Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
1. Introduction:
Nature of business
Kidoz Inc. (previously Shoal Games Ltd.) is
a kid-tech software developer and owner of the leading mobile KidSafe
advertising network (www.KIDOZ.net),
incorporated in Anguilla, British West Indies in 2005. We help create a free
and safe Internet for children, by enabling content producers to monetize
their apps and video with ads.
For Original Equipment Manufacturers ("OEM")
and Carriers, the Company's KIDOZ Mode is the software solution that powers
their youth-dedicated products, including custom content libraries, parental
control and kid-friendly monetization.
The games on the Rooplay system are designed
to both entertain and educate. Children engaging with Rooplay learn
technology, solve puzzles, paint pictures, practice language, learn math,
and other educational games. Kidoz Inc. is developing a content system with
Rooplay that builds tech literacy and encourages early learning.
Rooplay will generate revenue for the
Company from consumer subscriptions which customers pay to unlock the
Rooplay game catalog and the licensing of our Rooplay games.
Kidoz Ltd's
other mobile products, Garfield's Bingo (www.garfieldsbingo.com), and Trophy
Bingo (www.trophybingo.com), are free-to-play mobile games live in the
Apple, Google and Amazon App Stores. The Company has generated revenue
to-date from players making in-app purchases in Trophy Bingo and Garfield's
Bingo.
Continuing operations
These
consolidated financial statements have been prepared on the going concern
basis, which presumes the realization of assets and the settlement of
liabilities in the normal course of operations. The application of the
going concern basis is dependent upon the Company achieving profitable
operations to generate sufficient cash flows to fund continued operations,
or, in the absence of adequate cash flows from operations, obtaining
additional financing. The Company has reported losses from operations for
the years ended December 31, 2019 and 2018, and has an accumulated deficit
of
$40,552,452
as at December
31, 2019. This raises substantial doubt about the Company's ability to
continue as a going concern.
In view of the matters described in the
preceding paragraph, recoverability of a major portion of the recorded asset
amounts and settlement of the liability amounts shown in the accompanying
balance sheets is dependent upon continued operations of the Company, which
in turn is dependent upon the Company's ability to succeed in its future
operations. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue in existence.
Management continues to review operations in
order to identify additional strategies designed to generate cash flow,
improve the Company's financial position, and enable the timely discharge
Page 29
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
1. Introduction: (Continued)
of the
Company's obligations. If management is unable to identify sources of
additional cash flow in the short term, it may be required to further reduce
or limit operations.
In March 2020 the World Health
Organization declared coronavirus COVID-19 a global pandemic. This
contagious disease outbreak, which has continued to spread, and any related
adverse public health developments, has adversely affected workforces,
economies, and financial markets globally, potentially leading to an
economic downturn. It is not possible for the Company to predict the
duration or magnitude of the adverse results of the outbreak and its effects
on the Company's business or ability to raise funds.
2. Summary of
significant accounting policies:
(a)
Basis of
presentation:
These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("US GAAP") applicable to annual financial information and with the rules
and regulations of the United States Securities and Exchange Commission. The
financial statements include the accounts of the Company's subsidiaries:
Company
|
Registered
|
%
Owned
|
Shoal Media (Canada) Inc.
|
British Columbia, Canada
|
100%
|
Coral Reef Marketing Inc.
|
Anguilla
|
100%
|
Kidoz Ltd.
|
Israel
|
100%
|
Rooplay Media Ltd.
|
British Columbia, Canada
|
100%
|
Rooplay Media Kenya Limited
|
Kenya
|
100%
|
Shoal Media Inc.
|
Anguilla
|
100%
|
Shoal Games (UK) Plc
|
United Kingdom
|
99%
|
Shoal Media (UK) Ltd.
|
United Kingdom
|
100%
|
In addition,
there are the following dormant subsidiaries;
Bingo.com (Antigua) Inc., Bingo.com
(Wyoming) Inc., and Bingo Acquisition Corp.
During the year ended December 31, 2019, the
Company acquired Kidoz Ltd. a company incorporated under the laws of the
State of Israel. (Note 3)
All
inter-company balances and transactions have been eliminated in the
consolidated financial statements.
Page 30
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(b)
Use of
estimates:
The
preparation of consolidated financial statements in conformity with US GAAP,
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and
recognized revenues and expenses for the reporting periods.
Significant
areas requiring the use of estimates include the collectability of accounts
receivable, stock-based compensation, the valuation of deferred tax assets,
the valuation of the acquisition of Kidoz Ltd. and the associated intangible
assets, the useful lives of intangible assets, the determination of the fair
value of goodwill after impairment, and the estimated interest rate of 12%
for the license right-of-use assets and 4.12% - 5% for the rental units
right-of-use asset. Actual results may differ significantly from these
estimates.
(c)
Revenue recognition:
In accordance with ASC 606, Revenue from Contracts with Customers, revenue
is recognized when a customer obtains control of promised services. The
amount of revenue recognized reflects the consideration to which the Company
expects to be entitled to receive in exchange for these services.
We derive substantially all of our revenue from the sale of Ad tech
advertising revenue.
To achieve this core principle, the Company applied the following five
steps:
1) Identify the contract with a customer
A contract with a customer exists when (i) the Company enters into an
enforceable contract with a customer that defines each party's rights
regarding the services to be transferred, whose impression count will form
the basis of the revenue and identifies the payment terms related to these
services, (ii) the contract has commercial substance and, (iii) the Company
determines that collection of substantially all consideration for services
that are transferred is probable based on the customer's intent and ability
to pay the promised consideration. The Company applies judgment in
determining the customer's ability and intention to pay, which is based on a
variety of factors including the customer's historical payment experience
or, in the case of a new customer, published credit and financial
information pertaining to the customer.
2) Identify the performance obligations in the contract
Performance obligations promised in a contract are identified based on the
services that will be transferred to the customer that are both capable of
being distinct, whereby the customer can benefit from the service either on
its own or together with other resources that are readily available from
third parties or from the Company, and are distinct in the context of the
Page 31
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(c)
Revenue recognition: (Continued)
contract, whereby the transfer of the services is separately identifiable
from other promises in the contract. To the extent a contract includes
multiple promised services, the Company must apply judgment to determine
whether promised services are capable of being distinct and distinct in the
context of the contract. If these criteria are not met the promised services
are accounted for as a combined performance obligation.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the
Company will be entitled in exchange for transferring services to the
customer. None of the Company's contracts contain financing or variable
consideration components.
4) Allocate the transaction price to performance obligations in the contract
If the contract contains a single performance obligation, the entire
transaction price is allocated to the single performance obligation.
Contracts that contain multiple performance obligations require an
allocation of the transaction price to each performance obligation based on
a relative standalone selling price basis. The Company determines standalone
selling price based on the price at which the performance obligation is sold
separately. If the standalone selling price is not observable through past
transactions, the Company estimates the standalone selling price taking into
account available information such as market conditions and internally
approved pricing guidelines related to the performance obligations.
5) Recognize revenue when or as the Company satisfies a performance
obligation
The Company satisfies performance obligations at a point in time as
discussed in further detail under "Disaggregation of Revenue" below. Revenue
is recognized at the time the related performance obligation is satisfied by
transferring a promised service to a customer.
Disaggregation of Revenue
All of the Company's performance obligations, and associated revenue, are
generally transferred to customers at a point in time. The Company has the
following revenue streams:
1) Ad
tech advertising revenue - The Company generally offers these services under
a customer contract Cost-per-Impression (CPM), Cost-Per-Install or CPI
arrangements, Cost per completed video view or CPC and/or Cost-Per-Action or
CPA arrangements with third-party advertisers and developers, as well as
advertising aggregators, generally in the form of insertion orders that
specify the type of arrangement (as detailed above) at particular set budget
amounts/restraints. These advertiser customer contracts are generally short
term in nature at less than one year as the budget amounts are typically
spent in full within this time period. These agreements typically include
the delivery of Ad tech advertising through
Page 32
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(c)
Revenue recognition: (Continued)
partner
networks, defined as publishers / developers, to home screens of devices and
agree on whose results will be relied on from a revenue point of view. The
Company has concluded that the delivery of the Ad tech advertising is
delivered at a point in time and, as such, has concluded these deliveries
are a single performance obligation. The Company invoices fees which are
generally variable based on the arrangement, which would typically include
the number of impressions delivered at a specified price per application.
For impressions delivered, revenue is recognized in the month in which the
Company delivers the application to the end consumer.
2) Content revenue - The Company recognizes content revenue on the following
forms of revenue:
a) Carriers and OEMs - The Company generally offers these services under a
customer contract per tablet device license fee model with OEMs. Monthly or
quarterly license fees are based on the OEM agreement with the number of
devices the Kidoz Kid Mode is installed upon.
b) Rooplay - The Company generates revenue through subscriptions or premium
sales of Rooplay, (www.rooplay.com) the cloud-based EduGame system for kids
to learn and play within its games on smartphones and tablet devices, such
as Apple's iPhone and iPad, and mobile devices utilizing Google's Android
operating system. Users can download the Company's games through digital
storefronts and decide to subscribe to the multiple of educational and fun
games in the Rooplay, cloud-based EduGame system or make a premium per
purchase of particular games. The revenue is recognized net of platform
fees.
c) Rooplay licensing - The Company licenses it branded educational games
under a monthly cost per game agreement license fee model. Monthly license
fees are based on the number of games licensed.
d) Trophy Bingo and Garfield Bingo - The Company generates revenue through
in-application purchases ("in-app purchases") within its games; Garfield's
Bingo (www.garfieldsbingo.com) and Trophy Bingo (www.trophybingo.com) on
smartphones and tablet devices, such as Apple's iPhone and iPad, and mobile
devices utilizing Google's Android operating system. Users can download the
Company's free-to-play games through Facebook Messenger, Android, Amazon and
iOS and pay to acquire virtual currency which can be redeemed in the game
for power plays. The initial download of the mobile game from the digital
storefront does not create a contract under ASC 606 because of the lack of
commercial substance; however, the separate election by the player to make
an in-application purchase satisfies the criterion thus creating a contract
under ASC 606.
Page 33
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(c)
Revenue recognition: (Continued)
The Company has identified the following performance obligations in these
contracts:
i. Ongoing game related services such as hosting of
game play, storage of customer content, when and if available content
updates, maintaining the virtual currency management engine, tracking
gameplay statistics, matchmaking as it relates to multiple player gameplay,
etc.
ii. Obligation to the paying player to continue
displaying and providing access to the virtual items within the game.
Neither of these obligations are considered distinct since the actual mobile
game and the related ongoing services are both required to purchase and
benefit from the related virtual items. As such, the Company's performance
obligations represent a single combined performance obligation which is to
make the game and the ongoing game related services available to the
players. The revenue is recognized net of platform fees.
The Company also has relationships with certain advertising service
providers for advertisements within smartphone games and revenue from these
advertising providers is generated through impressions, clickthroughs,
banner ads, and offers. Offers are the type of advertisements where the
players are rewarded with virtual currency for completing specified actions,
such as downloading another application, watching a short video, subscribing
to a service or completing a survey. The Company has determined the
advertising buyer to be its customer and displaying the advertisements
within the mobile games is identified as the single performance obligation.
Revenue from advertisements and offers are recognized at the point-in-time
the advertisements are displayed in the game or the offer has been completed
by the user as the customer simultaneously receives and consumes the
benefits provided from these services.
(d)
Foreign currency:
The consolidated
financial statements are presented in United States dollars, the functional
currency of the Company and its subsidiaries. The Company accounts for
foreign currency transactions and translation of foreign currency financial
statements under Statement ASC 830, Foreign Currency Matters. Transaction
amounts denominated in foreign currencies are translated at
exchange rates
prevailing at the transaction dates. Carrying values of monetary assets and
liabilities are adjusted at each balance sheet date to reflect the exchange
rate at that date. Non-monetary assets and liabilities are translated at the
exchange rate on the original transaction date.
Gains and losses from restatement of foreign currency monetary and
non-monetary assets and liabilities are included in operations. Revenues and
expenses are translated at the rates of exchange prevailing on the dates
such items are recognized in earnings.
Page 34
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(e)
Cash and Cash Equivalents:
Cash and cash equivalents includes cash on
hand, deposits held at call with financial institutions and other
short-term, highly liquid investments with original maturities of three
months or less that are readily convertible to known amounts of cash,
collateral accounts with maturities greater than 1 year and subject to an
insignificant risk of change in value.
(f) Accounts
receivable:
Trade and
other accounts receivable are reported at face value less any provisions for
uncollectible accounts considered necessary. Accounts receivable includes
receivables from online platforms and trade receivables from customers. The
Company estimates doubtful
accounts on an
item-by-item basis and includes over-aged accounts as part of allowance for
doubtful accounts, which are generally ones that are ninety-days overdue.
Bad debt expense, for the year ended December 31, 2019 was $2,029 (2018 -
$nil). (Note 4)
(g)
Equipment:
Equipment is recorded at cost less accumulated depreciation. Depreciation is
provided for annually on the declining balance method over the following
periods:
Equipment and computers 3 years
Furniture and fixtures 5
years
Expenditures for maintenance and repairs are charged to expenses as
incurred. Major improvements are capitalized. Gains and losses on
disposition of equipment are included in operations as realized.
In accordance with ASU No. 2016-02 "Leases (Topic 842), leasehold
improvements are accounted as a prepayment of rental payments since they are
deemed to be an asset of the lessor.
(h)
Software
Development Costs:
Software development costs incurred in the research and development of new
software products and enhancements to existing software products for
external use are expensed as incurred until technological feasibility has
been established. After technological feasibility is established, any
software development costs are capitalized and amortized at the greater of
the straight-line basis over the estimated economic life of the related
product or the ratio that current gross revenues for a product bear to the
total of current and anticipated future gross revenues for the related
product.
If a
determination is made that capitalized amounts are not recoverable based on
the estimated cash flows to be generated from the applicable software, any
remaining capitalized amounts
Page 35
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(h)
Software
Development Costs:
(Continued)
are written
off. Although the Company believes that its approach to estimates and
judgments as described herein is reasonable, actual results could differ and
the Company may be exposed to increases or decreases in revenue that could
be material.
As at December
31, 2019 and 2018, all capitalized software development costs have been
fully amortized and the Company has no capitalized software development
costs.
Total software development costs were
$7,730,851 as at December 31, 2019 (2018 - $6,716,810).
(i)
Advertising:
The Company expenses the cost of advertising in the period in which the
advertising space or airtime is used.
Advertising
costs from continuing operations charged to selling and marketing expenses
in 2019 totaled $369,321 (2018 - $352,770).
(j)
Stock-based compensation:
The Company
accounts for stock-based compensation under the provisions of Accounting
Standard Codification ("ASC") 718, "Compensation-Stock Compensation". Under
the fair value recognition provisions, stock-based compensation expense is
measured at the grant date for all stock-based awards to employees,
directors and non-employees and is recognized as an expense over the
requisite service period, which is generally the vesting period. The
Black-Scholes option valuation model is used to calculate fair value.
The fair value
of each option grant has been estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions:
|
|
2019
|
|
2018
|
Expected dividend yield
|
|
-
|
|
-
|
Expected stock price
volatility
|
|
-
|
|
109%
|
Weighted average
volatility
|
|
-
|
|
96%
|
Risk-free interest rate
|
|
-
|
|
1.97%
|
Expected life of options
|
|
-
|
|
5 years
|
Forfeiture rate
|
|
-
|
|
5%
|
(k) Right-of-use assets:
The Company determines if an
agreement is a lease at inception. The Company evaluates
the lease terms to determine whether the
lease will be accounted for as an operating or finance
lease. Operating leases are included in operating
lease right-of-use ("ROU") assets, operating lease
liabilities, current portion, and operating lease liabilities, net of
current portion in the consolidated balance sheets.
ROU assets represent the
Company's right to use an underlying asset for the lease term and lease
liabilities represent our obligation to make lease payments arising from the
lease.
Page 36
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(k) Right-of-use assets: (Continued)
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 Company leases do not
provide an implicit rate, the Company uses the incremental borrowing rate
based on the information available at commencement date in determining the
present value of lease payments. The Company uses the implicit rate when
readily determinable. The operating lease ROU asset also includes any lease
payments made and excludes lease incentives. The Company's lease terms may
include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option. Lease expense for lease payments
is recognized on a straight-line basis over the lease term.
A lease that transfers
substantially all of the benefits and risks incidental to ownership of
property are accounted for as finance leases. At the inception of a finance
lease, an asset and finance lease obligation is recorded at an amount equal
to the lesser of the present value of the minimum lease payments and the
property's fair market value. Finance lease obligations are classified as
either current or long-term based on the due dates of future minimum lease
payments, net of interest.
(l) Business Combinations:
When the Company acquires a
business, the purchase consideration is allocated to the tangible assets
acquired, liabilities assumed, and intangible assets acquired based on their
estimated respective fair values. The excess of the fair value of purchase
consideration over
the fair values of these
identifiable assets and liabilities is recorded as goodwill. Such valuations
require the Company to make significant estimates and assumptions,
especially with respect to intangible assets. Significant estimates in
valuing certain intangible assets include, but are not limited to, future
expected cash flows from acquired users, acquired technology, and trade
names from a market participant perspective, useful lives and discount
rates. The Company's estimates of fair value are based upon assumptions
believed to be reasonable, but which are inherently uncertain and
unpredictable and, as a result, actual results may differ from estimates.
During the measurement period, which is one year from the acquisition date,
the Company may record adjustments to the assets acquired and liabilities
assumed, with the corresponding offset to goodwill. Upon the conclusion of
the measurement period, any subsequent adjustments are recorded to
non-operating income (expense) in the consolidated statements of operations.
Page 37
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(m) Impairment
of long-lived assets and long-lived assets to be disposed of:
The Company
accounts for long-lived assets in accordance with the provisions of ASC 360,
Property, Plant and Equipment and ASC 350, Intangibles-Goodwill and Others.
During the periods presented, the only long-lived assets reported on the
Company's consolidated balance sheet are equipment, and security deposits.
These provisions require that long-lived assets and certain identifiable
recorded intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset.
If such assets
are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount and the fair value less costs to sell.
The Company
identified the following intangible assets in the acquisition of Kidoz Ltd.
(Note 3).
Intangible assets are recorded at cost less accumulated amortization.
Amortization is provided
for annually on the straight-line method over the following periods:
|
|
Amortization period
|
Ad Tech technology
|
|
5 years
|
Kidoz OS technology
|
|
3 years
|
Customer relationship
|
|
8 years
|
(n) Goodwill
:
The Company
accounts for goodwill in accordance with the provisions of ASC 350,
Intangibles-Goodwill and Others. Goodwill is the excess of the purchase
price over the fair value of identifiable assets acquired, less liabilities
assumed, in a business combination. The Company reviews goodwill for
impairment. Goodwill is not amortized but is evaluated for impairment at
least annually or whenever events or changes in circumstances indicate that
it is more likely than not that the carrying amount may not be recoverable.
The evaluation begins with a qualitative assessment to determine whether a
quantitative impairment test is necessary. If, after assessing qualitative
factors, we determine it is more likely than not that the fair value of the
reporting unit is less than the carrying amount, then the quantitative
goodwill impairment test is performed.
The
quantitative goodwill impairment test used to identify both the existence of
impairment and the amount of impairment loss, compares the fair value of a
reporting unit with its carrying amount and is based on discounted future
cash flows, and a market approach, based on market multiples applied to free
cash flow. The determination of the fair value of our reporting units
requires management to make significant estimates and assumptions
Page 38
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(n) Goodwill
: (Continued)
including the
selection of control premiums, discount rates, terminal growth rates,
forecasts of revenue and expense growth rates, income tax rates, changes in
working capital, depreciation, amortization and capital expenditures.
Changes in assumptions concerning future financial results, exogenous market
conditions, or other underlying assumptions could have a significant impact
on either the fair value of the reporting unit or the amount of the goodwill
impairment charge. If the carrying value of the reporting unit exceeds its
fair value, an impairment loss is recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that reporting
unit.
During the
year ended December 31, 2019, the Company deemed there was an impairment of
the goodwill and recognized an impairment of $13,877,385.
(o) Income
taxes:
The Company
follows the asset and liability method of accounting for income taxes.
Under this method, current income taxes are recognized for the estimated
income taxes payable for the current period. The Company recognizes the
income tax recovery from the receipt of tax credits upon receipt of funds.
Deferred income taxes are provided based on the estimated future tax effects
of temporary differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases, as well as the
benefit of losses available to be carried forward to future years for tax
purposes.
Deferred tax
assets and liabilities are measured using the enacted tax rates that are
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered and settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in operations in the period that includes the enactment date. A valuation
allowance is recorded for deferred tax assets when it is not more likely
than not that such future tax assets will be realized.
(p) Net
(loss) income per share:
ASC 260,
"Earnings Per Share", requires presentation of basic earnings per share
("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic earnings
(loss) per share is computed by dividing earnings (loss) available to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the potential
dilution, using the treasury stock method, that could occur if outstanding
options or warrants were exercised and converted into common stock. In
computing diluted earnings per share, the treasury stock method assumes that
outstanding options and warrants are exercised and the proceeds are used to
purchase common stock at the average market price during the period.
Page 39
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(p) Net
(loss) income per share: (Continued)
Options and
warrants will have a dilutive effect under the treasury stock method only
when the average market price of the common stock during the period exceeds
the exercise price of the options and warrants. In periods where losses are
reported, the weighted average number of common shares outstanding excludes
common stock equivalents because their inclusion would be anti-dilutive. A
total of 3,200,750 (2018 - 3,575,000) stock options and nil (2018 - nil)
warrants were excluded as at December 31, 2019.
The earnings
per share data for the year ended December 31, 2019 and 2018 are summarized
as follows:
|
|
2019
|
|
2018
|
Loss for the year
|
$
|
(14,654,232)
|
$
|
(2,592,831)
|
|
|
|
|
|
Basic and diluted
weighted average number
of common shares
outstanding
|
|
121,208,912
|
|
72,111,456
|
|
|
|
|
|
Basic and diluted loss
per common share outstanding
|
$
|
(0.12)
|
$
|
(0.04)
|
(q)
New
accounting pronouncements and changes in accounting policies:
In June 2016,
the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments". The
accounting standard changes the methodology for measuring credit losses on
financial instruments and the timing when such losses are recorded. ASU No.
2016-13 is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2019. Early adoption is permitted for
fiscal years, and interim periods within those years, beginning after
December 15, 2018. In November 2018, the FASB issued ASU 2018-19,
Codification Improvements to Topic 326, Financial Instruments - Credit
Losses ( "ASU 2018-19") . ASU 2018-19 clarifies that receivables arising
from operating leases are not within the scope of Subtopic 326-20. Instead,
impairment of receivables arising from operating leases should be accounted
for in accordance with Topic 842, Leases. In April 2019, the FASB issued ASU
2019-04, Codification Improvements to Topic 326, Financial Instruments -
Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments, which replaces the "incurred loss" impairment methodology with
an approach based on "expected losses" to estimate credit losses on certain
types of financial instruments and requires consideration of a broader range
of reasonable and supportable information to inform credit loss estimates.
The guidance
requires financial assets measured at amortized cost to be presented at the
net amount expected to be collected. The allowance for credit losses is a
valuation account that is deducted from the amortized cost of the financial
asset to present the net carrying value at the amount expected to be
collected on the financial asset. The Update also modified the
Page 40
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(q)
New
accounting pronouncements and changes in accounting policies: (Continued)
accounting for
available-for-sale ("AFS") debt securities, which must be individually
assessed for credit losses when fair value is less than the amortized cost
basis, in accordance with Subtopic 326-30, Financial Instruments-Credit
Losses-Available-for-Sale Debt Securities. Credit losses relating to AFS
debt securities will be recorded through an allowance for credit losses.
The
codification improvements in ASU 2019-04 clarify that an entity should
include recoveries when estimating the allowance for credit losses. The
amendments specify that expected recoveries of amounts previously written
off and expected to be written off should be included in the valuation
account and should not exceed the aggregate of amounts previously written
off and expected to be written off by the entity. In addition, for
collateral dependent financial assets, the amendments clarify that an
allowance for credit losses that is added to the amortized cost basis of the
financial asset(s) should not exceed amounts previously written off. The
amendment also clarifies FASB's intent to include all reinsurance
recoverables that are within the scope of Topic 944 to be within the scope
of Subtopic 326-20, regardless of the measurement basis of those
recoverables. The Company does not believe that the adoption of this
standard will have a material impact on the Company's consolidated financial
position or results of operations.
In January
2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic
350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2
from the goodwill impairment test. The annual, or interim, goodwill
impairment test is performed by comparing the fair value of a reporting unit
with its carrying amount. An impairment charge should be recognized for the
amount by which the carrying amount exceeds the reporting unit's fair value;
however, the loss recognized should not exceed the total amount of goodwill
allocated to that reporting unit. In addition, income tax effects from any
tax deductible goodwill on the carrying amount of the reporting unit should
be considered when measuring the goodwill impairment loss, if applicable.
The amendments
also eliminate the requirements for any reporting unit with a zero or
negative carrying amount to perform a qualitative assessment and, if it
fails that qualitative test, to perform Step 2 of the goodwill impairment
test. An entity still has the option to perform the qualitative assessment
for a reporting unit to determine if the quantitative impairment test is
necessary. This guidance is effective for annual or any interim goodwill
impairment tests in fiscal years beginning after December 15, 2019. Early
adoption is permitted. ASU 2017-04 should be adopted on a prospective basis.
The Company does not believe that the adoption of this standard will have a
material impact on the Company's consolidated financial position or results
of operations.
Page 41
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(q)
New
accounting pronouncements and changes in accounting policies: (Continued)
In August
2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement: Disclosure
Framework (Topic 840) - Changes to the Disclosure Requirements for Fair
Value Measurement", which will improve the effectiveness of disclosure
requirements for recurring and nonrecurring Level 1, Level 2 and Level 3
instruments in the fair value measurements. The standard removes, modifies,
and adds certain disclosure requirements, and is effective for fiscal years,
and interim periods within those fiscal years, beginning after December 15,
2019. The adoption of this guidance will not have a material impact on the
Company's financial position, results of operations and liquidity.
In August
2018, the FASB issued ASU No. 2018-15, Customer's Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract, which requires implementation costs in a hosting
arrangement that is a service contract to be capitalized consistent with the
rules in ASC 350-40, Intangibles-Goodwill and Other-Internal-Use Software.
This aligns the requirements for capitalizing implementation costs incurred
in a hosting arrangement that is a service contract with the requirements
for capitalizing implementation costs incurred to develop or obtain
internal-use software (and hosting arrangements that include an internal-use
software license). Costs incurred during the application development stage
are to be capitalized and expensed according to their nature, while costs
incurred during the preliminary project and post- implementation stages are
to be expensed. This ASU also contains guidance with regard to the
amortization period, impairment and presentation within the financial
statements. The ASU is required to be adopted by the Company during 2020,
however early adoption is allowed in an interim period before then and may
be applied retrospectively or prospectively to applicable costs on the
Company's consolidated financial statements. The adoption of this guidance
will not have a material impact on the Company's financial position, results
of operations and liquidity.
In March 2019,
the FASB issued ASU No. 2019-01, Leases (Topic 842) ("ASU 2019-01"),
Codification Improvements , which aligned the new leases guidance with
existing guidance for fair value of the underlying asset by lessors that are
not manufacturers or dealers. As a result, the fair value of the underlying
asset at lease commencement is its cost, reflecting any volume or trade
discounts that may apply. However, if there has been a significant lapse of
time between when the underlying asset is acquired and when the lease
commences, the definition of fair value (in ASC 820, Fair Value
Measurement) should be applied. More importantly, the ASU also exempts both
lessees and lessors from having to provide certain interim disclosures in
the fiscal year in which a company adopts the new leases standard. This
standard is effective for fiscal years beginning after December 15, 2019.
Early adoption is
Page 42
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(q)
New
accounting pronouncements and changes in accounting policies: (Continued)
allowed. The adoption of this guidance will
not have a material impact on the Company's financial position, results of
operations and liquidity.
In May 2019, the FASB issued ASU 2019-05,
Financial Instruments - Credit Losses (Topic 326) ("ASU 2019-05"). ASU
2019-05 provides entities that have certain instruments within the scope of
Subtopic 326-20, Financial Instruments - Credit Losses - Measured at
Amortized Cost, with an option to irrevocably elect the fair value option in
Subtopic 825-10, Financial Instruments - Overall, applied on an
instrument-by-instrument basis for eligible instruments. ASU 2019-05 is
effective for the Company's financial statements for annual and interim
periods beginning on or after December 15, 2019. In November 2019, FASB
issued ASU 2019 -10 Financial Instruments-Credit Losses (Topic 326),
Derivatives and Hedging (Topic 815), and leases (Topic 842). ASU 2019 -10
extended the effectiveness of Topic 326 for smaller reporting companies
until fiscal years beginning after December 31, 2020. Early adoption is
permitted. The adoption of this guidance will not have a material impact on
the Company's financial position, results of operations and liquidity.
In November 2019, the FASB issued ASU
2019-11, "Codification Improvements to Topic 326, Financial Instruments -
Credit Losses." This ASU addresses issues raised by stakeholders during the
implementation of ASU No. 2016-13, "Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments." Among
other narrow-scope improvements, the new ASU clarifies guidance around how
to report expected recoveries. "Expected recoveries" describes a situation
in which an organization recognizes a full or partial write-off of the
amortized cost basis of a financial asset, but then later determines that
the amount written off, or a portion of that amount, will in fact be
recovered. While applying the credit losses standard, stakeholders
questioned whether expected recoveries were permitted on assets that had
already shown credit deterioration at the time of purchase (also known as
PCD assets). In response to this question, the ASU permits organizations to
record expected recoveries on PCD assets. In addition to other narrow
technical improvements, the ASU also reinforces existing guidance that
prohibits organizations from recording negative allowances for
available-for-sale debt securities. The ASU includes effective dates and
transition requirements that vary depending on whether or not an entity has
already adopted ASU 2016-13. The adoption of this guidance will not have a
material impact on the Company's financial position, results of operations
and liquidity.
In December 2019, the FASB issued ASU No.
2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes". The ASU is expected to reduce cost and complexity related to the
accounting for income taxes by removing specific exceptions to general
principles in Topic 740 (eliminating the need for an organization to analyze
whether certain exceptions apply in a given period) and improving financial
statement preparers'
Page 43
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(q)
New
accounting pronouncements and changes in accounting policies: (Continued)
application of certain income tax-related
guidance. This ASU is part of the FASB's simplification initiative to make
narrow-scope simplifications and improvements to accounting standards
through a series of short-term projects. This new guidance includes several
provisions to simplify the accounting for income taxes. The standard removes
certain exceptions for recognizing deferred taxes for investments,
performing intraperiod allocation, and calculating income taxes in interim
periods. This standard is effective for fiscal years beginning after
December 15, 2020, and interim periods within those fiscal years. Early
adoption of this standard is permitted. The adoption of this guidance will
not have a material impact on the Company's financial position, results of
operations and liquidity.
In January 2020, the FASB issued ASU
2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity
Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic
815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic
815." The ASU is based on a consensus of the Emerging Issues Task Force and
is expected to increase comparability in accounting for these transactions.
ASU 2016-01 made targeted improvements to accounting for financial
instruments, including providing an entity the ability to measure certain
equity securities without a readily determinable fair value at cost, less
any impairment, plus or minus changes resulting from observable price
changes in orderly transactions for the identical or a similar investment of
the same issuer. Among other topics, the amendments clarify that an entity
should consider observable transactions that require it to either apply or
discontinue the equity method of accounting. For public business entities,
the amendments in the ASU are effective for fiscal years beginning after
December 15, 2020, and interim periods within those fiscal years. Early
adoption is permitted. The Company does not expect the adoption of ASU
2020-01 to have a material impact on its consolidated financial statements.
Effective November 25, 2019, the SEC adopted
Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC
interpretative guidance to align with FASB ASC 326, "Financial Instruments -
Credit Losses." It covers topics including (1) measuring current expected
credit losses; (2) development, governance, and documentation of a
systematic methodology; (3) documenting the results of a systematic
methodology; and (4) validating a systematic methodology.
There have been no other recent accounting
standards, or changes in accounting standards, during the year ended
December 31, 2019, as compared to the recent accounting standards described
in the Annual Report, that are of material significance, or have potential
material significance, to us.
Page 44
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(r) Financial
instruments and fair value of financial assets and liabilities:
(i) Fair
values:
The fair value
of accounts receivable, accounts payable, accrued liabilities, short term
loan and accounts payable and accrued liabilities - related party
approximate their financial statement carrying amounts due to the short-term
maturities of these instruments. Cash and long-term cash equivalents are
carried at fair value using a level 1 fair value measurement.
The Company
measures the fair value of financial assets and liabilities based on US GAAP
guidance which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements.
The Company
classifies financial assets and liabilities as held-for-trading,
available-for-sale, held-to-maturity, loans and receivables or other
financial liabilities depending on their nature. Financial assets and
financial liabilities are recognized at fair value on their initial
recognition, except for those arising from certain related party
transactions which are accounted for at the transferor's carrying amount or
exchange amount.
Financial
assets and liabilities classified as held-for-trading are measured at fair
value, with gains and losses recognized in net income. Financial assets
classified as held-to-maturity, loans and receivables, and financial
liabilities other than those classified as held-for-trading are measured at
amortized cost, using the effective interest method of amortization.
Financial assets classified as available-for-sale are measured at fair
value, with unrealized gains and losses being recognized as other
comprehensive income until realized, or if an unrealized loss is considered
other than temporary, the unrealized loss is recorded in income.
Financial
instruments, including receivables, accounts payable and accrued
liabilities, and accounts payable with related parties are carried at
amortized cost, which management believes approximates fair value due to the
short-term nature of these instruments.
In general,
fair values determined by Level 1 inputs utilize quoted prices (unadjusted)
in active markets for identical assets or liabilities. Fair values
determined by Level 2 inputs utilize data points that are observable such
as quoted prices, interest rates and yield curves.
Fair values
determined by Level 3 inputs are unobservable data points for the asset or
liability, and included
situations
where there is little, if any, market activity for the asset. The Company's
cash and long-term cash equivalents were measured using Level 1 inputs.
Stock-based compensation was measured using Level 2 inputs. Goodwill
impairment was measure using Level 3 inputs.
Page 45
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
2. Summary of
significant accounting policies: (Continued)
(r) Financial
instruments and fair value of financial assets and liabilities: (Continued)
(ii) Foreign
currency risk:
The Company
operates internationally, which gives rise to the risk that cash flows may
be adversely impacted by exchange rate fluctuations. The Company has not
entered into any forward exchange contracts or other derivative instrument
to hedge against foreign exchange risk.
3. Acquisition of Kidoz Ltd. :
During the year ended December 31, 2019, the
Company issued 52,450,286 shares for total consideration of $20,603,655 in
the acquisition of all the issued and outstanding ordinary and preferred
shares in the capital stock of Kidoz Ltd., a company incorporated under the
laws of the State of Israel. Kidoz Ltd. is a global kids' content
distribution and monetization marketplace. The Company paid a commission of
$130,000 and incurred transaction costs of $60,228. The acquisition closed
with the effective date of acquisition being February 28, 2019.
The acquisition enables the global reach of
Kidoz Ltd.'s content network to be combined with the Company's Rooplay
subscription over-the-top ("OTT") platform.
This acquisition is accounted for as a
business combination. On acquisition of Kidoz Ltd., the Company allocated
the purchase price to the fair value of the net assets acquired.
The Company has estimated the following
assets and liabilities were acquired with the acquisition of Kidoz Ltd.
|
|
|
Cash
|
$
|
183,264
|
Accounts receivable
|
|
1,417,546
|
Prepaid expenses
|
|
35,179
|
Equipment
|
|
14,873
|
Accounts payable and accrued
liabilities
|
|
(466,219)
|
Short term loan
|
|
(278,063)
|
Deferred tax liability
|
|
(752,205)
|
Intangible assets
|
|
3,270,456
|
Goodwill
|
|
17,178,824
|
|
|
|
|
$
|
20,603,655
|
Page 46
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
4. Accounts Receivable:
The accounts receivable as at December 31, 2019, is summarized as follows:
|
|
2019
|
|
2018
|
Accounts receivable
|
$
|
2,446,486
|
$
|
39,769
|
|
|
|
|
|
Provision for doubtful
accounts
|
|
(53,708)
|
|
(27,666)
|
|
|
|
|
|
Net accounts receivable
|
$
|
2,392,778
|
$
|
12,103
|
The Company had bank accounts with the National Bank of Anguilla. During the
year ended December 31, 2016, the National Bank of Anguilla filed for
chapter 11 protection. The Company expensed the balance on account of
$27,666 in fiscal 2016 as a doubtful debt. The Company has a doubtful debt
provision of $26,042 for existing accounts receivable.
5. Prepaid expenses
The Company
has other prepaid expenses of $109,914 (2018 - $99,739) including prepaid
licenses fees of $nil (2018 - $65,387) and leasehold improvements of $32,484
(2018 - $nil), which is recognized as prepaid rent
for the year
ended December 31, 2019.
6.
Equipment:
2019
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
Value
|
|
|
|
|
|
|
|
Equipment and computers
|
$
|
143,333
|
$
|
123,123
|
$
|
20,210
|
Furniture and fixtures
|
|
14,787
|
|
7,815
|
|
6,972
|
|
$
|
158,120
|
$
|
130,938
|
$
|
27,182
|
2018
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
Value
|
|
|
|
|
|
|
|
Equipment and computers
|
$
|
128,097
|
$
|
112,845
|
$
|
15,252
|
Furniture and fixtures
|
|
8,037
|
|
7,034
|
|
1,003
|
|
$
|
136,134
|
$
|
119,879
|
$
|
16,255
|
Depreciation expense was $10,460 (2018 - $5,614) for the year ended December
31, 2019.
7.
Intangible assets:
2019
|
|
Cost
|
|
Accumulated amortization
|
|
Net book
Value
|
|
|
|
|
|
|
|
Ad Tech technology
|
$
|
1,877,415
|
$
|
312,902
|
$
|
1,564,513
|
Kidoz OS technology
|
|
31,006
|
|
8,613
|
|
22,393
|
Customer relationship
|
|
1,362,035
|
|
141,879
|
|
1,220,156
|
|
$
|
3,270,456
|
$
|
463,394
|
$
|
2,807,062
|
Amortization expense was $463,394 (2018 - $nil) for the year ended December
31, 2019.
Page 47
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
8. Goodwill
The changes in the carrying amount of goodwill for year ended December 31,
2019, and 2018 were as follows:
|
|
2019
|
Goodwill, balance at
beginning of year
|
$
|
-
|
|
|
|
Acquisition of Kidoz Ltd.
(Note 3)
|
|
17,178,824
|
Impairment of goodwill
|
|
(13,877,385)
|
|
|
|
Goodwill, balance at end
of year
|
$
|
3,301,439
|
The Company's annual goodwill impairment
analysis performed during the fourth quarter of fiscal 2019 included a
quantitative analysis of Kidoz Ltd. reporting unit. The Company classified
these fair value measurements as Level 3. The Company performed a discounted
cash flow analysis and market multiple analysis for Kidoz Ltd. These
discounted cash flow models included management assumptions for expected
sales growth, margin expansion, operational leverage, capital expenditures,
and overall operational forecasts. The market multiple analysis included
historical and projected performance, market capitalization, volatility, and
multiples for industry peers and
exogenous current market conditions. These analyses led to the conclusion
that the fair value of these reporting units was less than their carrying
values by an amount that exceeded the carrying value of goodwill, primarily
driven by current market conditions. Accordingly, the full carrying value of
the goodwill was impaired by $13,877,385.
9. Content
and software development assets:
Since the year ended December 31, 2014, the
Company has been developing software technology and content for our
websites. This software technology and content includes the development of
Trophy Bingo, a social bingo game, the license and development of Garfield
Bingo, a social bingo game, the development of the Rooplay platform and the
development of the Rooplay Originals games
and the continued development of the Kidoz
OS and SDK.
During the
year ended December 31, 2019 and 2018, the Company has expensed the
development costs of all products as incurred and has expensed the following
development costs.
|
|
2019
|
|
2018
|
Opening total content and
software development costs
|
$
|
6,716,810
|
$
|
5,768,476
|
|
|
|
|
|
Content and software
development during the year
|
|
1,014,041
|
|
948,334
|
Closing total Content and
software development costs
|
$
|
7,730,851
|
$
|
6,716,810
|
10. Promissory
notes:
The Company had issued unsecured promissory notes from shareholders of the
Company. The notes were repayable on April 1, 2020, as amended. The interest
on the notes was 2% per annum, calculated and compounded annually and paid
annually. Interest in arrears shall accrue interest.
Page 48
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
10. Promissory
notes: (Continued)
The unpaid principal amount due hereunder may be reduced to zero from time
to time without affecting the validity of the note.
During the year ended December 31, 2018, the promissory notes were settled
in exchange for the exercise of warrants and the notes were extinguished.
Since the extinguishment of the promissory note is with related parties,
then in accordance with ASC 470-50-40-2, the extinguishment transactions is
in essence a capital transaction. Therefore, the Company recognized a
reduction of $65,955 from equity of the Company in the year ended December
31, 2018.
The Company recognized interest accretion of $nil (2018 - $31,966) of
interest accretion.
|
|
2019
|
|
2018
|
Opening balance
|
$
|
-
|
$
|
502,313
|
|
|
|
|
|
Reduction of capital on
extinguishment of promissory notes with related parties
|
|
-
|
|
65,955
|
Extinguishment of
promissory notes to related parties
|
|
-
|
|
(605,358)
|
Accrued interest
|
|
-
|
|
5,124
|
Interest accretion
|
|
-
|
|
31,966
|
|
|
|
|
|
Closing balance
|
$
|
-
|
$
|
-
|
11.
Short term loan
The Company had a short
term loan from the Bank Leumi. The loan was secured against the receivables
of the Company and was acquired via the acquisition of Kidoz Ltd. (Note 3).
The loan had an interest rate of 6.5%. During the year ended December 31,
2019, the loan was repaid in full.
12.
Stockholders' Equity:
The holders of
common stock are entitled to one vote for each share held. There are no
restrictions that limit the Company's ability to pay dividends on its common
stock. The Company has not declared any dividends since incorporation. The
Company's common stock has no par value per common stock and there is only
one class of common shares. The Company has an unlimited number of common
shares authorized for issue.
(a) Common
stock issuances:
Fiscal 2019
In March 2019,
the Company closed a TSX Venture Exchange
approved private placement financing totaling $2,000,000.
The private placement consisted of 5,000,000
common shares priced at $0.40 per share. Pursuant to the private placement
the Company paid a commission of $200,000 and incurred share issuance
expenses of $36,800.
Page 49
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
12.
Stockholders' Equity: (Continued)
(a) Common
stock issuances: (Continued)
In
March 2019, the Company issued
52,450,286 shares for total consideration of $20,603,655 in the acquisition
of all the issued and outstanding ordinary and preferred shares in the
capital stock of Kidoz Ltd., a company incorporated under the laws of the
State of Israel. (Note 3)
Fiscal 2018
In June 2018, the related party warrant
holders exercised their warrants for 1,200,000 shares at CAD$0.65 (US$0.50)
per share through the settlement of the promissory notes, in a non-cash
transaction.
In February 2018, a warrant holder exercised
their warrant for 15,000 shares at $0.44 per share raising a total of
$6,600.
In February 2018, the Company closed a TSX
Venture Exchange approved private placement financing totaling $2,551,500.
The private placement consisted of 7,290,000 common shares priced at $0.35
per share. Pursuant to the private placement the Company paid a commission
of $253,750 and incurred share issuance expense of $18,342.
(b) Warrants
The warrants
had an exercise price in Canadian dollars whilst the Company's functional
currency is US Dollars. Therefore, in accordance with ASU 815 - Derivatives
and Hedging, the warrants had a derivative liability value. This liability
value has no effect on the cashflow of the Company and does not represent a
cash payment of any kind.
A fair value
of the derivative liability of $215,687 was estimated on the date of the
subscription using the Binomial Lattice pricing model. During the year ended
December 31, 2018, the warrants were exercised resulting in a gain on
derivative liability - warrants of $44,572 and the derivative liability -
warrants value was valued at $Nil as at December 31, 2018.
A summary of
warrant activity for the years ended December 31, 2019 and 2018 are as
follows:
|
|
Number of warrants
|
|
Weighted average exercise
price
|
Outstanding, December 31, 2017
|
|
5,219,163
|
$
|
0.48
|
|
|
|
|
|
Granted
|
|
-
|
|
-
|
Exercised
|
|
(1,215,000)
|
|
(0.50)
|
Expired, unexercised
|
|
(4,004,163)
|
|
(0.51)
|
|
|
|
|
|
Outstanding December 31,
2019 and 2018
|
|
-
|
$
|
-
|
|
|
|
|
|
|
Page 50
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
12.
Stockholders' Equity: (Continued)
(c) Stock
option plans:
2015 stock
option plan
In the year ended December 31, 2015, the
shareholders approved the 2015 stock option plan and the 1999, 2001 and the
2005 plans were discontinued. The 2015 stock option plan is intended to
provide incentive to employees, directors, advisors and consultants of the
Company to encourage proprietary interest in the Company, to encourage such
employees to remain in the employ of the Company or such directors, advisors
and consultants to remain in the service of the Company, and to attract new
employees, directors, advisors and consultants with outstanding
qualifications. The maximum number of shares issuable under the Plan shall
not exceed 10% of the number of Shares of the Company issued and outstanding
as of each Award Date unless shareholder approval is obtained in advance.
The Board of Directors determines the terms of the options granted,
including the number of options granted, the exercise price and their
vesting schedule. The maximum term possible is
10 years. Under the 2015 plan we have
reserved 10% of the number of Shares of the Company issued and outstanding
as of each Award Date.
No options were granted during the year
ended December 31, 2019.
During the
year ended December 31, 2018, the Company granted 2,130,000 options, of
which 710,000 options were fully vested expiring on June 4, 2023, with an
exercise price of CAD$0.54 (US$0.42), 1,275,000 options were fully vested
expiring on June 4, 2023, with an exercise price of $0.50 and 145,000
options were issued where 10% vests on grant date, 15% one year following
grant date and 2% per month thereafter, with an exercise price of CAD$0.54
(US$0.42) to employees and consultants.
Subsequent to
the year ended December 31, 2019, 70,000 options
were cancelled
unexercised.
Of the options
outstanding at December 31, 2019, a total of 3,065,000 (2018 - 3,190,000)
were fully vested and a total of 135,750 (2018 - 385,000) were issued where
10% vest at the grant date, 15% one year following the grant date and 2% per
month starting 13 months after the grant date. A total of 3,097,850 (2018 -
3,273,550) of these options had vested at December 31, 2019.
Page 51
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
12.
Stockholders' Equity: (Continued)
(c) Stock
option plans: (Continued)
A summary of
stock option activity for the stock option plans for the years ended
December 31, 2019 and 2018 are as follows:
|
|
Number of options
|
|
Weighted average exercise
price
|
Outstanding, December 31,
2017
|
|
1,605,000
|
$
|
0.42
|
|
|
|
|
|
Granted
|
|
2,130,000
|
|
0.47
|
Exercised
|
|
-
|
|
-
|
Cancelled
|
|
(160,000)
|
|
(0.42)
|
|
|
|
|
|
Outstanding December 31,
2018
|
|
3,575,000
|
$
|
0.45
|
|
|
|
|
|
Granted
|
|
-
|
|
-
|
Exercised
|
|
-
|
|
-
|
Cancelled
|
|
(374,250)
|
|
(0.41)
|
|
|
|
|
|
Outstanding December 31,
2019
|
|
3,200,750
|
$
|
0.45
|
The aggregate
intrinsic value for options as of December 31, 2019 was $nil (2018 - $nil).
The following
table summarizes information concerning outstanding and exercisable stock
options at December 31, 2019:
Range of exercise
prices per option
|
Number outstanding
|
Number exercisable
|
Expiry date
|
|
$ 0.40
|
670,000
|
670,000
|
December 20, 2021
|
|
0.42
|
542,750
|
439,850
|
November 8, 2022
|
|
0.42
|
713,000
|
713,000
|
June 4, 2023
|
|
0.50
|
1,275,000
|
1,275,000
|
June 4, 2023
|
|
|
3,200,750
|
3,097,850
|
|
The Company
recorded stock-based compensation of $15,890 on the 2,130,000 options
granted and vested (2018 - $595,580 on the 2,130,000 options granted and
vested) and as per the
Black-Scholes
option-pricing model,
with a
weighted average fair value per option of $0.29 (2018 - $0.29).
13.
Commitments:
The Company leases office facilities in
Vancouver, British Columbia, Canada, The Valley, Anguilla, British West
Indies and Netanya, Israel. These office facilities are leased under
operating lease agreements.
During the year ended December 31, 2019, the
Company signed a five-year lease for a facility in Vancouver, Canada,
commencing April 1, 2019 and ending March 2024. This facility comprises
approximately 1,459 square feet. The
Company will account for the lease in
Page 52
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
13.
Commitments: (Continued)
accordance with ASU 2016-02 (Topic 842) and
will recognize a right-of-use asset and operating lease liability.
The Netanya, Israel operating lease expired
on July 14, 2017 but unless 3 month's notice is given it automatically
renews for a future 12 months until notice is given. During the year ended
December 31, 2019, the lease was extended for a further 12 months.
This facility comprises approximately 190
square metres. The Company has
accounted for this lease as a short-term lease.
The Anguillan
operating lease expired on April 1, 2011 but unless 3 month's notice is
given it automatically renews for a further 3 months.
The Company
will account for the lease in accordance with ASU 2016-02 (Topic 842) and
will recognize a right-of-use asset and operating lease liability.
Minimum lease
payments under these leases are approximately as follows:
|
|
|
2020
|
$
|
70,344
|
2021
|
|
43,814
|
2022
|
|
44,935
|
2023
|
|
46,056
|
2024
|
|
11,584
|
|
|
|
The Company paid rent expense totaling $93,371 for the year ended December
31, 2019 (2018 - $28,287).
The Company has a management consulting
agreement with T.M. Williams (Row), Inc., an Anguilla incorporated
company, and Mr. T. M. Williams. During the year ended December 31, 2014,
the Company amended a previous agreement with Mr. T. M. Williams to provide
for a consultancy payment of 2.5% of the monthly social bingo business with
a minimum of $11,000 and a maximum of $25,000 per month.
During the year ended December 31, 2014, the
Company entered into an agreement with Jayska Consulting Ltd. and Mr. J. M.
Williams, Co-Chief Executive Officer of the Company for the provision of
services of Mr. J. M. Williams as Chief Executive Officer of the Company.
The Consulting agreement provides for a consultancy payment of GBP5,000 Sterling per
month. In addition, during the year ended December 31, 2014, the Company
entered into an agreement with LVA Media Inc. and Mr. J. M. Williams, for
the provision of services of Mr. J. M. Williams as Chief Executive Officer
of the Company. The Consulting agreement provides for a consultancy payment
of 2.5% of the monthly social bingo business with a minimum of $7,500 and a
maximum of $25,000 per month.
As at December
31, 2019, the Company had a number of renewable license commitments with
large brands, including, Garfield, Moomins, Mr Men and Little Miss, Mr.
Bean, Peter Rabbit,
Page 53
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
13.
Commitments: (Continued)
Pororo and the
Winx club. These agreements have commitments to pay royalties on the revenue
from the licenses subject to the following minimum guarantee payments:
The Company expensed the minimum guarantee payments over the life of the
agreement and recognized license expense of $56,564 (2018 - $32,009) for the
year ended December 31, 2019.
14. Income taxes:
Kidoz Inc.
(previously Shoal Games Ltd.) is domiciled in the tax-free jurisdiction of
Anguilla, British West Indies. However certain of the Company's subsidiaries
incur income taxation.
The Tax Cuts
and Jobs Act ("Tax Act") was signed into law on December 22, 2017. Included
as part of the law, was a permanent reduction in the U.S. federal corporate
income tax rate from 34% to 21% effective January 1, 2018.
The tax
effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 2019
and 2018, are presented below:
|
|
2019
|
|
2018
|
Computed "expected" tax
benefit (expense)
|
$
|
3,255,948
|
$
|
544,495
|
Change in statutory,
foreign tax, foreign exchange rates and other
|
|
1,620,641
|
|
(281,937)
|
Permanent differences
|
|
(3,382,662)
|
|
-
|
Change in valuation
allowance
|
|
(643,647)
|
|
(173,037)
|
Income tax recovery
|
$
|
850,280
|
$
|
89,521
|
The tax
effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 2019
and 2018 are presented below:
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
Net operating loss
carry forwards
|
$
|
919,493
|
$
|
275,846
|
|
|
|
|
|
Valuation Allowance
|
|
(919,493)
|
|
(275,846)
|
|
$
|
-
|
$
|
-
|
The valuation allowance for deferred tax assets as of December 31, 2019 and
2018, was $919,493 and $275,846, respectively. The net change in the
total valuation allowance was an increase of $643,647 for the year ended December 31, 2019 (2018 -
$173,037).
Page 54
KIDOZ INC. and subsidiaries
(Previously "Shoal Games Ltd.")
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018
14. Income taxes: (Continued)
As at
December 31, 2019, the Company's had $3,903,000 of non-capital losses expiring through
December 31, 2039.
In assessing
the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those differences become deductible.
Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in assessing the
realizability of deferred tax assets.
During the
year ended December 31, 2019, Shoal Media (Canada) Inc., a subsidiary of
Kidoz Inc., received the British Columbia Interactive Digital Media Tax
Credit of CAD$130,145 ($98,075) (2018 - CAD$116,085 ($89,521)) from the
British Columbia Provincial Government.
The Company
recognized this tax credit as a recovery of income tax expense on the
statement of operations upon receipt of funds.
15. Right-of-use assets:
On January 1,
2019, the Company adopted ASC Topic 842 using the modified retrospective
transition method. Topic 842 requires the recognition of lease assets and
liabilities for operating leases, in addition to the finance lease assets
and liabilities previously recorded on our consolidated balance sheets.
Beginning on January 1, 2019, our consolidated financial statements are
presented in accordance with the revised policies, while prior period
amounts are not adjusted and continue to be reported in accordance with our
historical policies. The modified retrospective transition method required
the cumulative effect, if any, of initially applying the guidance to be
recognized as an adjustment to our accumulated deficit as of our adoption
date. There is no discount rate implicit in the Anguilla office operating
lease agreement, so the Company estimated a 5% discount rate for the
incremental borrowing rate for the lease as of the adoption date, January 1,
2019. There is no discount rate implicit in the license agreement, so the
Company estimated a 12% discount rate for the incremental borrowing rate for
the licenses as of the adoption date, January 1, 2019.
Effective
April 1, 2019, we recognized lease assets and liabilities of $125,474, in
relation to the Vancouver office. We estimated a discount rate of 4.12%.
There was no
cumulative effect adjustment to our accumulated deficit as a result of
initially applying the guidance.
We elected the
package of practical expedients permitted under the transition guidance
within Topic 842, which allowed us to carry forward prior conclusions about
lease identification, classification and initial direct costs for leases
entered into prior to adoption of Topic 842.
Page 55
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
15. Right-of-use assets: (Continued)
Additionally,
we elected to not separate lease and non-lease components for all of our
leases. For leases with a term of 12 months or less, our current offices, we
elected the short-term lease exemption, which allowed us to not recognize
right-of-use assets or lease liabilities for qualifying leases existing at
transition and new leases we may enter into in the future, as there is
significant uncertainty on whether the leases will be renewed.
The right-of-use assets as at
December 31, 2019, is summarized as follows:
|
|
2019
|
|
|
|
Initial recognition of
operating lease right-of-use assets
|
$
|
76,557
|
Capitalization of
operating lease right-of-use assets
|
|
125,474
|
Capitalization of
additional license leases
|
|
5,299
|
Amortization of
operating lease right-of use assets
|
|
(72,416)
|
Balance as at December
31, 2019
|
$
|
134,914
|
The operating lease as at
December 31, 2019, is summarized as follows:
As at December 31, 2019
|
|
Operating lease
|
|
|
Office lease
|
|
Brand licenses
|
|
Total
|
2020
|
$
|
31,021
|
$
|
1,973
|
$
|
32,994
|
2021
|
|
32,142
|
|
-
|
|
32,142
|
2022
|
|
33,263
|
|
-
|
|
33,263
|
2023
|
|
34,384
|
|
-
|
|
34,384
|
2024
|
|
7,916
|
|
-
|
|
7,916
|
Total lease
payments
|
$
|
138,726
|
$
|
1,973
|
$
|
140,699
|
Less:
Interest
|
|
(13,066)
|
|
(18)
|
|
(13,084)
|
Present
value of lease liabilities
|
$
|
125,660
|
$
|
1,955
|
$
|
127,615
|
|
|
|
|
|
Amounts
recognized on the balance sheet
|
|
|
|
|
Current
lease liabilities
|
$
|
23,760
|
$
|
1,955
|
$
|
25,715
|
Long-term
lease liabilities
|
|
101,900
|
|
-
|
|
101,900
|
Total lease
payments
|
$
|
125,660
|
$
|
1,955
|
$
|
127,615
|
|
|
2019
|
|
|
|
Initial recognition of
operating lease liabilities
|
$
|
81,856
|
Operating lease
liability incurred during the year
|
|
125,474
|
Payments on operating
lease liabilities
|
|
(79,715)
|
Balance as at December
31, 2019
|
|
127,615
|
Less: current portion
|
|
(25,715)
|
Operating lease
liabilities - non-current portion as at December 31, 2019
|
$
|
101,900
|
Page 56
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
15. Right-of-use assets: (Continued)
As of December
31, 2019, the ROU assets of $134,914 are included in non-current assets on
the balance sheet, and lease liabilities of $127,615 are included in current
liabilities and non-current liabilities on the balance sheet.
16. Related
party transactions:
The Company has a liability of $33,000 (2018 - $nil) to a company owned by a
current director and officer of the Company for payment of consulting fees
of
$142,000 (2018 - $132,000) by the
current director and officer of the Company.
The Company has a liability of $9 (2018 - $nil) to a current director and
officer of the Company for expenses incurred.
The Company has a liability of $267 (2018 - $1,647) to a current director
and officer of the Company for expenses incurred.
The Company has a liability of $19,779 (2018 - $nil) to a company owned by a
current director and officer of the Company for payment of consulting fees
of $76,729 (2018 - $77,310) by the current director and officer of the
Company.
The Company has a liability of $22,500 (2018 - $nil) to a company owned by a
current director and officer of the Company for payment of consulting fees
of $100,000 (2018 - $90,000) by the current director and officer of the
Company.
The Company has a liability of $30,974 (2018 - $nil) to a current director
and officer of the Company for payroll and bonuses.
The Company
has a liability of $5,500 (2018 - $1,500), to independent directors of the
Company for payment of consulting fees. During the year ended December 31,
2019, the Company paid $9,500 (2018 - $4,500) to the independent directors
in director fees.
The Company
has a liability of $91 (2018 - $7,317), to an officer of the Company for
payment of consulting fees and
expenses incurred of $148,434 (2018 - $109,079)
by the officer of the Company.
The Company
has a liability of $nil (2018 - $nil), to an officer of the Company for
payment of consulting fees and
expenses incurred of $103,465 (2018 - $nil)
by the officer of the Company.
The Company
has promissory notes totaling $nil (2018 - $nil), including interest, from
shareholders holding more than 10% of the Company. The interest on the notes
are 2% per annum, calculated and compounded annually and paid annually.
During the year ended December 31, 2018, these promissory notes were settled
through a warrant exercise for 1,200,000 shares, in a non-cash transaction.
During the year ended December 31,
2018, the directors and shareholders holding more than 10% of the Company's
shares subscribed for 1,200,000 units totaling CAD$540,000 ($408,102)
Page 57
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
16. Related
party transactions: (Continued)
in the private placement.
During the
year ended December 31, 2018, the Company granted 700,000 (2018 - 125,000)
options with an exercise price of CAD$0.54 (approximately $0.42) for fiscal
2018 per share and 275,000 (2018 - nil) with an exercise price of $0.50 for
fiscal 2018, to related parties.
The Company
expensed $479 (2018 - $281,492) in stock-based compensation for these
options granted to related parties.
The Company has a receivable of $nil (2018 - $2,305) from a company of which
a previous director of the Company is a director.
The related
party transactions are in the normal course of operations and were measured
at the exchange amount, which is the amount of consideration established and
agreed to by the related party.
17. Segmented information:
The Company operates in reportable business
segments, the sale of Ad tech advertising and content revenue, including the
sale of in-app purchases on Trophy Bingo and Garfield's Bingo; the premium
purchase for Rooplay Originals and recurring subscription revenues from
Rooplay and Kidoz OS and the sale of licenses of Kidoz OS.
The Company had the following revenue by
geographical region.
|
|
2019
|
|
2018
|
Ad tech advertising
revenue
|
|
|
|
|
Western Europe
|
$
|
1,007,357
|
$
|
-
|
North America
|
|
2,752,955
|
|
-
|
Other
|
|
68,602
|
|
-
|
|
|
|
|
|
Total ad tech advertising
revenue
|
$
|
3,828,914
|
$
|
-
|
|
|
|
|
|
Content revenue
|
|
|
|
|
Western Europe
|
$
|
104,741
|
$
|
14,976
|
Central, Eastern and
Southern Europe
|
|
175,387
|
|
864
|
North America
|
|
326,598
|
|
73,618
|
Other
|
|
81,739
|
|
17,520
|
|
|
|
|
|
Total content revenue
|
$
|
688,465
|
$
|
106,978
|
|
|
|
|
|
Total revenue
|
|
|
|
|
Western Europe
|
$
|
1,112,098
|
$
|
14,976
|
Central, Eastern and
Southern Europe
|
|
175,387
|
|
864
|
North America
|
|
3,079,553
|
|
73,618
|
Other
|
|
150,341
|
|
17,520
|
Total revenue
|
$
|
4,517,379
|
$
|
106,978
|
|
|
|
|
|
Page 58
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
17. Segmented information: (Continued)
Equipment
The Company's equipment is located as
follows:
Net Book Value
|
|
2019
|
|
2018
|
|
|
|
|
|
Anguilla
|
$
|
245
|
$
|
368
|
Canada
|
|
11,061
|
|
12,911
|
Israel
|
|
13,892
|
|
-
|
United Kingdom
|
|
1,984
|
|
2,976
|
Total equipment
|
$
|
27,182
|
$
|
16,255
|
18. General administration
General and
administrative expenses were as follows:
|
|
2019
|
|
2018
|
|
|
|
|
|
Professional fees
|
$
|
209,857
|
$
|
59,115
|
Rental
|
|
93,371
|
|
28,287
|
Other general and
administrative expenses
|
|
223,686
|
|
183,875
|
Total general and
administrative expenses
|
$
|
526,914
|
$
|
271,277
|
19. Concentrations:
Major customers
During the year ended December 31, 2019, the
Company sold Ad tech revenue and during the year ended December 31, 2019 and
2018, the Company sold subscriptions on its site Rooplay and sold in-app
purchases on its social bingo sites, Trophy Bingo and Garfield's Bingo and
premium purchases of Rooplay Originals. During the year ended December 31,
2019, the Company had revenues of $2,846,897 from one customer (December 31,
2018 - zero customers) which was more than 10% of the total revenue. The
Company is reliant on the Google App, iOS App and Amazon App Stores to
provide a content platform for Rooplay, Trophy Bingo and Garfield's Bingo to
be played thereon and certain advertising agencies for the Ad tech revenue.
20.
Concentrations of credit risk:
Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of
cash and accounts receivable. The Company places its cash and cash
equivalents with high quality financial institutions and limits the amount
of credit exposure with any one institution.
The Company currently maintains a
substantial portion of its day-to-day operating cash and long-term cash equivalents
balances at financial institutions. At December 31, 2019, the Company had
total cash of $1,005,624
(2018 - $641,536) at financial institutions, where $661,741 (2018 -
$489,235) is in excess of federally insured limits.
Page 59
KIDOZ INC.
and subsidiaries
(Previously
"Shoal Games Ltd.")
(Expressed in
United States Dollars)
Notes to
Consolidated Financial Statements
Years ended
December 31, 2019 and 2018
20.
Concentrations of credit risk: (Continued)
The Company has concentrations of credit
risk with respect to accounts receivable, the majority of its accounts
receivable are concentrated geographically in the United States amongst a
small number of customers.
As of December 31, 2019, the Company had one
customer, totaling $1,430,646 who accounted for greater than 10% of the
total accounts receivable. As of December 31, 2018, the Company had three
customers, totaling $8,814 who accounted for greater than 10% of the total
accounts receivable.
The Company controls credit risk through
monitoring procedures and receiving prepayments of cash for services
rendered. The Company performs credit evaluations of its customers but
generally does not require collateral to secure accounts receivable.
21. Subsequent event:
In March 2020 the World Health
Organization declared coronavirus COVID-19 a global pandemic. This
contagious disease outbreak, which has continued to spread, and any related
adverse public health developments, has adversely affected workforces,
economies, and financial markets globally, potentially leading to an
economic downturn. It has also disrupted the normal operations of many
businesses, including the Company's. In early March 2020, the Company
employees commenced working from home and commenced social distancing. This
outbreak could decrease spending, adversely affect demand for the Company's
product and harm the Company's business and results of operations. It is not
possible for the Company to predict the duration or magnitude of the adverse
results of the outbreak and its effects on the Company's business or results
of operations at this time.
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