Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(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, 2021, included in the Company’s Annual Report on Form 10-K, filed March 30, 2022, with the Securities and Exchange
Commission and the TSX Venture Exchange. 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 assuming the realization of assets and the settlement of liabilities
in the normal course of operations. The Company expects to continue to achieve profitable operations to generate sufficient cash flows
to fund continued operations for the next 12 months, or, in the absence of adequate cash flows from operations, obtaining additional
financing.
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.
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 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:
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
2. Summary of significant accounting policies: (Continued)
|
(a) |
Basis
of presentation: (Continued) |
Schedule
of Consolidation, Wholly Owned and Less than Wholly Owned Subsidiary, Parent Ownership Interest
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 unaudited interim consolidated financial statements.
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 and liabilities, the useful lives of intangible assets, and the derivative liability – warrants
valuation. Actual results may differ significantly from these estimates.
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.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
2.
Summary of significant accounting policies (Continued):
|
(c) |
Revenue
recognition: (Continued) |
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 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.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
2. Summary of significant accounting policies (Continued):
|
(c) |
Revenue
recognition: (Continued) |
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 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.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
2. Summary of significant accounting policies (Continued):
|
(c) |
Revenue
recognition: (Continued) |
b)
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 its 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)
In App purchases - The Company generates revenue through in-application purchases (“in-app purchases”) within its games;
(i.e. 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 Android, Amazon,
iOS and Facebook Messenger (this was discontinued in fiscal 2021) 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.
|
(d) |
Software
development costs: |
The
Company expensed all software development costs as incurred for the period ended March 31, 2022 and 2021. As at March 31, 2022 and December
31, 2021, all capitalized software development costs have been fully amortized and the Company has no capitalized software development
costs.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
2. Summary of significant accounting policies (Continued):
|
(d) |
Software
development costs: (Continued) |
Total
software development costs were $11,076,240 as at March 31, 2022 (December 31, 2021 - $10,559,601).
|
(e)
|
Derivative
liability – warrants |
The
Company’s warrants have an exercise price in Canadian dollars whilst the Company’s functional currency is US Dollars. Therefore,
in accordance with ASU 815 – Derivatives and Hedging, the warrants have a derivative liability value. This liability value has
no effect on the cashflow of the Company and does not represent a cash payment of any kind.
|
(f) |
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:
Schedule of Finite-Lived Intangible Assets, Amortization Period
|
|
Amortization
period |
Ad
Tech technology |
|
5
years |
Kidoz
OS technology |
|
3
years |
Customer
relationship |
|
8
years |
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.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
2. Summary of significant accounting policies (Continued):
|
(g) |
Goodwill:
(Continued) |
During
the year ended December 31, 2021, the Company determined there was no impairment of the goodwill.
|
(h) |
New
accounting pronouncements and changes in accounting policy: |
The
Company has evaluated all of the recently issued, but not yet effective, accounting standards that have been issued or proposed by the
Financial Accounting Standards Board or other standards-setting bodies through the filing date of these unaudited consolidated financial
statements and does not believe the future adoption of any such pronouncements will have a material impact on its consolidated financial
statements.
|
(i)
|
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.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
2. Summary of significant accounting policies (Continued):
|
(i) |
Financial
instruments and fair value measurements: (Continued) |
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 their 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 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 and derivative liability – warrants were 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:
Schedule
of Accounts, Notes, Loans and Financing Receivable
| |
March 31, 2022 | | |
December 31, 2021 | |
Accounts receivable | |
$ | 3,839,688 | | |
$ | 6,684,469 | |
Expected credit losses | |
| (56,004 | ) | |
| (56,605 | ) |
| |
| | | |
| | |
Net accounts receivable | |
$ | 3,783,684 | | |
$ | 6,627,864 | |
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
3.
Accounts receivable: (Continued)
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 $28,338 for existing accounts receivable.
4.
Equipment:
Schedule of Property, Plant and Equipment
March 31, 2022 | |
Cost | | |
Accumulated depreciation | | |
Net book
Value | |
| |
| | |
| | |
| |
Equipment and computers | |
$ | 159,946 | | |
$ | 141,521 | | |
$ | 18,425 | |
Furniture and fixtures | |
| 16,517 | | |
| 9,654 | | |
| 6,863 | |
| |
$ | 176,463 | | |
$ | 151,175 | | |
$ | 25,288 | |
December 31, 2021 | |
Cost | | |
Accumulated depreciation | | |
Net book Value | |
| |
| | |
| | |
| |
Equipment and computers | |
$ | 152,967 | | |
$ | 139,590 | | |
$ | 13,377 | |
Furniture and fixtures | |
| 16,517 | | |
| 9,371 | | |
| 7,146 | |
| |
$ | 169,484 | | |
$ | 148,961 | | |
$ | 20,523 | |
Depreciation
expense was $2,214 (March 31, 2021 - $2,814) for the quarter ended March 31, 2022.
5.
Intangible assets:
Schedule of Finite-Lived Intangible Assets
March 31, 2022 | |
Cost | | |
Accumulated depreciation | | |
Net book
Value | |
| |
| | |
| | |
| |
Ad Tech technology | |
$ | 1,877,415 | | |
$ | 1,157,739 | | |
$ | 719,676 | |
Kidoz OS technology | |
| 31,006 | | |
| 31,006 | | |
| - | |
Customer relationship | |
| 1,362,035 | | |
| 524,951 | | |
| 837,084 | |
| |
$ | 3,270,456 | | |
$ | 1,713,696 | | |
$ | 1,556,760 | |
December 31, 2021 | |
Cost | | |
Accumulated amortization | | |
Net book
Value | |
| |
| | |
| | |
| |
Ad Tech technology | |
$ | 1,877,415 | | |
$ | 1,063,869 | | |
$ | 813,546 | |
Kidoz OS technology | |
| 31,006 | | |
| 29,283 | | |
| 1,723 | |
Customer relationship | |
| 1,362,035 | | |
| 482,387 | | |
| 879,648 | |
| |
$ | 3,270,456 | | |
$ | 1,575,539 | | |
$ | 1,694,917 | |
Amortization
expense was $138,157 (March 31, 2021 - $139,018) for the quarter ended March 31, 2022.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
6.
Goodwill:
The
changes in the carrying amount of goodwill for the period ended March 31, 2022, and the year ended December 31, 2021 were as follows:
Schedule of Goodwill
| |
March 31, 2022 | | |
December 31, 2021 | |
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 2021 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 $4,647,700
(December 31, 2021 - $4,785,857) as at March 31, 2022. The Company performed a discounted cash flow analysis for Kidoz Ltd. for the year
ended December 31, 2021. 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 2021 or 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 business. This software technology
and content includes the the continued development of the KIDOZ Safe Ad Network, the KIDOZ Kid-Mode Operating System, and the KIDOZ publisher
SDK, development of Trophy Bingo, a social bingo game, the license, the development of the Rooplay platform and the development of the
Rooplay Originals games.
During
the period ended March 31, 2022, the Company has expensed the development costs of all its technology as incurred and has expensed the
following software development costs.
Expense of Development Costs
| |
March 31, 2022 | | |
March 31, 2021 | |
Opening total development costs | |
$ | 10,559,601 | | |
$ | 8,880,753 | |
| |
| | | |
| | |
Development during the period | |
| 516,639 | | |
| 337,293 | |
Closing total development costs | |
$ | 11,076,240 | | |
$ | 9,218,046 | |
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 as at March 31, 2022, a quarter of the loan $15,999 (CAD$20,000) is eligible for
complete forgiveness if $31,978 (CAD$40,000) is fully repaid on or before December 31, 2023. If the loan cannot be repaid by December
31, 2023, it can be converted into a 3-year term loan charging an interest rate of 5%.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
8. Government CEBA loan:
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.
(a) |
Common
stock issuances: |
There
were no stock issuances during the quarter ended March 31, 2022.
During
the quarter ended June 30, 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 $5,200 (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 valued at $179,293. 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 $0.77
(CAD$0.98) at any time up to 24 months following the date of issuance. During the quarter ended June 30, 2021, the Company issued the
shares and granted the warrants.
During
the quarter ended June 30, 2021, the holder of 70,000 stock options exercised their options for 70,000 shares for $31,264 at an average
exercise price of $0.45 (CAD$0.54) per share.
A
summary of warrant activity for the quarter ended March 31, 2022 are as follows:
Schedule
of Share- based Payment Arrangement, Warrant Activity
| |
Number of options | | |
Exercise price | | |
Expiry date | |
Outstanding, December 31, 2020 | |
| - | | |
$ | - | | |
| | |
| |
| | | |
| | | |
| | |
Granted | |
| 230,000 | | |
| CAD$0.98 | | |
| April 3, 2023 | |
| |
| | | |
| | | |
| | |
Outstanding December 31, 2021 | |
| 230,000 | | |
| CAD$0.98 | | |
| | |
| |
| | | |
| | | |
| | |
Granted | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | |
Outstanding March 31, 2022 | |
| 230,000 | | |
| CAD$0.98 | | |
| | |
A
fair value of the derivative liability of $83,572 was been estimated on the date of the subscription using the Binomial Lattice pricing
model. Since the warrant was issued there was a gain on derivative liability - warrants of $76,551 ($60,207 recognized in fiscal 2021)
and the derivative liability – warrants value reduced to $7,021 with the following assumptions:
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
9.
Stockholders’ equity: (Continued)
(b) |
Warrants:
(Continued) |
Schedule of Fair Value of Warrants Assumptions
| |
March 31, 2022 | | |
December 31, 2021 | |
Exercise price | |
| CAD$0.98 | | |
| CAD$0.98 | |
Stock price | |
| CAD$0.48 | | |
| CAD$0.59 | |
Expected term | |
| 1 years | | |
| 1.25 years | |
Expected dividend yield | |
| - | | |
| - | |
Expected stock price volatility | |
| 69.93 | % | |
| 88.33 | % |
Risk-free interest rate | |
| 2.37 | % | |
| 1.18 | % |
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, 2022, the Company granted 2,550,000 options at CAD$0.50 ($0.40)
During
the quarter ended September 30, 2021, the Company granted 300,000 options at CAD$0.66 ($0.52) During the quarter ended June 30, 2021,
the Company granted 1,300,000 options at CAD$1.02 ($0.80) During the quarter ended March 31, 2021, the Company granted 1,075,000 options
at CAD$0.50 ($0.39)
Schedule of Share-based Payment Arrangement, Option, Activity
| |
Number of
options | | |
Weighted average
exercise price | |
Outstanding December 31, 2020 | |
| 5,875,750 | | |
$ | 0.39 | |
| |
| | | |
| | |
Granted | |
| 2,675,000 | | |
| 0.60 | |
Exercised | |
| (70,000 | ) | |
| (0.45 | ) |
Expired | |
| (570,000 | ) | |
| (0.43 | ) |
Cancelled | |
| (1,040,600 | ) | |
| (0.42 | ) |
| |
| | | |
| | |
Outstanding, December 31, 2021 | |
| 6,870,150 | | |
$ | 0.48 | |
| |
| | | |
| | |
Granted | |
| 2,550,000 | | |
| 0.40 | |
Cancelled | |
| (210,000 | ) | |
| (0.56 | ) |
| |
| | | |
| | |
Outstanding March 31, 2022 | |
| 9,210,150 | | |
$ | 0.46 | |
The
aggregate intrinsic value for options as of March 31, 2022 was $48,706 (December 31, 2021 - $334,897).
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
9.
Stockholders’ equity: (Continued)
(c) |
Stock
option plans: (Continued) |
The
following table summarizes information concerning outstanding and exercisable stock options at March 31, 2022:
Schedule of Share-based Payment Arrangement, Option, Exercise Price Range
Exercise prices per share | |
Number outstanding | | |
Number exercisable | | |
Expiry date |
CAD$0.45 | |
| 2,030,400 | | |
| 525,360 | | |
June 30, 2025 |
CAD$0.50 | |
| 859,600 | | |
| 277,400 | | |
February 1, 2026 |
CAD$0.50 | |
| 2,520,000 | | |
| 100,800 | | |
February 1, 2027 |
CAD$0.54 | |
| 506,150 | | |
| 506,150 | | |
November 8, 2022 |
CAD$0.54 | |
| 713,000 | | |
| 713,000 | | |
June 4, 2023 |
CAD$0.66 | |
| 200,000 | | |
| 32,000 | | |
July 12, 2026 |
US$0.50 | |
| 1,275,000 | | |
| 1,275,000 | | |
June 4, 2023 |
CAD$1.02 | |
| 1,106,000 | | |
| 248,000 | | |
April 6, 2026 |
| |
| 9,210,150 | | |
| 3,677,710 | | |
|
During
the quarter ended March 31, 2022, the Company recorded stock-based compensation of $159,998 on the options granted and vested (March
31, 2021 – $77,021) and as per the Black-Scholes option-pricing model, with a weighted average fair value per option grant of $0.34
(March 31, 2021 - $0.28).
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.
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
As at March 31, 2022 | |
| | |
| | |
| | |
| |
Assets | |
| | | |
| | | |
| | | |
| | |
Cash | |
$ | 2,080,470 | | |
$ | - | | |
$ | - | | |
$ | 2,080,470 | |
Long term cash equivalent | |
| 23,988 | | |
| - | | |
| - | | |
| 23,988 | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Derivative liability – warrants | |
| - | | |
| (7,021 | ) | |
| | | |
| (7,021 | ) |
Total net assets measured and recorded at fair value | |
$ | 2,104,458 | | |
($ | 7,021 | ) | |
$ | - | | |
$ | 2,097,437 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
As at December 31, 2021 | |
| | |
| | |
| | |
| |
Assets | |
| | |
| | |
| | |
| |
Cash | |
$ | 2,078,607 | | |
$ | - | | |
$ | - | | |
$ | 2,078,607 | |
Long term cash equivalent | |
| 23,624 | | |
| - | | |
| - | | |
| 23,624 | |
Cash and cash equivalents | |
| 23,624 | | |
| - | | |
| - | | |
| 23,624 | |
Liabilities | |
| | | |
| | | |
| | | |
| | |
Derivative liability – warrants | |
| - | | |
| (23,365 | ) | |
| - | | |
| (23,365 | ) |
Total assets measured and recorded at fair value | |
$ | 2,102,231 | | |
($ | 23,365 | ) | |
$ | - | | |
$ | 2,078,866 | |
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(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, 2021, the lease was extended for a further 12 months. This facility
comprises approximately 190 square metres. The renewal of this lease is uncertain, hence 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 expects this lease to continue, therefore 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:
Schedule of Lessee, Operating Lease, Liability, Maturity
| |
| |
2022 | |
$ | 37,673 | |
2023 | |
| 50,772 | |
2024 | |
| 12,766 | |
The
Company paid rent expense totaling $33,935 for the quarter ended March 31, 2022 (March 31, 2021 - $32,419).
The
Company has the following management consulting agreements with related parties.
Schedule
of Consulting Agreement With Related Parties
Company | |
Person | |
Role | |
Annual amount | |
T.M. Williams (ROW), Inc. | |
T. M. Williams | |
Executive Chairman | |
$ | 160,000 | |
Jayska Consulting Ltd. | |
J. M. Williams | |
Co-CEO | |
| GBP£60,000 | |
LVA Media Inc. | |
J. M. Williams | |
Co-CEO | |
$ | 90,000 | |
Bromley Accounting Services Ltd. | |
H. W. Bromley | |
CFO | |
| CAD$215,000 | |
Farcast Operations Inc. | |
T. H. Williams | |
VP Product | |
| CAD$240,000 | |
As
at March 31, 2022, the Company had a number of renewable license commitments with large brands, including, Mr. Men and Little Miss and
Mr. Bean. These agreements have commitments to pay royalties on the revenue from the licenses subject to the minimum guarantee payments.
As at March 31, 2022, there were no further minimum guarantee payments commitments.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
11.
Commitments: (Continued)
The
Company expensed the minimum guarantee payments over the life of the agreement and recognized license expense of $4,067 (March 31, 2021
- $8,814) for the quarter ended March 31, 2022.
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. 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 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:
Schedule
of Right-of-use Assets
| |
March 31, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Opening balance for the period | |
$ | 65,464 | | |
$ | 106,315 | |
Amortization of operating lease right-of use assets | |
| (7,403 | ) | |
| (40,851 | ) |
Closing balance for the period | |
$ | 58,061 | | |
$ | 65,464 | |
The
operating lease as at March 31, 2022, is summarized as follows:
Lessee,
Operating Lease, Liability, Maturity
As at March 31, 2022 | |
Operating lease-
Office lease | |
| |
| |
2022 | |
$ | 26,093 | |
2023 | |
| 35,666 | |
2024 | |
| 8,239 | |
Total lease payments | |
$ | 69,998 | |
Less: Interest | |
| (2,970 | ) |
Present value of lease liabilities | |
$ | 67,028 | |
| |
| | |
Amounts recognized on the balance sheet | |
| | |
Current lease liabilities | |
$ | 32,606 | |
Long-term lease liabilities | |
| 34,422 | |
| |
| | |
Total lease payments | |
$ | 67,028 | |
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
12. Right of use assets: (Continued)
Schedule
of Operating Lease Liability
| |
March 31, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Opening balance for the period | |
$ | 74,067 | | |
$ | 103,918 | |
Payments on operating lease liabilities | |
| (7,039 | ) | |
| (29,851 | ) |
Closing balance for the period | |
| 67,028 | | |
| 74,067 | |
Less: current portion | |
| (32,606 | ) | |
| (32,068 | ) |
Operating lease liabilities – non-current portion as at end of period | |
$ | 34,422 | | |
$ | 41,999 | |
13.
Related party transactions:
For
the year ended March 31, 2022, the Company has the following related party transactions:
Schedule
of Related Party Transactions
| |
Three Months ended March 31, 2022 | | |
Three Months ended March 31, 2021 | |
Directors fees | |
$ | 1,000 | | |
$ | 2,000 | |
Salaries, wages, consultants and benefits | |
| 155,911 | | |
| 133,933 | |
Selling and marketing | |
| 30,454 | | |
| 20,148 | |
Stock-based compensation (Note 9) | |
| 64,847 | | |
| 30,311 | |
Content and software development (Note 7) | |
| 59,660 | | |
| 12,089 | |
Closing balance for the year | |
$ | 311,872 | | |
$ | 198,481 | |
The
Company has liabilities of $119,384 (December 31, 2021 - $53,829) as at March 31, 2022, to current directors, officers and companies
owned by the current directors and officers of the Company for employment, director and consulting fees.
During
the quarter ended March 31, 2022, the Company granted 900,000 options with an exercise price of CAD$0.50 ($0.39) per share.
During
the quarter ended March 31, 2021, the Company granted the 400,000 options with an exercise price of CAD$0.50 ($0.39) per share.
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
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.
Schedule
of Revenue By Geographical Region
| |
Three Months ended
March 31, 2022 | | |
Three Months ended
March 31, 2021 | |
Ad tech advertising revenue | |
| | | |
| | |
Western Europe | |
$ | 640,093 | | |
$ | 187,173 | |
Central, Eastern and Southern Europe | |
| 54,018 | | |
| 29,626 | |
North America | |
| 1,051,508 | | |
| 1,219,730 | |
Other | |
| 432,692 | | |
| 67,771 | |
| |
| | | |
| | |
Total ad tech advertising revenue | |
$ | 2,178,311 | | |
$ | 1,504,300 | |
| |
| | | |
| | |
Content revenue | |
| | | |
| | |
Western Europe | |
$ | 22,513 | | |
$ | 21,839 | |
Central, Eastern and Southern Europe | |
| 187 | | |
| 562 | |
North America | |
| 27,284 | | |
| 18,464 | |
Other | |
| 55,679 | | |
| 12,777 | |
| |
| | | |
| | |
Total content revenue | |
$ | 105,663 | | |
$ | 53,642 | |
| |
| | | |
| | |
Total revenue | |
| | | |
| | |
Western Europe | |
$ | 662,606 | | |
$ | 209,012 | |
Central, Eastern and Southern Europe | |
| 54,205 | | |
| 30,188 | |
North America | |
| 1,078,792 | | |
| 1,238,194 | |
Other | |
| 488,371 | | |
| 80,548 | |
| |
| | | |
| | |
Total revenue | |
$ | 2,283,974 | | |
$ | 1,557,942 | |
Equipment
The
Company’s equipment is located as follows:
Schedule
of Company Equipment
Net Book Value | |
March 31, 2022 | | |
December 31,
2021 | |
Anguilla | |
$ | 83 | | |
$ | 91 | |
Canada | |
| 9,061 | | |
| 8,542 | |
Israel | |
| 9,884 | | |
| 11,055 | |
United Kingdom | |
| 6,260 | | |
| 835 | |
| |
$ | 25,288 | | |
$ | 20,523 | |
Kidoz
Inc. and subsidiaries
(Expressed
in United States Dollars)
Notes
to Consolidated Financial Statements
Three
Months ended March 31, 2022 and 2021
(Unaudited)
15. Concentrations:
Major
customers
During
the quarter ended March 31, 2022 and 2021, 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, 2022, the Company had one Ad tech customers: $495,587 (March 31, 2021 – two customers: $651,402, and $441,787 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, 2022,
the Company had total cash and cash equivalents balances of $2,104,458 (December 31, 2021 - $2,102,231) at financial institutions, where
$1,771,178 (December 31, 2021 - $1,793,265) 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 March 31, 2022, the Company had one customer, totaling $1,741,348 who accounted for greater than 10% of the total accounts receivable.
As of December 31, 2021, the Company had three customers, totaling $1,952,040, $1,165,807, and $1,054,625 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.