Kidoz Inc 10-Q for FY2021 Q3
Kidoz Inc. (KDOZF)
About this 10-Q
Kidoz Inc filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.81M
- up 46.6% from $1.92M a year earlier
- Net loss
- $75.04K
- compared with net income of $116.63K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT |
For the transition period from __________________ to ___________________
Commission
File Number:
(Exact name of small business issuer as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(IRS
Employer Identification No.) |
(Address of principal executive offices)
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Toronto Venture Stock Exchange |
Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☐ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
APPLICABLE ONLY TO CORPORATE ISSUERS The number of outstanding shares of the Issuer’s common stock, no par value per share, was as of November 15, 2021.
KIDOZ INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
| PAGE | ||
| PART I - FINANCIAL INFORMATION | 2 | |
| ITEM 1. | Consolidated Financial Statements. | 2 |
| Consolidated Balance Sheets | 2 | |
| Consolidated Statements of Operations and Comprehensive Loss | 3 | |
| Consolidated Statements of Stockholders’ Equity | 4 | |
| Consolidated Statements of Cash Flows | 5 | |
| Notes to Consolidated Financial Statements | 6 | |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| ITEM 4. | Controls and Procedures. | 34 |
| PART II - OTHER INFORMATION | 36 | |
| ITEM 1. | Legal Proceedings | 36 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 36 |
| ITEM 3. | Defaults Upon Senior Securities | 36 |
| ITEM 4. | Submission of Matters to a Vote of Security Holders | 36 |
| ITEM 5. | Other Information | 36 |
| ITEM 6. | Exhibits and reports on Form 8-K | 37 |
| EXHIBITS | 37 | |
| SIGNATURES | 38 | |
| CERTIFICATIONS | ||
| Certification pursuant to 18 U.S.C. §1350, as adopted pursuant to section 906 of the Sarbanes-Oxley act of 2002 | ||
| Page 1 |
PART I - FINANCIAL INFORMATION
| ITEM 1. | Financial Statements. |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Consolidated Balance Sheets
(Unaudited)
| As at | September 30, 2021 | December 31, 2020 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, less allowance for doubtful accounts $ | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Equipment (Note 4) | ||||||||
| Goodwill (Note 6) | ||||||||
| Intangible assets (Note 5) | ||||||||
| Long term cash equivalent | ||||||||
| Operating lease right-of-use assets (Note 12) | ||||||||
| Security deposit | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accounts payable and accrued liabilities - related party (Note 13) | ||||||||
| Derivative liability – warrants (Note 2e and 9) | ||||||||
| Operating lease liabilities – current portion (Note 12) | ||||||||
| Total Current Liabilities | ||||||||
| Government CEBA loan (Note 8) | ||||||||
| Operating lease liabilities – non-current portion (Note 12) | ||||||||
| Total Liabilities | ||||||||
| Commitments (Note 11) | ||||||||
| Stockholders’ Equity (Note 9): | ||||||||
| Common stock, | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income: Foreign currency translation adjustment | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| Page 2 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Consolidated Statements of Operations and Comprehensive Loss
For Periods Ended September 30, 2021 and 2020
(Unaudited)
| Nine Months ended September 30, 2021 | Nine Months ended September 30, 2020 | Three Months ended September 30, 2021 | Three Months ended September 30, 2020 | |||||||||||||
| Revenue: | ||||||||||||||||
| Ad tech advertising revenue | $ | $ | $ | $ | ||||||||||||
| Content revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of sales: | ||||||||||||||||
| Total cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Amortization of operating lease right-of-use assets (Note 12) | ||||||||||||||||
| Depreciation and amortization (Notes 4 & 5) | ||||||||||||||||
| Directors fees (Note 13) | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Salaries, wages, consultants and benefits | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| Stock awareness program | ||||||||||||||||
| Stock-based compensation (Note 9) | ||||||||||||||||
| Content and software development (Note 7) | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| (Loss) Income before other income (expense) and income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense): | ||||||||||||||||
| Foreign exchange (loss) gain | ( | ) | ( | ) | ||||||||||||
| Gain on derivative liability – warrants (Note 2e) | ||||||||||||||||
| Interest and other income | ||||||||||||||||
| (Loss) Income before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax (expense) recovery | ( | ) | ||||||||||||||
| (Loss) Income after tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Other comprehensive income (loss) | ||||||||||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Basic and diluted (loss) income per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average common shares outstanding, basic | ||||||||||||||||
| Weighted average common shares outstanding, diluted | ||||||||||||||||
See accompanying notes to the consolidated financial statements.
| Page 3 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Consolidated Statements of Stockholders’ EQUITY
For the periods ended September 30, 2021 and 2020
(Unaudited)
| Nine-Month period Ended September 30, 2021 | ||||||||||||||||||||
| Common stock | Accumulated | Accumulated Other Comprehensive income Foreign currency translation | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Deficit | adjustment | Equity | ||||||||||||||||
| Balance, December 31, 2020 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Shares issued | ||||||||||||||||||||
| Shares issued, shares | ||||||||||||||||||||
| Options exercised | ||||||||||||||||||||
| Options exercised, shares | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Shares issued | ||||||||||||||||||||
| Options exercised | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2021 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Nine-Month period Ended September 30, 2020 | ||||||||||||||||||||
| Common stock | Accumulated | Accumulated Other Comprehensive income Foreign currency translation | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Deficit | adjustment | Equity | ||||||||||||||||
| Balance, December 31, 2019 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2020 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net loss and comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2020 | $ | $ | ( | ) | $ | $ | ||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Net income and comprehensive income | - | |||||||||||||||||||
| Net income (loss) | - | |||||||||||||||||||
| Balance, September 30, 2020 | $ | $ | ( | ) | $ | $ | ||||||||||||||
See accompanying notes to the consolidated financial statements.
| Page 4 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Consolidated Statements of Cash Flows
For the Nine month periods ended September 30, 2021 and 2020
(Unaudited)
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Gain on derivative liability – warrants | ( | ) | ||||||
| Shares issued for services | ||||||||
| Stock awareness program – warrants granted for services | ||||||||
| Stock-based compensation | ||||||||
| Unrealized foreign exchange loss | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisition of equipment | ( | ) | ( | ) | ||||
| Long-term cash equivalent | ||||||||
| Acquisition of right-of-use assets | ( | ) | ||||||
| Security deposits | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Options exercised | ||||||||
| Proceeds of short-term loan | ||||||||
| Repayment of short-term loan | ( | ) | ||||||
| Payments on operating lease liabilities | ( | ) | ( | ) | ||||
| Government CEBA loan | ||||||||
| Net cash provided by financing activities | ||||||||
| Change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplementary information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| Page 5 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 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 quarters
ended September 30, 2021 and 2020 and has an accumulated deficit of $
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 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.
| Page 6 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
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:
Schedule of Consolidation, Wholly Owned and Less than Wholly Owned Subsidiary, Parent Ownership Interest
| Company | Registered | % Owned | ||
| Shoal Media (Canada) Inc. | British Columbia, Canada | |||
| Coral Reef Marketing Inc. | Anguilla | |||
| Kidoz Ltd. | Israel | |||
| Rooplay Media Ltd. | British Columbia, Canada | |||
| Rooplay Media Kenya Limited | Kenya | |||
| Shoal Media Inc. | Anguilla | |||
| Shoal Games (UK) Plc | United Kingdom | |||
| Shoal Media (UK) Ltd. | United Kingdom |
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.
(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,
| Page 7 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 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 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.
| Page 8 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(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 (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
Nine Months ended September 30, 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 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) 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 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.
| Page 10 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
| 2. | Summary of significant accounting policies (Continued): |
(d) Software development costs:
The Company expensed all software development costs as incurred for the period ended September 30, 2021 and 2020. As at September 30, 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 September 30, 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 $
(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.
A
fair value of the derivative liability of $
Schedule of fair value estimated
| September 30, 2021 | April 1, 2021 | |||||||
| Exercise price | CAD$ | CAD$ | ||||||
| Stock price | CAD$ | CAD$ | ||||||
| Expected term | years | years | ||||||
| Expected dividend yield | - | - | ||||||
| Expected stock price volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Page 11 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
| 2. | Summary of significant accounting policies (Continued): |
(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 | ||
| Kidoz OS technology | ||
| Customer relationship |
(g) 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 determined there was no impairment of the goodwill.
(h) 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 concluded that the adoption did not have a material impact on these unaudited interim condensed consolidated financial statements.
| Page 12 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
| 2. | Summary of significant accounting policies (Continued): |
| (h) | New accounting pronouncements and changes in accounting policy: (Continued) |
There have been no other recent accounting standards, or changes in accounting standards, during the period ended September 30, 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.
(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.
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.
| Page 13 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
| 2. | Summary of significant accounting policies (Continued): |
| (i) | Financial instruments and fair value measurements: (Continued) |
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:
The accounts receivable as at September 30, 2021, is summarized as follows:
Schedule of Accounts, Notes, Loans and Financing Receivable
| September 30, 2021 | December 31, 2020 | |||||||
| Accounts receivable | $ | $ | ||||||
| Expected credit losses | ( | ) | ( | ) | ||||
| Net accounts receivable | $ | $ | ||||||
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 $
| Page 14 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
4. Equipment:
Schedule of Property, Plant and Equipment
| September 30, 2021 | Cost | Accumulated depreciation | Net book Value | |||||||||
| Equipment and computers | $ | $ | $ | |||||||||
| Furniture and fixtures | ||||||||||||
| $ | $ | $ | ||||||||||
| December 31, 2020 | Cost | Accumulated depreciation | Net book Value | |||||||||
| Equipment and computers | $ | $ | $ | |||||||||
| Furniture and fixtures | ||||||||||||
| $ | $ | $ | ||||||||||
Depreciation
expense was $
5. Intangible assets:
Schedule of Finite-Lived Intangible Assets
| September 30, 2021 | Cost | Accumulated depreciation | Net book Value | |||||||||
| Ad Tech technology | $ | $ | $ | |||||||||
| Kidoz OS technology | ||||||||||||
| Customer relationship | ||||||||||||
| $ | $ | $ | ||||||||||
| December 31, 2020 | Cost | Accumulated amortization | Net book Value | |||||||||
| Ad Tech technology | $ | $ | $ | |||||||||
| Kidoz OS technology | ||||||||||||
| Customer relationship | ||||||||||||
| $ | $ | $ | ||||||||||
Amortization
expense was $
6. Goodwill:
The changes in the carrying amount of goodwill for the period ended September 30, 2021, and the year ended December 31, 2020 were as follows:
Schedule of Goodwill
| September 30, 2021 | December 31, 2020 | |||||||
| Goodwill, balance at beginning of period | $ | $ | ||||||
| Impairment of goodwill | ||||||||
| Goodwill, balance at end of period | $ | $ | ||||||
| Page 15 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
6. Goodwill: (Continued)
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 $
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.
During the period ended September 30, 2021, the Company has expensed the development costs of all its technology as incurred and has expensed the following software development costs.
Schedule of Expense of Development Costs
| Nine Months ended September 30, 2021 | Nine Months ended September 30, 2020 | Three Months ended September 30, 2021 | Three Months ended September 30, 2020 | |||||||||||||
| Opening total software development costs | $ | $ | $ | $ | ||||||||||||
| Software development during the period | ||||||||||||||||
| Closing total Software development costs | $ | $ | $ | $ | ||||||||||||
8. Government CEBA loan:
During
the year ended December 31, 2020, the Company was granted a loan of $
During
the quarter ended March 31, 2021, the Company drew $
| Page 16 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
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 stock issuances during the quarter ended September 30, 2021.
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 $
During the quarter ended June 30, 2021, the holder of stock options exercised their options for shares for $ at an average exercise price of $ (CAD$) per share.
There were shares issued during the year ended December 31, 2020.
| (b) | Warrants |
A summary of warrant activity for the quarter ended September 30, 2021 are as follows:
Schedule of warrant activity
| Number of options | Exercise price | Expiry date | ||||||||
| Outstanding, December 31, 2020 | $ | |||||||||
| Granted | ||||||||||
| Outstanding September 30, 2021 | ||||||||||
| (c) | Stock option plans: |
2015 stock option plan
In the year ended December 31, 2015, the shareholders approved the 2015 stock option plan and the 1999, 2001 and the 2005 plans were discontinued. The 2015 stock option plan is intended to provide incentive to employees, directors, advisors and consultants of the Company to encourage proprietary interest in the Company, to encourage such employees to remain in the employ of the Company or such directors, advisors and consultants to remain in the service of the Company, and to attract new employees, directors, advisors and consultants with outstanding qualifications. The maximum number of shares issuable under the Plan shall not exceed 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 . 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.
| Page 17 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
| 9. | Stockholders’ equity: (Continued) |
| (c) | Stock option plans: (Continued) |
During the quarter ended September 30, 2021, the Company granted options at CAD$ ($)
During the quarter ended June 30, 2021, the Company granted options at CAD$ ($)
During the quarter ended March 31, 2021, the Company granted options at CAD$ ($)
During the year ended December 31, 2020, the Company granted options at CAD$ ($).
Number of options | Weighted average exercise price | |||||||
| Outstanding December 31, 2019 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Cancelled | ( | ) | ( | ) | ||||
| Outstanding, December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ( | ) | ||||
| Cancelled | ( | ) | ( | ) | ||||
| Outstanding September 30, 2021 | $ | |||||||
The
aggregate intrinsic value for options as of September 30, 2021 was $
Schedule of Share-based Payment Arrangement, Option, Exercise Price Range
Exercise prices per share | Number outstanding | Number exercisable | Expiry date | |||||||||
| CAD$ | ||||||||||||
| CAD$ | ||||||||||||
| CAD$ | ||||||||||||
| CAD$ | ||||||||||||
| CAD$ | ||||||||||||
| CAD$ | ||||||||||||
| US$ | ||||||||||||
| CAD$ | ||||||||||||
| Page 18 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
9. Stockholders’ equity: (Continued)
| (c) | Stock option plans: (Continued) |
During the quarter ended September 30, 2021, the Company recorded stock-based compensation of $ on the options granted and vested (September 30, 2020 – $) and as per the Black-Scholes option-pricing model, with a weighted average fair value per option of $ (September 30, 2020 - $).
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 September 30, 2021 | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash | $ | $ | - | $ | - | $ | ||||||||||
| Long term cash equivalent | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Derivative liability – warrants | ( | ) | ( | ) | ||||||||||||
| Total net assets measured and recorded at fair value | $ | $ | ( | ) | $ | $ | ||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| As at December 31, 2020 | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash | $ | $ | - | $ | - | $ | ||||||||||
| Long term cash equivalent | ||||||||||||||||
| Total assets measured and recorded at fair value | $ | $ | $ | $ | ||||||||||||
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
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
| Page 19 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
| 11. | Commitments: (Continued) |
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:
Schedule of Lessee, Operating Lease, Liability, Maturity
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 |
The
Company paid rent expense totaling $
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 $
During
the year ended December 31, 2014, the Company entered into an agreement with Jayska Consulting Ltd. and Mr. J. M. Williams, Chief Executive
Officer of the Company for the provision of services of Mr. J. M. Williams as Chief Executive Officer of the Company. The Consulting
agreement provides for a consultancy payment of GBP£
The
Company expensed the minimum guarantee payments over the life of the agreement and recognized license expense of $
12. Right of use assets:
There
is no discount rate implicit in the Anguilla office operating lease agreement, so the Company estimated a
Effective
April 1, 2019, we recognized lease assets and liabilities of $
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.
| Page 20 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
| 12. | Right of use assets: (Continued) |
The right-of-use assets are summarized as follows:
Schedule of Right-of-use Assets
| September 30, 2021 | December 31, 2020 | |||||||
| Opening balance for the period | $ | $ | ||||||
| Capitalization of additional license leases | ||||||||
| Amortization of operating lease right-of use assets | ( | ) | ( | ) | ||||
| Closing balance for the period | $ | $ | ||||||
The operating lease as at September 30, 2021, is summarized as follows:
Schedule of Lessee, Operating Lease
| As at September 30, 2021 | Operating lease- Office lease | |||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total lease payments | $ | |||
| Less: Interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| Amounts recognized on the balance sheet | ||||
| Current lease liabilities | $ | |||
| Long-term lease liabilities | ||||
| Total lease payments | $ | |||
Schedule of Operating Lease Liability
| September 30, 2021 | December 31, 2020 | |||||||
| Opening balance for the period | $ | $ | ||||||
| Payments on operating lease liabilities | ( | ) | ( | ) | ||||
| Closing balance for the period | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Operating lease liabilities – non-current portion as at end of period | $ | $ | ||||||
13. Related party transactions:
The
Company has a liability of $
| Page 21 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
13. Related party transactions: (Continued)
The
Company has a liability of $
The
Company has a liability of $
The
Company has a liability of $
The
Company has a liability of $
The
Company has a liability of $
The
Company has a liability of $
The
Company has a liability of $ (December 31, 2020 - $), to an officer of the Company for payment of consulting fees and expenses
incurred of $
During the quarter ended September 30, 2021, the Company incurred stock-based compensation expense of $ (September 30, 2020 - $) 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.
| Page 22 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(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 from External Customers and Long-Lived Assets, by Geographical Areas
| Nine Months ended September 30, 2021 | Nine Months ended September 30, 2020 | Three Months ended September 30, 2021 | Three Months ended September 30, 2020 | |||||||||||||
| Ad tech advertising revenue | ||||||||||||||||
| Western Europe | $ | $ | $ | $ | ||||||||||||
| North America | ||||||||||||||||
| Other | ||||||||||||||||
| Total ad tech advertising revenue | $ | $ | $ | $ | ||||||||||||
| Nine Months ended September 30, 2021 | Nine Months ended September 30, 2020 | Three Months ended September 30, 2021 | Three Months ended September 30, 2020 | |||||||||||||
| Content revenue | ||||||||||||||||
| Western Europe | $ | $ | $ | $ | ||||||||||||
| Central, Eastern and Southern Europe | ||||||||||||||||
| North America | ||||||||||||||||
| Other | ||||||||||||||||
| Total content revenue | $ | $ | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||||
| Western Europe | $ | $ | $ | $ | ||||||||||||
| Central, Eastern and Southern Europe | ||||||||||||||||
| North America | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Equipment
The Company’s equipment is located as follows:
Schedule of Long-lived Assets by Geographic Areas
| Net Book Value | September 30, 2021 | December 31, 2020 | ||||||
| Anguilla | $ | $ | ||||||
| Canada | ||||||||
| Israel | ||||||||
| United Kingdom | ||||||||
| $ | $ | |||||||
| Page 23 |
Kidoz Inc. and subsidiaries
(Expressed in United States Dollars)
Notes to Consolidated Financial Statements
Nine Months ended September 30, 2021 and 2020
(Unaudited)
15. Concentrations:
Major customers
During
the quarter ended September 30, 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 September 30, 2021, the Company had two Ad tech customers: $
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 September 30,
2021, the Company had total cash and cash equivalents balances of $
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 September 30, 2021, the Company had two customers, totaling $
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 |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis or Plan of Operation contains forward-looking statements that involve risks and uncertainties, as described below. Kidoz Inc’s (the “Company”, “we”, or “us”) actual results could differ materially from those anticipated in these forward-looking statements. The following discussion should be read in conjunction with the unaudited interim consolidated financial statements and notes thereto included in Part I - Item 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and the Management Discussion and Analysis or plan of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
FORWARD LOOKING STATEMENTS
All statements contained in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference, as well as statements made in press releases and oral statements that may be made by us or by officers, directors or employees acting on our behalf, that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. Readers should consider statements that include the terms “believe,” “belief,” “expect,” “plan,” “anticipate,” “intend” or the like to be uncertain and forward-looking. In addition, all statements, trends, analyses and other information contained in this report relative to trends in net sales, gross margin, anticipated expense levels and liquidity and capital resources, constitute forward-looking statements. Particular attention should be paid to the facts of our limited operating history, the unpredictability of our future revenues, our need for and the availability of capital resources, the evolving nature of our business model, and the risks associated with systems development, management of growth and business expansion. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. Readers should consider the risks more fully described in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Toronto Venture Stock Exchange on SEDAR and the Securities and Exchange Commission (the “SEC”) and should not place undue reliance on any forward-looking statements.
| Page 25 |
OVERVIEW
Kidoz Inc. (TSXV:KIDZ) owns the leading Children’s Online Privacy Protection Rule (“COPPA”) & General Data Protection Regulation (“GDPR”) compliant contextual mobile advertising network that safely reaches hundreds of million kids, teens, and families every month. Google certified and Apple approved, Kidoz provides an essential suite of advertising technology that unites brands, content publishers and families. Trusted by Disney, Hasbro, Lego and more, the Kidoz Contextual Ad Network helps the world’s largest brands to safely reach and engage kids across thousands of mobile apps, websites and video channels. The Kidoz network does not use location or Personally Identifiable Information (“PII”) data tracking commonly used in digital advertising. Instead, Kidoz has developed advanced contextual targeting tools to enable brands to reach their ideal customers with complete brand safety. A focused AdTech solution provider, the Kidoz SDK and Kidoz Programmatic network have become essential products in the digital advertising ecosystem. Our commitment to advertising privacy and safety has created one of the fastest growing mobile networks in the world.
Kidoz is the market leader in contextual mobile advertising and the segment is only beginning to develop as new rules and stricter regulations are enacted and enforced by Google, Apple, and governments around the world. Kidoz builds and maintains the Kidoz SDK (Software Development Kit) that app developers install into their apps before releasing them into the App Stores. The Kidoz SDK is the core of the advertising technology that enables Kidoz to access advertising impressions available for sale. The Kidoz proprietary advertising system is compliant with COPPA, GDPR-K and other regulations adopted to protect the privacy and security of minors. The Kidoz proprietary advertising technology is installed in thousands of different apps, making it the most popular contextual mobile solution in the market.
Kidoz has established its leadership position through continued investments into research and development. As the challenge is now to increase the speed of our revenue growth, Kidoz has upgraded its advertising systems to be compatible with the latest IAB specifications for real-time-bidding, header bidding, and server-to-server direct connections. Our design of these upgrades incorporates a view to their utilization, not only in the kid’s marketplace but to the entire advertising market. The technical upgrades to the Kidoz platform increase the value we offer to our publishing partners and increase the reach and performance we provide to Kidoz advertisers. Essentially, we have built the necessary foundation to advance the capabilities of our technology to handle more types of mobile advertising and thereby significantly increase the size of our addressable market.
Driving our revenue growth is strong underlying system growth for both users and publishers that are accessing the Kidoz technology. Media budgets continue to shift from linear TV to digital platforms like Kidoz as brands seek to engage their customers where kids spend most of their screen time. As mobile penetration among kids continues to increase, the global usage of mobile is steadily increasing. In addition, regulation at the government level is positively influencing growth of the KIDOZ Safe Ad Network. COPPA in America and GDPR in Europe have forced advertisers and publishers to ensure their data and advertising methodologies are safe. Regulators in America are updating COPPA to further enhance child safety online, and regulators in China, India and other regions are considering similar measures. As Kidoz is compliant, the Company benefits from all child-safe advertising regulation.
Building on Kidoz’s high-growth performance in 2020 and the first half of 2021, management plans to continue to invest in similar growth strategies in the fourth quarter of 2021 and throughout 2022. Our sales, product, and operational strategies are custom fit to match the favourable regulatory, consumer, and technological trends occurring in the market. Kidoz is actively recruiting the biggest and most successful apps in the world to offer our technology to their kids audiences for monetization. Each time a new app adopts our technology, our advertising inventory increases and we offer increased value to our advertising partners. The Company is developing technology to access a wider range of app inventory so that we can continue to increase Kidoz’s capabilities and significance in the market.
| Page 26 |
Furthermore, while the focus of the Company is the development and expansion of the Kidoz Safe Ad Network, we are developing our technology to expand into new markets, increase the scope of our market to include teens and families in a safe and secure manner either through new connections to the wider mobile advertising market, including the introduction and operation of our programmatic system, or via synergistic M&A.
Kidoz’s mobile products include the Kid Mode Operating System installed on millions of OEM tablets worldwide, Rooplay (www.rooplay.com) the cloud-based EduGame system for kids to learn and play, Garfield’s Bingo (www.garfieldsbingo.com) live on Android, and iOS; and Trophy Bingo (www.trophybingo.com), live across mobile platforms.
References in this document to “the Company,” “we,” “us,” and “our” refer to Kidoz Inc.
Our executive offices are located at Hansa Bank Building, Ground Floor, Landsome Road, The Valley, AI 2640, The Valley, Anguilla, B.W.I. Our telephone number is (888) 374-2163.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which except for lack of all detailed note disclosures, have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these judgments and estimates, including whether there are any uncertainties as to compliance with the revenue recognition criteria described below, and recoverability of long-lived assets, as well as the assessment as to whether there are contingent assets and liabilities that should be recognized or disclosed for the consolidated financial statements to fairly present the information required to be set forth therein. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We consider the following accounting policies to be both those most important to the portrayal of our financial condition and require the most subjective judgment:
- Revenue recognition;
- Software development
- Impairment of long-lived assets
- Goodwill
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.
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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.
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.
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2) Content revenue – The Company recognizes content revenue on the following forms of revenue:
a) Carriers and OEMs - The Company generally offers these services under a customer contract per tablet device license fee model with OEMs. Monthly or quarterly license fees are based on the OEM agreement with the number of devices the Kidoz Kid Mode is installed upon.
b) Rooplay - The Company generates revenue through subscriptions or premium sales of Rooplay, (www.rooplay.com) the cloud-based EduGame system for kids to learn and play within its games on smartphones and tablet devices, such as Apple’s iPhone and iPad, and mobile devices utilizing Google’s Android operating system. Users can download the Company’s games through Digital Storefronts and decide to subscribe to the multiple of educational and fun games in the Rooplay, cloud-based EduGame system or make a premium per purchase of particular games. The revenue is recognized net of platform fees.
c) Rooplay licensing - The Company licenses 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) 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.
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The Company also has relationships with certain advertising service providers for advertisements within smartphone games and revenue from these advertising providers is generated through impressions, clickthroughs, banner ads, and offers. Offers are the type of advertisements where the players are rewarded with virtual currency for completing specified actions, such as downloading another application, watching a short video, subscribing to a service or completing a survey. The Company has determined the advertising buyer to be its customer and displaying the advertisements within the mobile games is identified as the single performance obligation. Revenue from advertisements and offers are recognized at the point-in-time the advertisements are displayed in the game or the offer has been completed by the user as the customer simultaneously receives and consumes the benefits provided from these services.
Software Development Costs
The Company expensed all software development costs as incurred for the period ended September 30, 2021 and 2020. As at September 30, 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 September 30, 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 $10,061,651 as at September 30, 2021 (December 31, 2020 - $8,880,753).
Impairment of Long-lived Assets
The Company accounts for long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment and ASC 350, Intangibles-Goodwill and Others. During the periods presented, the only long-lived assets reported on the Company’s consolidated balance sheet are equipment, and security deposits. These provisions require that long-lived assets and certain identifiable recorded intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount and the fair value less costs to sell.
The Company identified the following intangible assets in the acquisition of Kidoz Ltd. 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 |
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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.
RESULTS OF OPERATIONS
Revenue
Total revenue, net of platform fees (to Apple, Google and Amazon) and withholding taxes, for the quarter ended September 30, 2021, increased to $2,814,642, an increase of 47% from revenue of $1,919,973 for the third quarter of 2020 and an increase of 29% from revenue of $2,177,505 for the second quarter of 2021. Ad Tech advertising revenue increased to $2,759,508 for the quarter ended September 30, 2021, an increase of 53% from ad tech advertising revenue of $1,809,169 in the third quarter of 2020 and an increase of 30% from Ad tech revenue of $2,120,500 for the second quarter of 2021. Content revenue decreased to $55,134, for the quarter ended September 30, 2021, a decrease of 50% from revenue of $110,804 in the third quarter of 2020 and a decrease of 3% from Content revenue of $57,005 for the second quarter of 2021. The increase in total revenue compared to the third quarter of fiscal 2020 and the second quarter of fiscal 2021 is due to the ongoing shift from TV advertising to mobile advertising and the strong demand for kid safe advertising generated by the introduction of strong regulations worldwide.
Selling and marketing expenses
Selling and marketing expenses were $156,122 for the quarter ended September 30, 2021, an increase of 85% over expenses of $84,507 in the third quarter of fiscal 2020 and a decrease of 14% over expenses of $181,144 in the second quarter of fiscal 2021. This increase in sales and marketing expenses in the quarter ended September 30, 2021, compared to the third quarter of fiscal 2020, is due to an increase in sales and marketing staff. The decrease compared to the second quarter of fiscal 2021 is due to one-time bonuses paid in the second quarter of fiscal 2021 to our sales staff in recognition of their dedicated service during the stressful COVID-19 period.
We expect to incur increased sales and marketing expenses in selling the Ad tech advertising and to grow the Ad tech advertising revenue. There can be no assurances that these expenditures will result in increased traffic or significant additional revenue.
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General and administrative expenses
General and administrative expenses consist primarily of premises costs for our offices, legal and professional fees, and other general corporate and office expenses. General and administrative expenses increased to $145,765 for the quarter ended September 30, 2021, an increase of 17% from costs of $124,245 for the third quarter of fiscal 2020, and a decrease of 12% from costs of $166,361 for the second quarter of fiscal 2021. The increase in general and administrative expenses compared to the third quarter of fiscal 2020 is due an increase in recruiting fees to hire additional employees. The decrease in general and administrative expenses compared to the second quarter of fiscal 2021, is due a decrease in fees paid to our professional advisors.
We expect to continue to incur general and administrative expenses to support the business, and there can be no assurances that we will be able to generate sufficient revenue to cover these expenses.
Stock awareness program
During the quarter ended June 30, 2021 the Company commenced a corporate stock awareness program. The Company engaged Research Capital Corporation, Agora Internet Relations Corp., Stockhouse Publishing Ltd. and Proactive for financial and capital markets advisory services and to assist with general market outreach to increase investor awareness as the Company continues to achieve important milestones and grow its investor base.
The Company incurred stock awareness expenses of $65,392 during the quarter ended September 30, 2021.
Salaries, wages, consultants and benefits
Salaries, wages, consultants, and benefits increased to $123,381 for the quarter ended September 30, 2021, an increase of 47% compared to salaries, wages, consultants, and benefits of $84,003 in the third quarter of 2020 and a decrease of 52% compared to salaries, wages, consultants, and benefits of $256,336 in the second quarter of 2021. This increase compared to the third quarter of fiscal 2020 is due to the resumption of full salaries in Q3 2021 compared to a reduction in salaries in Q3 2020 as a result of COVID-19. The decrease compared to the second quarter of fiscal 2021 is primarily due to one-time bonuses paid in the second quarter of fiscal 2021 in recognition of their dedicated service during the stressful COVID-19 period.
Depreciation and amortization
Intangible assets are amortized using a straight-line method over three to eight years. These intangible assets include customer lists, the technology for Kidoz OS and the software development kits (SDK) for our advertising platform. These intangible assets are as result of the acquisition of Kidoz Ltd. The amortization for the quarter ended September 30, 2021 and 2020 and the quarter ended June 30, 2021, was $139,018.
Equipment is depreciated using the declining balance method over the useful lives of the assets, ranging from three to five years. Depreciation and amortization decreased to $2,308, during the quarter ended September 30, 2021, an increase over costs of $1,667 during the same quarter in the prior year and an increase over costs of $2,079 in the second quarter of fiscal 2021. This decrease in depreciation and amortization compared to the third quarter of fiscal 2020 is due to the aging of equipment. The increase in compared to the second quarter of fiscal 2021, is due the acquisition of new equipment.
Content and software development
The Company does not capitalize its development costs. The Company expensed $477,559 in content and software development costs during the quarter ended September 30, 2021, an increase of 71% compared to content and software development costs of $279,364 expensed during the third quarter of fiscal 2020 and an increase of 30% compared to content and software development costs of $366,046 expensed during the second quarter of fiscal 2021. The increase in development costs compared to the third quarter of fiscal 2020 and the second quarter of fiscal 2021 is due to hiring additional development staff to increase the development of our base technology.
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Stock-based compensation expense
During the quarter ended September 30, 2021, the Company incurred non-cash stock-based compensation expenses of $178,763 from the issuance of stock options granted in fiscal 2021, an increase compared to stock-based compensation expense of $73,614 in the third quarter of fiscal 2020 and a decrease compared to stock-based compensation expense of $192,585 in the second quarter of fiscal 2021. The increase compared to the third quarter of fiscal 2020 is due to the granting of stock options in fiscal 2021. The decrease compared to the second quarter of fiscal 2021, is due to vested options granted in the second quarter of fiscal 2021. The options are issued to consultants and employees as per the Company’s amended 2015 Stock Option Plan.
Net loss and loss per share
The net loss after taxation for the quarter ended September 30, 2021, amounted to ($75,040), a loss of ($0.00) per share, compared to a net income of $116,634 or $0.00 per share in the quarter ended September 30, 2020 and compared to a net loss of ($545,077) or ($0.00) per share in the quarter ended June 30, 2021. This increase in net loss for the quarter compared to the third quarter of fiscal 2020, is due to the salary reductions instituted in fiscal 2020 in salaries as a result of COVID-19. The decrease in net loss from the second quarter of fiscal 2021 is due to the initiation of the stock awareness program and one-time bonuses paid to our staff and consultants in the second quarter of fiscal 2021 in recognition of their dedicated service during the stressful COVID-19 period.
Adjusted earnings before interest; depreciation and amortization; stock awareness program; stock-based compensation and impairment of goodwill (“Adjusted EBITDA”) for the period ended September 30, 2021, amounted to $265,984, a decrease of 20%, compared to an Adjusted EBITDA of $330,852 in the period ended September 30, 2020 and an increase compared to an Adjusted EBITDA of $16,484 in the second quarter of fiscal 2021.
Our Adjusted EBITDA is reconciled as follows:
| Nine Months ended September 30, 2021 | Nine Months ended September 30, 2020 | Three Months ended September 30, 2021 | Three Months ended September 30, 2020 | |||||||||||||
| (Loss) Income after tax | $ | (967,161 | ) | $ | (648,689 | ) | $ | (75,040 | ) | $ | 116,634 | |||||
| Less : | ||||||||||||||||
| Depreciation and amortization | 424,255 | 423,437 | 141,326 | 140,685 | ||||||||||||
| Stock awareness program | 296,865 | - | 33,539 | - | ||||||||||||
| Stock-based compensation | 448,369 | 84,004 | 178,763 | 73,614 | ||||||||||||
| Gain on derivative liability – warrants | (50,313 | ) | - | (12,329 | ) | - | ||||||||||
| Interest and other income | (266 | ) | (872 | ) | (266 | ) | (81 | ) | ||||||||
| Income tax expense | 2,989 | - | (9 | ) | - | |||||||||||
| Adjusted EBITDA | $ | 154,738 | $ | (142,120 | ) | $ | 265,984 | $ | 330,852 | |||||||
We use Adjusted EBITDA internally to evaluate our performance and make financial and operational decisions that are presented in a manner that adjusts from their equivalent GAAP measures or that supplement the information provided by our GAAP measures. Adjusted EBITDA is defined by us as EBITDA (net income (loss) plus depreciation expense, amortization expense, interest, stock-based compensation and impairment of goodwill), further adjusted to exclude certain non-cash expenses and other adjustments. We use Adjusted EBITDA because we believe it more clearly highlights business trends that may not otherwise be apparent when relying solely on GAAP financial measures, since Adjusted EBITDA eliminates from our results specific financial items that have less bearing on our core operating performance.
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Adjusted EBITDA is not presented in accordance with, or as an alternative to, GAAP financial measures and may be different from non-GAAP measures used by other companies. These non-GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”). We encourage investors to review the GAAP financial measures included in this Quarterly Report, including our consolidated financial statements, to aid in their analysis and understanding of our performance and in making comparisons.
LIQUIDITY AND CAPITAL RESOURCES
We had cash of $1,190,008 and working capital of $3,197,215 at September 30, 2021. This compares to cash of $1,226,045 and working capital of $3,071,545 as at December 31, 2020.
During the Nine months ended September 30, 2021, we used cash of $45,247 in operating activities compared to cash provided in operating activities of $171,612 in the same period in the prior year.
During the Nine months ended September 30, 2021, we used cash in investing activities of ($78) compared to cash used in investing activities of ($9,632) in the same period in the prior year.
Net cash provided by financing activities was $9,288 in the Nine months ended September 30, 2021. This compares to cash provided by financing activities of $7,807 in the same period in the prior year.
Our future capital requirements will depend on a number of factors, including the revenues from the Ad tech business; the revenues from the Kidoz OS license fees; the revenues from the content platforms and games; the costs associated with the further development of the Ad tech advertising business, the further development of the content platform including, Rooplay; Rooplay Originals; Shoal.js; Garfield’s Bingo and Trophy Bingo; the cost of sales and marketing of the Ad tech business, the Kidoz OS license fees and player acquisition costs for Rooplay; Rooplay Originals; Garfield’s Bingo and Trophy Bingo, the development of new products, the acquisition of new companies and the success of Rooplay; Rooplay Originals; Garfield’s Bingo and Trophy Bingo.
| ITEM 4 | Controls and Procedures |
| (a) | Evaluation of disclosure controls and procedures. |
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Co-Chief Executive Officers and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2021. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, the Company’s management was required to apply its reasonable judgment. Furthermore, in the course of this evaluation, management considered certain internal control areas, in which we have made and are continuing to make changes to improve and enhance controls. Based upon the required evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of September 30, 2021, the Company’s disclosure controls and procedures were effective (at the “reasonable assurance” level mentioned above) to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
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From time-to-time, the Company and its management have conducted and will continue to conduct further reviews and, from time to time put in place additional documentation, of the Company’s disclosure controls and procedures, as well as its internal control over financial reporting. The Company may from time to time make changes aimed at enhancing their effectiveness, as well as changes aimed at ensuring that the Company’s systems evolve with, and meet the needs of, the Company’s business. These changes may include changes necessary or desirable to address recommendations of the Company’s management, its counsel and/or its independent auditors, including any recommendations of its independent auditors arising out of their audits and reviews of the Company’s financial statements. These changes may include changes to the Company’s own systems, as well as to the systems of businesses that the Company has acquired or that the Company may acquire in the future and will, if made, be intended to enhance the effectiveness of the Company’s controls and procedures. The Company is also continually striving to improve its management and operational efficiency and the Company expects that its efforts in that regard will from time to time directly or indirectly affect the Company’s disclosure controls and procedures, as well as the Company’s internal control over financial reporting.
| (b) | Changes in internal controls. |
There were no significant changes in the Company’s internal controls or other factors that could significantly affect the Company’s internal controls subsequent to the date of their evaluation.
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PART II - OTHER INFORMATION
| ITEM 1. | Legal Proceedings |
We are not currently a party to any legal proceeding and was not a party to any other legal proceeding during the quarter ended September 30, 2021. We are currently not aware of any other legal proceedings proposed to be initiated against the Company. However, from time to time, we may become subject to claims and litigation generally associated with any business venture.
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
There were no stock issuances during the quarter ended September 30, 2021.
During the quarter ended June 30, 2021, the Company issued 230,000 common shares to Research Capital Corporation (“RCC”) as payment for the financial and capital markets advisory services. 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 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.
| ITEM 3. | Defaults Upon Senior Securities |
Not applicable.
| ITEM 4. | Submission of Matters to a Vote of Security Holders |
There were no matters submitted to the shareholders during the period.
| ITEM 5. | Other Information |
None
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| ITEM 6. | Exhibits and reports on Form 8-K |
Exhibits
The following instruments are included as exhibits to this Report. Exhibits incorporated by reference are so indicated.
(a) Previously filed with the Registrant’s registration statement on Form 10 on June 9, 1999.
(b) Previously filed with the Company’s quarterly report on Form 10-Q for the period ended September 30, 2002, on November 14, 2002.
(c) Previously filed with the Company’s quarterly report on Form 10-Q for the period ended September 30, 2002, on August 14, 2002.
(d) Previously filed with the Company’s report on Form 8-K on December 26, 2006.
(e) Previously filed with the Company’s report on Form 8-K on June 17, 2010.
(f) Previously filed with the Company’s report on Form 8-K on March 24, 2014.
(g) Previously filed with the Company’s report on Form 8-K on March 12, 2019.
Reports on Form 8-K.
There were no reports issued during the quarter ended September 30, 2021.
Reports Subsequent to the quarter ended September 30, 2021.
There were no reports subsequent to the quarter ended September 30, 2021.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: | November 15, 2021 | KIDOZ INC. | |
|
(Registrant) | ||
| Date: | November 15, 2021 | /S/ J.M. Williams | |
J. M. Williams, Co-Chief Executive Officer (Principal Executive Officer) | |||
| Date: | November 15, 2021 | /S/ E. Ben Tora | |
E. Ben Tora, Co -Chief Executive Officer (Principal Executive Officer) | |||
| Date: | November 15, 2021 | /S/ H. W. Bromley | |
H.W. Bromley, Chief Financial Officer (Principal Accounting Officer) | |||
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