporate web site’s home page is www.idwmediaholdings.com.

We make available free of charge our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, and all beneficial ownership reports on Forms 3, 4 and 5 filed by directors, officers and beneficial owners of more than 10% of our equity through the investor relations page of our web site (https://idwmediaholdings.com/investors/) as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Our web site also contains information not incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission.

Recent Developments

In December 2022, IDWE announced that the Top Shelf graphic novel “A Radical Shift of Gravity” had been optioned by Hidden Pictures (which has a financing partnership with Lionsgate) to turn it into a feature film. In addition, we announced that Oscar-nominated screenwriter Matt Charman (Bridge of Spies) would pen the adaptation.

In November 2022, IDWE announced that creative talent and show runners had been attached to six of our books in order to develop them into television projects. Once development is complete, IDWE will take the projects to buyers in the hopes of getting them optioned and greenlit. The series in development include Bacchus, Dragon Puncher & Spoony, Korgi, Lodger, Relic of the Dragon and Satellite Falling. Talent attached includes Will Davis (Lyle, Lyle Crocodile, Man v. Bee), Holly Huckins (Recess, Angela Anaconda), Aury Wallington (Veronica Mars, Heroes, Gravity Falls), Max & Adam Reid (Aeon Flux, Sneaky Pete), Will Pascoe (Orphan Black) and Directors Jude Weng (Only Murders in the Building, Finding Ohana) and Patricia Riggen (The 33).

On August 30, 2022, we announced our first co-development deal with writing team Matt Silverstein and Dave Jeser for the development and production of the sci-fi comedy “Family Time” into a television series and original comic book property.

Starting in July 2022, we announced the publishing plans for the following original projects: Dark Spaces: Wildfire, Trve Kvlt, Crashing, Dead Seas, Golgotha Motor Mountain, Arca and The Hunger and the Dusk, new original projects that draw from a wide selection of genres including crime thrillers, supernatural horror, science fiction, and epic fantasy.

IDWE recently announced a slate of six additional titles with closed development deals with major studios, streamers, and distributors and an animated series with Cartoon Network. As a part of these deals, IDWE will work closely to develop these properties as narrative television series, with the ultimate goal of securing a greenlight to production. There will be little to no material financial benefit generated from a project until a property is in production.  

These titles include:

COVID-19: Overview of Impacts

We qualified for certain tax credits under the Coronavirus Aid, Relief and Economic Securities Act (“CARES Act”). During fiscal 2022, we recognized an employee retention credit (“ERC”) for qualified wages paid between January 1, 2021 and March 31, 2021 of $564,000 as an offset to payroll tax expenses within selling, general and administrative expenses in our consolidated statements of operations. To date we have received a total of $564,000.

Business Description

In fiscal 2022, our principal businesses consisted of:

In calendar 2021, the Company wound down IDW Games and, going forward, IDW Games is only backfilling final orders and reproducing select existing products.

IDW Publishing

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

IDWP’s largest product group is the publication of comic book and trade paperback products. Its comics and graphic novels are primarily distributed through three channels: (i) to comic book specialty stores (the “direct market”); (ii) to traditional retail outlets, including bookstores and mass market stores, on a returnable basis (the “non-direct market”); and (iii) to E-book distributors (“digital publishers”). IDWP’s publications are widely available digitally through popular distributors such as Comixology, Amazon, Apple 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 imprints sold over 3.9 million units in fiscal 2022 and is regularly recognized as one of the nation’s largest publishers in the comics & graphic novels category.

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 licensors 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 helped kickstart 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, 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 award-winning titles published since its inception.

IDWP owns Top Shelf Productions, an award-winning critically acclaimed publisher of graphic novels. 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 one of the most taught graphic novels 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. Other iconic Top Shelf Productions titles include Kim Dwinell’s Surfside Girls, Jeff Lemire’s Essex County and The Underwater Welder, Hannah Templer’s Cosmoknights, and Alan Moore and Eddie Campbell’s From Hell.

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 Paramount Global’s  Teenage Mutant Ninja Turtles and Star Trek; Hasbro’s Dungeons & Dragons, and My Little Pony; Sega’s Sonic The Hedgehog;  and Toho’s Godzilla. 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).

IDW Originals, launched in July 2022, is a line of original comics and graphic novels from a diverse lineup of writers and artists creating content across all genres and for all age groups. IDW Originals works with top-tier talent including New York Times bestselling writers like Scott Snyder on Dark Spaces: Wildfire, Stephen Graham Jones on Earthdivers, and G. Willow Wilson on The Hunger and the Dusk, in addition to up-and-coming talent with the goal of creating the bestsellers of tomorrow. IDW Originals is also focused on creating IP that can be exploited across multiple media platforms.

IDWP is also home to Artist’s Editions, which publishes oversized deluxe hardcovers featuring scans of original art printed at the same size they were drawn with 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, Todd McFarlane’s Spider-Man, David Mazzucchelli’s Daredevil Born Again and Dave Stevens’ The Rocketeer.

Many of IDWP’s titles are available worldwide through foreign licensing with 642 titles available in approximately 62 territories in approximately 24 languages. In 2020, IDW launched a 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 is a party to an agreement with Penguin Random House (“PRH”), that was amended in June 2021 (and became effective in June 2022) and has a term until March 31, 2024. Pursuant to the agreement, as amended, PRH serves as the exclusive worldwide distributor for all IDWP products other than periodical comic books for the non-direct market channel and since June 2022, as the exclusive worldwide multi-year sales and distributor for IDWP’s newly published and backlist comic book periodicals, trade collections, and graphic novels to the direct market comic shops. Pursuant to the agreement, as amended, PRH also (1) provides warehousing, customer service, order fulfillment, shipping, returns processing, billing/collections, customer credit management, sales, sales reporting, stock control and Web-access to sales and inventory information for IDWP’s single issue comic books and other products manufactured by IDWP and intended for distribution to the direct market and (2) maintains and operate a .biz retailer website for the provision of such services to IDWP.

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

The agreement provides that neither IDWP nor PRH will be liable to each other for failure to perform any obligation under the agreement to the extent that and so long as the failure is caused matters beyond their control.

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

The agreement also contains customary indemnification and confidentiality provisions.

Prior to June 2022, Diamond Comic Distributors, Inc. (“Diamond”) served as IDWP’s distributor to the direct market, worldwide. IDWP works together with PRH 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. Additionally, IDWP sells an assortment of titles directly to Scholastic Book Fairs and Clubs, which Scholastic purchases on an ad hoc basis.

In 2014, IDWP launched IDW Games to develop and publish card, board, and tabletop games. Similar to IDWP’s book content, IDW Games offered a mix of popular licensed titles such as Dragon Ball Z and Batman the Animated Series, as well as creator developed strategic hobby games, such as Towers of Arkhanos and Tonari. IDW Games’ products were sold to distributors worldwide and are available through retailers such as GameStop, Barnes & Noble, and Amazon, independent games, and comics stores, as well as the direct-to-consumer channel through its website and marketing campaigns. In calendar 2021, the Company wound down IDW Games and, going forward, IDW Games is only backfilling final orders and reproducing select existing products.

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

To expand its business and compete with other industry participants, 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 71.6% and 78% of our consolidated revenues in fiscal 2022 and 2021, respectively.

IDW Entertainment

IDWE is a production company and studio that develops, produces and distributes content based on IDWP’s original, copyrighted IP, published in the form of comic books, graphic novels and any other forms of print publication, 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 development slate of properties based on IDWP properties for the adult series/features marketplace and the kids, family, and animation spaces.

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

Business Model

While in the past, IDWE focused on television development and financing production opportunities, a broadening of our strategic goals has evolved to focus on lower risk investments as well as developing IP for feature film and podcast opportunities. As was the case with Surfside Girls, IDWE provided co-studio services which enabled us to utilize our studio partners’ infrastructure to support the needs of productions while reducing our own risk. We have also diversified our position by acting as non-writing executive producers on current and future projects which allows us to secure fees for our services while minimizing costs. With more varied opportunities for our content/IP, we expect to grow our brand, expand the perception of IDWE, increase revenue opportunities for the publishing side of the business and develop a more robust entertainment footprint.

The path to greenlighting a project can take many routes, but the two most common include internal development and partnering with established studios and streamers. For internal development, IDWE partners with established television and film talent to develop pitches based on our IP, then takes those pitches to buyers. Buyers who want to partner on IDWE’s pitches will enter into a deal to commission a pilot script or feature screenplay, which will be the determining factor of a series or feature film being greenlit. In the second scenario, IDWE may option what’s called clean IP (projects without any attachments or development with talent) to a buyer/production partner and develop/package a series or feature. While this scenario may require more work between IDWE and the buyer to develop a concept for adaptation, the advantage is that IDWE is doing this in tandem with the buyer or platform – guaranteeing that what is developed is strategically what they are looking for.

Co-Development Model

In addition to IDWE leveraging IDWP’s original releases for media spinoffs and adaptation, IDWE has begun sourcing TV series and feature ideas from established show runners and writer/directors; then bringing these ideas to IDWP. Where both of our segments see an opportunity, we can develop both a comic book/graphic novel and prepare a series or feature pitch concurrently. We believe that there is an appeal in the entertainment industry for this model by talent and producing partners. With more than five of these properties already in negotiation, we previously announced the first – entitled Family Time.

Family Time is co-created by showrunners Matt Silverstein and Dave Jeser, who are known for creating Drawn Together, and running shows like Solar Opposites and an upcoming untitled show with Jimmy Kimmel for ABC. IDWE plans to pitch the series in March/April of 2023 and the comic book is expected to be released in August 2023.

IDWE’s revenues represented 28.4% and 22.0 % of our consolidated revenues in the fiscal years ended October 31, 2022 and October 31, 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, we decided to sell CTM and focus on our entertainment and publishing businesses.  On February 15, 2021 the sale was consummated and CTM is only consolidated until the sale date with the gain reflected separately in the consolidated statement of operations. Pursuant to a Stock Purchase Agreement dated as of July 14, 2020, we sold all of the stock of CTM to an assignee of Howard S. Jonas, our Chairman and Chairman of the Board, in exchange for (i) the cancelation of $3.75 million of indebtedness owed to the Mr. Jonas’ 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 (which condition was not met), and (iii) a contingent payment if CTM is sold within 36 months of the CTM Sale Date for more than $4.5 million.

Our Strategy 

We have a long-standing publication business reaching various segments and audiences. IDWE is able to create television and video entertainment based upon IDWP’s solid content foundation. IDWP and IDWE work together to optimize the financial return of the IP which we control.

IDW’s strategic focus is to nurture, support and partner with both already successful and also up and coming new voices to bring their comic books and graphic novels to the widest audience possible.

IDWP seeks to build a robust, original slate of properties that not only gives creators the opportunity to realize their unique visions, but to establish IDWP as the “Partner of Choice” so we see and secure under contract the best opportunities from the creative community.

In addition, IDWP’s goal is to continue publishing a diverse list of titles and products which can leverage the strength of our known IP names and partnerships and drive maximum revenue against our core list, while also continuing to bring new IP to the table.

IDWE seeks to take the IDWP deep catalog of comic book and graphic novel IP and turn them into television, film and podcast entertainment.

With IDWP and IDWE working together, IDW strives to build our most valuable asset, which is our relationships with the creators and their IP visions. The more successful IDW is for them, the more IDW becomes the ‘Partner of Choice’ for the creative community.

IDWE seeks to turn IP into television and other video entertainment. Among our partners are streaming services as well as traditional broadcast and other networks and other content services. To date, IDWE has sold projects to Hulu, Syfy, BBC America, Netflix and AppleTV+. A multitude of additional IPs have been optioned. The Company does not currently fund production.

We believe that our potential projects would be attractive to a broad range of potential distribution channels and participants.

We are increasingly focused on attempting to increase our ownership positions in the IP which we distribute. In coming years, we believe that these ownership positions will be accretive and provide greater library value for IDW.

Competition

IDW competes with companies such as, BOOM and Dark Horse – companies who are leveraging their IP on the publishing side for media adaptation opportunities.

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

Competitive Advantages/ Disadvantages

IDW believes that its competitive advantages include that it is one of the few fully integrated publishing companies whose strategic mandates guarantee that we will not publish a project that doesn’t also grant us the entertainment rights. IDWP has the opportunity to take advantage of some of our competition’s title count reduction to claim more of the market share in both the direct market and the non-direct market, as we increase our SKU counts against our key licensed properties.

While companies like DC and Marvel have a long history in the business and a deep catalog of superhero IP, their flexibility to try new genres and expand the diversity of their slate is more limited than that of IDW. They’re beholden to a history and canon that they can’t often diverge from. IDW, however, is in a position to publish new, original and creative concepts that could be the next big hit. Our opportunities to create and release new and exciting visions is a significant upside. However, this can also be a disadvantage in a world where some buyers are only interested in adapting already-known concepts and characters.

Finally, perception can be helpful in growing the business opportunities. IDWE has, over the last fiscal year, set up many projects at major buyers and streamers, further establishing how active we are in the film and television business. As a result, there are more incoming opportunities and a desire on behalf of major companies to work with us on adapting our IP into new entertainment properties.

The success of our operations is heavily dependent upon public taste and preferences which can be unpredictable at times. In addition, operating results fluctuate due to the timing and performance of releases in the television and book markets.

Intellectual Property

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

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

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

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

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

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

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

IDWP's business model is evolving from placing more emphasis on Licensed Content and limited Ancillary Rights to developing a larger catalog of Creator Content and a full range of Ancillary Rights in combination with a more selective slate of Licensed Content.

COVID-19 Guiding Principles

IDW follows all state, local, and federal Centers for Disease Control and Prevention (“CDC”) public guidelines. To the extent possible, physical distancing shall be maintained. When physical distancing is impractical, other risk-mitigating measures shall be taken as described below.

Employees

As of January, 17, 2023, the Company had 84 full-time United States employees and 1 part-time employee, including 67 full-time employees and 1 part-time employee at IDWP, 7 full-time employees at IDWE, and 10 full-time employees at IDW Media Holdings. 

Item 1A. Risk Factors.

RISK FACTORS

Our business, operating results or financial condition could be materially adversely affected by any of the following risks associated with any one of our businesses, as well as the other risks highlighted elsewhere in this document. The trading price of our common stock could decline due to any of these risks. Note that references to “our”, “us”, “we”, “the Company”, etc. used in each risk factor below refers to the business about which such risk factor is provided.

Risks Associated with Our Businesses 

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

We had accumulated a net deficit through October 31, 2022, of approximately $81.5 million. Prior to the CTM Sale, which closed on February 15, 2021, and until the start of the COVID-19 pandemic in March 2020, we often used cash flows from CTM to partially provide funding for corporate overhead and for our IDWP and IDWE operations. In fiscal 2022, on a consolidated basis, the Company had negative cash flows of $7.5 million. In fiscal 2021, the Company on a consolidated level generated positive cash flow of $5.4 million, as a result of net proceeds from the offering closed on August 6, 2021, of $9.4 million.

We may incur losses in the foreseeable future as we invest in our IDWE and IDWP businesses and operations. IDWE’s revenues depend on the delivery of properties and provision of services, which can vary significantly from period to period and be unpredictable. While in certain prior periods, our Chairman of the Board from time to time provided us with financing on favorable terms and conditions, there is no guarantee that we will be able to secure financing from our Chairman of the Board or other sources in the future, or, if available, the terms on which such financing may be provided. The time required for us to become profitable is uncertain, and there can be no assurance that we will obtain the financing required or achieve profitability on a sustained basis, if at all. We expect that our results of operations may also fluctuate significantly in the future as a result of a variety of factors, including, without limitation: the impact of the COVID-19 pandemic, the ability to sell comic books, graphic novels, television and other media related sales to minimize the lag from negotiations to then sell in various theater forms as noted above with a quick enough turn around rate to establish profitability; our ability to attract, retain and motivate qualified personnel; specific economic conditions in the entertainment and publishing markets; and general economic conditions.

We will likely need additional capital to sustain our operations and will likely need to seek further financing to accelerate our growth, which we may not be able to obtain on acceptable terms or at all. If we are unable to raise additional capital, as needed, the future growth of our business and operations would be severely limited. 

A factor limiting our growth, including our ability to enter our proposed markets, attract customers, and develop and deliver our products, is our limited capitalization overall and as compared to other companies in the industry. To sustain our operations, we will rely heavily on the stability and predictability from the publishing business. As these contracts can span out years into the future it allows us to have predictable cash flows and operating stability.

If we are unable to generate sufficient revenue and profits from our operations, we may decide to seek additional financing. It is possible we may need additional capital to bring our operations to a sustainable level over the next 15 months. In fiscal 2022, we raised $0, in fiscal 2021, we raised gross proceeds of $10,350,000 and in fiscal 2020 we raised gross proceeds of $12,300,000 inclusive of $4 million debt-to-equity conversion in equity financing. We believe that, in addition to the capital raised thus far, we may require up to an additional $7 to $10 million to satisfy our operating cash needs for the next 36 months after the raise. The above is premised on current operating metrics as we are aiming to become cash positive in 2024. However, there is no guarantee we will achieve our goal.

We may also seek additional financing to accelerate our growth.  If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of the Company held by existing shareholders will be reduced and our shareholders may experience significant dilution.  In addition, new securities may contain rights, preferences or privileges that are senior to those of our Class B common stock.  If we raise additional capital by incurring debt, this will result in increased interest expense.  There can be no assurance that acceptable financing necessary to further implement our plan of operation can be obtained on suitable terms, if at all.  Our ability to develop our business could suffer if we are unable to raise additional funds on acceptable terms, which would have the effect of limiting our ability to increase our revenues, develop our products, attain profitable operations, which could result in a significant or complete loss of your investment.

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

In early 2020, the spread of the COVID-19 virus resulted in a worldwide pandemic. We are actively monitoring the COVID-19 pandemic, the restrictive measures imposed to combat its spread and their potential and actual impact on each of our operating segments. While we believe that currently there has been significant improvement due to global and domestic vaccination efforts, we cannot predict the 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.

In April 2020, as a result of the COVID-19 pandemic, IDWP’s direct-market distributor paused the release of new product, including IDWP’s, although such operations were subsequently restarted. Many retailers experienced closures, reduced operations, or de-prioritization of entertainment products, such as books and games, throughout the COVID-19 pandemic resulting in decreased sales of certain of IDWP’s products.

COVID-19 continues to impact domestic and international printing and shipping. Costs are beginning to level off as of the end of 2022 and the strain on the logistics network is easing, but prices and timing are still considerably higher than the pre-pandemic levels.

Additional closures, restrictions, or virus spikes could have a further negative impact on IDWP’s distribution channels and retail customers. We are unable to accurately predict the full impact that the COVID-19 pandemic will have on distributions, purchasing, sales, returns, cash receipts and overall revenue.

The COVID-19 pandemic resulted in the production of television shows being periodically suspended depending on local governmental authorities and regulatory requirements in place at any given time. Due to various uncertainties, including the ultimate geographic spread of the virus, the rise of variants that may occur, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities, further production risks could arise.

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

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

We are dependent on the continued services of key executives. The departure of key personnel without adequate replacement could severely disrupt our business operations. Additionally, we need qualified managers and skilled employees with industry experience to operate our businesses successfully. From time to time there may be shortages of skilled labor which may make it more difficult and expensive for us to attract and retain qualified employees. If we are unable to attract and retain qualified individuals or our costs to do so increase significantly, our operations would be materially adversely affected.

Risks Related to IDWP

IDWP depends on one main distributor for its direct market and non-direct market publications and such dependence subjects IDWP to the risk that such distributor may be unable to perform its obligations to IDWP.

Historically, IDWP depended on Diamond and PRH, to distribute the vast majority of its publications. With the June 2022 change to PRH as IDWP’s direct market distributor, Diamond is now the company’s largest customer in that sales channel, as they have now become a wholesale client of PRH for IDWP products.

PRH has distributed substantially all of IDWP’s products to non-direct market accounts (i.e., bookstores, libraries, mass market) and, commencing in June 2022 began distributing to all of IDWP’s direct market accounts. Should PRH fail to perform its distribution obligations under the applicable distribution agreement or to experience financial difficulties that would hinder performance, distribution to the direct or non-direct market, respectively, would be significantly impaired in the short term, and IDWP’s ability to distribute and receive proceeds from its publications would be impaired which would have a material adverse impact on our business, prospects and financial condition.

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

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

IDWP’s publications may be less successful than anticipated.

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

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

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

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

IDWP’s business is highly dependent on maintaining strong relationships with the entertainment companies that license their entertainment properties to IDWP, and with authors, illustrators and other creative talent who produce the products that are sold to IDWP’s customers. Any weakening of these relationships, or the failure to develop successful new relationships, could have an adverse impact on IDWP’s business and financial performance. Effective January 1, 2023, our licenses for Transformers and GI Joe titles 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 offset any material impact on our gross margin from the loss of the licensed titles.

IDWP depends on freelance creators who choose how to spend their time and utilize their talents. It is important for IDWP to maintain strong relationships with those freelance creators, so they devote their time and talent to IDWP’s projects. IDWP’s inability to maintain and secure these relationships could have a material adverse effect on IDWP’s business, prospects and financial condition.

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

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

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

IDWP does not control the decision to proceed with the production of publications based on characters that it licenses from others, and it does not have full control of the timing of the releases of those publications, which are often the subject to long and inflexible schedules. Disruptions, delays or cancellations to those schedules (especially those connected to COVID-19-related supply and logistics issues) could cause IDWP to incur additional costs, miss an anticipated publication date, endure long periods without publishing a publication or all of the above, which could hurt IDWP’s associated licensing programs and business.

IDWP cannot control the increased industry costs in shipping, printing and paper which in turn impact profitability.

Since 2020, the cost of shipping internationally has increased more than 50% above the long-term trend, established since the last recession in 2004, and is expected to continue to rise through 2022.  Prices are expected to stabilize in 2023, but at a higher rate than previously seen in the industry.  The strong demand for consumer goods is clogging transportation networks worldwide leading to the increased costs to ship internationally.  Additionally, once on US soil the goods are subject to increased rail or trucking costs, roughly 23% over 2020.  Increased capacity allows transporters to have leverage to continue to increase prices when negotiating contracts, affecting not only trucks and rail, but also seeping into warehouse costs as the supply-chain bottlenecks continue to squeeze capacity. 

Additionally, rising labor costs are contributing to the increased costs in transportation, printing, and paper, across the industry.  As well as, an influx of publishers moving their printing to domestic printers, due to the global shipping costs & delays, causing domestic prices to rise due to capacity concerns on press. With a push from the big 5 US Publishers domestic printers are investing heavily in staff and equipment to increase capacity, but it is not expected to reach the same capacity highs seen in the early 2000’s. This increase in capacity should, however, begin to create more competition in the domestic printing market, leading to lower prices in both the domestic and overseas markets overall. The cost of paper has been steadily rising for the last several years due to consolidation of plants and changing operations to accommodate the consumer shipping industry. However, as of the end of 2022, the paper market has begun to stabilize, and many manufacturers are finally showing a small percentage of surplus as they prepare for 2023. This surplus suggests price increases should slow through 2023 compared with the quarterly paper increases seen throughout 2021 and 2022. Foreign paper markets are less affected by the paper market increases as China is the largest producer of paper in the world. Any increase in such costs will impact the Company’s profitability.

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

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

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

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

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

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

Risks Related to IDWE

IDWE does not control the decisions to produce shows and relies on outside streamers/studios for greenlighting, and if an insufficient number of our properties are put into production, our profitability will be significantly impacted.

Since IDWE does not finance production for film or television, it ultimately rests on the buyers (specifically streamers and studios) of the projects we are developing and seeking to produce to both greenlight and finance productions. Our revenues and profitability are thus dependent on those parties’ decisions.

Reduction in budgets for content could impact our ability to sell television shows which could materially impact revenue and operating results at IDWE.

Increased competition coupled with slower growth and huge losses indicated presage that there may be a reduction in the streaming business’ addressable market. In an attempt to reduce costs, many streamers reduced the number of employees, and vowed to reduce their content spend. Reduction in budgets for content could impact our ability to sell TV shows which could materially impact revenue and operating results at IDWE.

The end of a peak period of investment could materially impact revenue and operating results at IDWE.

The entertainment industry is experiencing reductions in both the number of scripted shows being ordered and the amount spent on content. An emerging decline in advertising spending is an additional obstacle that may adversely impact our ability to sell our IPs to companies that produce television content, which could materially impact revenue and operating results at IDWE.

Viewership and revenue declines in historically profitable television programming companies limits their ability to purchase our IP.

The advancing decline in both cable television and linear broadcast television business models and revenue generation limits their ability to purchase our IP, which could materially impact revenue and operating results at IDWE.

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

Due to increased costs for programming and other rights, IDWE shifted its investment strategy in content during the 2021-2022 calendar years – evolving its strategy to not fully fund or finance the productions of television shows or feature films. While the business model of fully funding these productions can present significant upside, it is also a major risk. That being said, as a result of being more cost conscious, IDWE’s capital it spends on developing properties for media opportunities could ultimately be exhausted in any given year due to rising costs of talent and rights. As a result, IDWE might find itself in a position where it is unable to fund additional development or secure the talent required to take a project forward, and adversely affect its ability to build a significant slate of opportunities for sales to buyers.

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

IDWE is subject to significant competition, including from other studios/producers/distributors many of which operate with significantly larger staffs and funding than IDWE. Competitors include (i) smaller independent studios such as Entertainment One, Blumhouse, iTV, Annapurna and Miramax, (ii) major independent studios such as Sony TV and Warner Bros TV, (iii) vertically integrated studios such as Twentieth Television, Universal TV, CBS TV Studios and ABC Studios who develop, distribute and produce original television programming and; (iv) other entertainment divisions of comic book or graphic novel publishers such as Dark Horse, Oni Press, Image and BOOM who develop and produce television and film based on their publishing company’s slate of IP. To the extent IDWE cannot meet the challenges from existing or new competitors or develop new product offerings to meet customer preferences or needs, its revenues and profitability could be adversely affected.

The public health risk of COVID-19 and its impact on productions could adversely affect IDWE’s business.

Multiple television productions of IDWE had been delayed due to the COVID-19 pandemic.

Given the potential public health risk of COVID-19 and related possible imposition of new local, state and federal guidelines limiting the filming and production of our live-action shows, IDWE could be adversely affected and experience significant production delays or cancellations. Production costs of IDWE shows may also rise as additional safety protocols related to the COVID-19 pandemic are necessary on the set of these shows.

Risks Related to Our Intellectual Property

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

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

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

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

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

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

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

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

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

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

There can be no assurances that our Class B common stock will not be subject to potential delisting if we do not continue to maintain the listing requirements of the NYSE American.

We are subject to, among other things, our fulfilling all of the listing requirements of NYSE American. In addition, NYSE American has rules for continued listing, including, without limitation, minimum market capitalization and other requirements. Failure to maintain our listing (i.e., being de-listed from NYSE American), would make it more difficult for stockholders to sell our Class B common stock and more difficult to obtain accurate price quotations on our Class B common stock. This could have an adverse effect on the price of our Class B common stock. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our Class B common stock is not traded on a national securities exchange.

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

The Trusts (as defined below) collectively hold shares that represent approximately 58.6% of the combined voting power of our outstanding stock as of January 17, 2023. See “Eight trusts for the benefit of sons and daughters of Howard S. Jonas, our Chairman of the Board of Directors, hold shares that, in the aggregate, represent more than a majority of the combined voting power of our outstanding capital stock, which may limit the ability of other stockholders to affect our management”, below, and “Holders of our Class B common stock have significantly less voting power than holders of our Class C common stock”, below.

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

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

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

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

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

Our Class B common stock may be subject to the penny stock rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors. The SEC regulations generally define a penny stock to be an equity that has a market price of less than $5.00 per share, subject to certain exceptions. If we do not retain a listing on NYSE American and if the price of our Class B common stock is less than $5.00, our Class B common stock will be deemed a penny stock. Unless an exception is available, those regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions and high net worth individuals). In addition, the broker-dealer must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. Moreover, broker-dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to transactions prior to sale. Regulations on penny stocks could limit the ability of broker-dealers to sell our Class B common stock and thus the ability of purchasers of our Class B common stock to sell their shares in the secondary market.

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

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

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

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

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

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

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

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

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

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

We may take advantage of these provisions until the end of our fiscal year 2026, or such earlier time that we are no longer an emerging growth company and, if we do, the information that we provide stockholders may be different than you might receive from other public companies in which you hold equity. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our shares of common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

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

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

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

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

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

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

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

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

General economic conditions may negatively impact our operations.

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

Failures in information technology could have an adverse effect on the Company’s operations.

We rely on both internal systems and third parties to provide information technology for many aspects of our business operations. Failures in information technology that could impact the Company’s operations include cybersecurity, business continuity and related operational risks, as well as other security failures or breaches of our internal systems or those of our customers, partners, service providers or other third parties.

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

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

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

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

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

Eight trusts for the benefit of sons and daughters of Howard S. Jonas (the “Trusts”), our Chairman and Chairman of the Board, collectively have voting power over 1,733,750 shares of our common stock (which includes 545,360 shares of our Class C common stock (which is all the issued and outstanding shares of the Class C common stock), which are convertible into shares of our Class B common stock on a 1-for-1 basis, and 1,188,390 shares of our Class B common stock), representing approximately 58.6% of the combined voting power of our outstanding capital stock, as of January 17, 2023. In addition, as of January 17, 2023, Howard S. Jonas beneficially holds 3,479,934 shares of our Class B common stock, warrants to purchase up to 89,243 shares of our Class B common stock at a price per share of $1.936 and warrants to purchase up to 98,336 shares of our Class B common stock at a price per share of $1.936. Each of the Trusts has a different, independent trustee.   

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

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

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

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

IDW Media Holdings is headquartered at 520 Broad St, Newark, New Jersey, fourth floor. The term of the license agreement with IDT Domestic Telecom Inc. commenced on December 1, 2018 and is month-to-month with 30 days’ prior written notice required for termination by either party. Currently, the annual rental expense is $19,200.

IDWP is headquartered in 3,334 square feet of leased space at 2355 Northside Drive, Suite 140, San Diego, CA. The lease commenced on June 1, 2022 and has a 39-month term which expires on August 31, 2025. The Company pays rent of $126,000 annually, subject to annual escalations of 3%.

IDWE is headquartered in 4,734 square feet of leased space at 14144 Ventura Blvd, Suite 210, Sherman Oaks, CA. The lease commenced on August 1, 2022 and has a 60-month term which expires on July 31, 2027. The Company pays rent of $174,000 annually, subject to annual escalations of 3%.

Item 3. Legal Proceedings.

The Company may from time to time be subject to legal proceedings that may arise in the ordinary course of business. Although there can be no assurance in this regard, other than noted above, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Item 4. Mine Safety Disclosures.

Not applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

PRICE RANGE OF COMMON STOCK

Our Class B common stock commenced trading on the NYSE American on August 4, 2021 under the symbol “IDW.”

On January 17, 2023, there were 103 holders of record of our Class B common stock and 8 holders of record of our Class C common stock, which is not publicly traded. These numbers do not include the number of persons whose shares are in nominee or in “street name” accounts through brokers. On January 18, 2023, the last sales price reported on the NYSE American for the Class B common stock was $1.0345 per share.

We have not paid dividends on our Class B common stock, and currently do not intend to pay any cash dividends on our Class B common stock in the foreseeable future. Our current policy is to retain all of our earnings to finance future growth. Any future declaration of dividends will be subject to the discretion of our Board of Directors.

In addition, we may incur debt financing in the future, the terms of which will likely prohibit us from paying cash dividends or distributions on our Class B common stock. Even if we are permitted to pay cash dividends in the future, we currently anticipate that we will retain all future earnings, if any, to fund the operation and expansion of our business and for general corporate purposes.

The information required by Item 201(d) of Regulation S-K will be contained in our Proxy Statement for our Annual Stockholders Meeting, which we will file with the Securities and Exchange Commission within 120 days after October 31, 2021, and which is incorporated by reference herein.

Performance Graph of Stock

We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.

Issuer Repurchases of Equity Securities

None.

Item 6. [Reserved].

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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.

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

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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. 

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

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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 Faction and 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 Faction of $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.

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

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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.

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.

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.

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.

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.

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.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risks.

Foreign Currency Risk

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 the Company’s production costs.

Foreign Exchange Balances Held in CAD (in thousands)

Item 8. Financial Statements and Supplementary Data. 

The consolidated financial statements of the Company and the report of the independent registered public accounting firm thereon starting on page F-1 are included herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 

None.

Item 9A. Controls and Procedures.

Management’s report on internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Management’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company’s assets that could have a material effect on financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 Framework).

Based on this assessment, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has concluded that, as of October 31, 2022, our internal control over financial reporting were effective based on those criteria.

Evaluation of Disclosure Controls and Procedures 

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of October 31, 2022.

Changes in Internal Control over Financial Reporting 

There were no significant changes made in the Company’s internal control over financial reporting during the fourth quarter of the year ended October 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.”

Item 9B. Other Information. 

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Part III

Item 10. Directors, Executive Officers and Corporate Governance.

The following is a list of our directors and executive officers along with the specific information required by Rule 14a-3 of the Securities Exchange Act of 1934:

Executive Officers

Allan I. Grafman—Chief Executive Officer

Brooke T. Feinstein—Chief Financial Officer

Howards S. Jonas—Chairman

Directors

Howard S. Jonas—Chairman of the Board

Perry Davis

Amy Jonas

Irwin Katsof

Christopher McGurk

Ex-Officio Directors

Allan I. Grafman

Marc E. Knoller

The remaining information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after October 31, 2022, and which is incorporated by reference herein.

Corporate Governance

We have included as exhibits to this Annual Report on Form 10-K certificates of our Chief Executive Officer and Principal Financial Officer certifying the quality of our public disclosure.

We make available free of charge through the investor relations page of our web site (http://idwmediaholdings.com/investors/) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and all beneficial ownership reports on Forms 3, 4 and 5 filed by directors, officers and beneficial owners of more than 10% of our equity, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. We have adopted codes of business conduct and ethics for all of our employees, including our principal executive officer, principal financial officer, and principal accounting officer. Copies of the codes of business conduct and ethics are available on our web site.

Our web site and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission.

Item 11. Executive Compensation.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after October 31, 2022, and which is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after October 31, 2022, and which is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after October 31, 2022, and which is incorporated by reference herein.

Item 14. Principal Accounting Fees and Services.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after October 31, 2022, and which is incorporated by reference herein.

Part IV

Item 15. Exhibits, Financial Statement Schedules.

Consolidated and Combined Financial Statements covered by Report of Independent Registered Public Accounting Firms

All schedules have been omitted since they are either included in the Notes to Consolidated and Combined Financial Statements or not required or not applicable.

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

(b) Exhibits.

EXHIBIT INDEX

Item 16. Form 10-K Summary

None.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: January 19, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Perry Davis

Irwin Katsof

Christopher McGurk

IDW Media Holdings, Inc.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

IDW Media Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of IDW Media Holdings, Inc. and its Subsidiaries (the “Company”) as of October 31, 2022 and 2021 and the related statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended October 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2022 and 2021 and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

/s/ ZWICK CPA, PLLC

f/k/a/ Zwick & Banyai, PLLC

Southfield, Michigan

January 19, 2023 

We have served as the Company’s auditor since 2009.

IDW MEDIA HOLDINGS, INC. 

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

IDW MEDIA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

IDW MEDIA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

See accompanying notes to consolidated financial statements

IDW MEDIA HOLDINGS, INC.

CONSOLIDATED STOCKHOLDERS’ EQUITY

Fiscal Years Ended October 31, 2022 and 2021

See accompanying notes to consolidated financial statements.

IDW MEDIA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

IDW HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED OCTOBER 31, 2022 AND 2021

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

Overview

IDW Media Holdings, Inc., a Delaware corporation, (“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 IDWMH and its subsidiaries through which various businesses are conducted.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The 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 consolidated financial statements and notes to the 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 2022 refers to the fiscal year ended October 31, 2022).

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 consolidated financial statements and accompanying notes. Actual results may differ from those estimates. The Company has considered information available to it as of the date of issuance of these 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.

Risks and Uncertainties

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 its operating segments. While the Company believes that in fiscal 2022, there has been significant improvement in the impact of the pandemic and the related measures, 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 the Company’s operations and its customers and partners may continue to be impacted.

In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States of America, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows related to IDWP’s foreign licenses is also not determinable as of the date of these financial statements.

Segment Information

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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).

The Company’s principal business consists of the following segments:

Prior to February 15, 2021, the Company 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 (“CTM Sale Date”), the Company 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 the Company owed to the Company’s 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 (which condition was not met), and (iii) a contingent payment if CTM is sold within 36 months of the sale for more than $4.5 million (“CTM Sale”). As of July 31, 2020, CTM was reported as a discontinued operation and CTM’s operations have since been included in the consolidated financial statements as discontinued operations (See Note 16). As of October 31, 2022, the 18-month period for the contingent payment based upon recovery of quarterly revenue has lapsed and no payment is owed. 

Cash and Cash Equivalents

The Company considers all highly liquid investments or debt instruments with an original maturity of three months or less when purchased to be cash equivalents.

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 customers’ 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 consolidated statements of operations. The Company had an allowance for doubtful accounts of $0 as of October 31, 2022 and 2021.

Inventory

Inventory consists of IDWP’s graphic novels and comic books. Inventory is stated at the lower of cost or net realizable value determined by the first in, first out method.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. The Company charges the cost of repairs and maintenance, including the cost of replacing minor items not constituting substantial betterment, to selling, general and administrative expenses as these costs are incurred. Depreciation is recognized over the estimated useful lives or lease terms as follows:

Long-Lived Assets, Including Definite-Lived Intangible Assets

Intangible assets, which consist of licensing contracts and capitalized software, are recorded at cost, and are amortized on a straight-line basis over their contractual or estimated useful lives, whichever is shorter from 5 – 7 years.

In accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for impairment based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record an impairment loss based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such impairments could be material.

Goodwill

Goodwill, which represents the excess of purchase prices over the fair value of nets assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. Goodwill is evaluated for impairment on an annual basis at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of the reporting unit is less than its carrying amount. The qualitative assessment considers macroeconomic conditions, industry and market considerations, cost factors and overall company financial performance. If the reporting unit does not pass the qualitative assessment, the carrying amount of the reporting unit, including goodwill, is compared to its fair value. When the carrying amount of the reporting unit exceeds its fair value, a goodwill impairment loss is recognized up to a maximum amount of the recorded goodwill related to the reporting unit. Goodwill impairment losses are not reversed. There was no impairment loss of goodwill for the fiscal years ended October 31, 2022 and 2021.

Television Costs

The Company capitalizes television production, participation and residual costs and amortizes them 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 the Company’s estimate of Ultimate Revenues decreases, amortization of film and television costs may be accelerated. Conversely, if the Company’s 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. Advertising, marketing, general and administrative costs are expensed as incurred.

Every quarter, the Company undertakes an analysis 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.

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 fiscal years ended October 31, 2022 and 2021 were $1,348,000 and $5,414,000, 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, there are no additional losses foreseen. The SPEs have finished all 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, Top Shelf, and Artist’s Editions. Revenue from the 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 comic books, graphic novels, 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 the content promised in an executed contract is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the content. Beginning in the third fiscal quarter of 2022, revenue was also generated from serving as a co-studio and executive producer of content across various platforms and formats to audiences globally including television series and films. This revenue is recognized when the services promised in the contract are transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the services. IDWE also earns revenue from the sale of the option to purchase the media rights for IDWP properties to studios and streamers. This revenue is recognized when the goods promised in the contract are transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the goods.

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, 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 qualified for tax credits in Canada. These credits were recorded as either revenue or 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. As of October 31, 2022, the consolidated statements of operations reflect final tax refund amounts.

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 eliminated in consolidation and, therefore, do not affect consolidated results.

Revenue Recognition When Right of Return Exists

IDWP’s book market distributors offer a right of return to retail customers with no expiration date in accordance with general industry practices. IDWP generally does not offer the right of return on the sale of comic books. 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 October 31, 2022 and 2021, the Company’s estimated returns were $110,000 and $127,000, respectively.

Direct Cost of Revenues

Direct cost of revenues excludes depreciation and amortization expense. Direct cost of revenues for IDWP consists primarily of printing expenses and costs of artists 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, residuals, 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.

Advertising Expense

Advertising costs are expensed as incurred, including digital and print advertisements. In fiscal 2022 and fiscal 2021, advertising expenses were approximately $363,000 and $329,000, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation granted to its employees in accordance with the fair value recognition provisions of ASC 718, Stock Compensation. Stock-based compensation expense is measured at the date of grant, based on the fair value of the award, and is recognized using the straight-line method over the employee’s vesting period or requisite service period. Compensation for stock-based awards with vesting conditions other than service are recognized at the time that those conditions are achieved. Forfeitures are recognized as they are incurred. Stock-based compensation is included in selling, general and administrative expense.

Leases

The company determines if an arrangement is a lease at inception. Under the new standard, operating leases are included in right-of-use (“ROU”) assets, operating leases obligations – current portion, and operating lease obligations – long term portion in the consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Fixed lease expense for lease payments is recognized in the consolidated statements of operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company uses the implicit rate when readily determinable. The Company’s incremental borrowing rate is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The operating ROU assets also includes any lease payments made before the lease commencement date less any lease incentives received. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise the options. The lease agreements with lease and non-lease components are generally accounted as a single component.

Distinguishing Liabilities from Equity

The Company accounts for freestanding financial instruments, including warrants issued in consideration of debt instruments, as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB’s ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For warrants that meet all criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance based on their relative fair value. For issued or modified warrants that do not meet all criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance and each balance sheet date thereafter, with changes in fair value recorded in earnings. All warrants currently outstanding are equity-classified instruments.

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 Federal Deposit Insurance Corporation’s (“FDIC”) insurance limits. Historically, the Company has not experienced any losses due to such concentration of credit risk.

During fiscal years 2022 and 2021, IDWP had two significant customers, Penguin Random House (“PRH”) and Diamond Comic Distributors, Inc. (“Diamond”), that posed a concentration risk. From June 1, 2022, only PRH

poses a concentration risk.

Revenues from PRH, IDWP’s non-direct market distributor and beginning June 1, 2022, IDWP’s direct market distributor, represented 37.2% and 32.8% of consolidated revenue in the fiscal years ended October 31, 2022 and 2021, respectively. The receivable balances represented 63.9% and 52.0% of consolidated receivables at October 31, 2022 and 2021, respectively.

Revenues from Diamond, which was IDWP’s direct market distributor until June 1, 2022, represented 13.6% and 32.2% of the total consolidated revenues for the fiscal years ended October 31, 2022 and 2021, respectively. The receivable balances from Diamond represented 0% and 20% of consolidated receivables at October 31, 2022 and 2021, respectively.

IDWE has two significant customers, Netflix and Fifth Season (formerly Endeavor Content LLC), that pose a concentration risk.

Revenue from Netflix, a leading streaming video subscription service, represented 25.0% and 0.5% of the total consolidated revenue in the fiscal years ended October 31, 2022 and 2021, respectively.