Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
1. Basis of
Presentation:
The accompanying unaudited financial statements
have been prepared by Kidoz Inc. ("the Company") in conformity with accounting
principles generally accepted in the United States of America ("US GAAP")
applicable to interim financial information and with the rules and regulations
of the United States Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed, or omitted, pursuant to such rules and regulations. In the
opinion of management, the unaudited interim consolidated financial statements
include all adjustments necessary for the fair presentation of the results of
the interim periods presented. All adjustments are of a normal recurring
nature, except as otherwise noted below. These unaudited interim consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year ended December
31, 2019, included in the Company's Annual Report on Form 10-K, filed April 22,
2020, with the Securities and Exchange Commission. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for any other interim period or for a full fiscal year.
Continuing operations
These unaudited
interim 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 quarters ended June 30, 2020
and 2019 and has an accumulated deficit of $41,317,775 as at June 30, 2020.
These material uncertainties raise 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 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, has led 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 has decreased spending, adversely affecting demand for
the Company's product and has harmed the Company's business and results of
operation. It is not possible for
Page 6
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
1. Basis of
Presentation: (Continued)
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 quarter ended
March 31, 2019, the Company acquired
Kidoz Ltd. a company incorporated under the laws of Israel. (Note 3)
All inter-company
balances and transactions have been eliminated in the consolidated financial
statements.
(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
Page 7
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(b)
Use of estimates: (Continued)
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 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
Page 8
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(c) Revenue
recognition: (Continued)
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 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.
Page 9
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(c) Revenue
recognition: (Continued)
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.
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
Page 10
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(c) Revenue
recognition: (Continued)
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.
(e) 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
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
Page 11
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(e) Software
Development Costs: (Continued)
software development costs. As at June 30, 2020 and December 31, 2019, all
capitalized software development costs have been fully amortized and the Company
has no capitalized software development costs.
Total software
development costs were $8,256,704 as at June 30, 2020 (December 31, 2019 -
$7,730,851).
(f) 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 33.3%
Furniture and fixtures 20.0%
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.
(g) 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.
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
Page 12
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(g) Right of use assets: (Continued)
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.
(h) 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 and comprehensive loss.
(i) 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
|
Page 13
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(j) 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 on a qualitative or a quantitative assessment,
for impairment at least annually or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
The goodwill
impairment test is used to identify both the existence of impairment and the
amount of impairment loss, and 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 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.
(k) New
accounting pronouncements and changes in accounting policy:
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.
Page 14
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(k) New
accounting pronouncements and changes in accounting policy: (Continued)
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 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 adopted ASU 2016-13 as of January 1, 2020 and ASU
2016-13 has not had a material impact on the 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 adopted ASU 2017-04 as of
January 1, 2020 and ASU 2017-04
has not had a
material impact on the consolidated financial position or results of operations.
Page 15
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(k) New
accounting pronouncements and changes in accounting policy: (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 Company
adopted ASU 2018-13 as of January 1, 2020 and ASU 2018-13 has not had a material
impact on the consolidated financial position or 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 Company
adopted ASU 2018-15 as of January 1, 2020 and ASU 2018-15 has not had a material
impact on the consolidated financial
Page 16
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(k) New
accounting pronouncements and changes in accounting policy: (Continued)
position or 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 allowed. The Company adopted ASU
2019-01 as of
January
1, 2020 and ASU 2019-01 has not had a material impact on the consolidated
financial position or 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 Company adopted ASU 2019-05 as of January 1, 2020 and ASU
2019-05 has not had a material impact on the consolidated financial position or
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
Company adopted ASU 2019-11 as of January 1, 2020 and ASU 2019-11 has not had a
material impact on the consolidated financial position or 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
Page 17
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(k) New
accounting pronouncements and changes in accounting policy: (Continued)
period) and improving financial statement
preparers' 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 Company does not expect the adoption
of this guidance will 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
this guidance will have a material impact on the Company's financial position,
results of operations and liquidity.
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 period ended June 30,
2020, 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 18
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(i) Fair values:
Fair value is the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on
measurement date. The Company classifies assets and liabilities recorded at fair
value under the fair value hierarchy based upon the observability of inputs used
in valuation techniques. Observable inputs (highest level) reflect market data
obtained from independent sources, while unobservable inputs (lowest level)
reflect internally developed market assumptions. The fair value measurements are
classified under the following hierarchy:
Level 1-Observable
inputs that reflect quoted market prices (unadjusted) for identical assets and
liabilities in active markets;
Level 2-Observable
inputs, other than quoted market prices, that are either directly or indirectly
observable in the marketplace for identical or similar assets and liabilities,
quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data for substantially
the full term of the assets and liabilities; and
Level
3-Unobservable inputs that are supported by little or no market activity that
are significant to the fair value of assets or liabilities.
When available, we
use quoted market prices to determine fair value, and we classify such
measurements within Level 1. In some cases where market prices are not
available, we make use of observable market based inputs to calculate fair
value, in which case the measurements are classified within Level 2. If quoted
or observable market prices are not available, fair value is based upon
valuations in which one or more significant inputs are unobservable, including
internally developed models that use, where possible, current market-based
parameters such as interest rates, yield curves and currency rates. These
measurements are classified within Level 3.
Fair value
measurements are classified according to the lowest level input or value-driver
that is significant to the valuation. A measurement may therefore be classified
within Level 3 even though there may be significant inputs that are readily
observable.
Fair value
measurement includes the consideration of nonperformance risk. Nonperformance
risk refers to the risk that an obligation (either by a counterparty) will not
be fulfilled. For financial assets traded in an active market (Level 1 and
certain Level 2), the nonperformance risk is included in the market price. For
certain other financial assets and liabilities (certain Level 2 and Level 3),
our fair value calculations have been adjusted accordingly.
The fair value of
accounts receivable, accounts payable, accrued liabilities, and accounts payable
and accrued liabilities - related party approximate their financial statement
carrying
Page 19
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(i) Fair values: (Continued)
amounts due to the
short-term maturities of these instruments and are therefore carried at
historical cost basis. The government CEBA loan is classified as a
financial liability and its fair value was determined using the effective interest rate
method, and is carried at amortised cost.
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.
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 measured
using Level 3 inputs.
(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 quarter ended March 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 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.
Page 20
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
3. Acquisition of
Kidoz Ltd. : (Continued)
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
|
4. Accounts Receivable:
The accounts receivable as at June 30, 2020, is summarized as follows:
|
|
June 30, 2020
|
|
December 31, 2019
|
Accounts receivable
|
$
|
1,269,656
|
$
|
2,446,486
|
Expected credit losses
|
|
(53,633)
|
|
(53,708)
|
|
|
|
|
|
Net accounts receivable
|
$
|
1,216,023
|
$
|
2,392,778
|
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. Additionally, the Company
has a doubtful debt provision of $25,967 for existing accounts receivable.
5.
Equipment
June 30, 2020
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
Value
|
|
|
|
|
|
|
|
Equipment and computers
|
$
|
143,333
|
$
|
127,073
|
$
|
16,260
|
Furniture and fixtures
|
|
14,787
|
|
8,581
|
|
6,206
|
|
$
|
158,120
|
$
|
135,654
|
$
|
22,466
|
December 31, 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
|
Depreciation expense was $2,403 (June 30, 2019 - $4,811) for the quarter ended
June 30, 2020.
Page 21
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
6.
Intangible assets
June 30, 2020
|
|
Cost
|
|
Accumulated depreciation
|
|
Net book
Value
|
|
|
|
|
|
|
|
Ad Tech technology
|
$
|
1,877,415
|
$
|
500,644
|
$
|
1,376,771
|
Kidoz OS technology
|
|
31,006
|
|
13,780
|
|
17,226
|
Customer relationship
|
|
1,362,035
|
|
227,006
|
|
1,135,029
|
|
$
|
3,270,456
|
$
|
741,430
|
$
|
2,529,026
|
December 31, 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 $139,018 (June 30, 2019 - $nil) for the quarter ended
June 30, 2020.
7. Goodwill
The changes in the carrying amount of goodwill for the periods ended June 30,
2020, and 2019 were as follows:
|
|
June 30, 2020
|
|
December 31, 2019
|
Goodwill, balance at
beginning of period
|
$
|
3,301,439
|
$
|
-
|
Acquisition of Kidoz Ltd.
(Note 3)
|
|
-
|
|
17,178,824
|
Impairment of goodwill
|
|
-
|
|
(13,877,385)
|
|
|
|
|
|
Goodwill, balance at end of
period
|
$
|
3,301,439
|
$
|
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. Accordingly, during the year ended December 31,
2019, the Company recognized impairment of $13,877,385 to the carrying value of
the goodwill.
8.
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/SDK.
Page 22
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
8.
Content and software development assets: (Continued)
During the period
ended June 30, 2020, the Company has expensed the development costs of all its
technology as incurred and has expensed the following software development
costs.
|
|
Six Months ended June 30,
2020
|
|
Six Months ended June 30,
2019
|
|
Three Months ended June 30,
2020
|
|
Three Months ended June 30,
2019
|
|
|
|
|
|
|
|
|
|
Opening total software
development costs
|
$
|
7,730,851
|
$
|
6,716,810
|
$
|
8,015,574
|
$
|
6,958,707
|
|
|
|
|
|
|
|
|
|
Software development during
the period
|
|
525,853
|
|
502,258
|
|
241,130
|
|
260,361
|
Closing total Software
development costs
|
$
|
8,256,704
|
$
|
7,219,068
|
$
|
8,256,704
|
$
|
7,219,068
|
9. Government CEBA loan
During the quarter ended June 30, 2020, the
Company was granted a loan of $29,321 (CAD$40,000) under the Canada Emergency
Business Account (CEBA) loan program for small businesses. The CEBA loan program
is one of the many incentives the Canadian Government put in place in response
to COVID-19. The loan is interest free and a quarter of the loan $7,330
(CAD$10,000) is eligible for complete forgiveness if $21,991 (CAD$30,000) is
fully repaid on or before December 31, 2022. If the loan cannot be repaid by
December 31, 2022, it can be converted into a 3-year term loan charging an
interest rate of 5%.
10.
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.
(a) Common stock
issuances:
There have not been any shares issued
during the quarter ended June 30, 2020.
During the period ended March 31, 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 expense of $36,800.
During the
period ended March 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. (Note 3)
(b) 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
Page 23
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
10.
Stockholders' Equity: (Continued)
(b) Stock
option plans: (Continued)
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 amended 2015 plan we have reserved 10% of the
number of Shares of the Company issued and outstanding as of each Award Date.
During the quarter
ended June 30, 2020, the Company granted 2,745,000 options at CAD$0.45 ($0.33).
As at June 30, 2020, there were a total of 5,875,750 stock options (December 31,
2019 - 3,200,750) outstanding. Of the options outstanding at June 30, 2020, a
total of 3,120,450 (December 31, 2019 - 3,065,000) were fully vested and a total
of 2,755,300 (December 31, 2019 - 135,750) were issued with vesting over the
period of the option.
|
|
Number of options
|
|
Weighted average exercise
price
|
Outstanding, December 31,
2019
|
|
3,200,750
|
$
|
0.45
|
|
|
|
|
|
Granted
|
|
2,745,000
|
|
-
|
Exercised
|
|
-
|
|
-
|
Cancelled
|
|
(70,000)
|
|
(0.42)
|
|
|
|
|
|
Outstanding June 30, 2020
|
|
5,875,750
|
$
|
0.45
|
The aggregate
intrinsic value for options as of June 30, 2020 was $nil (December 31, 2019 -
$nil).
The following
table summarizes information concerning outstanding and exercisable stock
options at June 30, 2020:
Exercise
prices per share
|
Number outstanding
|
Number exercisable
|
Expiry date
|
|
$ 0.33
|
2,745,000
|
60,000
|
June 30, 2025
|
|
0.42
|
620,000
|
620,000
|
December 20, 2021
|
|
0.42
|
522,750
|
452,450
|
November 8, 2022
|
|
0.42
|
713,000
|
713,000
|
June 4, 2023
|
|
0.50
|
1,275,000
|
1,275,000
|
June 4, 2023
|
|
|
5,875,750
|
3,120,450
|
|
During the quarter
ended June 30, 2020, the Company recorded stock-based compensation of $9,849 on
the options granted and vested (June 30, 2019 - $4,950) and as per the
Black-Scholes
option-pricing model,
with a weighted
average fair value per option of $0.26 (2019 - $0.29).
During the six
months ended June 30, 2020, the Company recorded stock-based compensation of
$10,390 on the options granted and vested (June 30, 2019 - $9,930).
Page 24
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
11.
Fair value measurement
The following table sets forth the fair value of the Company's financial assets
and liabilities measured at fair value on a recurring basis based on the
three-tier fair value hierarchy.
|
Level 1
|
Level 2
|
Level 3
|
Total
|
As at
June 30, 2020
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
$1,115,332
|
$-
|
$-
|
$1,115,332
|
Long term
cash equivalent
|
37,206
|
-
|
-
|
37,206
|
Total
assets measured and recorded at fair value
|
$1,152,538
|
$-
|
$-
|
$1,152,538
|
|
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
As at
December 31, 2019
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
$967,212
|
$-
|
$-
|
$967,212
|
Long term
cash equivalent
|
38,412
|
-
|
-
|
38,412
|
Total
assets measured and recorded at fair value
|
$1,005,624
|
$-
|
$-
|
$1,005,624
|
12. 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 quarter ended March 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 accounts for the lease in accordance with ASU 2016-02 (Topic 842) and
has recognized 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.
Page 25
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
12. Commitments: (Continued)
The minimum lease
payments under these operating leases are approximately as follows:
|
|
|
2020
|
$
|
32,172
|
2021
|
|
44,404
|
2022
|
|
45,474
|
2023
|
|
46,543
|
2024
|
|
11,703
|
|
|
|
The Company paid rent expense totaling $24,827
for the quarter ended June 30, 2020 (June 30, 2019 - $20,065).
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, 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 GBP Pound Sterling 5,000 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 June 30,
2020, the Company had a number of renewable license commitments with large
brands, including, Garfield, Moomins, Mr. Men and Little Miss, Mr. Bean, Peter
Rabbit, and the Winx club.
As at June 30,
2020, there are no further commitments to pay minimum guarantee payments for
royalties on the revenue from the licenses.
The Company expensed the minimum guarantee payments over the life of the
agreement and recognized license expense of $10,121 (June 30, 2019 - $18,458)
for the quarter ended June 30, 2020, and $27,003 (June 30, 2019 - $27,874) for
the six months ended June 30, 2020.
13. 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
Page 26
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
13. Right of Use assets:
(Continued)
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. 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 are
summarized as follows:
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Opening balance for the
period
|
$
|
134,914
|
$
|
-
|
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
|
|
8,668
|
|
5,299
|
Amortization of operating
lease right-of use assets
|
|
(28,961)
|
|
(72,416)
|
Closing balance for the
period
|
$
|
114,621
|
$
|
134,914
|
The operating lease as at June 30,
2020, is summarized as follows:
As at June 30, 2020
|
|
Operating lease
|
|
|
Office lease
|
2020
|
$
|
15,002
|
2021
|
|
30,806
|
2022
|
|
31,875
|
2023
|
|
32,945
|
2024
|
|
7,553
|
Total lease
payments
|
$
|
118,181
|
Less: Interest
|
|
(8,744)
|
Present value
of lease liabilities
|
$
|
109,437
|
Page 27
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
13. Right of Use assets:
(Continued)
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Opening balance for the
period
|
$
|
127,615
|
$
|
-
|
Initial recognition of
operating lease liabilities
|
|
-
|
|
81,856
|
Operating lease liability
incurred during the period
|
|
-
|
|
125,474
|
Payments on operating lease
liabilities
|
|
(18,178)
|
|
(79,715)
|
Closing balance for the
period
|
|
109,437
|
|
127,615
|
Less: current portion
|
|
(25,215)
|
|
(25,715)
|
Operating lease liabilities
- non-current portion as at end of period
|
$
|
84,222
|
$
|
101,900
|
14. Related Party
Transactions:
The Company has a liability of $13,210 (December 31, 2019 - $33,000) to a
company owned by a current director and officer of the Company for payment of
consulting services rendered
of $28,875 (June
30, 2019 - $33,000) by the current director
and officer of the Company.
The Company has an asset of $nil (December 31, 2019 - $9) to a current director
and officer of the Company for expenses incurred.
The Company has a liability of $nil (December 31, 2019 - $267) to a current
director and officer of the Company for expenses incurred.
The Company has a liability of $nil (December 31, 2019 - $19,779) to a company
owned by a current director and officer of the Company for payment of consulting
services rendered of $nil (June
30, 2019 - $19,363) by the current director
and officer of the Company.
The Company has a liability of $6,672 (December 31, 2019 - $22,500) to a company
owned by a current director and officer of the Company for payment of consulting
services rendered of $28,815 (June
30, 2019 - $22,500) by the current director
and officer of the Company.
The Company has a liability of $7,509 (December 31, 2019 - $30,974) to a current
director and officer of the Company for payroll.
The Company has a
liability of $9,500 (December 31, 2019
- $5,500), to independent directors of the Company for payment of
directors' fees. During the quarter ended June 30, 2020, the Company accrued
$2,500 (June 30, 2019 - $3,500) to the independent directors in director fees.
The Company has a
liability of $8,006 (December 31, 2019
- $91), to an officer of the Company for payment of consulting services rendered
and expenses incurred of $23,502 (June 30, 2019 - $37,333)
by the officer of the Company.
The Company has a
liability of $nil (December 31, 2019
- $nil), to an officer of the Company for payment of
consulting fees and expenses
incurred of $18,916 (June 30, 2019 - $27,911)
by the officer of the Company.
Page 28
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
14. Related Party
Transactions: (Continued)
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.
15.
Segmented information:
Revenue
The Company operates in reportable business
segments, the sale of Ad tech advertising and content revenue.
The Company had the following revenue by
geographical region.
|
|
Six Months ended June 30,
2020
|
|
Six Months ended June 30,
2019
|
|
Three Months ended June 30,
2020
|
|
Three Months ended June 30,
2019
|
Ad tech advertising revenue
|
|
|
|
|
|
|
|
|
Western Europe
|
$
|
635,540
|
$
|
119,278
|
$
|
301,100
|
$
|
119,278
|
North America
|
|
814,121
|
|
685,982
|
|
305,127
|
|
455,120
|
Other
|
|
57,603
|
|
4,654
|
|
5,482
|
|
4,654
|
|
|
|
|
|
|
|
|
|
Total ad tech advertising
revenue
|
$
|
1,507,264
|
$
|
809,914
|
$
|
611,709
|
$
|
579,052
|
|
|
|
|
|
|
|
|
|
Content revenue
|
|
|
|
|
|
|
|
|
Western Europe
|
$
|
53,257
|
$
|
34,686
|
$
|
26,855
|
$
|
32,233
|
Central, Eastern and Southern
Europe
|
|
52,996
|
|
99,893
|
|
20,452
|
|
50,496
|
North America
|
|
75,063
|
|
125,606
|
|
56,432
|
|
107,302
|
Other
|
|
32,226
|
|
54,143
|
|
21,379
|
|
49,203
|
|
|
|
|
|
|
|
|
|
Total content revenue
|
$
|
213,542
|
$
|
314,328
|
$
|
125,118
|
$
|
239,234
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
|
|
Western Europe
|
$
|
688,797
|
$
|
153,964
|
$
|
327,955
|
$
|
151,511
|
Central, Eastern and Southern
Europe
|
|
52,996
|
|
99,893
|
|
20,452
|
|
50,496
|
North America
|
|
889,184
|
|
811,588
|
|
361,559
|
|
562,422
|
Other
|
|
89,829
|
|
58,797
|
|
26,861
|
|
53,857
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
1,720,806
|
$
|
1,124,242
|
$
|
736,827
|
$
|
818,286
|
Equipment
The Company's equipment is
located as follows:
Net Book Value
|
|
June 30, 2020
|
|
December 31, 2019
|
Anguilla
|
$
|
204
|
$
|
245
|
Canada
|
|
9,272
|
|
11,061
|
Israel
|
|
11,337
|
|
13,892
|
United Kingdom
|
|
1,653
|
|
1,984
|
|
$
|
22,466
|
$
|
27,182
|
Page 29
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Six Months ended June 30,
2020 and 2019
(Unaudited)
16. Concentrations:
Major customers
During the quarter ended June 30, 2020 and 2019,
the Company sold Ad tech revenue and content revenue including subscriptions on
its site Rooplay, in-app purchases on its social bingo sites, Trophy Bingo and
Garfield's Bingo and Rooplay Originals. During the quarter ended June 30, 2020,
the Company had three customers: $266,338, $134,847, and $78,218 (June 30, 2019 - one customer: $666,054)
who purchased 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.
17.
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 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 balances at financial institutions. At
June 30, 2020, the Company had total cash and cash equivalents balances of
$1,152,538 (December 31, 2019 - $1,005,624)
at financial institutions, where $955,173 (December 31, 2019 -
$661,741)
is in excess of federally insured limits.
The Company has concentrations of credit risk
with respect to accounts receivable, the majority of its account's receivable
are concentrated geographically in the United States amongst a small number of
customers.
As of June 30, 2020, the Company had three
customers, totaling $477,535, $135,308 and $134,847 who accounted for greater
than 10% of the total accounts receivable. 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.
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.
Page 30