Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
1. Basis of
Presentation:
The accompanying unaudited interim consolidated 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, 2020, included in the Company's Annual Report on Form 10-K, filed March 31,
2021, 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 Three Months ended March 31,
2021 and 2020 and has an accumulated deficit of $40,795,525 as at March 31,
2021. 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's employees commenced working from home and commenced social
distancing. This outbreak has affected spending, thereby affecting demand for
the
Page 6
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
1. Basis of
Presentation: (Continued)
Company's product and the Company's business and results of operations. It
is not possible for the
Company to predict the duration or
magnitude of the outbreak and at this time its full effects on the Company's
business, its future results of operations, or ability to raise funds.
2. Summary of
significant accounting policies:
(a)
Basis of
presentation:
These unaudited
interim 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.
All inter-company
balances and transactions have been eliminated in the consolidated financial
statements.
(b)
Use of estimates:
The preparation of
unaudited interim 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, the valuation of stock-based compensation, the valuation of deferred
tax assets, the useful lives of intangible assets, 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.
Page 7
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(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 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
Page 8
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(c) Revenue
recognition: (Continued)
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 (CPI)
arrangements, Cost per completed video view (CPC) and/or Cost-Per-Action (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 or the month when the campaign ends.
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.
Page 9
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(c) Revenue
recognition: (Continued)
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
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
Page 10
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(c) Revenue
recognition: (Continued)
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) Software
development costs:
The Company
expensed all software development costs as incurred for the period ended March
31, 2021 and 2020. As at March 31, 2021 and 2020, all capitalized software
development costs have been fully amortized and the Company has no capitalized
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.
As at
March 31, 2021 and December 31, 2020, all capitalized software
development costs have been fully amortized and the Company has no capitalized
software development costs.
Total software
development costs were $9,218,046 as at March 31, 2021 (December 31, 2020 -
$8,880,753).
(e) Impairment of
long-lived assets and long-lived assets to be disposed of:
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.
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 11
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(f) 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
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,
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.
During the year ended December 31,
2020, the Company deemed there was no impairment of the goodwill.
(g) New
accounting pronouncements and changes in accounting policy:
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' application of certain income tax-related
guidance. 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.
There have been no other recent accounting
standards, or changes in accounting standards, during the period ended March 31,
2021, 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 12
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(h) Financial instruments and fair
value measurements:
(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 amounts due to the short-term maturities
of these instruments and are therefore carried at historical cost basis.
Page 13
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
2. Summary of
significant accounting policies: (Continued)
(h) Financial instruments and fair
value measurements: (Continued)
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 amortized cost.
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. Accounts receivable:
The accounts receivable as at March 31, 2021, is summarized as follows:
|
|
March 31, 2021
|
|
December 31, 2020
|
Accounts
receivable
|
$
|
2,443,673
|
$
|
3,989,200
|
Expected credit
losses
|
|
(54,661)
|
|
(55,660)
|
|
|
|
|
|
Net accounts
receivable
|
$
|
2,389,012
|
$
|
3,933,540
|
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 $26,995 for existing accounts receivable.
4.
Equipment:
March 31, 2021
|
|
Cost
|
|
Accumulated depreciation
|
|
Net
book
Value
|
|
|
|
|
|
|
|
Equipment and
computers
|
$
|
148,810
|
$
|
133,400
|
$
|
15,410
|
Furniture and
fixtures
|
|
14,787
|
|
8,907
|
|
5,880
|
|
$
|
163,597
|
$
|
142,307
|
$
|
21,290
|
December 31, 2020
|
|
Cost
|
|
Accumulated depreciation
|
|
Net
book
Value
|
|
|
|
|
|
|
|
Equipment and
computers
|
$
|
146,545
|
$
|
130,798
|
$
|
15,747
|
Furniture and
fixtures
|
|
14,787
|
|
8,695
|
|
6,092
|
|
$
|
161,332
|
$
|
139,493
|
$
|
21,839
|
Depreciation expense was $2,814 (March 31, 2020 - $2,313) for the quarter ended
March 31, 2021.
Page 14
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
5.
Intangible assets:
March 31, 2021
|
|
Cost
|
|
Accumulated depreciation
|
|
Net
book
Value
|
|
|
|
|
|
|
|
Ad Tech technology
|
$
|
1,877,415
|
$
|
782,256
|
$
|
1,095,159
|
Kidoz OS
technology
|
|
31,006
|
|
21,532
|
|
9,474
|
Customer
relationship
|
|
1,362,035
|
|
354,697
|
|
1,007,338
|
|
$
|
3,270,456
|
$
|
1,158,485
|
$
|
2,111,971
|
December 31, 2020
|
|
Cost
|
|
Accumulated amortization
|
|
Net
book
Value
|
|
|
|
|
|
|
|
Ad Tech technology
|
$
|
1,877,415
|
$
|
688,386
|
$
|
1,189,029
|
Kidoz OS
technology
|
|
31,006
|
|
18,948
|
|
12,058
|
Customer
relationship
|
|
1,362,035
|
|
312,133
|
|
1,049,902
|
|
$
|
3,270,456
|
$
|
1,019,467
|
$
|
2,250,989
|
Amortization expense was $139,018 (March 31, 2020 - $139,018) for the quarter
ended March 31, 2021.
6. Goodwill:
The changes in the carrying amount of goodwill for the periods ended March 31,
2021, and 2020 were as follows:
|
|
March 31, 2021
|
|
December 31, 2020
|
Goodwill, balance
at beginning of period
|
$
|
3,301,439
|
$
|
3,301,439
|
Impairment of
goodwill
|
|
-
|
|
-
|
|
|
|
|
|
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 2020 included a
quantitative analysis of Kidoz Ltd. reporting unit (consisting of intangible
assets (Note 5) and goodwill). The reporting unit has a carrying amount of
$5,413,410 (December 31, 2020 - $5,552,428) as at December 31, 2020. The Company
performed a discounted cash flow analysis for Kidoz Ltd. for the year ended
December 31, 2020. These discounted cash flow models included management
assumptions for expected sales growth, margin expansion, operational leverage,
capital expenditures, and overall operational forecasts. The Company classified
these significant inputs and assumptions as Level 3 fair value measurements.
Based on the annual impairment test described above there was no additional
impairment determined for fiscal 2020.
7.
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 Safe Ad Network, the KIDOZ Kid-Mode Operating
System, and the KIDOZ publisher SDK.
Page 15
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
7.
Content and software development assets:
(Continued)
During
the period ended March 31, 2021, the Company has expensed the development costs
of all its technology as incurred and has expensed the following software
development costs.
|
|
March 31, 2021
|
|
March 31, 2020
|
Opening total development
costs
|
$
|
8,880,753
|
$
|
7,730,851
|
|
|
|
|
|
Development during the period
|
|
337,293
|
|
284,723
|
Closing total development
costs
|
$
|
9,218,046
|
$
|
8,015,574
|
8. Government CEBA loan:
During the year ended
December 31, 2020, the Company was granted a loan of $47,089 (CAD$60,000) 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 CAD$20,000 is eligible for complete forgiveness if CAD$40,000 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%.
During the quarter ended
March 31, 2021, the Company drew $200,000 from its line of credit with the Leumi
Bank. The loan was repaid in full during the quarter ended March 31, 2021 with
interest costs of $987.
9.
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.
There have not been any shares
issued during the quarter ended March 31, 2021 and the year ended December 31,
2020.
Subsequent to the quarter ended March
31, 2021, the Company engaged Research Capital Corporation ("RCC") as a
financial and capital markets advisor. As part of the compensation for its
services, RCC will receive a monthly fee of $5,162 (CAD$6,500) for its trading
advisory services for a minimum of 6 months with extension by mutual agreement
and a financial advisory fee to be satisfied by the issuance of 230,000 common
shares of the Company. In addition, the Company granted 230,000 common share
purchase warrants to RCC. Each warrant will entitle the holder thereof to
purchase one common share in the capital of the Company at an exercise price of
$0.78 (CAD$0.98) at any time up to 24 months following the date of issuance.
Subsequent to the quarter ended March 31, 2021, The Company issued the shares
and granted the warrants.
Page 16
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
9.
Stockholders' Equity:
(Continued)
(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 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 March 31, 2021, the Company granted 1,075,000 options at
CAD$0.50 ($0.39)
During the year ended December 31, 2020, the Company
granted 2,745,000 options at CAD$0.45 ($0.33).
|
|
Number of options
|
|
Weighted average
exercise price
|
Outstanding December 31, 2019
|
|
3,200,750
|
$
|
0.45
|
|
|
|
|
|
Granted
|
|
2,745,000
|
|
0.33
|
Exercised
|
|
-
|
|
-
|
Cancelled
|
|
(70,000)
|
|
(0.42)
|
|
|
|
|
|
Outstanding, December 31, 2020
|
|
5,875,750
|
$
|
0.39
|
|
|
|
|
|
Granted
|
|
1,075,000
|
|
0.39
|
Exercised
|
|
-
|
|
-
|
Cancelled
|
|
(140,000)
|
|
(0.35)
|
|
|
|
|
|
Outstanding March 31, 2021
|
|
6,810,750
|
$
|
0.39
|
The aggregate intrinsic value for options as of March 31, 2021 was $2,511,086 (December 31,
2020 - $137,250).
Page 17
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
9.
Stockholders' Equity:
(Continued)
(b) Stock option plans: (Continued)
The following table summarizes information concerning outstanding and
exercisable stock options at March 31, 2021:
Exercise
prices per share
|
Number outstanding
|
Number exercisable
|
Expiry date
|
|
$ 0.33
|
2,645,000
|
87,000
|
June 30, 2025
|
|
0.39
|
1,035,000
|
135,000
|
February 1, 2026
|
|
0.40
|
620,000
|
620,000
|
December 20, 2021
|
|
0.42
|
522,750
|
486,650
|
November 8, 2022
|
|
0.42
|
713,000
|
713,000
|
June 4, 2023
|
|
0.50
|
1,275,000
|
1,275,000
|
June 4, 2023
|
|
|
6,810,750
|
3,316,650
|
|
During the quarter
ended March 31, 2021, the Company recorded stock-based compensation of $77,021
on the options granted and vested (March 31, 2020 - $541) and as per the
Black-Scholes option-pricing model,
with a weighted
average fair value per option of $0.28 (March 31, 2020 - $0.29).
Subsequent to the quarter ended March 31, 2021, a further 1,300,000 options were
awarded where 2% vests per month thereafter, with an exercise price of CAD$1.02
($0.81), expiring on April 6, 2026.
10. 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 March 31, 2021
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
$1,611,592
|
$-
|
$-
|
$1,611,592
|
Long term cash equivalent
|
31,766
|
-
|
-
|
31,766
|
Total assets measured and recorded at fair value
|
$1,643,358
|
$-
|
$-
|
$1,643,358
|
|
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
As at December 31, 2020
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
$1,226,045
|
$-
|
$-
|
$1,226,045
|
Long term cash equivalent
|
31,392
|
-
|
-
|
31,392
|
Total assets measured and recorded at fair value
|
$1,257,437
|
$-
|
$-
|
$1,257,437
|
Page 18
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
11. 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, 2020, 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.
The minimum lease payments under these operating leases are approximately as
follows:
|
|
|
2021
|
$
|
49,129
|
2022
|
|
49,267
|
2023
|
|
50,426
|
2024
|
|
12,679
|
|
|
|
The Company paid rent expense totaling $32,419
for the quarter ended March 31, 2021 (March 31, 2020 - $25,873).
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 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
March 31, 2021, the Company had a number of renewable license commitments with
large brands, including, Garfield, Moomins, Mr. Men and Little Miss, Mr. Bean,
and Peter Rabbit.
As at
March 31, 2021, there are no further commitments to pay minimum guarantee
payments for royalties
Page 19
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
11. Commitments: (Continued)
on the revenue from the licenses.
The Company expensed the minimum guarantee payments over the life of the
agreement and recognized license expense of $8,814 (March 31, 2020 - $16,882)
for the quarter ended March 31, 2021.
12. Right of
use assets:
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%.
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:
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Opening balance for the
period
|
$
|
106,315
|
$
|
134,914
|
Capitalization of
additional license leases
|
|
-
|
|
25,472
|
Amortization of operating
lease right-of use assets
|
|
(17,509)
|
|
(54,071)
|
Closing balance for the
period
|
$
|
88,806
|
$
|
106,315
|
Page 20
KIDOZ INC. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March 31, 2021 and 2020
(Unaudited)
12. Right of
use assets: (Continued)
The
operating lease as at March 31, 2021, is summarized as follows:
As at March 31, 2021
|
|
Operating lease -
Office lease
|
|
|
|
2021
|
$
|
25,062
|
2022
|
|
34,284
|
2023
|
|
35,443
|
2024
|
|
8,183
|
Total lease
payments
|
$
|
102,972
|
Less: Interest
|
|
(4,302)
|
Present value
of lease liabilities
|
$
|
98,670
|
|
|
|
Amounts
recognized on the balance sheet
|
Current lease
liabilities
|
$
|
32,064
|
Long-term lease
liabilities
|
|
66,606
|
|
|
|
Total lease
payments
|
$
|
98,670
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
|
|
|
Opening balance for the
period
|
$
|
103,918
|
$
|
127,615
|
Payments on operating lease
liabilities
|
|
(5,248)
|
|
(23,697)
|
Closing balance for the
period
|
|
98,670
|
|
103,918
|
Less: current portion
|
|
(32,064)
|
|
(30,083)
|
Operating lease liabilities
- non-current portion as at end of period
|
$
|
66,606
|
$
|
73,835
|
13. Related
party transactions:
The Company has a liability of $11,000 (December 31, 2020 - $10,968) to a
company owned by a current director and officer of the Company for payment of
consulting services rendered
of $33,000 (March
31, 2020 - $33,000) by the current director
and officer of the Company.
The Company has a liability of $1,795 (December 31, 2020 - $nil) to a current
director and officer of the Company for expenses incurred.
The Company has a liability of $6,879 (December 31, 2020 - $6,098) to a company
owned by a current director and officer of the Company for payment of consulting
services rendered of $20,666 (March
31, 2020 - $18,900) by the current director and officer of the Company.
The Company has a liability of $7,500 (December 31, 2020 - $7,500) to a company
owned by a current director and officer of the Company for payment of consulting
services rendered of $22,500 (March
31, 2020 - $22,500) by the current director and officer of the Company.
The Company has a liability of $12,318 (December 31, 2020 - $12,519) to a
current director and officer of
Page 21
KIDOZ INC. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March 31, 2021 and 2020
(Unaudited)
13. Related
party transactions: (Continued)
the Company for payroll.
The Company has a
liability of $3,500 (December 31, 2020
- $1,500), to independent directors of the Company for payment of
directors' fees. During the quarter ended March 31, 2021, the Company accrued
$2,000 (March 31, 2020 - $2,500) to the independent directors in director fees.
The Company has a
liability of $15,286 (December 31, 2020
- $12,187), to an officer of the Company for payment of consulting services
rendered and expenses incurred of $36,330 (March 31, 2020 - $40,014)
by the officer of the Company.
The Company has a
liability of $nil (December 31, 2020
- $nil), to an officer of the Company for payment of
consulting fees and expenses incurred of $36,495 (March 31, 2020 -
$28,379) by the officer of the Company.
In the quarter
ended March 31, 2021, the Company issued stock options to its directors,
employees, and consultants. During the quarter ended March 31, 2021, the Company
incurred stock-based compensation expense of $30,311 to related parties from
this stock option grant.
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.
14. 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.
|
|
Three
Months ended March 31, 2021
|
|
Three
Months ended March 31, 2020
|
|
Ad tech
advertising revenue
|
|
|
|
|
|
Western Europe
|
$
|
216,799
|
$
|
334,441
|
|
North America
|
|
1,219,730
|
|
508,994
|
|
Other
|
|
67,771
|
|
52,120
|
|
|
|
|
|
|
|
Total ad tech advertising revenue
|
$
|
1,504,300
|
$
|
895,555
|
|
|
|
|
|
|
|
Content revenue
|
|
|
|
|
|
Western Europe
|
$
|
21,839
|
$
|
26,420
|
|
Central, Eastern and Southern Europe
|
|
562
|
|
32,545
|
|
North America
|
|
18,464
|
|
18,604
|
|
Other
|
|
12,777
|
|
10,855
|
|
|
|
|
|
|
|
Total content revenue
|
$
|
53,642
|
$
|
88,424
|
|
Page 22
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
14. Segmented information:
(Continued)
|
|
Three
Months ended March 31, 2021
|
|
Three
Months ended March 31, 2020
|
|
Total revenue
|
|
|
Western Europe
|
$
|
238,638
|
$
|
360,861
|
Central, Eastern and Southern Europe
|
|
562
|
|
32,545
|
North America
|
|
1,238,194
|
|
527,598
|
Other
|
|
80,548
|
|
62,975
|
Total revenue
|
$
|
1,557,942
|
$
|
983,979
|
Equipment
The Company's equipment is
located as follows:
Net Book Value
|
|
March
31, 2021
|
|
December 31, 2020
|
Anguilla
|
$
|
125
|
$
|
164
|
Canada
|
|
8,308
|
|
7,482
|
Israel
|
|
11,708
|
|
12,870
|
United Kingdom
|
|
1,149
|
|
1,323
|
|
$
|
21,290
|
$
|
21,839
|
15. Concentrations:
Major customers
During the quarter ended March 31, 2021 and
2020, 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 March 31, 2021, the Company had two Ad tech customers: $651,402, and
$441,787 (March 31, 2020 - three customers: $341,920, $122,908 and $114,914
respectively) 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.
16. 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 March 31, 2021,
the Company had total cash and cash equivalents balances of $1,611,592 (December
31, 2020 - $1,226,045) at financial institutions, where $1,486,536 (December 31,
2020 -
$970,453)
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.
Page 23
KIDOZ INC.
and subsidiaries
(Expressed in
United States Dollars)
Notes to Consolidated Financial Statements
Three Months ended March
31, 2021 and 2020
(Unaudited)
16. Concentrations of credit
risk: (Continued)
As of March 31, 2021, the Company had two
customers, totaling $1,227,393 and $432,546 who accounted for greater than 10%
of the total accounts receivable. As of December 31, 2020, the Company had two
customers, totaling $1,618,244 and $807,346 respectively 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 24