| Basis of Presentation and Summary of Significant Accounting Policies | Note 1—Basis of Presentation and Summary
of Significant Accounting Policies Overview IDW Media Holdings, Inc. (“IDWMH”)
together with its subsidiaries (collectively, the “Company”) is a diversified media company with operations in publishing
and television entertainment. The terms “Company,” “we,” “us,” and “our” are used in
this report to refer collectively to the parent company and the subsidiaries through which various businesses are conducted. Basis of Presentation and Principles of Consolidation The accompanying 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 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. In March 2020, the World Health Organization
declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. The Company
is actively monitoring the COVID-19 pandemic, the restrictive measures imposed to combat its spread and their potential impact on each
of our operating segments. While we believe that in 2021, there has been significant improvement due to global and domestic vaccination
efforts, there is uncertainty around the duration and ongoing impact, if any, of COVID-19 related to both known and unknown risks, including
future quarantines, closures and other restrictions resulting from the outbreak, and our operations and our customers and partners may
continue to be impacted. The Company has considered information available to it as of the date of issuance of these 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. Segment Information Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification 280 (“ASC 280”), Segment Reporting, establishes standards for reporting information about
operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and
in assessing performance. The Company’s chief operating decision
maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in
accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Company. In Fiscal 2021, our principal businesses
consisted of:
i. IDWP Publishing (“IDWP”), a publishing company that
creates comic books, graphic novels, digital content and games through its imprints IDW, IDW Games, Top Shelf Productions,
Artist’s Editions and The Library of American Comics; and
ii. IDW Entertainment (“IDWE”), a production company and studio that develops, produces and distributes content based on IDWP’s original IP for a variety of formats including film and television. Most recently, in partnership with Netflix, IDWE launched the second season of Locke & Key, with a third season already planned for Fall/Winter 2022. In addition, a new live action series based on the graphic novel Surfside Girls During calendar 2021, we began to wind down
operations at IDW Games and, going forward, IDW Games is only backfilling final orders Prior to February 15, 2021, we also owned
CTM Media Group (CTM), a company that develops and distributes print and digital-based advertising and information advertising for tourist
destinations in targeted tourist markets in 32 states / provinces in the US and Canada. On February 15, 2021, we consummated the sale
of CTM to an assignee of Howard Jonas, the Company’s Chairman in exchange for (i) the cancelation of $3.75 million of indebtedness
we owed to our Chairman’s designee, (ii) a contingent payment of up to $3.25 million based upon a recovery of quarterly revenues
of CTM to 90% of its fiscal 2019 levels during the 18-month period following the sale, and (iii) a contingent payment if CTM is sold
within 36 months of the sale for more than $4.5 million. As of July 31, 2020, CTM was reported as a discontinued operation and CTM’s
operations have since been included in the financial statements as discontinued operations (Note 17 Discontinued Operations). Cash and Cash Equivalents The Company considers all highly liquid investments
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 tenants’ payment history and liquidity. Any amounts that were previously recognized as revenue and subsequently determined
to be uncollectible are charged to bad debt expense included in selling, general and administrative expense in the accompanying consolidated
statements of operations. The balances of and changes in the allowance
for doubtful accounts are as follows:
October 31, October 31,
Beginning Balance $ 29 $ 29
Additions — —
Write-offs (29 ) —
Ending Balance $ — $ 29 Inventory Inventory consists of IDWP’s graphic novels
and comic books (print). Inventory is stated at the lower of cost or net realizable value determined by the first in,
first out method for print. 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:
Asset Category Depreciable Life
Equipment 5-7 years
Furniture & fixtures 5-7 years
Computer software 1-3 years
Leasehold improvements *
* Leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or estimated useful life of the asset. 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- 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, 2021 and 2020. Television Costs We expense television production, participation and residual
costs over the applicable product life cycle based upon the ratio of the current period’s revenues to the estimated remaining
total revenues (Ultimate Revenues) for each production. If our estimate of Ultimate Revenues decreases, amortization of film and
television costs may be accelerated. Conversely, if our estimate of Ultimate Revenues increases, film and television cost
amortization may be slowed. For television series, Ultimate Revenues include revenues that are expected to be earned within ten
years from delivery of the first episode, or if still in production, five years from delivery of the most recent episode, if later.
IDWE capitalized cost of production and amortized it over the applicable product life cycle based upon the ratio of the current
period’s revenues to the estimated remaining total revenues (Ultimate Revenues) for each production. Advertising, marketing,
general and administrative costs are expensed as incurred. Every quarter, the Company prepares analyses to support its content
amortization expense. Critical assumptions used in determining content amortization include: (i) determining the grouping of contents
(ii) the application of an ultimate revenue forecast model based on the contracts of televisions, (iii) gathering the schedules of delivered
television episodes from the relative customers, (iv) calculating current period amortization, (v) assessing the accuracy of the Company’s
forecasts. The Company continually reviews its estimates and contracts and revises its assumptions if necessary. Any material adjustments
from the Company’s review of the amortization are applied prospectively in the period of the change for assets. With respect to television series or other television productions
intended for broadcast, the most sensitive factors affecting estimates of Ultimate Revenues are program ratings and the strength of the
advertising market. Program ratings, which are an indication of market acceptance, directly affect the Company’s ability to generate
advertising revenues during the airing of the program. Television development costs for projects that have been abandoned or have not
been set for production within three years are generally written off in the relevant period. Television costs are stated at the lower of cost less accumulated
amortization or fair value. The Company evaluates impairment by the fair value of television costs at the individual level by considering
expected future revenue generation, when an event or change in circumstances indicates a change in the expected revenue of the television
costs or that the fair value of a film or film group may be less than unamortized costs. IDWE regularly enters into agreements for the production of its television
shows. The agreements provide for the rights and obligations related to the agreement including timing, delivery and payments. IDWE capitalizes
the resulting production costs under the agreements in production cost inventory as payments are made or when the products or services
are delivered. Amortization of television costs during the fiscal years ended October 31, 2021 and 2020 were $5,414,000 and $16,808,000,
respectively. Variable Interest Entities The Company, through its subsidiary IDWE has arrangements with
seven special-purpose entities (“SPEs”), some formed for the sole purpose of providing production services in Canada for
the production of a television pilot and television series, others for production and writing purposes. The SPEs are independently
owned companies that are effectively controlled by IDWE, that are parties to the related bank production financing arrangements. The
Company has determined that SPEs are variable interest entities (“VIEs”) and that the Company is the primary beneficiary
of the SPEs activities and obligor on the SPEs’ debt. All financial activity of the SPEs have been included IDWE’s
financial statements, which are part of these consolidated financial statements. IDWE does not need to provide any support to the
VIE’s and therefore no foreseen potential losses associated. They have finished all of the productions and these shows have been
delivered. The outstanding loans have been paid off. The carrying amounts and classification of the VIEs’ assets and
liabilities are presented below:
(in thousands) October 31, October 31,
Cash and cash equivalents $ 78 $ 732
Accounts receivable - 12,420
Bank loans payable - 14,204 Revenue Recognition The Company applies the five-step approach as
described in ASC 606, Revenue from Contracts with Customers, which consists of the following: (i) identifying the contract with a customer,
(ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction
price to the performance obligations in the contract and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. IDWP generates revenue primarily from the sale
and licensing of comic books, graphic novels, digital content, and games through IDWP’s imprints IDW Publishing, IDW Games and
Top Shelf. Revenue from the direct sale of comic books, graphic novels and games is recognized, net of an allowance for estimated sales
returns, at the time of shipment of its graphic novels, comic books and games by IDWP’s distributor to its customers. IDWE generates revenue primarily from the licensing
and distribution of content across various platforms and formats to audiences globally including television series and films. IDWE’s
revenue is recognized when evidence of a sale or licensing arrangement exists, the product is complete, has been delivered or is available
for immediate and unconditional delivery, the license period has begun, the fee is fixed or determinable, and collection is reasonably
assured. IDWE enters into production agreements which provide for the rights
and obligations related to the agreement including timing, delivery and payments. In certain productions, IDWE chooses to have the obligation
to pay the Writers Guild of America (“WGA”) residuals for the creative writers of content. These extend to 25 years after
distribution and are recorded in the consolidated statements of operations as a direct cost of revenue. In addition, IDWE has the right
to receive participation rights recoupment based on viewership of the cumulative production. The Company is unable to make an estimate
as the recoupment is based on future viewership and therefore revenue will be recognized at a future date once the amount is known. IDWE’s production activities included some
of those provided by Canadian SPEs, and some of those productions qualify for tax credits in Canada. These credits are recorded as reductions
in production cost when the SPEs becomes entitled to the Canadian tax credits. The Canada Revenue Agency (“CRA”) has completed
the audit on these productions and the related tax refunds are no longer estimates. There are possible additional tax credits the Company
may be eligible to receive, however due to the uncertainty of the receipt they have not been accrued for. The timing of the Company’s revenue recognition
may differ from the timing of payment by its customers. A receivable is recorded when revenue is recognized prior to payment and the
Company has an unconditional right to payment. Alternatively, when payment precedes the satisfaction of performance obligations, the
Company records a contract liability on the balance sheets within deferred revenue until the performance obligations are satisfied. In the ordinary course of business, the Company’s
reportable segments enter into transactions with one another. The most common types of intersegment transactions include IDWE obtaining
rights to produce television series based on content created by IDWP. While intersegment transactions are treated like third-party transactions
to determine segment performance, the revenues are eliminated in consolidation and, therefore, do not affect consolidated results. Revenue Recognition When Right of Return Exists IDWP offers its book market distributors, a right
of return with no expiration date in accordance with general industry practices. These distributors then offer this same right of return
to their book market retail customers. Sales returns allowances represent a reserve for IDWP products that may be returned due to dating,
competition or other marketing matters, or certain destruction in the field. Sales returns are generally estimated and recorded based
on historical sales and returns experience and current trends that are expected to continue. 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.
As of October 31, 2021 and 2020, the Company’s accrual for estimated lases returns were $127,000 and $296,000, 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 artist and writers. Direct cost of revenues for
IDWE consists primarily of the amortization of production costs that were capitalized during the production of the television episodes,
accrued third party participation, and distribution fees directly related to revenue. Deferred Revenue The Company records deferred revenue upon invoicing
for contracted commitments for products and services. Revenue is recognized on the date such product or service is provided or delivered
in accordance with the contract. Advertising Expense Non-direct response advertising is expensed as
incurred. In fiscal 2021 and fiscal 2020, advertising expenses were approximately $329,000 and $274,000, 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 Leases Effective November 1, 2019, the Company adopted
Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842) utilizing the modified retrospective adjustment transition
method through a cumulative-effect adjustment at the beginning of the first fiscal quarter of 2020. 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.
Our 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, short term investment and trade accounts receivable.
The Company holds cash and cash equivalents at several major financial institutions, which often exceed FDIC insurance limits. Historically,
the Company has not experienced any losses due to such concentration of credit risk. The Company’s temporary cash investments policy
is to limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions.
While the Company may be exposed to credit losses due to the nonperformance of its counterparties, the Company does not expect the settlement
of these transactions to have a material effect on its results of operations, cash flows or financial condition. IDWP has two significant customers Penguin Random House Publisher
Services (“PRHPS”) and Diamond Comic Distributors, Inc. (“Diamond”), that pose a concentration risk. Revenues from PRHPS, IDWP’s non-direct market distributor
amounted to 32.8% and 30.8% of consolidated revenue in the fiscal years ended October 31, 2021 and 2020, respectively. The receivable
balances represented 52.0% and 15.8% of consolidated receivables at October 31, 2021 and 2020, respectively. Beginning June 1, 2022, PRHPS
will replace Diamond as IDWP’s distributor to the direct market. Revenues from Diamond, IDWP’s direct market distributor, represented
31.2% and 18.5% of the total consolidated revenues for the fiscal years ended October 31, 2021 and 2020, respectively. The receivable
balances from this customer represented approximately 20.0% and 4.7% of consolidated trade accounts receivable at October 31, 2021 and
2020, respectively. IDWE has one significant customer, Netflix, that poses a concentration
risk. Revenue from Netflix, a leading streaming video subscription service,
represented 0.5% and 21.1% of the total consolidated revenue in the fiscal years ended October 31, 2021 and 2020, respectively. The receivable
balances from this customer represented 4.0% and 15.3% of consolidated trade receivables at October 31, 2021 and 2020, respectively. Discontinued Operations CTM has met the criteria for discontinued operations
and has been presented as such in the consolidated financial statements. In accordance with ASU 2014-08, “Reporting of Discontinued
Operations and Disclosures of Disposals of Components of an Entity,” a disposal is categorized as a discontinued operation if the
disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is
disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations
and financial results . During the period in which the discontinued operation
was classified as held for sale, the net loss was reclassified as a separate line item in the Statement of Operations. Additionally,
the gain from the sale was presented as a separate line item on the Statement of Operations. Assets and liabilities are also separately
reclassified in the balance sheet for all periods presented, prior to the sale. CTM’s assets are no longer reflected on the consolidated
financial statements for the periods following the CTM Sale Date. Cash flows from a discontinued operation and the continuing business
are presented together without separate identification within cash flows from operating, investing and financing activities. Cash flows
of CTM’s depreciation, amortization, capital expenditures and significant noncash operating and investing activities for the discontinued
operation are presented separately. Reclassification of prior year presentation Certain prior year amounts have been reclassified for consistency with
the current year presentation, these reclassifications have not resulted in impacts to net loss. Stock options have been included with
stock based compensation on the Consolidated Stockholders’ Equity and Consolidated Statement of Cash Flows. Production costs payable
have been broken out of accrued expenses on the Consolidated Balance Sheets. Bad debt expense has been included in selling, general and
administrative on the Consolidated Statements of Operations. Income Taxes The Company recognizes deferred tax assets and
liabilities for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that
some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation
of future taxable income during the period in which related temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance.
Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date of such change. The Company uses a two-step approach for
recognizing and measuring tax benefits taken or expected to be taken in a tax return. The Company determines whether it is
more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the
more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing
authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of tax benefit to recognize in the financial statements or the amount of allowance
against any previously recognized benefit. The tax position is measured at the largest amount of benefit that is greater than 50
percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts
recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income
taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability
(Note 15 Income Taxes). Commitments and Contingencies The Company accrues for loss contingencies when
both (a) information available prior to issuance of the consolidated financial statements indicates that it is probable that a liability
had been incurred at the date of the consolidated financial statements and (b) the amount of loss can reasonably be estimated. When
the Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company records its best estimate
within the range. When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount
in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible that a loss
may have been incurred. Fair Value of Financial Instruments The estimated fair value of financial instruments
has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is
required in interpreting this data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of
the amounts that could be realized or would be paid in a current market exchange. At October 31, 2021 and 2020, the carrying value
of the Company’s current assets of trade accounts receivable, inventory, prepaid expenses, trade accounts payable, accrued expenses,
deferred revenue, bank loans payable, related party loans payable, government loans, operating lease obligations, and other current liabilities
approximated fair value because of the short period of time to maturity. At October 31, 2021 and 2020, the carrying value of the
long-term portion of the Company’s operating lease obligations, related party loans, government loans and bank loans approximate
fair value as their contractual interest rates approximate market yields for similar debt instruments. Investments Effective April 1, 2020, the Company’s
interest in Clover Press decreased to 19.9% and IDWMH no longer consolidates the operations of Clover Press. Recently Issued Accounting Pronouncements
Adopted Subsequent to 2020 Fiscal Year End In March 2019, the FASB issued Accounting Standard Update (“ASU”)
No. 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials. ASU 2019-02 aligns the accounting
for production costs of episodic television series with the accounting for production costs of films. It also requires an entity to test
a film or license agreement within the scope of Subtopic 920-350 for impairment at the film group level, when the film or license agreement
is predominantly monetized with other films and/or license agreements. The Company adopted this ASU on November 1, 2020 and is applying
its provisions prospectively. In connection with this adoption the Company has evaluated this guidance and determined that there are
impairments (Note 12) from substantively abandoned television costs which materially impacted the consolidated financial statements.
These costs were recorded in direct cost of revenues. Recently Issued Accounting Standard Not Yet
Adopted In June 2 |
